TaxTMI 
TaxTMI 
1953 (5) TMI 26
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....icultural implements and produce; 3. The supervision and audit of registered co-operative societies; 4. The provision of education assistance to members of such asocieties; 5. Other measures designed to improve the work and extend the usefulness of such societies". It appears that due to reasons which are not disclosed but can well be imagined the Government authorised the assessee to deal in sugar, oil and standard cloth. For the purpose of this business they had to take usual permits which any other dealer in the same class of work would have had to do. In the previous assessment years, which are not the subject matter of reference now, some profits were made which were held by the Assistant Commissioner of Income-tax not to be liable to taxation under the Income-tax Act. In the assessment years 1948-49 and 1949-50 the assessee bank earned a profit of Rs. 39,694-12-0 and Rs. 25,877 respectively. By its order dated the 11th of April, 1951, the Tribunal found that these profits were earned by the assessee not as profits of business as a Co-operative Society but on account of dealings which were "out of its line of business (viz., co-operative banking)"....
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.... Income-tax Act gives the heads of income which are chargeable to income-tax, sub-clause (iv) being "profits and gains of business, profession or vocation". Section 10 deals with business profits:- "10. (1) The tax shall be payable by an assessee under the head of 'profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him". Profit under Section 10 as applied to Co-operative Societies has been the subject matter of decision in several cases. In Madras Central Urban Bank, Limited v. Commissioner of Income-tax (1929) ILR 53 Mad. 640, a Co-operative Society was by an order of Government required to keep 40 per centum of its total liability under call deposits in a liquid of fluid form and the Society invested it in Government security which produced interest. It was held that in the absence of proof that such investments are obligatory on the Society or are a part of its usual business, the interest on the securities was not part of the profits of the business of the Society. At page 647 of the judgment it is observed:- "The obligation on the bank to keep 40 per cent, ....
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.... [1934] 2 ITR 121 ; ILR 11 Rang. 521 , had to deal with a similar question under the unamended notification where the notification which is now there did not exist. It was there held that profits of a Co-operative Society that are exempted from income-tax under the notification of the Government of India dated the 25th August, 1925, are the profits accruing to the Society from carrying on the business of a mutual Co-operative Society and it was also held that where prima facie such income is chargeable to income-tax, the onus lies on the assessee to show that it is 'profits' within the notification and so exempt from income-tax. In that case income had accrued to the Society from investment of securities, from house property and from other sources. Sir Arthur Page, Chief Justice, said at page 527:- "Now it appears to me that the intention of the Governor-General in Council was to exempt from income-tax under the notification the profits accruing to co-operative societies from carrying on the business of a mutual co-operative society upon the ground that 'a man cannot make a loss or profit out of himself'...and in this way to encourage and foster co-operativ....
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....nce was not profit arising from the trading with its own members. Reference was made to New York Life Insurance Company v. Styles (1889) 14. App. Cas. 381. In that case the Life Insurance Company had no shareholders. The only members were the holders of participating policies. A calculation was made by the company of the probable death rate among the members and of the probable expenses and other liabilities. An account was annually taken and the greater part of the surplus of such premiums over expenditure referable to these policies was returned to the policy holders as bonuses. The remainder was carried forward as funds in hand to the credit of the general body of the members. It was held that no part of the premium income received under participating policies was liable to be assessed to income-tax as profits or gains and that Last v. London Assurance Corporation (1885) 10 App. Gas. 438was distinguishable, the income in that case being derived from transactions with persons not members and not, as in the present case, from mutual insurance between members only. Mr. Shamair Chand for the assessee submitted that the business of selling sugar, cloth and kerosene oil having b....