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Surat Peoples' Co-Operative Bank Ltd. Versus Commissioner of Income-tax

1957 (9) TMI 49 - BOMBAY HIGH COURT

IT REFERENCE NO. 16 OF 1957 - Dated:- 23-9-1957 - TENDOLKAR AND S. T. DESAI, JJ. For the Applicant R.J. Kolah For the Respondent G.N. Joshi and M.P. Amin JUDGMENT Tendolkar, J.- The assessee in this case is the Surat Peoples' Co-operative Bank Ltd., which is registered under the Bombay Co-operative Societies Act, 1925. Among the objects of the bank is object No. 5 "to undertake every kind of banking and shroffi business" and the assessee in the relevant year of account ending 30th .....

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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 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), or the Madras Co-operative Soc .....

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erred to in section 12 of the Indian Income-tax Act." It was the contention of the assessee that under sub-clause (2) of the notification, the income of the assessee was exempt from tax and what was taken out from this provision by the explanation was merely "interest on securities" and not profits made by the dealer in securities. The Tribunal rejected this contention, and it is against the decision of the Tribunal that the present reference has been made. The question referred t .....

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essee 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). .....

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rities but also include profits realised from purchases and sales of securities. On the other hand, Mr. Kolah for the assessee contends that all that is included under the explanation is "interest from securities" and not the profits made by dealing in securities. Now, in order to appreciate better these contentions, we may as well look at sub-clause (2) of the explanation. What is excluded from profits of a co-operative society which are exempt and therefore liable to tax in the hands .....

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k-in-trade, they would have been taxable 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 o .....

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s than to lay out money; and, therefore, where a person purchases securities whether as his stock-in-trade or by way of capital investment, he is in either case investing in securities. But under income-tax law it makes all the difference whether an assessee has purchased securities as an investment or a dealer. If he was an investor and he sold shares and made profits on such sale, this would be a case of capital appreciation and it may attract "capital gains" tax if applicable, but p .....

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l investment and which is not an investment in securities or property which is its stock-in-trade. If, there is investment in the popular sense in securities or property, which is its stock-in-trade, it is not investment in the sense in which that word is used in the notification; and 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 hel .....

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ed on a decision of the Punjab High Court in Hoshiarpur Central Co-operative Bank Ltd. v. Commissioner of Income-tax [1953] 24 ITR 346. This decision appears to us to have no bearing on the issue which we have to determine. The question with which the Punjab High Court was concerned was whether profits flowing from a business carried on by a co-operative society which was outside the object of the society earned an exemption. That is not the case before us, because as we have already pointed out .....

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oshi in respect of certain observations made by their Lordships that a banking company has to make investments in securities. That no doubt is true as we have earlier pointed out in the normally accepted meaning of the word "investment"; but their Lordships were not there concerned with the distinction which we have already pointed out between an investor in securities and a dealer in securities. The issue before their Lordships was that the bank had claimed that it had been dealingin .....

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