only question that arises in these appeals, which has been spcifically referred to Special Bench and also in appeals of interveners, which are also disposed of by this common order, is whether claim of deduction under section 80P (2) (iv ) of Income-tax Act, 1961 ('the Act') made by assessee, co-operative society, is acceptable or not. 2. facts briefly are that assessees are co-operative societies engaged in supply of water for irrigation to its members. societies have constructed jack-wells on banks of river which flows by side of lands belonging to members of society. water is lifted from river, collected in wells and then supplied to fields and farms of its members. claim was made before ITO that income of assessee from this operation was exempt from taxation under section 80P (2) (iv ). This section applies if society is engaged in purchase of articles intended for agriculture for purposes of supplying them to its members. ITO asked assessee's counsel to prove that water was purchased by society. learned counsel stated that in case of Panchaganga Society, cost of water might be taken as nil. He could not, however, identify person who sold water to assessee. ITO held that activity of society could not be called as 'purchase of water'. In his view, if Legislature intended to exempt such societies from taxation, then words used should have been 'to obtain' rather than 'purchase'. ITO, therefore, rejected claim for exemption. 3. facts as stated in order of AAC are that members of assessee-society directly paid water charges to State Government while co-operative society met expenses like electricity charges, maintenance charges, etc. AAC had earlier decided appeal of Panchaganga Society holding that expenses borne by assessee for services rendered to its members for supplying water were indicative of fact that society had purchased goods and services which were subsequently supplied to its members. society was, therefore, entitled to exemption. 4. However, in departmental appeal, Tribunal posed number of specific queries and directed that matter be re-examined by AAC. When matter came before AAC, it was urged on behalf of society that water rates were payable by holders of land for use of water for irrigation. This was under Bombay Irrigation Act, 1879, which was replaced by Maharashtra irrigation Act, 1976. This Act imposes liability for payment of water rates by holders of land. In section 61 of Maharashtra Irrigation Act, it is stated that agreement should be made in accordance with provisions of this chapters between appropriate authority, i. e., Irrigation Dpartment, and holders and occupiers of land for supply of water for irrigation for period of years specified in agreements. Such agreements are called 'irrigation agreements'. Each year, member of society was required to make application not irrigation authorities giving prescribed particulars and accepting liability for payment of water rate for water supplied to his land. Thus, members were under statutory liability to pay water rate. Section 116 of Maharashtra Errigation Act, provides that where lift-irrigation works have been constructed, maintained or controlled by society and society desires that certain provisions of this Act and rules made thereunder should apply to such works or all lands with in irrigable command of works or lands adjoining thereto, society shall make application to Canal Officer. However, admittedly, no such application was made and no notification was issued under section 116(3). Only Irrigation Department had granted permission to society to draw water from Panchganga river. Irrigation Department had sent copy of draft agreement to be entered into by society through its chairman with Government. According to this agreement, assessee-society was directly responsible for paymentof water rates to Government though waterr rate was charged in respect of water used by members. applications of members for irrigation agreement were to be sent Irrigation Department though co-operative society. assessment to water rate was to made in name of appellant-society to pay such dues punctually. But by way of abundant caution, society as well as its members were made, jointly and severally, responsible for payment of irrigation dues which were recoverable as arrears of land revenue. Thus, though society was not responsible to pay water rates under statute, by agreement, it had been made responsible to collect and pay water rates to Government. 5. It was urged on behalf of society that, thus, both in law and on facts, society was responsible for rates and it must be held that it had 'purchased' such water from Government for supplying it to its members. It was, therefore, entitled to exemption. 6. questions posed by Tribunal and answers recorded by AAC are given hereunder for purposes of clarity. Question 1: Whether assessee, as society is liable to pay wait charges to Government? If so, under which provision of Bombay Irrigation Act? Answer: assessee society is liable to pay water charges to Irrigation Department under agreement made by it with Irrigation Department as required by Government as per its letter dated 19-6-1969. answer to second limb of query would be that liability to pay water arises under this agreement and not under any specific provision of Bombay Irrigation Act. Question 2: What is source of water? Is it from river or canal? Or is it from well situated in any member's land? Answer: source of water is Panchganga river passing by village, where assessee-society is situate. Question 3: What are objects of assessee-society? Does it exist for purchase of water from Government or for establishing and maintaining water system to make water available as service to members? Answer: objects of society are manifold. However, in one of clauses of objects, it is stated that object would be to provide by canal and water-course water of Panchganga river and other machinery on Panchaganga and to construct fund for such supply of water and to store water in such bund. As per objects, it is stated that object is to purchase and set oil engines, pumps and other machinery on Panchganga river for supply of such water. Question 4: Whether members are liable to pay water charges because ultimately they get water? If so, whether society acts merely as agency for recovery and collection of water charges? Answer: assessee's representative urged in his reply to such queries that as per clause 10 of agreement, both members and society are jointly n d severally liable to pay water rates to Government, and that assessee-society does not act as agency. However, it appears that under agreement, society is primarily responsible for payment of such dues though liability is also made joint and several on society and its members. bills are also received by society along with list of members from whom such amounts are due along with details of such amounts. Thus, in law it appears that society is responsible for such dues but responsibility of society arises only as result of statutory responsibility of members forming such society. Thus, payment which it has to make is payment of dues of members only. society has not paid any amount on its own because much liability independently of members does not exist. No such debit for water rate payment is made in books of account of assessee for years under appeal. Question 5: If assessee-society is required to pay water charges to Government, had it made prescribed applications under Bombay Irrigation Act? Or were applications made by members? Answer: assessee-society is required to pay water charges to Government, not under Irrigation Act but under agreement entered into by it with Government. It is not required to make any prescribed application. applications are made by members who are land holders on whom there is statutory responsibility for payment of water rates. However, under clause 9(7) (i) of agreement all these applications are required to be sent to t h e Irrigation Department through chairman of society who has to endorse same. water passes are issued in names of individual members wherein name of society also appears along with that of individual pass holder. Question 6: Is claim of society that it purchases water from Government (when it pays water charges subject, of course, to fact that it is itself liable to pay) supported by any provision of any Act or any legal authority? Answer: liability of society to pay water rates of its members arises only under agreement with Irrigation Department and not under any provision of Act. It is, however, laid down in clause 11 of agreement that all sums due to Government under this agreement shall be recoverable as arrears of land revenue. notices in respect of such water rates are also received by society in its own name along with lists of members indicating amounts due from each member. 7. From these answers, AAC concluded that primary responsibility for water fates is on society. bills are received in name of society and, therefore, it must be held that society is equally, with its members if not principally, liable to pay water rates to Government for water supplied to its members. Therefore, it must be held that it 'purchased' water which it supplied to its members. According to dictionary meaning of 'purchase', tantamounts to 'acquisition otherwise than descent or escheat'. society could be held to be purchasing water for supplying it to its members even under legal definition of term 'purchase'. He, therefore, granted exemption to society from taxation under section 80P (2) (iv) . 8. This order passed in case of Panchaganga Society was followed in t h e case of two other societies by successor AAC. department is aggrieved by these orders and has come up in appeal. 9. We have heard learned departmental representative and also learned counsel for assessee. We were taken through earlier orders of t h e Tribunal. Tribunal had earlier taken view that this amounted to purchase of water by society and, therefore, it was entitled to exemption. However, after decision of Bombay High Court in case of Vidarbha Co-operative Marketing Society Ltd. v. CIT (1985) 156 ITR 422, Tribunal changed its view and held that society was not purchasing water and was not, therefore, entitled to exemption. Copies of draft agreement between Government society and its members have been placed before us and are available on pages 6 to 10 of second paper book. By this agreement, Government agreed to permit co-operative society to pump water from Panchganga river for irrigation certain acreage of cane, kharif and rabi crops and water was not to be used for purposes other than agriculture. provisions of Bombay Irrigation (Amendment) Act, 1950, and Bombay Canal Rules were referred to for explaining right to take water for irrigation. members of society and society were, collectively and severally, responsible for unauthorised irrigation done in any other area and also for payment of penal assessment. list of lands entitled for irrigation was enclosed with agreement. rate for water was to be fixed by Government and members were to submit to chairman of society applications for permission for lifting water for irrigation purposes, in form prescribed by Government, from time to time, giving survey numbers with date from which water was required. Such applications were to be forwarded by chairman of society to executive engineer. But charges for water rates, fixed by Government from time to time, were to be assessed in name of society and society itself and its members also were responsible for payment of irrigation dues regularly. Thus, though statutorily, responsibility to pay irrigation dues was with owners of lands, for sake of convenience of collection, responsibility was made joint and several for society and its members. 10. learned departmental representative contended that unless assessee could prove that Government, which owned water in river, had sold some to society, it could not claim exemption. contention was that water charge or rate levied by Government was land revenue and was, therefore, tax. It was not price for water. He referred specifically to Maharashtra Land Revenue Code, 1966, and various provisions thereof to bring home point that there was no sale of water. According to section 20 of this Code, all rivers and water therein belonged to Government. Section 20 reads as under: "All public roads, lanes and paths, bridges, ditches, dikes and fences, "All public roads, lanes and paths, bridges, ditches, dikes and fences, on, or beside, same, bed of sea and of harbours and creeks below t h e high water mark, and of rivers, streams, nallas, lakes and tanks and all canals and water-courses, and all standing and flowing water, and all lands wherever situated which are not property of persons legally capable of holding property, and except insofar as any rights of such persons may be established, in or over same, and except as be otherwise provided in any law for time being in force, are and are hereby declared to be, with all rights in or over same, or appertaining thereto, property of State Government and it shall be lawful for Collector, subject to orders of Commissioner, t o dispose of them in such manner as may be prescribed by State Government in this behalf, subject always to rights of way, and all other rights of public or of individuals legally subsisting." 11. land revenue under section2(19) of Maharashtra Irrigation Act includes any less or rate authorized by State Government and construction of channels for water distribution amounts to improvement under section 2(14). Section 70 of said Act reads as follows: "The State Government may authorise Collector or officer in charge of survey or such other officer as it deems fit, to fix such rates as it may from time to time deem fit to sanction, for use, by holders and other persons, of water, right to which vests in Government and in respect of which no rate is leviable under any law relating to irrigation in force in any part of State. Such rates shall be liable to revisions at such periods as State Government shall from time to time determine, and shall be recoverable as land revenue: Provided that, rate for use of water for agricultural purposes shall he one rupee per year per holder." Thus, rate for water used for irrigation has to be fixed by Collector and rate shall be Rs. 1 per year per holder. In old Bombay Irrigation Act, there was no provision for co-operative societies because concept of co-operative society had itself not till then taken root. Under section 2(3), 'canal' includes any part of river and in section 2(5), 'canal revenue' includes all sums payable to appropriate authority for use of water from canal. Under section 46(1) of this Act, water from canal may be supplied on application for irrigation on volumetric basis or under irrigation agreement. Water rates for supply of water under clause (a), (b), (c) or (d) of sub-section (1) of section 46 shall be paid according to rates provided in Chapter II, III, IV or V of this part. According to section 51 of Maharashtra Irrigation Act, every agreement for supply of canal water to any land shall be transferable and shall be presumed to have been so transferred whenever transfer of such land takes place. Under section 57 of Maharashtra Irrigation Act, supply of water from any canal shall be regulated by calling for applications for supply of water. In Chapter IV, section 61, under heading 'Supply of Water Under Irrigation Agreements', appropriate authority and holders/occupiers of land may enter into agreement for supply of water for irrigation for period of years. Under clause (b) of section 62 of said Act irrigation agreement shall be made with holders and occupiers of all lands under irrigation command of canal. 12. It was further contended on behalf of department that supply of water for irrigation is statutory function of Government and is not commercial act of selling water as such. water rate is not sale price of water but is tax. There is no quid pro quo in tax. In assessee's accounts. there was no debit for purchase price of water as such because society never paid any price for water and primary responsibility for paying water rates was that of holders of land and assessee was merely collecting it and paying it to Government. According to learned departmental representative, water was not article or thin within meaning of section 80P (2) (a) (iv). letter of Commissioner on page 1 of paper book was not binding on department because it did not represent correct legal position. learned departmental representative urged that ownership of water in river with Government is, indeed, only in ideal sense, because Government cannot really possess water and transfer its ownership. According to Mulla's Commentary on Transfer of Property Act (Section 6), river water cannot really be transferred. 13. Referring to answers given by AAC on questions posed by 13. Referring to answers given by AAC on questions posed by Tribunal, learned departmental representative contended that finding given by AAC that assessee had purchased water was erroneous and unsubstainable. 14. On behalf of assessee, learned counsel, Shri Gadgil, controverted these arguments. He relied on latter dated 15-5-1967 from Commissioner stating that income was exempt from taxation. assessee- society was formed in 1970 and its income was not brought to tax till 1976-77, though there was taxable income. other two societies were formed in 1976- 77. objects of society were lifting water from river, collect in jack well built by it and then carry it to fields of members. applications for irrigating fields were routed through chairman and default notices (vide pages 19-20 of paper book) for arrears of pani-patti were received by society, though it was conceded that original bills for irrigation rates were sent to owners of land. bills were made in names of owners of land only. It was later stated by learned counsel that, in fact, separated bills were not sent but bills were made in register form and sent to assessee for collection by Irrigation Department. This register gives names of owners of land, year, rates, dues, etc. Till 1980-81, members were paying water rate directly to Irrigation Department or Irrigation Department officials were collection it form members in villages. After 1980-81, collection is routed through assessee-society and it keeps ledger of payments. 15. learned counsel took us through orders of Tribunal and Commissioner (Appeals) and bye-laws of Jaihind Society. contention was that water collected in jack-well was property of society which had acquired it. His contention was based on ration of decision of Supreme Court in CIT v. T. N. Aravinda Reddy (1979) 120 ITR 46 that word 'purchased' should be given wider meaning and not narrow meaning. It would include acquiring, irrespective of whether it was strictly purchased on payment of price or not. He further contended that assessee-society acquired property in water by paying price. It acquired property by purchase insofar as is spent money on lifting water at its cost by electrical or mechanical means. Payment of water rate alone was not enough to acquire property rights in water. He further submitted that water was article within meaning of section 80P (2) (a) (iv) . 16. learned departmental representative distinguished Supreme Court ruling in T. N. Aravinda Reddy's case (supra) and urged that it was not at all applicable because what Supreme Court held in that case was that word 'purchase' in section 54(1) of Act had to be given its common meaning i. e., 'buy for price or equivalent of price by payment in connection with or adjustment towards debt or for any other monetary consideration'. That ruling has no bearing on point at issue. 17. We have considered rival contentions. important word used in section 80P (2) (a) (iv) is 'purchases'. If co-operative society is engaged in purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for purpose of supplying them to its members then its income from that source had to be deducted from its total income. We have, therefore, to determine, firstly, whether water for irrigation lifted from river falls within words of other articles intended for agriculture' and, if so, whether assessee had purchased it. 18. So far as first question whether water falls within words 'or other articles intended for agriculture' is concerned, our answer is in affirmative. For agriculture, besides implements, seeds and livestock agriculturist also needs water. Irrigation of agricultural lands is necessary to get proper yield therefrom. Therefore, in context in which these words are used in sub-clause (iv) of section 80P (2) (a), they would include water. 19. more difficult question to be answered, however, is whether assessee is engaged in purchased of water. word 'purchase' has well- known and well - understood connotation in common parlance and in civil law. 'Purchase' has reference to 'price paid' for acquisition of right, title or interest in goods/property movable or immovable. In Black's Law Dictionary, Fifth edn., 'purchase' is defined as: "Transmission of property from one person to another by voluntary act and agreement founded on valuable consideration." (p. 1110) Purchase price means: "Price agreed upon as consideration for which property or goods are sold and purchased." (p. 1111) As per K. J. Aiyer's Judicial Dictionary, Eighth edn., 1980, p. 792, 'purchase' means: "The ingredients of definition of 'purchase' are as follows: (i) there shall be acquisition of goods; (ii) acquisition shall be for cash or deferred payment or other valuable consideration; and (iii) said valuable consideration shall not be other than under mortgage, hypothecation, charge or pledge. While transfer of goods from one person to another is ingredient of 'sale' in general law, acquisition of goods, which may in its comprehensive sense take in voluntary as well as involuntary transfers, is ingredient of 'purchase'. While 'price'. i. e., money consideration, is ingredient of 'sale'cash, deferred payment or any vaulable consi deration is ingredent of'purchase'."-Devi Das Gopal Krishnan v. State of Punjab AIR 1967 SC 1895. As per Justice T. P. Mukherjee's Law Lexicon, Vol. 2, 1982 edn., p. 460, every transaction of sale involves concept of both sale and purchase. Where goods are sold, transaction is one of sale from point of view of seller but from point of view of purchaser, it is transaction of purchase. 'Purchase' means 'buying for price or equivalent of price'. 20. Bombay High Court and occasion to consider provisions of section 81(i) (d) of Act which are in pari material with provisions under consideration by us, in Vidarbha Co-operative Marketing Society Ltd.'s case (supra). Their Lordships laid down proposition that provision conforting exemption form tax must be construed in strict minion and person who claims exemption must fall within four corners of exemption provision. Their Lordships further held as under: "... Section 81(i) (d) briefly reads:... 'A society engaged in purchase of... articles... for purpose of supplying them to its members'. provision clearly implies that there must be purchase and purchase of articles must be for purpose of supplying them to its members'. It is only when articles are purchases at lesser cost and sold at higher cost that question of profit arises. It is this profit which is sought to be exempted from taxation under section 81(i). When section 81(i) (d) refers to purchase of articles, it is difficult for us to see how it can be given any other meaning than normal meaning of word 'purchase. Normal meaning of purchase will be acquisition for money or for consideration. That is primary meaning. In Concise Oxford Dictionary, apart from two meanings, 'buy, acquire', one more meaning given to counsel for assessee wants word 'purchase' is 'procure' and it is in this sense that learned counsel for assessee wants word 'purchase' is word of much wider import than word 'pu rchase'. In same Dictionary, word 'procure ', has been given meaning as 'obt tained by care or effort, acquire'. Purchase is thus word of rest ricted meaning than word 'procure'. While dealing with taxing statute which deals with income from business, word 'purchase' will, therefore, have to be construed in commercial sense. In commercial sense, transaction of purchase is part of transaction of sale. transaction of sale can never be complete unless there is transfer of property from seller to buyer and buyer who is purchaser, must, therefore, acquire property before he can claim to have purchased property. On plain construction of section 81(i) (d), therefore, we do not see how any different meaning can be given to word 'purchase' in that provision. It is, therefore, necessary for purpose of exemption under section 81(i) (d ) that assessee must prove that he has purchased certain article, which means that he has acquired property in certain articles and those articles have been even sold to members of society.... " (p. 428) Therefore, even though learned counsel for assessee wanted us to Therefore, even though learned counsel for assessee wanted us to interpret word 'purchase' liberally, it is not permissible for us to do so in view of direct authority of Bombay High Court to contrary. 21 Since purchase by assessee necessarily connotes sale by someone else, it is necessary to find out whether there has been sale of water b y anyone to assessee. wear, which assessee claims to have purchased, is drawn from running river. 'River', according to Black's Law Dictionary, Fifth edn., means:- "A natural stream of water, of grater volume than creek or rivulet, flowing in more or less permanent bed or channel, between defined banks or walls, with current which may either be continuous in one direction or affected by ebb and flow of tide. Public river: river capable in its natural state of some useful service to public because of its existence as such, saving ability being not sole test. " (p. 1183) 22 water in public river belongs to Government and not to any individual, though general public have right of access to it. general public in India uses river water for bathing, washing and drinking, as of right, but for use of river water for irrigation, revenue laws of State come into operation. Only those agricultural lands situated near river banks, which are conferred right of irrigation by revenue or Irrigation Department of Government, can use rive water for irrigation. One of recognized methods of irrigation from rivers is 'lift irrigation'. In instant case, number of owners of agricultural land, entitled to use river water for irrigation, have come together to form co-operative society so that by their common endeavour, they can arrange funds and build jeck-well, main chamber, small chamber linked by pipes, and then water courses to reach water to their fields. It is only those lands which have right to irrigation that can get water for purpose from society. 23. concept of Government selling water for irrigation as such is unknown in India. Government supplies water for irrigation to lands and charges water rate/cess, etc., but it is not price of water sold. In instant case, Government is charging only water tax from owners of lands which are entitled for irrigation by river water. liability to collect and deposit water tax with Government has been made joint and several of assessee and its members, owners of eligible lands. That does not, however, make assessee purchase of water from Government. Government has not entered into any agreement to sell water and no rate of sale has been fixed or agreed upon between parties. right to irrigation is attached to lands and what assessee does is to lift water from river by electrical or mechanical means and to reach it to fields for which assessee charges certain price. That price or rate charged from members is for services rendered and not as sale price of water, since water belongs to government till it is lifted and it can be lifted only for agricultural lands entitled to irrigation for which land owners pay certain rate per acre to Government. water, thus, though in temporary custody of assessee, never belongs to it and it is not purchased by it. As custodian till water reaches fields, assessee is not its owners. We, therefore, hold that income of assessee does not qualify for deduction under section 80P. 24. So far as letter dated 15-5-1967 from Commissioner to another co-operative society to effect that income of that society from water supplied to its members would be exempt under section 81(i) (d ) is concerned, it does not, in our opinion, give correct legal position. said letter cannot also be equated with circular issued by Board so that it can be held as binding on department. We have, as we are bound to, interpreted word 'purchase' according to law and have, therefore, decided case against assessee-co-operative society. However, having regard to fact that even Commissioner, at one time, thought that income of co-operative society from lifting and supplying water by society, like assessee, would be exempt from tax, it is matter about which CBDT may, if it considers appropriate, take decision. So far as Tribunal is concerned, it has to take legal view of matter. It is for this reason that we have held income of assessee co- operative society as not exempt. 25. Accordingly, we set aside order of AAC and restore that of ITO holding that claim of assessee of exemption under section 80P (2) (iv) was not tenable. 26. department's appeals are allowed. *** INCOME TAX OFFICER v. PANCHGANGA SAHAKARI PANI PURVATHA MANDALI LTD