Co-operative society profits from non-member dealings not exempt where the activity fell outside the society's stated objects.

Profits earned by a co-operative society from dealings with non-members were not exempt under clause (iv) of paragraph 15 of the Part B States (Taxation Concessions) Order, 1950, because the exemption extends only to profits arising from activities forming the society's business or objects as a co-operative society. Mere permission in the bye-laws to trade with non-members did not make such profits exempt. Reading the bye-laws as a whole, the society's objects were confined to organising and developing rural production on a commercial basis and marketing, and the profits from sole distribution of yarn to non-members were not shown to arise from those objects. The reasoning in the earlier co-operative bank decision was applied.

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Issues: Whether profits earned by a co-operative society from dealings with non-members were exempt from income-tax under clause (iv) of paragraph 15 of the Part B States (Taxation Concessions) Order, 1950, where such dealings were permitted but were not shown to arise from the objects for which the society was formed and registered.

Analysis: The exemption for the profits of a co-operative society was construed as extending only to profits arising from activities constituting the business or objects of the society as a co-operative society. Mere permission to trade with non-members did not make profits from such trading exempt. The Court also rejected the contention that the amounts fell within the category of income from other sources, and held that the relevant bye-laws, read as a whole, confined the society's objects to the organisation and development of rural production on a commercial basis and marketing. Profits from sole distribution of yarn to non-members were not shown to arise from those objects. The reasoning adopted in the earlier co-operative bank decision was applied, namely that profits from activities outside the society's objects do not attract the exemption even if those activities are permitted.

Conclusion: The profits from dealings with non-members were not exempt from assessment under clause (iv) of paragraph 15 of the Part B States (Taxation Concessions) Order, 1950.

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