Co-operative bank investment income from Government securities remained taxable as securities income, not exempt business profits.

Interest earned by a co-operative bank from Government securities was treated as income from securities and not as profits arising from the society's business for purposes of the exemption notification. The court noted that permissive bye-laws allowing purchase and sale of Government promissory notes, and the fact that the investment was a prudent use of surplus funds, did not change the character of the receipt into business profits. A prior Full Bench ruling on similar facts had already held such investment income taxable, and a later amendment to the bye-laws did not alter that position.

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Issues: Whether interest derived by a co-operative bank from investments in Government securities formed "profits" of the society within the exemption notification, so as to be exempt from income-tax.

Analysis: The exemption was confined to profits of the co-operative society arising from its business. Interest on Government securities fell under the head of interest on securities and not under business profits. The fact that the society's bye-laws permitted purchase and sale of Government promissory notes, and that the investment was a prudent use of surplus funds, did not make the interest income part of the business profits. The prior Full Bench decision on materially similar facts had already held that such investment income was taxable, and the amendment of the bye-laws did not alter that legal position.

Conclusion: The interest from Government securities was not exempt as profits of the society and the question was answered against the assessee.

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