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I.T.As. Nos. 1942 to 1944/LB of 1982-83, decided on 4th October,1986.

--- Fiscal statute--Where a statute is plain, certain, free from any ambiguity and admits only one meaning, its interpretation would be unnecessary--While construing fiscal statute Courts have to only look into the letter of law and intention of legislature.

Where a statute is plain, certain, free from any ambiguity and admits only one meaning, its interpretation would be unnecessary. Where, by the use of clear and unequivocal language capable of only one meaning, anything is enacted by the legislature, it must be enforced however, harsh or absurd or contrary to commonsense the result may be. The interpretation of a statute is not to be collected from any notions, which may be entertained by the Court as to what is just and expedient. Words are not to be construed, contrary to their meaning, as embracing or excluding cases merely because no good reason appears why they should not be embraced or excluded.

To adhere to the ordinary meaning of the words used and to the grammatical construction, unless that is at variance with the intention of the Legislature to be collected from the statute itself, or leads to any manifest absurdity or repugnance, in which case the language may be varied or modified, so as to avoid such inconvenience, but no further.

While construing fiscal statutes the Courts should only look into the letter of law, howsoever, great hardship may thereby be involved.

In interpreting a statute, the intention of the Legislature has also to be kept in view.

Messrs Dreamland Cinema, Multan v Commissioner of Income-tax, Lahore P I. D 1977 Lah. 292; Maxwell on the Interpretation of Statutes (Chapter 2, Twelfth Edition); Commissioner of Agriculture. Income-tax, East Bengal v. Abdur Rehman 1973 S C M R 445 ref.

--- While interpreting statute, effort should be made to interpret various provisions in a manner so as to give effect to all of them and it should not be readily concluded that a particular provision was either redundant or repugnant with another--Law should be interpreted in such a manner that it should rather be saved then destroyed-

Saiyed Ali Amir v. Dalmia Cement Ltd. P L D 1961 (W.P.) Kar. 255 ref.

---S. 14(3), Explanation [as added by Finance Act (XI of 19681--Budget Speech of Finance Minister for the year 1968--Expression 'for the personal use of members"--Interpretation--Income earned by assessee, a Co-operative Society, by sale of manufactured goods to its Members for further sale to public was not exempt from levy of income-tax.

Expression 'personal use' as specified in Explanation to subsection (3) of section 14 shall have to be interpreted as it is used and understood in common parlance.

The expression 'for the personal use of member' was intentionally used in the Explanation to subsection (3) of section 14 of the Income-tax Act, 1922, in order to bring into the fold of taxation the cooperative societies, which make sales of their goods to their members for the purpose of further sale of the same to the public. In other words, the exemption from tax under subsection (3) of section 14 is available only to those sales, which are made by a cooperative society to its members for their personal use and not for any other purpose. The expression 'personal use' as specified in Explanation to subsection (3) of section 14 only conveys that the goods sold to them by their society shall be used by them personally.

In interpreting the provision of any statute or any other document, effort should be made to interpret the various provisions in a manner so as to give effect to all of them and it should not be readily concluded that a particular provision is either redundant or repugnant with another.

Law should be interpreted in such a manner that it should rather be saved than destroyed.

Income earned by the assessee by sale of bicycle and cycle spare-parts to its members for further sale to public was not exempt from the levy of income-tax.

Sh. Manzoor Ahmad for Appellant

Muhammad Munir Qureshi, D. R. for Respondent.

Date of hearing: 20th September, 1986.

.--These three appeals arise out of the order of the Commissioner of Income-tax (Appeals), Zone-1, Lahore, dated the 13th July, 1982 whereby he had declined to allow exemption to the appellant's society from tax claimed under subsection (3) of section 14 of the repealed Income-tax Act, 1922, for the charge years 1977-78 to 1979-80.

2. The brief facts leading to these appeals are that the Pakistan Cycle Industrial Cooperative Society Limited. Lahore, hereinafter called the appellant, manufactures and sells bicycles, cycle spare parts, etc. under the trade name of 'Rustam' and 'Sohrab'. The bulk of these manufactured goods are sold by the appellant's society to its members As per revised returns, for the charge years 1977-78, 1978-79 and 1979-80, the appellant declared income of Rs.44,41.16, Rs.56,80,114 and Rs.14,87,919 respectively exclusive of depreciation, but claimed exemption from tax under the doctorine of mutuality as envisaged in section 14 (3) ibid on the sales made by it to its members. This claim was not admitted by the assessing officer. He, however, accepted the trading results and after making certain disallowances out of the profit and loss expenses made the assessments for all these three years assessing the incomes as under:----

3. The appellant opposed these assessments before the learned Commissioner of Income-tax (Appeals) who did not agree with the appellant's contentions and by virtue of the impugned order upheld the appellant's liability to tax add and backs made out of the profit and loss account. It is the said findings of the learned Commissioner of Income-tax (Appeals) against which these second appeals have been preferred objecting to the liability of tax and additions made out of profit and loss expenses.

4. Sheikh Manzoor Ahmad, Advocate, the learned counsel for the appellant, tracing the history of the cooperative societies law in Pakistan contended that the Cooperative Act, 1925, which is presently applicable in all the Provinces of Pakistan takes its origin from the Bombay Cooperative Societies Act, 1912, which was replaced by the Bombay Cooperative Societies Act, 1925. The learned counsel contended that the very purpose of establishing of cooperative society is to provide facilities to such persons who may have common economic interest but individually are not in a position to acquire better opportunities in business, agriculture and various other fields. In this respect, he referred to the preamble of Cooperative Societies Act, 1925, the relevant extract of which is reproduced below:-

"Whereas it is expedient further to facilitate the formation and working of co-operative societies for the promotion of thrift, self-help and mutual and among agriculturists and other persons with common economic needs so as to bring about better living, better business and better methods of production and for that purpose to consolidate and amend the law relating to co-operative societies in all the Provinces of Pakistan; and whereas the previous sanction of the Governor-General required by subset-on (3) of section 80-A of the Government of India Act has been obtained for the passing to this Act."

5. The learned counsel, therefore, contended that it was this spirit under which the provisions of subsection (3) of section 14 of the are pealed Income-tax Act, 1922, were enacted. For facility of reference the said subsection (3) of section 14. ibid is reproduced as under:-

"(3) The tax shall not payable by a co-operative society including a co-operative society carrying on the business of banking,--

(a) in respect of so much of its income, profits and, gains as is derived by it as a result of its dealings with' its members

- In this clause, dealings with a member means any dealing involving sale of goods, the lending of money or the lease of building or land which is for the personal use of such member or, where such member is a firm or an association of persons, for the personal use of the partners or members thereof

(b) in respect of the entire amount of its profits and gains of business carried on by it, if it is

(i) an agricultural or rural credit society; or

(ii) a society engaged in a cottage industry; or

(iii) a society engaged in the marketing of the agricultural produce of its members; or

(iv) a society engaged in the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members; or

(v) a society engaged in the processing of the agricultural produce of its members to the extent to which such process is ordinarily employed by a cultivator to render the agricultural produce raised by him fit to be taken to the market, and is not a society engaged in the performance of any manufacturing operations with the aid of power; and

(c) in respect of interest and dividends derived from its investments with any other co-operative society; and

(d) in respect of any income derived from the letting of godowns or warehouses for the of storage, processing or facilitating the marketing of commodities belonging, or meant for sale, to its members:

Provided that nothing contained in this subsection shall apply to a co-operative society carrying on the business of insurance in respect of its profits and gains to which rule 9 of the First Schedule applies."

6. Exactly the same provision has now been incorporated in clause (103) of the Second Schedule to the Income-tax Ordinance, 1979, which had come into force from the 1st July, 1979. It is the claim of the appellant that under the aforesaid provisions of clause (a) of subsection (3) of section 14 ibid, the income derived by it through sale of goods manufactured by it to its members was exempt from the levy of income-tax, as it was also a co-operative society duly established under the law. A similar matter had brought up by the appellant before the Appellate Tribunal in I.T.As. Nos. 2721 of 1978-79 and I.-T.A. No. 201 of 1979-80 in respect of the assessment years 1975-76 and 1976-77 and the Appellant Tribunal by its order, dated the 26th September, 1979, had concluded that under section 14(3) ibid exemption was not available to the appellant as it did not sell bicycles and spare-parts etc., to its members for their personal use. It would be pertinent here to reproduce the relevant extract of the order of the Appellate Tribunal:-

Mr. Manzoor, the learned Advocate, canvassed his case in the following manner. He submitted that the Income-tax Act having omitted the definition of the words 'personal use' recourse had to be had to dictionary meaning of the words. The word use meant among others, employment or application or conversion to some good use for profit. An article had to be used for profit to be dubbed as having been used. In his opinion, there could be no better employment for profit than selling them for profit. He also, thought that "personal use" could be equated with personal business. Before we discuss Mr. Manzoor's arguments a little discussion about the history of the law is called for. Before the exclusionary provision was introduced by the legislature a co-operative society had only to sell its goods to its members to obtain exemption. The Legislature found that charitable and co-operative disposition of the Statute to the co-operative society was being subjected to abuse by exploiting businessmen. They found that the mask was co-operative society but the heart was hunger for tax-free profits. The dubious growth of co-operative chameleon compelled the law-makers to alter the condition for claiming exemption. They, therefore, introduced the Explanation in the law in 1968. The amendment, we dare say is cogent and clear. If the members buy goods from the society for their personal use, as distinguished from the sale of the said goods by them the profit earned by the society is tax-free, but if the members earn profit by selling the goods the society's income from the sale to the members is expelled or excluded the indication of profit motivation and the society from the charmed circle. A re-sale by the member will not legitimately get round the fiscal hook. The members activities prone to producing profit excludes the co-operative society from the charmed circle. The members of the society must "suit the action to their word, the word to their action". Thus for about the law we now come to Manzoor's arguments, In his opinion employment for profit meant making profits by re-sale. This is our view was not only incorrect but wholly untenable interpretation of the words. When a person employs an article for profit he does not and cannot alienate the article because one can employ an article for profit only if one has physical possession of the property. We, therefore, refuse to fell victim to the submissions naively made by the learned Advocate."

7. In fact, the controvercy in the present appeal relates to the interpretation of expression 'personal use of such members' as used in Explanation to subsection P) of section 14 of the repealed Income-tax Act, 1922. It was claimed on behalf of the assessee that in the aforesaid order of the Appellate Tribunal pertaining to assessment years 1975-76 and 1976-77, this matter had not been dealt in detail. We, however, do not subscribe to this view as it is clear from the above-quoted extract of the order of the Appellate Tribunal that the points raised by the appellant were duly considered and adjudicated by the Tribunal. In this respect, the learned Judicial Member had also observed that the word personal use has to be distinguished from the word 'use' which has wider connotation. The use of a thing by a person for his own self would be called personal use and obviously it could not include a sale. '

8. The learned counsel of the appellant, however, reiterated his contentions that the term 'personal use' does includes personal sales. In this respect, relying upon Messrs Dreamland Cinema Multan v. Commissioner, of Income-tax, Lahore PLD 1977 Lah. 292. he contended that in fiscal statute where equally reasonable two constructions are possible, the one beneficial to the assessee should be adopted. With all respect to their Lordships, it may be pointed out that as enunciated in the aforesaid authority this principle is applicable where two equally reasonable interpretation are possible but where a statute is plain, certain, free from any ambiguity and admits only one meaning, its interpretation would be unnecessary. This matter has been succinctly dealt .in Maxwell on the Interpretation, of Statutes (Chapter-2, Twelfth Edition) that 'where, by the use of clear and unequivocal language capable of only one meaning, anything is enacted by the Legislature, it must be enforced however harsh or absurd or contrary to common sense the result may be. The interpretation of a statute is not to be collected from any notions, which may be entertained by the 'Court as to what is just and expedient, words are not to be construed, contrary to their meaning, as embracing or excluding cases merely because no good reason appears why they should not be embraced or excluded'.

9. Maxwell has further expended that the golden rule in construction of a statute is 'to adhere to the ordinary meaning of the, words used, and to the grammatical construction, unless that is at variance with the intention of the legislature, to be collected from the statute itself, or leads to any manifest absurdity or repugnance, in which case the language may be varied or modified, so as to avoid such inconvenience, but no further'. It was also laid down by the Supreme Court in Commissioner of Agriculture, Income-tax, East Bengal v. Abdur Rehman 1973 S C M R 445, that while construing fiscal statutes the Courts should only look into the letter of law, howsoever, great hardship may thereby be involved.

10. It is also a settled principle that in interpreting statute, the intention of the Legislature has also to be kept in view. In the instance case, the Explanation to the subsection (3) of section 14 ibid was added by virtue of the Finance Act, 1968. In this connection it would be pertinent to reproduce below the relevant extract of the Budget Speech of the Finance Minister for that year:-

"62. Co-operative Societies.--The income of co-operative societies, other than those doing Insurance business is exempt from tax. Certain classes of co-operative societies such as agricultural or rural credit societies have been specifically mentioned in the Income-tax Act as qualifying for this exemption. There is also a general clause, which exempts from tax the income of a co-operative society derived by it from its dealings with its members. This general clause has led to avoidance of tax in certain cases where goods ostensibly sold by the society to its members are in fact intended for re-sale to the public. To put an end to this abuse it is proposed to amend the law of preclude such transactions from the purview of the exemption. This amendment will not hit a Society which is run genuinely on co-operative basis and disposes of its goods or provides services to its members for their personal use."

11. It is clear from the above extract of the Budget Speech of the Finance Minister that the expression 'for the personal use of member' was intentionally used in the Explanation to subsection (3) of section 14 of the repealed income-tax Act, 1922, in order to bring into the fold of taxation to the cooperative societies which make sales of their goods to their members for the purpose of further sale of the same to the public. In other words, the exemption from tax under subsection (3) of section 14 ibid is available only to those sales, which are made by a co-operative society to its members for their personal use and not for any other purpose. The expression 'personal use' as specified in Explanation to subsection (3) of section 14 ibid only conveys that the goods sold to them by their society shall be used by them personally. If we accept the interpretation put forth by the learned counsel of the appellant that expression 'personal use' includes 'personal sales'; it would tentamount to allowance of total exemption from tax to the co-operative societies on all sales to its members for whatever purpose such sales are made. Obviously, this was not the intention of the Legisture; otherwise there was no need of adding an explanation to subsection (3) of section 14 of the repealed Income-tax Act, 1922. In other words, such interpretation would render the said explanation to be redundant. It is a well-settled principle that in interpreting the provision of any statute or any other document, effort should be made to interpret the various provisions in a manner so as to give effect to all of them and it should not be readily concluded that a particular provision is either redundant or repugnant with another. Saiyed Ali Amir v. Dalmia Cement Ltd. P L D 1961 (W.P.) Kar. 255. In other words, law should be interpreted in such a manner that it should rather be saved than destroyed.

12. Hence, we are of the considered opinion that expression 'personal use' as specified in Explanation to subsection (3) of section 14 ibid shall have to be interpreted as it is used and understood in common parlance. It is an admitted fact that in the present case, as well, the appellant society sells almost hundred per cent of the goods manufactured by it only to its members who re-sell the same to the public. Hence, concurring in with the aforesaid earlier decision of the Appellate Tribunal, we hold that income earned by the appellant by sale of bicycle and cycle spare-parts to its members for further sale to pubic was not exempt from the levy of income tax. Consequently, on this count the impugned order is not assailable.

M. B. A./344/T Order accordingly.

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