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

2. The Hoshiarpur Central Co-operative Bank, Ltd., Hoshiarpur, hereinafter referred to as the Bank, is the appellant, and the Commissioner of Income-tax, Simla is the respondent. For the assessment years 1948-49 and 1949-50, the Income-tax Officer included in the assessment of the Bank certain income which had accrued to the Bank as profits from trading in controlled commodities like sugar, cloth, kerosene, etc., which the Bank was allowed to deal in, with the approval of the Registrar of Co-operative Societies conveyed in a letter dated September 28, 1954. The Bank claimed exemption under a notification issued under S. 60 of the Income-tax Act, but the contention was not accepted. On appeal, the Appellate Assistant Commissioner reversed the decision, which , on further appeal, was reversed by the Appellate Tribunal, Delhi Branch. The Appellate Tribunal, however, raised, and referred the following question to the High Court under S. 66(1) of the Income-tax Act:Where a co-operative bank deals in sugar and standard cloth with special permission of the authorities and earns income from such activities, is such income exempt from tax under Item 2 of the Government of India Notification F. D. (C. R.) Notification R. Dis. No. 291-I. T./25 dated 25th August, 1925, as subsequently amended (Income-tax Manual, 10th Edition, Part II, pages 257-258)?"The High Court answered the question against the Bank, but certified the case as fit for appeal to this Court, and hence this appeal

Reasoning: 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.