Civil Appeal No 1228NT of 1975
From the Judgment and Order dated 29111973 of the Allahabad High Court in IT Reference No 842 of 1971
V Gauri Shankar Ms A Subhashini CVS Rao Mrs Sushma Suri P Parmeshwaran and MK Sashidharan for the Appellant
Harish N Salve and Parveen Kumar for the Respondent
The Judgment of the Court was delivered by RANGANATH MISRA J
This appeal at the instance of the Revenue is by special leave
Two questions out of six re ferred by the Income Tax Appellate Tribunal Allahabad survive for consideration in this appeal and these are 1 Whether on the facts and in the circumstances of the case and on a true interpretation of the agreement the Tribunal erred in holding that the sum of Rs9000 received as interest from Bazpur Cooperative Sugar Factory Ltd is not covered under Section 143 of the Income Tax Act 2 Whether on the facts and in the circumstances of the case and on a true and correct interpretation of the various clauses of the agreement the sum of Rs51295 and Rs58937 received as interest on advances would not be assessee s income from coal and sugar business and would thus be exempt under Section 143 of the Income Tax Act 1922 At the hearing it has been clarified by counsel for both parties that in the second question referred to above the dispute is confined to the sum of Rs51295 only
The relevant assessment year is 1961 62 corresponding to the accounting year ending with 30th June 1960
The asses see is a cooperative society registered under the Coopera tive Societies Act 1912
This being an apex body its members are various District Cooperative Societies District Cooperative Banks and some Govern 589 ment and other cooperative societies within the State of Uttar Pradesh
The principal object of the Society is to regulate the distribution and supply of items like coal sugar cloth etc
through the member cooperative societies
In the year in question the assessee inter alia main tained that the income earned on the various advances made by it to the member societies was entitled to exemption under Section 143 of the Income Tax Act 1922
The Income Tax Officer while rejecting the claim of deduction on the ground of exemption on several heads included interest of Rs9000 received from Bazpur Cooperative Sugar Factory Ltd and a sum of Rs51295 received by way of interest from various cooperative societies on temporary loans for financ ing sugar business at the rate of 6 per cent on the amount given as loan as taxable items
The two questions which have survived for decision in this appeal relate to refusal of these two deductions on the ground of statutory exemption
The stand of the assessee had not been accepted by the Appellate Assistant Commissioner and the Income Tax Appel late Tribunal but the High Court has accepted the claim in regard to both the amounts
The High Court dealing with the amount of Rs9000 held The Tribunal considered the claim for exemp tion in respect of amount of Rs9000 received by the assessee from the Bazpur Cooperative Sugar Factory and held that this represented the interest received on the cash security of Rs200000 which was furnished by the asses see for carrying on the sugar agency business and as such it could not be said that it was interest from securities or interest from investments and as such rejected the claim made in respect of this amount under Section 143iii of the Act The High Court considered the exigibility of the sum of Rs9000 to tax analogously with the taxability of the other sum and did not pointedly take note of the fact that the sum of Rs200000 had been given as security and the arrange ment entered into between the assessee and the Bazpur Coop erative Sugar Factory stipulated payment of interest of 4 12 per cent per annum
We may refer here to clauses 1 and 20 of the agency agreement 590 1
That the manufacturer hereby appoints the Agent as one of their two agents for the whole of the Indian Union for the sale of sugar produced by the manufacturer during the crusing seasons 1958 59 and 1959 60 and the Agent hereby agrees to act as such agent in the said area on the terms mentioned here in
The manufacturer hereby undertakes not to appoint more than two agents as aforesaid
 20
The Agent shall simultaneously with the execution of this agreement furnish a cash security of Rs Two lakhs to the manufac turer for a period of two years irrespective of previous determination of the agreement for any cause whatsoever to ensure against due compliance by the agent of the terms hereof such security shall carry interest at the rate of 4 12 per annum
Such security shall be repayable with interest to the agent within one month of the expiry of the period fixed in the agreement after adjustment of accounts between the parties
The manufacturer shall have the option to realise from the said security money all losses suffered andor expenses incurred and not paid by the Agent in pursuance of the provisions of this agreement
If the said security shall fall short of Rs Two lakhs at any time the deficiency therein shall be made good by the Agent within 15 days of the notice in writing from the manufactur er
 The amount of Rs9000 thus represented only interest on the security deposit and could not be mixed up with the other sums received by the assessee in course of carrying on its business
We do not think the High Court was fight in concluding that this amount of Rs9000 was available to be exempted under any of the clauses of Section 143 of the Act
Admittedly the assessee s claim does not come under clause i of Section 143
Unless this sum is covered by Section 143iii there would be no exemption
The sum of Rs Two lakhs given as security in terms of the agreement was not an investment and therefore the amount of Rs9000 received by way of interest does not come within the purview of clause iii
Mr Salve for the assessee respondent has fairly conceded that it would be difficult on his part to press the claim of the assessee for exemption in respect of this sum
The conclusion of the High Court in regard to this amount has therefore 591 tO be reversed and the stand of the Revenue to the effect that this amount represents taxable income has to be accept ed
Our answer to the first question therefore is that on the facts and in the circumstances of the case and on a true interpretation of the agreement the Tribunal did not err in holding that the sum of Rs9000 received as interest from Bazpur Cooperative Sugar Factory Ltd was not covered under Section 143 of the Income Tax Act
We shall now deal with the other question
Dealing with it the High Court stated The facts relating to the case for exemption in respect of the two amounts of Rs51295 and Rs 58937 the second amount is no more in dispute covered by question No 3 may be stated
We shall begin by referring to facts relating to advances made in relation to the sugar business
The assessee was appointed as one of the wholesale dealers for distribu tion of sugar in this State
It had in pursu ance of an agreement entered into between it and the State Government
to arrange for lifting handling
storing and distributing to the retailers the stocks of sugar released by the Government of India
The District Cooperative Development Federations of Deoria Garhwal Tehri Garhwal Pilibhit Etawah and Allahabad entered into agreements with the assessee to work as agents for the whole sale distribution of sugar in their Districts
A sample of the agreement entered into between the assessee and these various District Coop erative Development Federations 
The assessee was to make necessary investments by way of payment of price of sugar to be pro cured from the factories and also to pay the administrative charges incurred for the dis tribution of sugar
This administrative charge was however recouped by the agents and paid over to the assessee
The delivery of the sugar from the various factories was to be taken by the various District Cooperative Development Federations which had entered into agreements with the assessee on behalf of the assessee as soon as the release orders were issued by the Government of India
The sugar so received was to be stored in godowns and was to remain under the custody of Godownkeep ers of the assessee or the bankers of the assessee
The salaries of the Godown keepers and the Chowkidars 592 appointed for safe custody of the stocks of sugar were to be paid by the agents    The sugar so stored was to be re leased to the agents as and when required by them on full payment of its price at the rate fixed by the State Government or the District Magistrate concerned
The stocks of sugar taken over by the agents was to be sold by them to retailers and permitholders who were to be nominated by the District Magistrate or the officer authorised by him
The whole salers 
margin on the sugar sold for the period beginning September 1959 onwards with which we are concerned was Rs206 Naya Paisa per bag
The share of the assessee and the District Cooperative Development Federations in this amount is set out in clause 18 of the agreement    The High Court extracted the terms and came to hold It appear from a letter dated 30th September 1959 that the various District Cooperative Development Federations were not in a position to arrange the entire finances for the busi ness and accordingly the assessee agreed to arrange for finances of the business on cer tain terms and conditions
The terms and conditions on which the finances were to be arranged may be extracted 5 The money invested in the business will earn interest at 6 per cent per annum
It will be seen that money which the assessee made available to the District Cooperative Development Federations was to be utilised for the purchase of the stocks of sugar which the District Cooperative sold as agents of the asses 593 see
In the accounting year in question the assessee realised the following amounts of interest from the District Cooperative Devel opment Federations mentioned below Name Amount i District Cooperative Development Federation Ltd Deoria
469416 ii District Cooperative Development Federation Ltd Garhwal
1579760 iii District Cooperative Development Federation Ltd Tehri Garhwal 555750 iv District Cooperative Development Federation Ltd Etawah
298424 v District Cooperative Development Federation Ltd Pilibhit
261621 vi District Cooperative Development Federation Ltd Allahabad
1964553 Total  5129524 Dispute covered by the second question to be answered is over this amount
The Income Tax Officer as also the two appellate authorities relying upon the decisions of the Bombay High Court in Sir Chinu Bhai Madav Lal vs Commission er of income Tax and Commissioner of Income Tax Bombay City vs Bombay State Cooperative Bank Ltd held that the amount on which interest had been earned under the agreement did not constitute investment and therefore was not covered by Section 143iii of the Act
Section 143 provides that tax shall not be payable by a cooperative society in certain situations
Clause i under its six sub clauses refers to specific classes of cooperative societies in whose case there is total exemp tion
Clause ii exempts income in respect of profits and gains of business of cooperative societies not covered by clause i upto Rs 15000
Clause iii exempts interest
and dividends and income derived from investments with any other cooperative society
Clause 594 iv exempts income derived from letting of godowns or warehouses for storage processing or facilitating the marketing of commodities while Clause v exempts interest on securities chargeable under Section 8 or any income from property chargeable under Section 9 where the total income of the cooperative society of specific type mentioned there in does not exceed Rs20000
There can be no dispute on the conclusion reached by the High Court that the money provided by the assessee was by way of investment
In fact if this money had not been made available the business as stipulated under the scheme could not have been carried out and perhaps there would have been no business
Investment has not been defined in the Act
P Ramanatha Aiyar s The Law Lexicon Reprint Edition 1987 states The term invest is used in a sense broad enough to cover the loaning of the money but is not restricted to that mode of invest ment or loans made on commercial paper
The word invest has been judicially defined as follows To place property in business to place so that it will be safe and yield a profit
It is also commonly understood as giving money for some other property as investing funds on lands and houses
Invest ment means in common parlance putting out money on interest either by the way of loan or by the purchase of income producing proper ty   In the facts of the present case the money provided by the assessee was necessary to run the business and generate profits under the agreement interest has been earned
In the peculiar situation appearing in the case as found by the High Court the provision of money by the assessee the purpose for which the money was provided the stipulation for earning of interest were relevant considerations to be taken into account and it becomes difficult to take a view different from that of the High Court that the funding was investment and under the agreement interest has been earned
Admittedly the finding was the cooperative societies
In our opinion therefore the amount of Rs51295 squarely came within Section 143iii of the Act
The High Court there fore was right in its conclusion that no tax was payable on the said amount
We would like to point out that under Section 143 provision has been made to extend certain advantages to the cooperative societies in order that the legislative purpose of providing incentive to the coopera tive movement may be fulfilled
The High Court 595 was right in holding that the provisions contained in Sec tion 143 should be liberally construed
Our answer to the second question therefore is on the facts and in the circumstances of the case and on a true and correct interpretation of the various clauses of the agreement the sum of Rs51295 received as interest on advances in the assessee s income from sugar business was exempt under Section 143of the Income Tax Act 1922
There shall be no order for costs in this appeal as success is divided
PSS Appeal disposed of


Summary:
Having carefully considered the facts and circumstances of the case the mass of data placed before it the material relating to the proceedings in the Courts in the USA the offers and counter offers made between the parties at dif ferent stages during the various proceedings the complex issues of law and fact raised before it and the submissions made thereon and in particular the enormity of human suffering occasioned by the Bhopal Gas Leak Disaster and the pressing urgency to provide immediate and substantial relief to victims of the disaster the Court was of opinion that the case was fit for an overall settlement between the parties covering all litigations claims rights and liabil ities related to and arising out of the Disaster and HELD that it was just equitable and reasonable to order as follows 1 That the Union Carbide Corporation shall on or before 2331989 pay a sum of US Dollars 470 millions to the Union of India as claimant and for the benefit of all victims of the Bhopal Gas Leak Disaster under the Bhopal Gas Leak Disaster Registration and processing of claims Scheme 1985 and not as fines penalties or punitive damages in full settle ment of all claims rights and liabilities related to and arising out of the Bhopal Gas Leak Disaster 733F G 2 That all civil proceedings related to and arising out of the Disaster shall stand trans ferred to this Court and shall stand concluded in terms of the settlement and all criminal proceedings related to and arising out of the disaster shall stand quashed wherever pending 732F G 3 That upon full payment of the sum referred to above a The Union of India and the State of Madhya Pradesh shall take all steps which may in future become necessary in order to implement and give effect to this order including but not 731 limited to ensuring that any suits claims or civil or criminal complaints which may be filed in future against any Corporation Company or person referred to in the Settle ment are defended by them and disposed of in terms of this order 734 A B b Any such suits claims or civil or crimi nal proceedings filed or to be filed before any court or authority are hereby enjoined and shall not be proceeded with before such court or authority except for dismissal or quashing in terms of this order and 734C 4 That upon full payment in accordance with the directions issued by the Court a The undertaking given by Union Carbide Corporation pursuant to the order dated 30111986 in the District Court Bhopal shall stand discharged and all orders passed in Suit No 1113 of 1986 andor in revision therefrom shall also stand discharged 734D b Any action for contempt initiated against counsel or parties relating to this case and arising out of proceedings in the courts below shall be treated as dropped
734E