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Issues:
1. Whether the receipt of interest on fixed deposits qualifies as income under the head of 'other sources'? 2. Whether the receipt of interest from fixed deposits is exempt from taxation under specific notifications of the Central Board of Revenue? Analysis: The case involved an assessee, a co-operative bank registered under the Co-operative Societies Act, engaged in banking business. The bank received interest from fixed deposits in the assessment years 1946-47, 1947-48, and 1948-49. Initially, these amounts were not taxed. However, the Income-tax Officer later initiated proceedings under section 34, determining that the interest from fixed deposits was taxable as it did not fall under the exemptions specified in the Central Board of Revenue notifications. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal upheld this decision. The primary argument made on behalf of the assessee was that the fixed deposits were made not for investment purposes but to ensure liquidity for the bank's operational needs. The contention was that the interest from these deposits should be considered as profits attributable to the bank's business activities. However, the court disagreed, stating that the bank's objective was to lend money to constituents and facilitate product sales, not to invest surplus assets. Therefore, the interest from these fixed deposits did not qualify as exempt profits under the Central Board of Revenue notifications. The Chief Justice referred to various legal precedents, including decisions by the Madras High Court and the Rangoon High Court, to support the conclusion that profits arising from business with third parties, such as investments, were not covered by the exemption provisions. The judgment highlighted the distinction between profits derived from a cooperative society's core business activities and those arising from dealings with external entities. In conclusion, the court held that the interest from fixed deposits constituted income from 'other sources' under section 12 of the Income-tax Act and was not exempt from taxation under the Central Board of Revenue notifications. Both questions referred by the Income-tax Appellate Tribunal were answered in favor of the Income-tax Department and against the assessee. Justice Raj Kishore Prasad concurred with this decision.
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