- (1.) The respondent, a co-operative society registered under the Bombay Co-operative Societies Act, 1925, carries on the business of banking and for that purpose holds government securities as its stock-in- trade. In proceedings for assessment to income-tax for the years 1953-54 and 1954-55 the Income-tax Appellate tribunal declared that the interest received from the government securities held by the society as its stock-in- trade qualified for exemption under Notification No. F.D. (C.R.) R.Dis. No. 291-I.T./25 dated 25.08.1925, issued u/s. 60 of the Income-tax Act, and the High court of Bombay agreed with that view in a reference u/s. 66(1)of the Income-tax Act. The Commissioner has appealed against the order passed by the High court.
(2.) The Income-tax Act, 1922, before it was amended by the Finance Act, 1955, contained no provision for exempting the income or profits earned by a co-operative society from liability to pay tax. But the government of India issued a notification in exercise of the power u/s. 60 of the Indian Income-tax Act granting exemption in respect of the profits of the co-operative societies, and the dividends and other payments received by the members of any such society on account of profits. This notification was amended from time to time, and in the years of assessment with which these appeals are concerned, in so far as it relates to the income of a co-operative society it reads as follows : " The following classes of income shall be exempt from the tax payable under the said Act, but shall be taken into account in determining the total income of an assessee for the purposes of the said Act : . . . (2) The profits of any co-operative society other than the Sanikatta Salt-owner's Society in the Bombay Presidency for the time being registered under the Co-operative Societies Act, 1912 (II of 1912), the Bombay Co-operative Societies Act, 1925 (Bombay Act VII of 1925), or the Madras Co-operative Societies Act, 1932 (Madras Act VI of 1932), or the dividends or other payments received by the members of any such society out of such profits. Explanation.-For-this purpose the profits of a co-operative society shall not be deemed to include any income, profits or gains from- 1. Investments in- (a) securities of the nature referred to in sec. 8 of the Indian Income-tax Act, or (b) property of the nature referred to in sec. 9 of that Act, (2) Dividends, or (3) The 'other sources' referred to in sec. 12 of the Income-tax Act."
(3.) The High court held and in our Judgement the High court was right in so holding -that the exemption under the notification applied to interest earned by a co-operative society from government securities held by it as its stock-in-trade : it was inapplicable only to interest received from government securities held by the society as investments. By the plain terms of the notification, exemption was granted in respect of " the profits of any co-operative society " : it was not granted merely in respect of the profits of the society computable u/s. 10 of the Indian Income-tax Act. The expression " classes of income " in the opening part of the notification was intended to designate particular categories intended to be exempted. The profits received by a co-operative society, whatever may be -the method of computation, were therefore entitled, subject to the exception provided by the Explanation, to exemption. Under the Act income from different sources has, it is true, to be computed in the manner and according to the provisions of the Act applicable to the source from which the income is received. Income from property will be computed in the manner provided by sec. 9 ; income from securities of the central government or the State government or debentures or other securities for money issued by or on behalf of a local authority or a company will be computed in the manner provided by sec. 8; income from business, profession or vocation will be computed in the manner provided by sec. 10; and income from sources other than those expressly specified will be computed in the manner provided by sec. 12. But the total income received from different sources, computed in the manner provided by the diverse provisions of the Act, is, under the Notification, profit of the society and qualifies for exemption, unless the operation of the exemption is expressly excluded by the Explanation.;