1976 (8) TMI 31 - HC - Income Tax

Summary

Issues:
1. Interpretation of exemption under section 60 of the Indian Income-tax Act, 1922 for co-operative societies.
2. Determination of whether income from house properties and interest of a society constitutes profits of business carried on by it.
3. Assessment of income received by a co-operative society as exempt from income tax.

Analysis:
The High Court of Madras addressed the interpretation of the exemption provided under section 60 of the Indian Income-tax Act, 1922 for co-operative societies. The case involved a co-operative society engaged in activities related to acquiring lands, building houses, and providing amenities to its members. The Tribunal concluded that the society's income derived from these activities constituted profits of the business carried on by it. The Tribunal also highlighted the complex transactions and extensive operations undertaken by the society involving substantial financial investments. The Court analyzed the notification dated August 25, 1925, which exempted certain classes of income, including profits of co-operative societies registered under specific Acts. The Court emphasized that income from investments in property of the nature referred to in section 9 of the Income-tax Act would not be exempted under the notification.

Regarding the specific case, the Income-tax Officer initially assessed the income received by the society as taxable under section 9 of the Income-tax Act. However, the Appellate Assistant Commissioner ruled that the houses belonged to the allottees, not the society, thereby setting aside the assessment. Upon appeal, the Tribunal determined that until the final instalment was paid by the allottees, the society remained the owner of the houses. Despite this finding, the Tribunal held that the society's income was exempt under the notification of August 25, 1925. The Court scrutinized the nature of the society's activities and concluded that the income derived from building houses was not considered an investment by the society under section 9 of the Income-tax Act.

In light of the above analysis, the Court affirmed that the income of the co-operative society was not from investments in property under section 9 of the Income-tax Act. Consequently, the society was entitled to the exemption provided in the notification dated August 25, 1925. The Court answered the referred question in favor of the assessee, granting them the costs of the reference. The legal fees were fixed at Rs. 500.