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TMI Blog1965 (2) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... ness it holds Government securities as its stock-in-trade. It derives income from interest on securities, property and other sources. While computing the income of the assessee, the securities have been valued at cost or market value and the profit and loss as a result of the valuation has been taken into account in computing the assessable profits. It was common ground that the assessee was a dealer in securities. In computing the income of the assessee, the Income-tax Officer classified the same under two heads: (1) income from business which is not taxable in accordance with the notification under section 60, about which we will deal later; and (2) income that is taxable according to the department. In the latter category he included the interest on Government securities amounting to ₹ 9,32,657 and ₹ 6,26,610 for the assessment years 1953-54 and 1954-55 respectively and brought the same to assessment. Copies of the Income-tax Officer's orders for the assessment years 1953-54 and 1954-55 are annexures A and B respectively and form part of the case. 3. In appeal it was contended before the Appellate Assistant Commissioner that the Income-tax Officer erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Surat Peoples' Co-operative Bank. The Appellate Assistant Commissioner did not accept this contention. He held: I am of the opinion that income from interest on Government securities though held by the appellant as its stock-in-trade would not be profits within the ambit of the exemption given in the Government notification under section 60 already quoted. A copy of the Appellate Assistant Commissioner's order for the assessment year 1953-54 is annexure C and forms part of the case. 4. Thereafter, the assessee took up the matter by way of second appeal to the Tribunal and raised the same contentions. The Tribunal by its order dated 2nd July, 1959, held: 4. In regard to the second contention regarding the taxability of the interest on Government securities, a reference has been made to a case Surat Peoples' Co-operative Bank Ltd.*, where the Bombay High Court had to consider whether the profit on the sale of certain securities came within the ambit of the Explanation to the notification. The court held that the word 'investment' in the explanation to the notification related only to such securities as di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed that those amounts were parts of its profits, which were exempted from tax under the notification issued under section 60 of the Indian Income-tax Act by the Central Government on the 25th of August, 1925. The claim of the assessee for exemption was disallowed by the departmental authorities on the ground that the said amounts were not profits, which were exempted under clause (2) of the said notification, but, on the other hand, they fell under item No. 1 of the Explanation to the said clause, and were excluded from the exemption. In the appeal before the Income-tax Appellate Tribunal, the Tribunal allowed the appeal of the assessee holding in its favour that the said amounts were exempted from tax under clause (2) of the notification and the exemption was not excluded under item No. 1 of the Explanation to the said clause. Thereafter at the instance of the department the Tribunal has drawn up a statement of the case and referred the following question to this court: Whether, on the facts and circumstances of the case, the income from interest on Government securities held as stock-in-trade by the assessee for the assessment years 1953-54 and 1954-55 is exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at all income, profits and gains of a cooperative society, such as is mentioned in clause (2), is exempted from tax except such of it as is included in the 3 items of the Explanation. The assessee being admittedly a dealer in Government securities, the interest on securities is a part of its profits from its activity of business, and qualifies for exemption under clause (2) of the notification. It is not excluded from the said exemption under item No. 1 of the Explanation because that item is only restricted to the exclusion from exemption of interest on securities, which are held by a co-operative society as investments and not as stock-intrade. The assessee, therefore, is entitled to the exemption as claimed by it. The argument of the department, on the other hand, is that the notification having been issued in respect of classes of income, the two classes of the notification have reference to definite classes of income. Clause (2), which refers to the profits of a co-operative society, is in respect of the class of income, which falls under section 10 of the Indian Income-tax Act as income, profits and gains of the business. The purpose of the Explanation, which is appended t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... category of income. It may be that the expression class of income may be capable of being used as having the same meaning as income under a specific head of income. There is, however, no doubt that the expression has not been used as synonymous with heads of income either in section 60 or in the notification. The expression heads of income has been used in section 6 of the Act and the legislature was fully apprised of the language used in that section when it used the expression class of income in section 60. If by that expression was intended to mean only the heads of income, the said expression would have been easily used in section 60 also. As has been pointed out in Commissioner of Income-tax v. Chugandas and Co. [1965] 55 I.T.R. 17 (S.C.), the provisions of the Indian Income-tax Act will show that where the legislature intended to refer to a specific head of taxation under section 6 of the Act as a condition for imposing an obligation or claiming a right, the legislature has in terms referred to such a head. Instances can be found in the provisions of sections 18(2), 18(3) and 24, etc. In section 60, however, the legislature has deliberately omitted the use of the expres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... society shall not be deemed to include any income, profits or gains from the three items specified therein. It seems to us that if by the word profits used in clause (2) only the profits and gains as computable under section 10 were intended, there was no necessity whatsoever to give the Explanation. Moreover, the very wording of the Explanation itself would show that the word profits , but for the said Explanation, would include not only the profits computable under section 10 but all profits. The Explanation proceeds to say profits... shall not be deemed to include something. In other words, but for the deeming brought in by the Explanation, the profits would have included what the Explanation says, they would not include. We do not, therefore, think that Mr. Joshi is right in his submission that clause (2) is only confined to the profits and gains computable under section 10 of the Act. What seems to us on reading the clause along with the Explanation is that all profits of a co-operative society, except such as are excluded by the Explanation, are exempted under the notification. The view that we are taking is supported by a decision of this court in Commissioner of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Even assuming, therefore, that Mr. Joshi is right in his submission that what is intended under clause (2) of the notification is to exempt income from business, it is not the same thing as saying that what is intended under the said clause is only exempting the income computable under section 10 of the Act. The argument of the department that by the expression class of income , the notification is confined to heads of income, does not appear to be right when reference is made to another notification also issued under section 60 of the Indian Income-tax Act. That notification, which is Finance Department Notification No. 878-F, dated 21st March, 1922, is also issued for allowing exemption from tax to certain classes of income. A large number of items, which are specified by the clauses of the notification, will show that by the expression classes of income , which has been used in the opening part of the notification in the same manner in which it is used in the notification before us, the expression has not been used in the same sense as heads of income. In our opinion, therefore, the first argument advanced on behalf of the department that the exemption granted under clause (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are held as capital or as stock-in-trade. We are unable to accept the argument which is advanced by Mr. Joshi. In the first place, if the word investments in item No. 1 of the Explanation was intended to cover or include all layings out of money, it was not necessary to use the word altogether. It should have been enough if item No. 1 had merely stated securities of the nature referred to in section 8 of the Indian Income-tax Act...... It would appear that the word investments has been deliberately used in order to make it clear that not all income, profits and gains from securities but only such income, profits and gains from securities which are held as investments, that is excluded from the exemption. In item No. 2 all dividends are excluded from the exemption. That would include not only dividends on shares held as capital investments but even on shares which are held as stock-in-trade. If a total exclusion of all income, profits and gains from securities was intended, the word investments would not have been used in item No. 1. It is no doubt true that the word investments is capable of being employed for any lay-out of money, but that is clearly not the meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X
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