R.N. Misra, J. - (1.)AT the instance of the revenue, on an application under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), this court required the Income-tax Appellate Tribunal, Cuttack Bench, to state a case and refer the following question for opinion of the court :
"Whether, on the facts and in the circumstances of the case, it was legal and justifiable for the Tribunal to hold that the income derived by the assessee by way of interest on securities and fixed deposits are entitled to exemption as part of profits arid gains of the business of the assessee under the main Section 81 of the Income-tax Act, 1961 ?"

(2.)ASSESSEE is a co-operative society. The relevant assessment years are 1962-63 to 1966-67 corresponding to the respective previous years ending with 30th of September. In the course of the relevant assessment proceedings for these years, the assessee claimed that income derived by way of interest on fixed deposits and securities were exempted from tax. The Income-tax Officer accepted the assessee's contention so far as profits and gains arising from its business of providing credit facility to its members. He, however, did not accept the claim of exemption in regard to income from interest on securities and fixed deposits on the footing that the same did not qualify for exemption under Section 81(i). The Income-tax Officer also rejected the contention that such exemption would be available under Section 81 (v) of the Act as he was of the opinion that such benefit was available to an assessee not being a housing society.
Assessee appealed to the Appellate Assistant Commissioner and reiterated its claim. The appellate authority agreed with the Income-tax Officer that interest on securities and fixed deposits could not be regarded as part of the profits and gains from the business of the assessee and, therefore, did not come within the ambit of Section 81(i) of the Act. He, however, accepted the assessee's contention that interest paid on the money borrowed for investment on securities and fixed deposits should be set off. Accordingly, he re-computed the taxable interest.

Against the decision of the first appellate authority, the revenue carried appeals to the Tribunal. Assessee filed cross-objections for each of the appeals and urged that the rest of its claim should also be allowed under the provisions of Section 81 of the Act. According to the assessee, notwithstanding the fact that interest on securities and fixed deposits were assessable under two different heads, namely, interest on securities and income from other sources, the exemption contemplated under Section 81(i) of the Act in respect of profits and gains of business included both. The counter-contention advanced by the revenue was that the phrase profits and gains of business did not take within it income assessable under other heads. The Appellate Tribunal considered both the submissions and accepted the assessee's stand in entirety. According to the Tribunal, income derived by way of interest from securities and fixed deposits was none the less business income of the assessee though they were classified under different heads.

The Supreme Court in the case of Commissioner of Income-tax v. Cocanada Radhaswami Bank Ltd., 1966 57 ITR 306 clearly indicated that though, for the purpose of computation of the income, interest on securities was separately classified, income by way of interest from securities did not cease to be part of income from business if the securities were part of the trading assets. It was further observed that whether a particular income is part of income from a business falls to be decided not on the basis of the provisions of the section dealing with it, but on commercial principles. The Tribunal keeping this legal position in view as a fact found that the income derived from the disputed heads comes within the ambit of profits and gains of business carried on by the assessee. No direct material has been placed before us on behalf of the revenue to challenge this position. Once such a finding is accepted, the assessee becomes entitled to relief under Section 8 1(i)(a) of the Act, that is, the conclusion which the Tribunal arrived at, and we see no justification to take a different view. Our answer to the question referred, therefore, is :

Oil the facts and in the circumstances of the case, it was legal and justifiable for the Tribunal to hold that the income derived by the assessee by way of interest on securities and fixed deposits came within the provision of exemption under Section 81 of the Act.

We make no direction for costs.

N.K. Das, J.

I agree.