Case: Commissioner of Income Tax, Bombay City Ii Vs. Bombay State Co-operative Bank Limited

1. The respondent, ae society registered under the Bombaye Societies Act, 1925, carries on the business of banking and for that purpose holds Government securities as its. In proceedings for assessment tox for the years4 and5 thex Appellate Tribunal declared that the interest received from the Government securities held by the society as itse qualified for exemption under Notification No. F.D. (C.R.) R.Dis. No.5 dated August 25, 1925, issued under section 60 of thex Act, and the High Court.of Bombay agreed with that view in a reference under section 66(1) of thex Act. The Commissioner has appealed against the order passed by the High Court Thex Act, 1922, before it was amended by the Finance Act, 1955, contained no provision for exempting the income or profits earned by ae society from liability to pay tax. But the of India issued a notification in exercise of the power under section 60 of the Indianx Act, granting exemption in respect of the profits of thee 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 ae 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 anye society other than the Sanikattas Society in the Bombay Presidency for the time being registered under thee Societies Act, 1912 (11 of 1912), the Bombaye Societies Act, 1925 (Bombay Act VII of 1925), or the Madrase 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 profitsExplanationFor this purpose the profits of ae society shall not be deemed to include any income, profits or gains from1. Investments in(a) securities of the nature referred to in section 8 of the the Indianx Act, or      (b) property of the nature referred to in section 9 of that Act      2. Dividends, or      3. The  other sources  referred to in section 12 of thex Act. "      The High Court heldand in our judgment the High Court was right in so holdidgthat the exemption under the notification applied to interest earned by ae society from Government securities held by it as itse : it was inapplicable only to interest received from Government securities held by the society as investments.

Reasoning: 2. By the plain terms of the notification, exemption was granted in respect of " the profits of anye society " : it was not granted merely in respect of the profits of the society computable under section 10 of the Indianx 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 ae 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 section 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 saction 8; income from business, profession or vocation will be computed in the manner provided by section 10; and income from sources other than those expressly specified will be computed in the manner provided by section 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 ExplanationIt was clearly intended by the Explanation that in giving the benefit of the exemption, income received by ae society from investments in securities of the nature referred to in section 8 will not be excluded, but securities held ase of the busine3s and not as investments will be admissible to the benefit of the exemption. If all income of ae society from securities was intended to be excluded from the benefit of the exemption, the expression " investments in " in the Explanation was wholly unnecessary