firms among these appeals arises out of revisionary orders of Commissioner, Trivandrum, dated 27-12-1982 passed under section 19(1) of Interest-tax Act, 1974 ('the Act'). second among appeals arises out of order of Commissioner (Appeals), Ernakulam, dated 5-3-1983 confirming order of ITO and dismissing appeal filed before him. Both these appeals are by assessee and they relate to assessment year 1976-77. 2. assessee is Kerala State Co-operative Bank Ltd. (Apex bank). It is Co-operative society carrying on business of banking and it is Apex bank. dispute in these appeals is whether it is rebate interest of interest on whole of borrowings granted by Apex bank to District Co-operative Central banks (Central Banks) towards financing seasonal agricultural operations of small and marginal farmers, is entitled to exemption under following two Government orders passed under authority conferred on Government of India under section 28 of Act. (1) Notification No. S. O. 2214 dated 15-5-1976, (2) Notification No. S. O. 1369 dated 28-6-1976. Copy of first notification is furnished at page 8 of paper compilation filed by assessee-bank before this Tribunal. 3. In order to understand real matter in controversy following facts are essential to be borne in mind. One of measure taken by government o f India to augment agricultural production and to help provide small/marginal farmers with necessary credit facilities during agricultural operations was to set up All India Rural credit Review Committee (the Committee) one of whose functions is to suggest to there Reserve bank of india (RBI) ways and mean as to how best rural credit can be provided through Central Banks. After duly taking into consideration suggestions and resolutions of Committee RBI framed schemes which they felt appropriate to provide rural credit by granting said credit to central Banks through Apex Banks. scheme, thus, in vogue up to cooperative year 1973-74 had duly taken view of Committee which felt that as Central Banks were able to increases volume of turnover, viability and operational efficiency over years they should be made to mobilise thereon deposits and progressively reduce their dependence on RBI with regard to providing refines for seasonal agricultural operations. 4. Under scheme RBI's lending rate on limit sanctioned for seasonal agricultural operations to Apex Banks on behalf of Central banks has been fixed one and half per cent below bank rate and rebate of one and half per cent is allowed on: (i) borrowings up to base level representing maximum of outstanding reached during three years ended 1972-73; and (ii) additional borrowings up to twice increase in banks' involvement out of its own resources in agricultural loans or to full extent of increased loans issued to small/marginal farmers whichever is higher. idea was not only to protect existing level of borrowings of central banks at same concessional rate but making borrowings above base level also available at same rate only to extent of two third of excess above base level or increase in loans to small farmers whichever was higher. Since factors on which extra eligibility for concessional finance depended could not be known in advance, it was decided t o charge initially rate that would apply to that portion of Central bank's borrowings as would not qualify for concessional rate and later grant rebate in respect of borrowings as would qualify for rebate. 5. above scheme worked well up to year 1973-74. Subsequently on eve of passing of Act, Apex banks came under category of scheduled banks as they were included in Second Schedule of reserve bank of India Act, 1934. But virtue of section 4 of 1974 Act, Apex banks are liable to pay interest-tax on interest income earned by them at 7 per cent of chargeable interest. Some of Apex banks have approached RBI for guidance as to whether for purposes of computing chargeable interest under Act, rebate allowed under scheme of linking of borrowings with deposit mobolization by central banks could be set off against interest realised on short term agriculture loans and advances made to Central banks. 6. Then RBI had occasion to go into as to how under working of present scheme, already stated above, there was justification for Apex Banks to complain about double disadvantage with which they were faced especially for period from 1-4-1974 to 30-6-1975. Apex Banks explained position obtaining after Act was enacted vis-a-vis scheme under which they were obliged to grant rebate to Central Banks. It was explained that if said scheme which was in vogue was to continue: (i) Apex Banks are liable to pay interest-tax on entire interest including one and half per cent which they were expected to rebate and pass on to Central Banks, and (ii) subsequently, they lose one and half per cent interest which they pass on to Central banks. So, virtually Apex Banks have to pay interest-tax on interest income which never remained or accrued as their income but which sooner or later passes on as rebate to Central Banks. Having found above stated causes of complaint made by Apex Banks genuine, two types of measures were sought to be taken by RBI to provide necessary remedy to Apex Banks or to get over above said difficulties faced by Apex banks. Firstly, RBI has changed scheme from 1-7-1975. Under new scheme practice of charging usual rate of interest initially and allowing rebate at end of year was discontinued and in its place charging net rate of interest after adjusting rebate even initially was introduced. Secondly, RBI found that even after change of scheme position would not change or requisite remedy would not be secured to Apex Banks as far as anterior period, viz., from 1-4-1974 to 30-6-1975 is concerned. In order to obtain necessary remedy even for that period RBI made recommendations to Government of India to grant exemption under section 28. As first step in that direction RBI addressed letter dated 2-5-1975 to Secretary, CBDT. relevant extract of said letter is as follows: "It is, therefore, requested that suitable instructions may please be issued to income-tax authorities in various States to exclude for purpose of above tax, interest charged on that portion of borrowings of Central Co- operative Banks which is entitled to rebate under scheme. Further, it may be ensured that since modified scheme will come into effect only from July 1, 1975, exemption from tax on interest earnings should cover not only interest earned during financial year 1974-75 but also that earned during months of April to June 1975." 7. It is claim of revenue that in pursuance of above letter Government of India passed Notification No. S. O. 2214 dated 15-5-1976 which is as follows: "In exercise of powers conferred by section 28 of Interest-tax Act, 1974 (45 of 1974), Central Government, on recommendation of Reserve Bank of India, being of opinion that it is necessary or expedient so to do having regard to peculiar circumstances of case hereby exempts State Co-operative Banks included in Second Schedule to Reserve Bank of India Act, 1943 (2 of 1934) rom levy of interest-tax in respect of their income from interest on borrowings of Central Co-operative Banks which qualify for rebate under scheme for year 1974 and for period beginning on 1st day of April, 1975 and ending with 30th day of June, 1975. Explanation: In this notifications, expression 'Central Co-operative Bank' and 'State Co-operative Bank' shall have same meanings assigned to them in Reserve Bank of India Act 1934 (2 of 1934)." Section 28 deals with power to exempt which is as follows: "Where Central Government is of opinion that it is necessary or expedient so to do either in public interest or having regard to peculiar circumstances of case, it may, by notification, and subject to conditions, if any, as may be specified in notification, exempt any Scheduled bank or any class of Scheduled banks from levy of interest tax: Provided that no such exemption shall be made except on recommendation of Reserve bank of India." 8. In assessment year 1976-77 for which previous year ended by 30-6-1975 total interest income received by assessee-bank which is Apex bank was Rs. 2,45,56,120. Out of it, Rs. 2,01,20,550 represents interest on borrowings of Central banks from assessee Apex Bank. According to assessee whole amount of Rs. 2,01,20,550 represents exempted interest being interest received on short-term agricultural loans collected form Central banks. It is contention of assessee-Apex Bank that it was liable to pay interest-tax only on remaining amount of interest income earned by it, viz., Rs. 44,35,569. ITO, however, did not accept this contention of assessee but found that rebate granted with regard to interest of only Rs. 25,18,171 was exempt and section 28 exemption extends only to that amount. By assessment order dated 30-12-1980 ITO completed assessment where under he determined chargeable interest at Rs. 2,20,37,947 as against Rs. 44,35,570 returned by assessee-Apex Bank. Subsequently, assessment dated 30-12-1980 was revised under section 19(1). 9. learned Commissioner in his revisionary orders dated 27-12-1982 found that buy virtue of sub-section (2) of section 6 of Act interest income derived only for 11 month from out of previous year relevant to assessment year 1076-77 has to be taken. By virtue oft said provision interest for 11 months, i.e., with effect from 1-8-1974 only has to be taken and infect it was so taken under assessment order dated 30-12-1980. However, t h e learned Commissioner found that rebate of interest granted on borrowings for month of July 1974 was not excluded. Ultimately, by revisionary orders dated 27-12-1982 rebate interest for month of July 1974 was ordered to be ascertained and excluded from originally assessed figure of chargeable interest and additional demand was ordered to be issued. 10. As against ITO's assessment order dated 30-12-1980 appeal was taken to Commissioner (Appeals). It was contended before him that exemption operates in respect of entire interest collected by Apex bank from Central Banks on agricultural loans. On other hand, it was contention of revenue before him that exemption is only in respect of rebate actually allowed by Apex Banks to Central Banks. According to assessee-Apex Bank wording in notification, viz., 'in respect of their income from interest on borrowings of Central Co-operative Banks' qualify whole borrowings for rebate under same. According to learned counsel for assessee, rebate under same. According to learned counsel or assessee, phrase 'which qualifies for rebate' describes counsel or assessee, phrase 'which qualifies for rebate' describes borrowings. On other hand, it is contention of revenue before learned Commissioner (Appeals) that phrase 'which qualifies for rebate' describes interest and, therefore, only amount of interest which has been allowed by assessee-Apex bank as rebate to Central Co-operative Banks is entitled to exemption. learned Commissioner (Appeals) in his impugned order dated 5-3-1983 held that exemption given by notification is not in respect of while interest on borrowings from Central Co-operative Banks but, on other hand, exemption is in respect of interest on borrowings from Apex Banks by Central Co-operative Banks on which rebate is allowed by former to latter and in this view of matter dismissed appeal filed before him. 11. As against said order of Commissioner (Appeals) dated 5-3- 1983 Interest-tax Appeal No. 2 (Coch.) of 1983 was filed and as against revisionary orders dated 27-12-1982 passed by Commissioner (Appeals), Interest-tax Appeal No. 1 (Coch.) of 1983 was filed. However, common grounds were raised in both these appeals and so both these appeals can be disposed of conveniently by common order. 12. In these appeals we have to decide what is interest income which qualifies for rebate having regard to wording of section 28, as well as two notifications dated 15-5-1976 which is already extracted in above paragraphs. Is it whole interest income on whole amount of borrowings made by Central banks form Apex banks which in their turn lent to small/marginal farmers as seasonal agricultural loans or is it only subsequent rebate-interest which Central banks get from Apex banks at one and half per cent as rebate from out of interest originally charged at usual commercial rate (e.g., bank rate). According to learned counsel for assessee whole interest income is exempt whereas according to department rebate portion of interest was made exempt under section 28 as well as two notifications made thereunder. In support of arguments of learned counsel of assessee copy of assessment order passed by ITO, Company Circle II, Bungler, against karnataka State Co-operative Apex Bank Ltd. for assessment year 1976-77 was filed which purposed to disclose that interest on whole borrowings by Central Banks from State Co- operative Central bank was claimed and allowed as exemption under assessment order dated 24-12-1976. On other hand, learned departmental representative in support of his contention relied upon clarification dated 22-11-1976 given by RBI, which was addressed to Managing Director, Haryana State Co-operative Bank Ltd., Chandigarh, in paragraph 2 of which following clarification is given: "We may add that it has not been intention to grant exemption to total borrowings of central Co-operative Banks which qualify for rebate. On true and proper construction of above mentioned notification, sole intention was to exempt from payment of interest-tax only amount of rebate allowed by State Co-operative Bank to Central Co-operative banks within period notified (viz., financial year 1974-75 and for period form April 1, 1975 to June 30, 1975)." learned departmental representative argued that in view of clarification given by RBI position is made very clear and matter is put beyond any reasonable doubt. exemption, according to clarification is limited to only rebate portion of interest which Apex Bank would pass on to State Co-operative banks from out of total interest on borrowings towards seasonal agricultural loans. Shri Venkatachalam Aiyer, learned counsel for assessee, vehemently contended treat Central Government made notification, no doubt, on recommendation of RBI. true meaning of notification cannot be explained authoritatively by RBI. authority of RBI stops with only recommending cases of exemption under section 28 and does not go beyond it. true purport and intent of notification should be derived by valid construction put upon wording of notification and we should not depend upon clarification given by RBI about intendment of notification. When intendment and wording of notification come into conflict with each other then wording of notification should prevail over intendment. words 'which qualify for rebate' are descriptive of word 'on borrowings' and do not qualify word 'interests. Therefore, according to him, whole interest on borrowings made by Central Banks from Apex bank towards seasonal agricultural made by Central Banks from Apex bank towards seasonal agricultural loans is entitled to exemption or is intended to be exempt under section 28 as well as two notifications dated 15-5-1976 and 28-6-1976. learned departmental representative, on other hand, contends that words 'which qualify for rebate' qualify words 'income from interest' in notification and true meaning of notification is to exempt rebated interest only from imposition of interest-tax. 13. After evaluating respective arguments advanced on both sides and after perusing whole record, though in first instance we were very much attract by arguments advanced on behalf of assessee but later arguments of learned counsel of assessee appeared to us to be unacceptable. Our reasons are as follows: Section 5 of Act says that subject to other provisions of said Act, chargeable interest of any previous year of Scheduled bank shall be total amount of interest accruing or arising to bank in that previous year. How computation of chargeable interest is to be made is given in section 6. Sub-section (2) of section 6 clearly says that in computing chargeable interest of previous year amount of interest which accrues or arised to assessee before 1-8-1974 shall not be taken into account. Under provisions of section 8 of said Act assessment is to be made. Section 28 is section under which Central Government is given power to exempt any Scheduled bank from levy of interest tax. However, such exemption shall not be made exception recommendation of RBI. So also, such exemption can be made on such of conditions which Government feels fit to impose either when it considers conditions conditions to necessary or expedient in public interest or having regard to peculiar circumstances of case. Now in this case under working of scheme which was in vogue up to co-operative year 1973-74 Apex Banks were under obligation to pay interest-tax on interest which they subsequently would have to give as said difficulty is sought to be got over and in order to remedy this situation, thus, arisen, RBI by their letter addressed to CBDT requested to give instructions to all ITOs not to levy interest-tax on rebate portion of interest which Apex Banks pass on to Central Banks on borrowings towards seasonal agricultural loans and it is this letter addressed to CBDT by RBI which acted as provocation for Government of India to come out with two notifications already noted above. Therefore, we should read notifications only with due regard to circumstances under which they were made by Government of India. They cannot be read either in isolation or torn out of context or set up in which they were made. If we keep in mind all circumstances which led Government of India to promulgate notifications, dated 15-5-1976 and 28-6-1976 and then begin to interpret notifications, our conclusion is inescapable. It is only recommendation of RBI which was translated into notifications. If that is so, we have to hold that only rebate-interest which assessee and other Apex Banks would pass on to Central Banks on seasonal agricultural loans, which would be exempt from provisions of Act and not whole interest on whole borrowings made by Central Banks from Apex banks. power to exempt under section 28 is power to exempt interest-tax and it does not extend to borrowings. We are neither here nor there with argument advanced on behalf of assessee's counsel that words in. He notifications 'which qualify for rebate under scheme for year 1974, etc.' are descriptive of word 'borrowings'. whole 'borrowings' are not qualified for rebate. Even according to assessee whole interest on borrowings was not entitled to rebate under scheme in vogue for year 1974. Ordinarily RBI charges prescribed bank rate on all borrowings made by Scheduled banks. In order to encourage agricultural production RBI used to pass on one and half per cent out of usual bank rate as rebate over agricultural loans borrowed by Central Banks from Apex banks and that rebate portion of interest only is entitled for exemption under scheme which was in vogue till 1974. It is, no doubt, true that Government of India had power to extend blanket exemption on whole interest derived by Scheduled banks but that was not recommendation of RBI. recommendation of RBI is part of requirement of section. Therefore, before understanding conditions under which notification was made by Government of India recommendation made by RBI is essential to be looked into. When recommendation of RBI is examined then it is clear that it is only rebated interest which was exempt but not whole interest on whole borrowings made by Central Banks from Apex Banks. It it were intention of Government of India to extend exemption to whole of interest on whole borrowings of Central banks from Apex banks then words 'which qualify for rebate under scheme for year 1974 and for period beginning on first day of April 1975 and ending out 30th June, 1975' become use and they do not serve any purpose what whatsoever. 14. In Mandal Ginning & Pressing Co. Ltd. v. CIT [1973] 90 ITR 332, Gujarat High Court held as follows: "It is well settled rule of interpretation of statues that, it order to arrive at true meaning of sentence or clause, it is not proper to interpret each word in sentence or clause separately as if it stood alone and then to construe sentence or clause by separate meaning of each such word. sentence or clause should be looked at as whole and proper meaning should be arrived at." (p. 332) If sentence in notification had to be read as whole and if we h ave to give proper and real meaning to all words accruing in. he sentence then interpretation which we prefer to put against sentence is only proper one. In CIT v. M. K. Stremann [1965] 56 ITR 62 (SC) it is held that we cannot ascribe tautology or superfluity to Legislature but should rather be at outset inclined to support every word intended to have some effect or be of some use. Last but not least, section 28 as well as notification made thereunder dated 15-5-1976 are provisions regarding exemption granted from Act and so they should be construed strictly. this proposition is supported by following decisions: CIT v. Satellite Engg. Ltd. [1982] 136 ITR 607 (Guj.), CIT v. Sutna Stone & Lime Co. Ltd. [1982] 138 ITR 37 (Cal.), CIT v. Janardan Subudhi [1981] 131 ITR 287 (Ori.) and R. Natarajan v. CED [1982] 138 ITR 178 (Mad.). In view of above ratio, permitting only strict construction when we are interpreting exemption provision of statute, benevolent interpretation of statue is not permissible, and in view no. that principle also construction which we prefer is to be upheld, then construction which is sought to be canvassed before us by learned counsel of assessee. 15. In result, we fail to find any merit in these two appeals and hence they are dismissed. *** KERALA STATE CO-OPERATIVE BANK LTD. v. INCOME TAX OFFICER