Case: Hoshiarpur Central Co-Operative Bank Ltd Vs. Commissioner Of Income-Tax, Simla

"other sources" there has reference to the scheme of S. 6 of the Indian Income-tax Act, and profits from business of whatever kind, are dealt with under S. 10 of the Act. The short question thus is whether para. 2 is confined only to profits made by a Co-operative Society from transactions with its own members and does not cover profits made in business with outsiders. 6. It may be pointed out that there are some cases to be found, in which it was held, before the notification was amended by the addition of the Explanation, that the second para. exempted profits made by a Co-operative Society in transaction with its members and not to profits made in any other way. The question is whether such a restricted meaning can be imputed to the very wide and general terms in which para. 2 is couched. 7. The question is plainly one of construction of the notification. In support of the case of the Department, the learned Attorney-General relies on two arguments. He first refers to the opening words of the second para. of the notification, viz., "The profits of any Co-operative Society". These words, it is argued, refer to profits made by a Co-operative Society in its business as a pure Co-operative Society, or, in other words, in business with its own members within the four corners of the Co-operative Societies Act, 1912 and the bye-laws made under that Act. 8. No doubt, a Co-operative Society primarily exists for business with members and not for business with non-members; but the words of the notification and even those more specifically relied upon, are wide enough to include any business whether of the one kind or other.It cannot be denied that the Bank is a Co-operative Society and is claiming the exemption only as such, and further that it is claiming the exemption in respect of profits from a business carried on by it.It was for this reason that the attempt to bring the profits within "other sources" covered by S. 12 of the Indian Income-tax Act was rightly abandoned in this Court. If this is the obvious position, it follows that the words "the profits of any Co-operative Society" are wide enough to cover profits from any business, and there is nothing to show that the profits there mentioned are only the profits from business with members. 9. It is next argued that a Co-operative Society exists for business with members, and that the co-operative Societies Act and the bye-laws of the Bank reflect this character of the business undertakings. This intention underlying the Co-operative Societies Act and the bye-laws, it is urged, is the key to the interpretation of the notification, and it must, therefore, be limited to profits from business with members only. In support of this argument, reference is made to observations in Madras Central Urban Bank Ltd. v. Commissioner of Income-tax ILR 52 Mad 640: (AIR 1929 Mad 387) (FB); Madras Provincial Co-operative Bank Ltd. v. Commissioner of Income-tax, ILR 56 Mad 837 : (AIR 1933 Mad 489 ) (SB) and Commissioner of Income-tax, Burma v. Bengalee Urban Co-operative Credit Society, Ltd., ILR 11 Rang 521: (AIR 1934 Rang 27) (SB) where it was pointed out that the notification covered only profits from business with members. The first two cases were of interest derived from moneys invested in Government Securities to comply with orders of Government to the Societies to keep 40 per cent, of the total liabilities always ready at hand, and it was said that the profits were not from business with members. In the last of the three cases, it was pointed out that the exemption was grounded on the principle that a person cannot make a loss or profits out of himself, and strictly speaking, only such profits as were made in business with members were exempt. 10. The position since these cases were decided has been materially altered by the addition of the Explanation. The Explanation now takes us back to the kinds of income to be found in S. 6 of the Indian Income-tax Act where business profits are, in a category by themselves, more exhaustively treated in S. 10. There are other heads of income of distinct characteristics which are treated separately, and then there is a residuary head which includes income from "other sources" which for that reason are innominate. The Explanation cannot be said to imply a general approval of the earlier decisions. Such a conclusion does not necessarily follow, because if the paragraph of the notification was clear enough there was hardly any need for the Explanation. The addition of the Explanation clears once for all any doubt that might have arisen as to the ambit of the word "profits". After the addition of the Explanation and even before it, the word denoted profits from business and not income which arose, apart from business. 11. It must not be overlooked that at the time when the notification was first issued and also when it was amended, it was not even contemplated that Co-operative Societies would be permitted to deal in commodities in short supply with a view to ensuring their equitable distribution among the consumers. It was, however, always open to the appropriate Government to allow a Society to extent its business operations to trading with persons other than its members subject to conditions and restrictions, vide S. 31 of the Co-operative Societies Act. This has, in fact, been done here. 12.Once there is this extension of the business of a Co-operative Society, the general words of the notification include the profits from such business within the exemption, and it would require more than a supposed underlying intention to negative the exemption. To gather the meaning of the notification in the light of an alleged intention is to reverse the well-known canon of interpretation. In our opinion, the profits were exempt under the notification, and the answer to the question ought to have been in the affirmative.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]3. It is admitted on all hands that the profits were made from trading in certain commodities with the approval of the Registrar of Co-operative Societies. The quantum and the manner in which those profits were made, are not in dispute. The short question in this appeal is whether the exemption granted by the notification covers the case8. No doubt, a Co-operative Society primarily exists for business with members and not for business with non-members; but the words of the notification and even those more specifically relied upon, are wide enough to include any business whether of the one kind or other.It cannot be denied that the Bank is a Co-operative Society and is claiming the exemption only as such, and further that it is claiming the exemption in respect of profits from a business carried on by it.It was for this reason that the attempt to bring the profits within "other sources" covered by S. 12 of the Indian Income-tax Act was rightly abandoned in this Court. If this is the obvious position, it follows that the words "the profits of any Co-operative Society" are wide enough to cover profits from any business, and there is nothing to show that the profits there mentioned are only the profits from business with members10. The position since these cases were decided has been materially altered by the addition of the Explanation. The Explanation now takes us back to the kinds of income to be found in S. 6 of the Indian Income-tax Act where business profits are, in a category by themselves, more exhaustively treated in S. 10. There are other heads of income of distinct characteristics which are treated separately, and then there is a residuary head which includes income from "other sources" which for that reason are innominate. The Explanation cannot be said to imply a general approval of the earlier decisions. Such a conclusion does not necessarily follow, because if the paragraph of the notification was clear enough there was hardly any need for the Explanation. The addition of the Explanation clears once for all any doubt that might have arisen as to the ambit of the word "profits". After the addition of the Explanation and even before it, the word denoted profits from business and not income which arose, apart from business11. It must not be overlooked that at the time when the notification was first issued and also when it was amended, it was not even contemplated that Co-operative Societies would be permitted to deal in commodities in short supply with a view to ensuring their equitable distribution among the consumers. It was, however, always open to the appropriate Government to allow a Society to extent its business operations to trading with persons other than its members subject to conditions and restrictions, vide S. 31 of the Co-operative Societies Act. This has, in fact, been done here12.Once there is this extension of the business of a Co-operative Society, the general words of the notification include the profits from such business within the exemption, and it would require more than a supposed underlying intention to negative the exemption. To gather the meaning of the notification in the light of an alleged intention is to reverse the well-known canon of interpretation. In our opinion, the profits were exempt under the notification, and the answer to the question ought to have been in the affirmative.