# BANK LTD v. COMMISSIONER OF INCOME.TAX, SIMLA

- **Citation:** [1961] 1 S.C.R. 107
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Case number:** Civil Appl'al No. 238 of 1955
- **Bench:** 8. K. Das, M. Hidayatullah, J. c. SHAH
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/bank-ltd-v-commissioner-of-income-tax-simla-1911
- **Pages:** 7

## Headnote

Income-tax-Co-operative Society-Profits earned in business
with non-members-Whether exempt from tax-Income-tax Act,
I92I (IX of I92I), s. 60, notification.
The assessee Bank, which was a _co-operative society, did
business is controlled commodities with the approval of the
Registrar of Co-operative Societies and earned profits.
It
claimed that these profits were also exempt from taxation under
F. D. (C. R.) Notification R. Dis. No. 291-I. T./25 dated August
25, 1925, as subsequently amended, issued under s. 60 of the
Income-tax Act. This notification exempted "the profits of any
co-operative society." from tax. It was urged for the Department that these words referred to profits made by a co-perative
society in its business as a pure co-operative society, i.e., ifLbusi.
ness with its own members. within the four corners of the Cooperative Societies Act, 1912, and the bye-laws made thereunder.
Held, that the said profits were exempt from tax. The
words of the Notification were wide enough to include profits of
business of a co-operative society in transactions· with nonmembers also. It was always open to the appropriate Government to allow a society to exten<f its business operations to trading with persons other than its members. Once there was such
z960
. August 2.
108
SUPREME COURT REPORTS
[19fll]
19~0
extension, the profits of the society from such business fell within the general words of the :\otification an<l it required more
11,,,1i1arp10·
than a supposed underlying intention to negative the exemption.
Cc,z/ral -
Tl1t Madra5 Central Urban Banh Ltd. v. Commissioner of
Co-of'trati1·1:
) I
M d 6
r.
Rank Ud.
Income-tax, (1929
.L.R. 52. a . 40, ". R., The Madras Provincial Co-<>Perative Bank Ltd. v. Commissioner of lncomr-tax, (1933)
. v.
I I.L.R. 56 ~lad. 837 F. B. and Commissioner of Income-ta~. Burma
C
011
;;;;;,;;_~::
0
v. The Bengalee
llr~an. Co~operatit·e Credit Society Ltd., (1933)
S .. 1
·
l.L.R. 1I Ran. 521, d1stmgmshed .
. Utl a

## Text

1 S.C.R. SUPREME COURT REPORTS
107
carry on or renew the proceedings. In this case, it is
'960
not necessary to pronounce upon the question whether
P-;;n--;;i,
dissolution of the House necessarily has the effect of M. s. M. Sharma
completely wiping out the contempt or the proceedings
v.
relating thereto.
Dr .. Shree Krishna
In· our opinion, for the reasons given above, no Sinha & Others
grounds have been made out for the exercise by this
Sinha c. J.
Court of its powers under Art. 32 of the Constitution.
The petition is accordingly dismissed.
There will be
no order as to costs.
Petition dismissed.
HOSHIARPUR CENTRAL CO-OPERATIVE
BANK LTD.
v.
COMMISSIONER OF INCOME.TAX, SIMLA.
(8. K. DAS, M. HIDAYATULLAH, and J. c. SHAH, Jj,)
Income-tax-Co-operative Society-Profits earned in business
with non-members-Whether exempt from tax-Income-tax Act,
I92I (IX of I92I), s. 60, notification.
The assessee Bank, which was a _co-operative society, did
business is controlled commodities with the approval of the
Registrar of Co-operative Societies and earned profits.
It
claimed that these profits were also exempt from taxation under
F. D. (C. R.) Notification R. Dis. No. 291-I. T./25 dated August
25, 1925, as subsequently amended, issued under s. 60 of the
Income-tax Act. This notification exempted "the profits of any
co-operative society." from tax. It was urged for the Department that these words referred to profits made by a co-perative
society in its business as a pure co-operative society, i.e., ifLbusi.
ness with its own members. within the four corners of the Cooperative Societies Act, 1912, and the bye-laws made thereunder.
Held, that the said profits were exempt from tax. The
words of the Notification were wide enough to include profits of
business of a co-operative society in transactions· with nonmembers also. It was always open to the appropriate Government to allow a society to exten<f its business operations to trading with persons other than its members. Once there was such
z960
. August 2.
108
SUPREME COURT REPORTS
[19fll]
19~0
extension, the profits of the society from such business fell within the general words of the :\otification an<l it required more
11,,,1i1arp10·
than a supposed underlying intention to negative the exemption.
Cc,z/ral -
Tl1t Madra5 Central Urban Banh Ltd. v. Commissioner of
Co-of'trati1·1:
) I
M d 6
r.
Rank Ud.
Income-tax, (1929
.L.R. 52. a . 40, ". R., The Madras Provincial Co-<>Perative Bank Ltd. v. Commissioner of lncomr-tax, (1933)
. v.
I I.L.R. 56 ~lad. 837 F. B. and Commissioner of Income-ta~. Burma
C
011
;;;;;,;;_~::
0
v. The Bengalee
llr~an. Co~operatit·e Credit Society Ltd., (1933)
S .. 1
·
l.L.R. 1I Ran. 521, d1stmgmshed .
. Utl a
CIVIL APPELLATE JURISDICTION:
Civil Appl'al No.
238 of 1955.
·
Appeal from the judgment n.nd order da.ted May 27,
1953, of the Punjab High Court in Civil Reference
No. 3/1952.
Del!a Singh Rarulhaoo and K. L. Mehta, for the
appellant.
111. C. Setalvad, Attorney-General for Irulia, K. N.
Rajagopal Sastri and D. Gupta, fo~ the respondent.
1960. August. 2.
The Judgment of the court was
delivered by
Hidayat1<llah ].
HIDAYATULLA~ J.-This is an appeal against the
judgment and order of the High Court of Punjab with
the certificat~ of the Court granted under s. 66A(2) of
the Indian Income-tax Act.
The Hoshiarpur Central Co-operative Ba.nk, Ltd.,
Hoshia.rpur, hereinafter referred to ns the Bank, is the
appellant, and the Commissioner of Income-tax, Simla,
is the respondent.
For the assessment yea.rs 1948.49
and 1949-50, the lncome.ta.x Officer included in,the
asse~sment of the Bank certs.in income which ha.d
accrued t.o the Ba.nk as profits from trading in controlled commodities like suga.r, cloth, kerosene, etc.,
which the Ba.nk wa.s allowed to deal in, with the approval of the Registrar of Co-operative Societies conveyed in a letter dated September 28, 1954. The Bank
claimed exemption under a. notification issued under
s. 60 of the Income-tax Act, but the contention was
not accepted.
On appeal, the Appellate Assista.nt
Commissioner reversed the decision, which, on further
appeal, was reversed by the A ppella.te Tribunal, Delhi
Branch. The Appellate Tribunal, however, raised,
1 S.C.R. SUPREME COURT REP,ORTS
109
and referred the following question to the High Court
under s. 66(1) of the Income-tax Act:
"Where a co-operative Bank deals in sugar and
standard cloth with special permission of the authorities and earns income from such activities, is such
income exempt from tax under item 2 of the Government of India Notification F. D. (C. R.) Notification
R. Dis. No. 291-I. T/25 dated 25th August, 1925, as
subsequently amended (Income-tax Manual, 10th Edition, Part II, pages 257-258) ?"
The High Court answered the question against the
Bank, but certified the case as fit for appeal .to this
Court, and hence this appeal.
It is admitted on all hands that the profits were
made from trading in cert.ain commodities with the
approval of the Registrar of Cq:operative Societies.
The quantum and the manner in which those profits
were made, are not in dispute. The short question in
this appeal is whether the exemption granted by the
notification covers the case. The notification reads as
follows:
"Income included in total income but exempt
from both income-tax and super-tax:
·
The following classes of income shall be exempted from the tax payable under the said Act, but shall
be taken into account in determining the total income
of an assessee for the purposes of the said Act :-
1. ................ .
2.
The profits of any Co-operative Society other
than the Sanikatta Saltowners' Society in the Bombay
Presidency for the time being registered under the
Co-operative Societies Act, 1912 (II of 1912), the Bombay Co-operative Societies Act, 1925 (Bombay Act
VII of 1925), the Burma Co-operative Societies Act,
1927 (Burma Act VI of 1927) or the Madras Co-operative Societies Act, 1932 (Madras Act VI of 1932), or
the dividends or other payments received by the
members of any such society out of such profits.·
Explanation : For this purpose the profits of a
Co-operative Society shall not be deemed to include
any income, profits or gains from :-
(i) Investment in (a) securities of the nature
JI vshiarpur
Central
Co-operative
JJank Ltd.
v.
Comnu·ssioner of
Inconie-tax,
Simla
110
SCP~EME COCRT REPORTS
(1961]
1960
referred to in Section 8 of the Indian Income-tax Act,
or (b) property of the nature referred to in Section 9
Hoshiarpur
Ceni.al
of tha.t Act;
Co-op.,a1ive
(ii) dividends, or
Hank Ll4.
(iii) the ' other sources' referred to m section 12
v.
of the Indian Income-tax Act."
C
0 "''""'
10"" of
Tho Income-tax Officer held that the profits ma.de
Imomt-tax,
b
81,.10
Y the Ba.nk were not the profits in a. co-operative
venture but from trading with outsiders, and that,
Hidayalullao J. therefore, para. 2 of the notification did not cover
them. He i.lso held that this income fell within
"other sources " referred to in item (iii) of the Explanation. The Appellate Assistant Commissioner held
that these were profits of a. Co-operative Society, a.nd
were within pa.Ta. 2, and were, therefore, excempt from
tax. Both the Tribunal and the High Court accepted
the rea.soning of the Inoome-ta.x Officer with regs.rd to
pa.re. 2, but the High Court did not express a.ny opinion
a.a to whether the third item of the Expla.na.tion
a. pplierl to the case or not.
Before us, the lea.med Attorney-Genera.I appearing
for the Department did not put his ca.Re on the Expla.-
na.tion, a.nd nothing more need be said a.bout it. It
ma.y, however, be mentioned that "other sources"
there ha.s reference to the scheme of s. 6 of the Indian
Income-tax Act, a.nd profits from business of whatever kind, a.re dealt with under a. IO of the Act. The
short qllestion thus is whether pa.re. 2 is confined only
to profits ma.de by a. Co-opera.ti ve Society from tra.nsa.ctions with its own members a.nd does not cover
profits ma.de in business with outsiders.
It ma.y be pointed out that there a.re some cases to
be found, in which it wa.s held, before the notifitia.tion
was a.mended by the addition of the Expla.na.tion, that
the second pa.ra. exempted profits ma.de by a Cooperative Society in tra.nsa.ction with its members a.nd
not to profits ma.de in a.ny other wa.y.
The question
is whether such a. restricted meaning ca.n be imputed
to the very wide a.nd genera.I terpis in w hioh pa.ra 2 is
couched.
The question is pie.inly one of construction of the
notification. In support of the oa.se of the Department,
1 S.C.R. SUPREME COURT REPORTS
111
the learned Attorney-General relies on two arguments.
He first refers to the opening words of the second para
of the notification, viz., "The profits of any Cooperative Society". These words, it is argued, refer
to profits made by a Co-operative Society in its business
as a pure Co-operative Society, or, in other words,. in
business with its own members within the four corners
of the Co-operative Societies Act, 1912 and the bye.
laws made under that Act.
No doubt, a Co-operative Society primarily exists
for business with members and not for business with
non-members; but the words of the notification and
even those more specifically relied upon, are wide
enough to include any business whether of the one
kind or other. It cannot be denied that the Bank is a
Co-operative Society and is claiming the exemption
only as such, and further that it is claiming the exemption in respect of profits from a business carried on by
it. It was for this reason that the attempt to bring
the profits within " other sources " covered by s. 12 of
the Indian Income-tax Act was rightly abandoned in
this Court. If this is the obvious position, it follows·
that the words " the profits of any Co-operative
Society" are wide enough to cover profits-from any
business, and there is nothing to show that the profits
there mentioned are only the profits from business
- with members.
It is next argued that a Co.operative Society exists
for business with members, and that the Co-operative
Societies-Act and t_!ie bye-laws of the Bank reflect this
character of the business· undertakings. This intention underly!ng the Co-operative Societies Act and the
bye-laws, it is urged, is the key to the interpretation of
the notification, and it must, therefore, be limited to
profits from business with membe.rs only. In support
of this argument, reference is made to observations in
The Madras Central Urban Bank Ltd. v. Commissioner
of Income- tax (' ), The Madras Provincial Co-operative
Bank Ltd. v. Commissioner of Income.tax(') and Commissioner of Income-tax, Burma v. The Bengalee Urban
(1) (t929) I.L.R. 52 Mad. 640 F.B.
(2) (1933) I.L.R. 56 Mad. 837 F.B.
I960
Hos.hiarpur
Central
Co-operative
Bank. Ltd.
v.
Commissioner oj
· Incotiie-tax,
Simla
Hidayatullah ].
· z960
Ho.sh1arpur
CtHlral
Co-optratit•t
Bank l.td.
v.
Conunisstontr of
Incomt·tax,
Sintla
Hidayat11Jlah J.
ll2
SUPREME COURT REPORTS
[1961]
Go-operative Credit Society, Ltd.('), where it wa.spointed out tha.t the notification covered only profits from
business with members.
The first two ca.sea wero of
interest derived from moneys invested in Government
Securities to comply with orders of Government to the
Societies to keep 40 per cent of the tota.I liabilities
always ready at hand, a.nd it was sa.id that the profits
were not from business with members.
In the la.st of
the three cases, it was pointed out that the exemption
was grounded on the principle that 'a. person cannot
make a. loss or profits out of himself', and strictly
speaking, only such profits a.s were made in business
with members were exempt.
The position since these cases were decided ha.a been
ma.teria.Ily altered by the a.ddit.ion of the Explanation.
The Explanation now takes us back to the kinds of
income to be found ins. 6 of the Indian Income.tax
Act where business profits a.re, in a. category by themselves, more exhaustively treated ins. 10.
There a.re
other heads of income of distinct cha.ra.cteristics which
a.re treated separately, a.nd then thore is a residuary
head which includes income from "other sources"
which for that reason a.re innomina.te. The Expla.na.-
tion cannot be so.id to imply a. genera.I approval of the
earlier decisions. Such a. conclusion does not necessarily follow, beca.uso if the pa.re.graph of the notifies..
tion wa.s clear enough there was hardly a.ny need for
the Explanation. The addition of the Explanation
clears once for a.11 any doubt that might have a.risen a.s
to the ambit of the word "profits". After the addition of the Expla.na.tion a.nd even before it, the worrl
denoted profits from business a.nd not income which
a.rose, a.pa.rt from business.
It must not be overlooked that at the time when the
notification wa.s first iSBued a.nd also when it was
amended, it was not even contemplated that Co-operative Societies would be permitted to deal in commodities in short supply with a. view to ensuring their
equitable distribution among the consumers. It was,
however, a.Iwa.ys open to the appropriate Government
to allow a Society to extend its busiuess operations to
(1) (1933) l.L.R. 11 ~an. Ju.
1 S.C.R. SUPREME COURT REPORTS
113
trading with persons other than its members subject
to conditions and . restrictions, vide s. 31 of the
Co-operative Societies Act. This has, in fact, been
done here.
Once there is this extension of the business of a
Co-operative Society, the general words of the notification include the profits from such business within the
exemption",a.nd it would require more than a supposed
underlying intention to negative the exemption. To
Hoshiarpur
CentYal
co.operative
Bank Ltd.
v.
Commissioner of
lncome·lax,
Simla
gather the meaning of the notification in the light of Hidayatull•h J.
an alleged intention is to reverse the well-known canon
of interpretation. In our opinion, the profits were
exempt under the notification, and the answer to the
question ought to have been in the affirmative.
In the result, we allow the appeal with costs here
and in the High Court.
Appeal allowed.
SHRI BALWANTRAI CHIMANLAL TRIVEDI
v.
M. N. NAGRASHNA AND OTHERS.
(B. P. SINHA, c. J., J. L, KAPUR,
P. B. GAJENDRAGADKAB, K. SuBBA RAo and
K. N. WANCHOO, JJ.)
Supreme Court-Appeal by special leave-Question of jurisdiction of inferior court-Court not bound to decide where there is110
failure of justice-Review-Constitution of India, Art. z36.
Where at the hearing of an appeal filed by special leave
from a decision of the High Court in a Writ Petition filed there
under Art. 226 of the Constitution of India against an order of
the Payment of Wages Authority, the Court constdered that
there was some force in the contention relating to the jurisdiction of the Authority concerned but did not decide that question
on the view that as there had been no failure of justice the
Court would not interfere under its powers under Art. 136, and
the appellant applied for a review of the judgment:-
15
r960
August 3.