Co-operative society taxation: a banking body may be treated as an association of individuals, with mutuality denied for non-member business.

A co-operative central bank registered under the Co-operative Societies Act was treated as an "association of individuals" under the Indian Income-tax Act, 1922 because the charging provision extended to corporate bodies with separate legal existence. The mutuality principle was held inapplicable where the bank carried on ordinary banking business with both members and non-members, so its profits were not excluded on that basis. An exemption notification protected the profits of certain co-operative societies from separate tax, but required them to be included in total income for rate purposes. The disputed profit was therefore includible in total income.

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Issues: (i) Whether a co-operative central bank registered under the Co-operative Societies Act is an association of individuals within the meaning of Section 3 of the Indian Income-tax Act, 1922 and assessable as such; (ii) whether the bank is a mutual benefit society and whether the profit of Rs. 26,624 from its transactions with members and others is includible in its total income.

Issue (i): Whether a co-operative central bank registered under the Co-operative Societies Act is an association of individuals within the meaning of Section 3 of the Indian Income-tax Act, 1922 and assessable as such.

Analysis: The charging provision covered all income of every individual and other association of individuals. The expression "individual" was treated as wide enough to include a corporate body with separate legal existence, and there was no reason to confine "association of individuals" to unincorporated human persons alone. A co-operative society, being a corporate body with perpetual succession, could therefore fall within the statutory category. Support was drawn from prior authority recognising that statutory corporations and composite bodies could be treated as individuals for this purpose.

Conclusion: The bank was held to be an association of individuals and assessable to income-tax as such.

Issue (ii): Whether the bank is a mutual benefit society and whether the profit of Rs. 26,624 from its transactions with members and others is includible in its total income.

Analysis: The mutuality principle applies where persons contribute to a common fund and no one can make a profit out of himself. The bank, however, carried on ordinary banking business, dealt not only with its members but also with non-members, and its activities lacked the necessary mutuality. The exemption notification under Section 60 protected the profits of certain co-operative societies from tax, but required such profits to be taken into account in computing total income for rate purposes. The amount of Rs. 26,624 was therefore part of the total income, though not separately taxable because of the notification.

Conclusion: The bank was not a mutual benefit society, and the sum of Rs. 26,624 was rightly included in its total income.

Final Conclusion: The reference was answered against the assessee, with both referred questions decided in favour of the revenue and the assessment upheld on the statutory basis applied by the income-tax authorities.

Ratio Decidendi: A corporate body, including a co-operative society, may fall within "association of individuals" under the charging provision, and the mutuality doctrine does not apply where the entity carries on ordinary business with non-members, even if a statutory notification exempts the profit from tax while requiring it to be included in total income for rate computation.

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