Co-operative housing income on hire-purchase terms fell within the exemption, not the property-investment exception.

A co-operative housing society's income from houses constructed and allotted on hire-purchase terms was treated as outside the exemption exception for income from investment in property under the 25 August 1925 notification. The Madras HC noted that the notification broadly exempted profits of qualifying co-operative societies, subject only to the specified exceptions in the Explanation. Because the society's activity was aimed at relieving housing shortage and allotting houses to members, the receipts were not income from investment in property in the statutory sense, even if legal title remained with the society until final instalment and conveyance. The income therefore remained within the exemption.

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Issues: Whether the income derived by the co-operative society from houses constructed and allotted on hire-purchase basis was income from investment in property of the nature referred to in section 9 of the Indian Income-tax Act, 1922, so as to fall outside the exemption granted by the notification dated 25 August 1925 issued under section 60 of the Indian Income-tax Act, 1922.

Analysis: The exemption notification broadly covered the profits of co-operative societies registered under the specified co-operative societies enactments, while carving out only the income classes mentioned in the Explanation. The relevant exception was income from investments in property of the nature referred to in section 9 of the Indian Income-tax Act, 1922. The society's housing activity was found to be undertaken to relieve housing shortage and to allot houses to members on hire-purchase terms; that activity was not an investment in property in the statutory sense. Even assuming the society retained ownership until final instalment and conveyance, the income from the houses did not become income from investment in property. Once the income did not fall within the excepted category, the broad exemption applied.

Conclusion: The income was not taxable under the exception in the notification and the assessee was entitled to exemption.

Ratio Decidendi: For purposes of the 25 August 1925 exemption notification, income derived by a co-operative housing society from houses constructed and allotted on hire-purchase basis is not income from investment in property merely because legal title remains with the society until completion of instalments.

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