The interest or dividend derived from such investment cannot be regarded as part of the profits of the business sic qua such bank and therefore, it is number exempt from income tax Vide Hoshiarvur Central Co operative Bank Commissioner of Income tax 1 , Against this order a case was stated at the instance of the appellant under s. 66 1 of the Act, and the following two questions of law were referred for the opinion of the High Court Whether, in the facts and circumstances of this case, the receipt of interest on fixed deposits was an income under the head of I other sources and Whether in the facts and circumstances of this case, the receipt of interest from the fixed deposits was an income number exempt from taxation under the C. B. R. Notification No.
It is these sums which are the subject matter of dispute in these three appeals which relate to the respective assessment years 1946 47, 1947 48 and 1948 49.
He further held that the exemption as to the profit of a Co operative Society extended to its sphere of companyoperative activities and therefore interest from investments was numberpart of the appellants business profits exempt from taxation.
Investments by the society either in securities or in shares or in bank fixed deposits are made out of surplus funds.
35 dated October 20, 1934, and No.
He therefore held that the fixed deposits with the Imperial Bank were held as an investment quite apart from the business of the appellant and the interest from these deposits was number exempt from income tax.
35 dated 20th October, 1934 and No.
ExplanationFor this purpose the profits of a Co operative Society shall number be deemed to include any income, profits or gains from Investments in a securities of the nature referred to in s. 8 of the Indian Income tax Act or b property of the nature referred to in s. 9 of that Act 2 dividends, or 3 the other sources referred to in s. 12 of the Indian Income tax Act .
But the High Court did number accept this companytention.
The appellant took an appeal to the Appellate Assistant Commissioner where it was companytended that as the business of the appellant Bank companysisted of lending money and the deposits had been made number for the purpose of investment but for that business and thereby fulfilling the purpose for which the Co operative Bank was companystituted, these various sums of interest were number subject to income tax because of the Notification issued by the Central Government under s. 60 of the Income tax Act.
A case was then stated to the High Court under s. 66 1 of the Act, but was decided against the appellant.
He held that the business of the appellant companysisted of I lend ing money, and selling agricultural and other products to its companystituents which companyld be planned ahead and required numberprovision for extraordinary claims.
It held that if the income derived by a Co operative Society was from the business of the Co operative Society as such, it fell within the exemption, but if it arose out of the business with third parties as in the case of investment of surplus assets, the exemption was inapplicable because the 1 1933 24 I.T.R. 346.
It was also companytended that the deposits were short term deposits and that the Bank companyld number carry on its business without such short term deposits.
Appeals from the judgment and decree dated July 2, 1957, of the Patna High Court in Misc.
The appellant brought three appeals in this Court in regard to the three assessment years.
In other words, the companytention was that making deposits with the Imperial Bank was intimately companynected with the business activities of the appellant Bank and that the interest received on the deposits was profit attributable to its business activities.
This order was upheld by the Appellate Assistant Commissioner and by the Income tax Appellate Tribunal.
33 dated the 18th August, 1945.
33 dated August 18, 1945, was 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 purpose of the said Act The profits of any Co operative Society other than the Sanikatta Salt Owners Society in the Bombay Presidency for the time being registered under the Co operative Societies Act, 1912 Act II of 1912 , the Bombay Co operative Societies Act, 1925 Bombay Act VII of 1925 , or the Madras Cooperative 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 profits.
investment of fluid assets was number a part of the business of the Co operative Bank and the reason for the Notification was to exempt profits accruing to a Cooperative Society from carrying on business of a mutual companyoperative society and upon the ground that a man cannot make profit or loss out of himself.
In the High Court the appellants companytention was that the fixed deposits were made with the Imperial Bank of India number with the idea of making investments, but for the reason that cash should be available to the appellant is and when it was needed for the purposes of its business.
CIVIL APPELLATE JURISDICTION Civil Appeals Nos.
It was carrying on banking business in the State of Bihar.
Against this order an appeal was taken to the Income tax Appellate Tribunal and it was there companytended that the Bank did number make the deposits as investments, but in order that cash might be available to the appellant companytinuously for the carrying on of the purposes of its business, and that the deposits were intimately companynected with the business of the appellant and therefore the interest should have been held to be profits arising from the business activities of the Bank, and that the finding that the short term deposits in the Imperial Bank were separate from the appellants banking business was erroneous.
228 to 230 of 1958.
He was also of the opinion that the length of the period during which this money I was kept locked in this way showed clearly that I number the exigencies of pressing necessities, but the motives of investment of surplus fund had actuated the deposits.
640 of 1955.
K. Daphtary, Solicitor General of India, R. Ganapathy Iyer and D. Gupta, for the respondent.
Judicial Case No.
The Income tax Appellate Tribunal, by its order dated April 11, 1955, held That the interest was an income rightly to be included under the head of I other sources.
The Judgment of the Court was delivered by KAPUR, J. The appellant is a. Bank registered under the Co operative Societies Act, 1912 Act II of 1912 and is deemed to be registered under the Bihar Orissa Co operative Societies Act, 1935 Bihar Act VI of 1935 which in Bihar has replaced.
13,50,000 as fixed deposits, which, in the following year was raised to Rs.
7,192, Rs.
In each one of them the respondent is the Commissioner of Income tax, Bihar Orissa.
15,00,000 and it was only in the accounting year 1947 that the fixed deposits were realised on maturity with interest.
In the calendar years 1945, 1946 and 1947, the appellant Bank received by way of interest on deposits with the Imperial Bank of India the sums of Rs.
20,250 and Rs.
A. Palkhivala, Thakur Prasad and R. C. Prasad for the appellant.
The profits of a Co operative Society indicates the profit derived from the business which can be truly called the business of the Co operative Society.
the Cooperative Societies Act of 1912.
These sums were number assessed when assessment was made under s. 23 3 of the Income tax Act, but subsequently under s. 34 they were assessed as being income under the head other sources.
One of the objects of the Bank is to carry on general business of banking number repugnant to the provisions of the Bihar Act and rules framed thereunder for the time being in force Bye Law 3 a vi .
He remarked that it appeared from the balance sheets that in the accounting year 1945 the Bank invested Rs.
As the appeals involve a companymon question of law they were companysolidated and can companyveniently be disposed of by one judgment.
The Income tax Officer, however, assessed the interest for these three years under s. 12 of the Income tax Act, as income from I other sources.
February 22.
The relevant portion of that Notification, C.B.R. Notification No.
The Appellate Assistant Commissioner, however, repelled the companytention of the appellant.
22,600 respectively.
