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TMI Blog1957 (9) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... . During the course of its banking business, the assessee purchased Government securities in the year of account and a profit of ₹ 53,229 was earned by the assessee. The assessee claimed exemption from tax in respect of the said amount under an explanation to F.D. (C.R.) Notification R. Dis. No. 291-I.T /25, dated the 25th August, 1925, as amended by Notification No. 26 dated 25th June, 1927. The notification is in the following terms: "The following classes of income shall be exempt 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: (2) The profits of any co-operative society other than the Sani-katta Salt-owners Society in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ?" Now, turning to the notification, it is clear that under sub-clause (2), the profits of any co-operative society registered under the Bombay Co-operative Societies Act are exempt from tax, and since the assessee is a society registered under that Act, all its profits are exempt from tax. But to this sub-clause, there is an explanation; and the relevant part of the explanation with which we are concerned on this reference directly is sub-clause (1). The explanation indicates that what is comprised in the explanation shall not be deemed to be profits of the society for the purpose of exemption from tax, in other words, it will be liable to tax, and the question is what is included in sub-clause (1). The relevant words to construe are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axable under "other sources". That is why "dividends" form a separate head in the income, profits or gains which are excluded from the exemption, and are not included in head No. 3 which relates to the "other sources" referred to in section 12. Subsequent to the date of the notification, however, the Income-tax Act has been amended by including dividends in section 12 and a separate enumeration of "dividends" as a source of income, profits or gains which are taxable is no longer necessary in the notification. But the point to note about dividends is that the language there used is not "investment in shares" but "dividends", while the language used in sub-clause (1) is "investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d what attracts tax is the income, profits or gains of investments, which are investments in the sense that the securities or property is not held as the stock-in-trade of the co-operative society. This view also helps to explain why the framers of the notification have not used the simple expression "interest on securities" in sub-clause (1), because if they did, the result would have been that income on securities whether or not the securities were capital investments or stock-in-trade would have equally attracted tax like dividends in sub-clause (2); but the framers of the notification obviously intended that a distinction should be made between these two kinds of securities. Mr. Joshi has relied on a decision of the Punjab Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordships held that the dealings in securities were really part of the business of the bank. Therefore, in our opinion, the word "investment" in sub-clause (1) of the explanation relates only to such securities as do not form part of the stock-in-trade of the co-operative society; and as in the case before us they did form part of the stock-in-trade as it was a banking company, the income, profits or gains made from the sale of these securities is not taxable. Mr. Joshi has drawn our attention to the preamble and conditions for registration of a society under the Bombay Co-operative Societies Act and wished to urge that the activities that this society carries on by way of banking do not fall within the scope of that Act. The firs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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