1967 (11) TMI 11 - SC - Income Tax

Appellant-society a bank - exemption - interest received from the Govt. securities - business was to deal in money and credit and was not restricted to receiving deposits and lending money to its members or other societies therefore the High Court was in error in treating interest derived from deposits as not arising from the business of the bank and therefore not falling within the income exempted under the notification - Revenue s appeal dismissed

Summary

Issues:
1. Interpretation of exemption notification under the Income-tax Act for co-operative societies.
2. Whether interest earned by a co-operative society from Government securities held as stock-in-trade qualifies for exemption.

Analysis:
The judgment by the Supreme Court involved the interpretation of an exemption notification under the Income-tax Act for co-operative societies. The respondent, a co-operative society engaged in banking, held Government securities as its stock-in-trade. The Income-tax Appellate Tribunal and the High Court of Bombay had previously ruled that the interest received from these Government securities qualified for exemption under a specific notification. The Commissioner appealed this decision. The court examined the notification and held that the exemption applied to the profits of a co-operative society, regardless of the method of computation, subject to certain exceptions outlined in the Explanation. The court emphasized that the exemption was intended for the profits of the society as a whole, not just those computed under a specific section of the Income-tax Act.

In its analysis, the court highlighted that income from different sources, such as property, securities, or business activities, would be computed according to the relevant sections of the Income-tax Act. However, the total income received from various sources, as long as it constituted profit of the society, would qualify for exemption unless expressly excluded by the Explanation. The court clarified that the exemption covered income received by a co-operative society from securities held as stock-in-trade for business purposes, distinguishing them from investments. The court referenced previous cases, such as Surat Peoples' Co-operative Bank Ltd. v. Commissioner of Income-tax, to support this interpretation.

Furthermore, the court referred to Bihar State Co-operative Bank Ltd. v. Commissioner of Income-tax, where it was established that interest derived from deposits made by a bank as part of its banking business was exempt from income tax under the notification. The court rejected the notion that income from such deposits did not arise from the business of the bank. Ultimately, the court dismissed the appeals, upholding the decision that interest earned by the co-operative society from Government securities held as stock-in-trade qualified for exemption under the notification.