BIHAR STATE CO OPERATIVE BANK LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this case the assessee is a co-operative society registered under the Bihar and Orissa Co-operative Societies Act. During the accounting year the assessee carried on business in credit agricol, text books, salt and cloth, both with its members as well as with non-members. The assessee claimed exemption of the income earned from the business under the Government of INdia Notification No. R. Dis. 291-I. T./25, dated the 25th August, 1925, issued under section 60 of the INcome-tax Act. The relevant portion of the notification which exempts the income of the co-operative societies from tax states as follows :

(2.) IN an explanation to the main clause it is stated that "the profits of a co-operative society shall not be deemed to include any income, profits or gains from.... (3) and other sources referred to in section 12 of the INcome-tax Act". During the assessment year the INcome-tax Officer bifurcated the profits of the society as between members and non-members on the basis of proportionate turnover. The INcome-tax Officer did not accept the full claim of the assessee for exemption but only granted exemption to the profits earned by the assessee from dealings with the members only. IN other words, the INcome-tax Officer did not grant exemption with regard to dealings of the petitioner with non-members. The view of the INcome-tax Officer has been affirmed by the Appellate Assistant Commissioner and also by the INcome-tax Appellate Tribunal in appeal. Under section 66(1) of the INcome-tax Act the INcome-tax Appellate Tribunal has stated a case and referred to the High Court the following question of law :