1933 (7) TMI 18 - HC - Income Tax

Court's Interpretation of 'Profits' for Society's Income Tax Assessment

The court directed the income-tax authorities to determine if the income under heads I, II, and IV forms part of the business profits of the society. The ... - Issues Involved:1. Exemption of income from income-tax under the notification dated 25th August, 1925.2. Classification of income as 'profits' under the Income-tax Act.Detailed Analysis:1. Exemption of Income from Income-tax under the Notification dated 25th August, 1925:The primary issue is to determine what portion of the income of the society is exempt from income-tax by virtue of the notification issued by the Government of India on 25th August, 1925. The notification specifies that 'the profits of any co-operative society' registered under various Co-operative Societies Acts, except the Sanikatta Salt Owners' Society, are exempt from income-tax, including dividends or other payments received by members on account of profits.The Income-tax Officer assessed the total income of the society for the year 1932-33 under different heads: Income from Securities, Income from Property, Profits of Co-operative Credit Society, and Income from Other Sources. The income-tax was levied on heads I, II, and IV, excluding them from the 'profits' of the society exempted under the notification.The judgment emphasizes that the intention behind the notification was to exempt profits accruing from the business of a mutual co-operative society, based on the principle that 'a man cannot make a loss or profit out of himself.' This principle was supported by various legal precedents, including Carlisle and Silloth Golf Club v. Smith and Gresham Life Assurance Society v. Styles.2. Classification of Income as 'Profits' under the Income-tax Act:The court examined whether the income from investments and house property could be classified as 'profits' within the meaning of the notification. It was noted that mutual co-operative undertakings are generally liable to pay income-tax on income derived from investments and house property, as supported by cases like Styles' case and Commissioner of Income-tax v. National Mutual Life Association of Australasia.The court rejected the assessee's argument that all income, profits, and gains are synonymous and thus the entire income should be exempt. It was clarified that 'income' in the Income-tax Act includes not only income in its strict sense but also profits and gains. However, 'income' and 'profits' are not synonymous when examined under different sections of the Act. For instance, income-tax is payable under separate heads like 'interest on securities' and 'property,' distinct from 'business' profits.The judgment concluded that 'profits' in the notification refer to the surplus from trade or business after necessary expenditures, and prima facie, interest from securities and income from property are not 'profits' under the notification. The court emphasized that whether such income is part of the business profits depends on the specific circumstances and should be assessed accordingly.The court directed the income-tax authorities to determine if the income under heads I, II, and IV forms part of the business profits of the society. The assessment should align with the court's interpretation of 'profits' as used in the notification.Conclusion:The court answered the question by stating that the income-tax authorities must re-evaluate whether the income from securities, property, and other sources constitutes 'profits' of the business carried on by the society. The assessment should be made based on this determination, following the court's construction of the term 'profits' in the notification.Agreement by Other Judges:Das J. and Mya Bu, J. concurred with the judgment.