TMI Blog1940 (2) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... ral and to carry out the above objects in particular. The Bank may also carry on general business of banking not repugnant to the provisions of the Co-operative Societies Act and the rules framed thereunder. The nominal capital of the Bank is ₹ 3 lakhs made up of 400 shares of ₹ 250 each, termed A class shares, and 4,000 shares of ₹ 50 each, termed B class shares. Any individual can become a member by taking A class shares and any registered society by taking B class shares. The income of the Bank is made up mainly of (1) interest on loans to members, (2) interest on investments, (3) entrance and other fees and (4) dividends earned on share capital invested in other societies etc. 3. For the assessment year 1937-38 (previous year ended 30th June 1936) the Bank applied to the Income-tax Officer, Salem, for a refund of the tax deducted at source from the interest on Government Securities held by it. As the Income-tax Officer had information that the Bank had other sources of income assessable to tax he issued a notice under Section 22(2) calling upon the Bank to make a return of its total income of the previous year. The Bank accordingly filed a return show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing questions of law may be referred to the High Court: (a) Whether the petitioner is an 'association of individuals' within the meaning of Section 3 of the Income-tax Act and whether the petitioner can be assessed to income-tax as an association of individuals ; (b) Whether the petitioner earned or derived any income or profits assessable for the year 1937-38 and whether the sum of ₹ 26,624-10-0 included by the Income-tax Officer as 'co-operative income' in the total income of the petitioner was income or profits within the meaning of the Income-tax Act and not to be included in the total income ; (c) Whether the petitioner is not a mutual benefit society and as such cannot be said in law to have derived any income or profits assessable under the Income-tax Act ; (d) Whether in computing the total income of the petitioner the addition of the sum of ₹ 15,000 being the reserve for bad and doubtful debts is legal in view of the uniform practice of petitioner to write off the bad debts not out of current profits of the year but out of the reserve ; (e) Whether the petitioner is not entitled under Section 8, second proviso to an exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (c) under sub-section (2) to Section 14, where reference is made to the share of the profits or gains of an association of individuals other than a Hindu undivided family, company or firm. The argument that an incorporated body with a separate legal existence cannot be regarded as an association of individuals has therefore no substance. Another point urged by the Bank in support of the contention that it is not an association of individuals is that its members consist not only of individuals but also of registered societies. The term 'individual' has not been defined either in the Income-tax Act or in the General Clauses Act. The word means an indivisible entity and connotes not only a single person in the ordinarily accepted sense, but also an entity like a company or a society which, to adopt the petitioner's own phraseology has a separate legal existence of its own. Thus an 'individual' may be either a single human being or a unit in a class, and in this view an association of individuals may be interpreted as meaning a body of persons whether incorporated or not . In the present case, each registered society which joined the Bank as a member is an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uality in them. Loans are taken by the Bank from members as well as from others, and interest is payable on such loans at fixed rates. Loans are granted to co-operative societies, individual shareholders, and also to depositors who are not shareholders. There is thus nothing in the activities of the Bank to distinguish it from an ordinary banking concern. The mere fact that it has certain dealings with its own members cannot make it a Mutual Benefit Society, nor is it entitled to claim immunity from taxation in respect of income attributable to such dealings. The contention that it is a Mutual Benefit Society is founded on a wrong understanding of the inherent nature of such societies. It may be possible for a co-operative society to function purely as a Mutual Benefit Society and to claim total exemption in respect of income so derived. The English and Scottish Joint Co-operative Wholesale Society Ltd., whose case was decided by this Hon'ble Court in 3 I.T.C. 385, is an example of such a society. But to say that every co-operative society is a Mutual Benefit Society betrays ignorance of the true nature of a Mutual Benefit Society. The Bank is a co-operative society doing busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 37,445. The assessee challenged the correctness of this decision and asked the Commissioner of Income-tax to refer to this Court under the provisions of Section 66(2) of the Act certain questions. The Income-tax Commissioner considered that only two questions of law arose and these he has referred. They are as follows:- (a) Whether the Bank is an association of individuals within the meaning of Section 3 of the Act and whether it can be assessed to income-tax as an association of individuals. (b) Whether the Bank is not a Mutual Benefit Society and as such can be said to have derived a profit of ₹ 26,624 as a cooperative society to be included in its total income. The assessee is satisfied with the reference of these two questions and therefore the Court is not called upon to go beyond them. The first question arises out of a contention advanced on behalf of the assessee that the assessee was not liable to income-tax at all as the assessee does not come within the charging Section 3. Section 3 says:- Where any Act of the Indian Legislature enacts that income- tax shall be charged for any year at any rate or rates applicable to the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e: Currimbhoy Ebrahim Baronetcy Trust v. Commissioner of Income-tax, Bombay [1932] 5 I.T.C. 484; A.I.R. 1932 Bom. 106. One of the questions in that case was whether a Corporation styled The Trustees of the Sir Currimbhoy Ebrahim Baronetcy Trust which had been created under an Act passed by the Governor-General in Council was to be deemed to be an 'individual' within the meaning of Section 3 of the Income-tax Act. The Income-tax Authorities had assessed the Corporation as an 'association of individuals'. Beaumont, C.J., held that the Corporation was an individual within the meaning of the section and not an 'association of individuals'. The question of the legality of the assessment was taken to the Privy Council and although the question of the status of the Corporation was not directly raised before the Board it falls to be observed that the decision of the Bombay High Court was affirmed. I consider that the opinion expressed in Currimbhoy Ebrahim Baronetcy Trust v. Commissioner of Income-tax, Bombay is preferable to that expressed in Commissioner of Income-tax, Bombay v. Ahmedabad Millowners' Association [1939] 7 I.T.R. 369. While it is true tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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