TaxTMI 
TaxTMI 
1965 (2) TMI 95
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....he assessee carries on the business of banking. In the course of its banking business it holds Government securities as its stock-in-trade. It derives income from interest on securities, property and other sources. While computing the income of the assessee, the securities have been valued at cost or market value and the profit and loss as a result of the valuation has been taken into account in computing the assessable profits. It was common ground that the assessee was a dealer in securities. In computing the income of the assessee, the Income-tax Officer classified the same under two heads: (1) income from business which is not taxable in accordance with the notification under section 60, about which we will deal later; and (2) income that is taxable according to the department. In the latter category he included the interest on Government securities amounting to Rs. 9,32,657 and Rs. 6,26,610 for the assessment years 1953-54 and 1954-55 respectively and brought the same to assessment. Copies of the Income-tax Officer's orders for the assessment years 1953-54 and 1954-55 are annexures "A" and "B" respectively and form part of the case. 3. In appeal it was contended before ....
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.... Reliance for this was placed on a decision of the Bombay High Court in the case of Surat Peoples' Co-operative Bank. The Appellate Assistant Commissioner did not accept this contention. He held: "I am of the opinion that income from interest on Government securities though held by the appellant as its stock-in-trade would not be profits within the ambit of the exemption given in the Government notification under section 60 already quoted." A copy of the Appellate Assistant Commissioner's order for the assessment year 1953-54 is annexure "C" and forms part of the case. 4. Thereafter, the assessee took up the matter by way of second appeal to the Tribunal and raised the same contentions. The Tribunal by its order dated 2nd July, 1959, held: "4. In regard to the second contention regarding the taxability of the interest on Government securities, a reference has been made to a case Surat Peoples' Co-operative Bank Ltd.*, where the Bombay High Court had to consider whether the profit on the sale of certain ....
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....the years ending 30th June, 1952, and 30th June, 1953, respectively, the assessee's income included interest on Government securities amounting to Rs. 9,32,657 in the assessment year 1953-54 and Rs. 6,26,610 for the assessment year 1954-55. The assessee claimed that those amounts were parts of its profits, which were exempted from tax under the notification issued under section 60 of the Indian Income-tax Act by the Central Government on the 25th of August, 1925. The claim of the assessee for exemption was disallowed by the departmental authorities on the ground that the said amounts were not profits, which were exempted under clause (2) of the said notification, but, on the other hand, they fell under item No. 1 of the Explanation to the said clause, and were excluded from the exemption. In the appeal before the Income-tax Appellate Tribunal, the Tribunal allowed the appeal of the assessee holding in its favour that the said amounts were exempted from tax under clause (2) of the notification and the exemption was not excluded under item No. 1 of the Explanation to the said clause. Thereafter at the instance of the department the Tribunal has drawn up a statement of the case an....
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....) Investments in (a) securities of the nature referred to in section 8 of the Indian Income-tax Act, or (b) property of the nature referred to in section 9 of that Act, (2) Dividends, or (3) The 'other sources' referred to in section 12 of the Income-tax Act." It is the assessee's contention that all income, profits and gains of a cooperative society, such as is mentioned in clause (2), is exempted from tax except such of it as is included in the 3 items of the Explanation. The assessee being admittedly a dealer in Government securities, the interest on securities is a part of its profits from its activity of business, and qualifies for exemption under clause (2) of the notification. It is not excluded from the said exemption under item No. 1 of the Explanation because that item is only restricted to the exclusion from exemption of interest on securities, which are held by a co-operative society as investments and not as stock-intrade. The assessee, therefore, is entitled to the exemption as claimed by it. The argument of the department, on the other hand, is that the notification having been issued in respect of classes of income, the two classes of the not....
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.....R. 17 (S.C.), that expression really means a category of income and it is a much wider expression than a head of income. The different clauses of the notification deal with different categories of income and clause (2), with which we are concerned, deals with income derived by a co-operative society as a class or category of income. It may be that the expression "class of income" may be capable of being used as having the same meaning as income under a specific head of income. There is, however, no doubt that the expression has not been used as synonymous with heads of income either in section 60 or in the notification. The expression "heads of income" has been used in section 6 of the Act and the legislature was fully apprised of the language used in that section when it used the expression "class of income" in section 60. If by that expression was intended to mean only the heads of income, the said expression would have been easily used in section 60 also. As has been pointed out in Commissioner of Income-tax v. Chugandas and Co. [1965] 55 I.T.R. 17 (S.C.), the provisions of the Indian Income-tax Act will show that where the legislature intended to refer to a specific head of ta....
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....h the Explanation which is appended to it and when it is so read, it will be abundantly clear that by the word "profits" in that sub-clause, only profits and gains computable under section 10 of the Act are intended. Now, the Explanation is as follows: "For this purpose the profits of a co-operative society shall not be deemed to include any income, profits or gains from the three items specified therein." It seems to us that if by the word "profits" used in clause (2) only the profits and gains as computable under section 10 were intended, there was no necessity whatsoever to give the Explanation. Moreover, the very wording of the Explanation itself would show that the word "profits", but for the said Explanation, would include not only the profits computable under section 10 but all profits. The Explanation proceeds to say "profits... shall not be deemed to include" something. In other words, but for the deeming brought in by the Explanation, the profits would have included what the Explanation says, they would not include. We do not, therefore, think that Mr. Joshi is right in his submission that clau....
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....o not exhaustively delimit sources from which income arises. This is made clear in the judgment of this court in United Commercial Bank Ltd.'s case [1957] 32 I.T.R. 688 (S.C.), that business income is broken up under different heads only for the purpose of computation of the total income: by that break up the income does not cease to be the income of the business, the different heads of income being only the classification prescribed by the Indian Income-tax Act for computation of income." Even assuming, therefore, that Mr. Joshi is right in his submission that what is intended under clause (2) of the notification is to exempt income from business, it is not the same thing as saying that what is intended under the said clause is only exempting the income computable under section 10 of the Act. The argument of the department that by the expression "class of income", the notification is confined to heads of income, does not appear to be right when reference is made to another notification also issued under section 60 of the Indian Income-tax Act. That notification, which is Finance Department Notification No. 878-F, dated 21st March, 1922, is also issued for allowing exemption....
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....is not confined to investments as capital investments, but covers all layings out of money including moneys laid out in purchasing securities, as stock-in-trade. He has invited our attention to the first proviso to section 8 of the Indian Income-tax Act, under which deduction is allowed in respect of interest payable on moneys borrowed for the purpose of investment in the securities by the assessee. Mr. Joshi points out that this deduction is allowed whether the investment is in securities, which are held as capital or as stock-in-trade. We are unable to accept the argument which is advanced by Mr. Joshi. In the first place, if the word "investments" in item No. 1 of the Explanation was intended to cover or include all layings out of money, it was not necessary to use the word altogether. It should have been enough if item No. 1 had merely stated "securities of the nature referred to in section 8 of the Indian Income-tax Act......" It would appear that the word "investments" has been deliberately used in order to make it clear that not all income, profits and gains from securities but only such income, profits and gains from securities which are held as investments, that is excl....