Exemption for Cooperative Society Profits confirmed where trading with outsiders occurs with statutory approval under the notification.

The article construes Item (2) of the 1925 Notification to confirm that "profits of any co-operative society" include business profits from trading in controlled commodities where the society lawfully extends business to non-members with prior statutory or registrar approval; the Explanation aligning the Notification with Income-tax classification indicates that profits are not confined to member-only transactions. Operatively, where a registered co-operative bank obtains the requisite approval to trade with outsiders, those trading profits fall within the Notification's general words and are exempt from income-tax under Item (2).

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Issues: Whether profits earned by a registered co-operative bank from trading in controlled commodities with prior governmental/registrar approval are exempt from income-tax under Item (2) of F. D. (C. R.) Notification R. Dis. No. 291-I.T./25 dated 25th August, 1925.

Analysis: The question requires construction of the notification's language, in particular the phrase "the profits of any co-operative society" and the Explanation distinguishing heads of income under the Income-tax scheme. The notification's terms are wide and not expressly limited to transactions exclusively with members. The Explanation aligns the notification with the classification of income in section 6 of the Income-tax Act and clarifies that "profits" include business profits unless specifically excluded. The Co-operative Societies Act permits extension of a society's business to trading with non-members under conditions (section 31 of the Co-operative Societies Act, 1912). Where a co-operative society lawfully extends its business to dealings with outsiders with appropriate approval, those business profits fall within the general words of the notification unless the text clearly limits them to member-only transactions. Previous narrower readings were overtaken by the Explanation which dispels doubt as to the ambit of "profits" in the notification.

Conclusion: The profits from trading in controlled commodities, earned by the registered co-operative bank with the requisite approval, are covered by Item (2) of the Notification dated 25th August, 1925, and are exempt from income-tax.

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