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Issues Involved:
1. Whether the profits from dealings with non-members are exempt from income-tax under clause (iv) of paragraph 15 of the Part B States (Taxation Concessions) Order, 1950. Issue-wise Detailed Analysis: 1. Exemption of Profits from Dealings with Non-Members: The primary issue revolves around whether the profits of Rs. 14,497 and Rs. 42,826 from the society's dealings with non-members are exempt from income-tax for the assessment years 1950-51 and 1952-53 under clause (iv) of paragraph 15 of the Part B States (Taxation Concessions) Order, 1950. The assessee, a co-operative society, contended that even profits from dealings with non-members should be exempt under the said clause. The Income-tax Officer and the Appellate Assistant Commissioner did not accept this contention, maintaining that only profits from dealings with members were exempt. The Tribunal held that trade with non-members could never be part of the functions of any co-operative society qua co-operative society and that profits from such activities were assessable. The Tribunal reasoned that the clause must be read in its entirety to understand the scope of the exemption, and the exceptions listed within the clause were operative. The relevant clause from the Part B States (Taxation Concessions) Order, 1950, states that the profits of any co-operative society registered under any Act in force in a Part B State are exempt from income-tax. However, it specifies that income from investments, dividends, and other sources referred to in section 12 of the Indian Income-tax Act are not included in this exemption. The Appellate Tribunal assumed that the profits from dealings with non-members fell under "other sources" as per section 12 of the Indian Income-tax Act. However, the Court found no basis for this assumption, as the amounts were returned and assessed as profits of the assessee's business. The Court concluded that for the profits to be exempt, they must have accrued from one of the objects for which the society was formed and registered. The objects of the co-operative society were the organization and development of rural production on a commercial basis and marketing. The profits in question were earned as the sole distributor of yarn, which did not fall under these objects. The Court referred to a similar case, Hoshiarpur Central Co-operative Bank Ltd. v. Commissioner of Income-tax, Simla, where profits from activities not aligned with the society's objects were not exempt from tax, even if permitted by the government. The Court emphasized that the exemption granted to foster the co-operative movement should not extend to activities not sustained by the society's constitution. Conclusion: The Court concluded that the sums of Rs. 14,497 and Rs. 42,826 were not entitled to exemption from assessment under clause (iv) of paragraph 15 of the Part B States (Taxation Concessions) Order, 1950. The reference was answered accordingly, with no order as to costs. A copy of the judgment was directed to be sent to the Appellate Tribunal as provided in sub-section (5) of Section 66 of the Indian Income-tax Act, 1922.
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