Co-operative society income from securities and deposits qualifies as business-linked exemption; reassessment fails without escaped income.

A co-operative society engaged in advancing credit and deploying funds through securities, short-term deposits, staff loans and related investments was treated as carrying on banking or credit business, so the resulting income was attributable to that business and exempt under section 80P(2)(a)(i). Provident fund investments were treated as trustee funds and not taxable in its hands. Because the exempt income could not be regarded as escaped assessment, the jurisdictional basis for reopening under section 147(b) was absent, and the reassessment proceedings were invalid.

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Issues: (i) Whether the assessee's income from securities, short-term deposits, staff loans and provident fund investments was exempt under section 80P(2)(a)(i) as profits attributable to the business of banking or providing credit facilities to members. (ii) Whether reassessment under section 147(b) for the assessment years 1973-74 and 1974-75 was valid.

Issue (i): Whether the assessee's income from securities, short-term deposits, staff loans and provident fund investments was exempt under section 80P(2)(a)(i) as profits attributable to the business of banking or providing credit facilities to members.

Analysis: The assessee's objects and bye-laws showed that it advanced loans, mobilised funds by debentures and borrowings, and was authorised to buy and sell securities. The expression "banking" was not to be narrowly confined by the Banking Regulation Act definition where the co-operative society's own activity was to give credit and deploy funds as part of its business. The investments were held as part of its circulating funds and stock-in-trade, not as idle surplus. Income from easily realisable securities and short-term deposits, as well as interest on staff loans, statutory reserve investments and trustees' securities, was therefore attributable to the business. The provident fund investments were held by the assessee in a trustee capacity and were not taxable in its hands.

Conclusion: The income was exempt under section 80P(2)(a)(i), and the Revenue's challenge failed.

Issue (ii): Whether reassessment under section 147(b) for the assessment years 1973-74 and 1974-75 was valid.

Analysis: Reopening under section 147(b) required both a reason to believe that income had escaped assessment and such belief to arise from information received after the original assessment. Once the income in question was held to be exempt under section 80P(2)(a)(i), no income could be said to have escaped assessment. The foundational jurisdictional requirement for reassessment was therefore absent.

Conclusion: The reassessment proceedings were without jurisdiction and were invalid.

Final Conclusion: The assessee succeeded on the exemption issue, and the Revenue also failed to sustain the reassessment proceedings, resulting in dismissal of all the appeals.

Ratio Decidendi: For a co-operative society whose objects and activities include advancing credit and employing funds in securities and deposits as part of its business, the resulting income is attributable to the business for section 80P(2)(a)(i); where such income is exempt, reassessment under section 147(b) cannot be founded on alleged escapement of that income.

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