JUDGMENT M.C. Desai, C.J.
1. This is a case stated by the Income-tax Appellate Tribunal, Allahabad Bench, and the question referred is:
"Whether the net income of Rs. 1,81,569 and Rs. 1,97,198 received by the assessee in the assessment years 1958-59 and 1959-60 respectively on account of interest on securities is exempt from tax under Section 14(3) of the Income-tax Act ?"
2. The assessee is a co-operative society carrying on the business of banking and registered under the U.P. Co-operative Societies Act, 1912. Its main business is providing finance to its own members and occasionally it provides banking facilities to non-members. It holds Government securities in the course of its banking business and earns interest from them. Its total income is more than Rs. 20,000. During the assessment years 1958-59 and 1959-60, it received Rs. 1,81,569 and Rs. 1,97,198 respectively as interest on the securities and claimed that it was exempted from the liability to pay income-tax on them by Section 14(3)(i) of the Income-tax Act. The case of the Commissioner of Income-tax was that the income was chargeable under Section 8 of the Act and that, since its total income exceeds Rs. 20,000 and it was not a housing society or urban consumers' society or a society carrying on transport business, it was not entitled to the benefit of Clause (iv) of Section 14(3) and that Clause (i) is not applicable to income from interest on securities. The Tribunal accepted the contentions of the Commissioner, held that the assessee was not entitled to the exemption from tax and then at its instance stated the case.
3. Income-tax is chargeable by Section 3 on the total income of every association of persons. Section 6 lays down that save as otherwise provided by the Act the following heads of income, profits and gains shall be chargeable to income-tax in the manner hereinafter appearing, namely:
(i) Salaries.
(ii) Interest on securities,
(iii) Income from property.
(iv) Profits and gains of business, profession or vocation,
(v) Income from other sources,
(vi) Capital gains.
4. Section 7 provides for the tax payable by an assessee under the head " Salaries ". Section 8 provides that " the tax shall be payable by an assessee under the head ' Interest on securities ' in respect of the interest receivable by him on any security ". Section 9 provides that " the tax shall be payable by an assessee under the head ' Income from property ' in respect of the bona fide annual value of property ", etc., subject to certain allowances. Section 10 provides that " the tax shall be payable by an assessee under the head ' Profits and gains of business, profession or vocation ' in respect of the profits or gains of any business, profession or vocation carried on by him" and the profits or gains are to be computed after making certain allowances mentioned in it. Section 12 provides that " the tax shall be payable by an assessee under the head ' Income from other sources' in respect of income, profits and gains of every kind which may be included in his total income (if not included under any of the preceding heads)". Section 12B provides for the tax payable by an assessee under the head " Capital gains ". Section 14 is as follows :
"1. ......
2. ......
3. The tax shall not be payable by a co-operative society, including a co-operative society carrying on the business of banking--
(i) in respect of profits and gains of business carried on by it; .... (iv) in respect of any interest on securities chargeable under Section 8 or any income from property chargeable under Section 9, where the total income of such society does not exceed twenty thousand rupees and the society is not a housing society or an urban consumers' society or a society carrying on transport business. "
5. Income, profits and gains have been divided into six heads enumerated in Section 6 for the purpose of assessing the taxable amounts of different kinds of income, profits and gains. Income from different sources is to be computed in different manner and, therefore, for the purpose of assessing the taxable amount income is divided into six heads. The heads are mutually exclusive and for the purpose of assessing the taxable amount an income must be placed under only one of the heads. Head (v) is a residuary head ; an income can come under it only if it does not come under heads (i) to (iv). There is no difficulty about heads (i) and (vi); the income from either of them cannot possibly be interest on securities or income from property or profits and gains of business, profession or vocation. As regards interest on securities and income from property, it is possible for either of them to be also profits and gains of business. If an assessee carries on business in securities, the securities held by him are his stock-in-trade and interest on them is profits and gains of the business. Similarly, if an assessee deals in certain property, the property is his stock-in-trade and income from it is a part of his profits and gains of business. In such cases the income is to be computed under head (ii) or head (iii) and not under head (iv) because heads (ii) and (iii) are more specific than head (iv). Head (iv) deals with profits and gains of business and profits and gains of business may include interest on securities and income from property but since heads (ii) and (iii) deal specifically with interest on securities and income from property the taxable income must be computed as laid down in Section 8 or 9 and not as laid down in Section 10. The income being specifically dealt with in Section 8 or 9 should not be dealt with under Section 10. It is a part of profits and gains of business but for the purpose of assessing its amount the manner laid down in Section 8 or 9 is to be adopted and not the manner laid down in Section 10.
6. The phrase " profits and gains of business " occurs not only in Sections 6 and 10, which are connected with each other, but also in Clause (i) of Section 14(3), Section 24 and Section 25. Section 24 allows a loss of profits and gains under any of the heads mentioned in Section 6 to be set off against the income, profits or gains under any other head of that year, subject to the proviso that a loss sustained in a speculative business is not to be set off except as against profits and gains of another speculative business, while Section 25 deals with assessment in case of discontinued business. The provisions in Sections 24 and 25, as also the provisions in Section 14(3)(i), do not deal with the manner in which income from profits and gains of business is to be computed and, therefore, the question under what head the income is chargeable is not relevant. When one has to consider any of these provisions, the only question that arises is whether the income is profits or gains of business or not. As I said earlier, income can be profits or gains of business even though its amount is to be assessed in the manner laid down for assessment of income from interest on securities or income from property. Though an income from interest on securities or from property may have to be computed in the manner laid down in sections 8 and 9 and not in the manner laid down in Section 10, it is profits and gains of business within the meaning of the provisions in Sections 24, 25 and 14(3)(i) if the securities are, or the property is, stock-in-trade of a business. There is no reference in Sections 24 and 25 to the head under which the income may be chargeable. There is no such reference in Section 14(3)(i) also and the absence of such a reference here is made all the more conspicuous by the reference to heads (ii) and (iii) in Clause (iv). Clause (iv) is in respect of "interest on securities chargeable under Section 8 " and "income from property chargeable under Section 9 " but Clause (i) is not in respect of " profits and gains of business chargeable under Section 10 ". There is no reason to think that the omission of the words " chargeable under Section 10 " from Clause (i)is accidental and the only reason that can exist for it is that Clause (i) is not confined to the profits and gains of business computed in the manner laid down in Section 10. Section 14(3) deals with exemption from taxation of certain income and not with the manner of computing particular income and is thus similar to the provisions contained in Sections 24 and 25, which also deal with non-taxability of certain income and not with the manner of its computation. Just as the question of the head under which the income is chargeable is irrelevant for the purposes of Sections 24 and 25, so also it is irrelevant for the purpose of Section 14(3).
7. United Commercial Bank Ltd. v. Commissioner of Income-tax, [1957] 32 I.T.R. 688, 695; [1958] S.C.R. 79 lays down that a loss in a business carried over from an earlier year can be set off against the income from interest on securities held as stock-in-trade of the banking business under Section 24. Kapur J., speaking for the Supreme Court, stated as follows, [1957] 32 I.T.R. 688, 695 (S C):
". .. the phraseology of all the sections following, i.e., 7 to 12, employing the words ' the tax shall be payable under the head ... in respect of' the different and distinct heads of income, profits and gains, ' salaries ', ' interest on securities ' and ' property ', ' business ', etc., is indicative of the intention of the legislature making the various heads of income, profits and gains mutually exclusive. So every item of income, whatever its source, would fall under one particular head and for the purpose of computing the income for charging of income-tax the particular section dealing with that head will have to be looked at... The contention of counsel for the revenue that under the scheme of the Act and on a true construction of these relevant sections ' interest on securities' by whomsoever and for whatever purpose held has to be taxed under Section 8 and under no other section is well founded and must be sustained. It being a specific head of chargeability of tax, income from ' interest on securities ' whether held as a trading asset or capital asset would have to be taxed under Section 8 and not under Section 10 of the Act. "
8. At page 697 he stated :
"We cannot treat any one of the sections from sections 7 to 10 to be general or specific for the purpose of any one particular source of income. The language shows that they are all specific and deal with the various heads in which the item of income, profits and gains in the case of an assessee falls.
... the various heads of income enumerated in Section 6 of the Act and more particularly dealt with in Sections 7 to 12 are exclusive heads and if an item of income falls under one of these heads then it has to be treated for the purpose of income-tax under that head and no other. "
9. At page 702 he stated :
" The head of income of which the source is 'interest on securities' has its characteristics for income-tax purposes and falls under the specific head covered by Section 8 of the Act, and where an item falls specifically under one head it has to be charged under that head and no other. "
10. This case was referred to by Shah J. in Commissioner of Income-tax v. Chugandas and Co., [1965] 55 I.T.R. 17, 20, 21, 22, 24 (S.C.) He said :
"... income-tax is a single tax on the aggregate of income received from diverse heads mentioned in Section 6 : Section 6 is not a charging section, and income computed under each distinct head is not separately chargeable to tax. But income which is chargeable under a specific head cannot be brought to tax under another head either in lieu of or in addition to that head ...
. . . even if an item of income is earned in the course of carrying on a business, it will not necessarily fall within the head 'profits and gains of business' within the meaning of Section 10 read with Section 6(iv). If securities constitute stock-in-trade of the business of an assessee, interest received from those securities will for the purpose of determining the taxable income be shown under the head ' interest on securities' under Section 8 ...
. .. there is no reason to restrict the condition of the applicability of the exemption only to income on which the tax was payable under the head 'profits and gains of business, profession or vocation.' The legislature has made no such express reservation and there is no warrant for reading into Sub-section (3) such a restricted meaning. Sub-section (3) it may be noticed does not refer to chargeability of income to tax under a particular head as a condition of obtaining the benefit of the exemption.
These are some of the provisions in which reference is made to specific heads of taxation. But the exemption under Section 25(3) is general; it is not restricted to income chargeable under Section 10 of the Act.
. . . business income is broken up under different heads only for the purpose of computation of the total income; by that break-up the income does not cease to be the income of the business, the different heads of income being only the classification prescribed by the Indian Income-tax Act for computation of income."
11. Accordingly it was held that an assessee, who was a dealer in securities and earned interest on securities held as stock-in-trade, was entitled to the exemption under Section 25 because the exemption was not restricted to income on which the tax was payable under head (iv). The latest pronouncement of the Supreme Court on the subject is Commissioner of Income-tax v. Cocanada Radhaswami Bank Ltd., [1965] 57 I.T.R. 306, 309, 310, 311 (S.C.) Subba Rao J. stated as follows:
" Section 6 only classifies the taxable income under different heads for the purpose of computation of the net income of the assessee. Though for the purpose of computation of the income, interest on securities is separately classified, income by way of interest from securities does not cease to be part of the income from business if the securities are part of the trading assets. . . .
Section 24 ... is enacted to give further relief to an assessee carrying on a business and incurring loss in the business though the income therefrom falls under different heads under Section 6 . ..."
12. He accepted the decision in United Commercial Bank Ltd., [1957] 32 I.T.R. 688 ; [1958] S.C.R. 79 that " the different clauses of Section 6 were mutually exclusive, each specific head covering items of income arising from a particular source" and that " though the securities were part of the trading assets of the company doing business, the income therefrom had to be assessed under Section 8 " and explained that it did not follow that income from securities is not income from business. He held that income received from interest on securities forming part of an assessee's trading assets was a part of its income from the business and a loss incurred in the business in an earlier year could be set off against it under Section 24. The provisions of Section 14(3) being similar to those of Sections 24 and 25, the ratio decidendi of the decisions in Chugandas & Co., [1965] 55 I.T.R. 17 (S.C.) and Cocanada Radhaswawi Bank Ltd., [1965] 57 I.T.R. 306 (S.C.) is applicable in the instant case and it must be held that Clause (i) of Section 14(3) is applicable to income from interest on securities held as stock-in-trade in spite of its being chargeable under Section 8.
13. Clauses (i) to (iv) of Section 14(3) enumerate the exempted sources of income of a banking co-operative society. All the four sources are exempted ; if an income is derived from one of the sources it is exempted even though it cannot be said to have been derived from another of the sources. The securities in the instant case have been held by the assessee as its stock-in-trade and interest on them is chargeable to the tax under Section 8, but the assessee's total income exceeds Rs. 20,000 and consequently the income is not exempt under Clause (iv). But it does not follow that it is not exempt under another clause even if that clause applies. If it can be said to be income from the profits and gains of the assessee's business, it is exempt under Clause (i). Its not being exempt under Clause (iv) is not a disqualification and does not make it not entitled to exemption under any other clause. If the income is exempted by any of the clauses it is enough. The only effect of its not being exempt under Clause (iv) is that if it is not exempt under any other clause it must be taxed and not that even if it is exempt under any other clause it must be taxed. The non-applicability of Clause (iv) does not deprive it of the benefit of any other clause if applicable. There is no such distinction among the four clauses as there is among the six heads of income and because interest earned on securities held as stock-in-trade must be held to be chargeable under head (ii) and not under head (iv) (on the ground that the former is more specific than the latter and excludes the latter), it cannot be said that Clause (iv) is more specific than Clause (i) and excludes it. There is this vital distinction between the heads of income and the clauses of exemption; an income cannot be charged under two heads and, therefore, cannot be brought under two heads but an exemption can come under two clauses. There is " double taxation " but there can be no such thing as a double exemption. If an income is exempted on two grounds the effect is exactly the same as if it was exempted on only one of them. Further, the clause exempting profits and gains of business occurs earlier than the clause exempting interest on securities and the analogy of the argument that if an income is chargeable under head (ii) it cannot be chargeable under head (iv) is not applicable. Clauses (i) and (iv) may sometimes overlap but not always. There is no overlapping if the securities are not the stock-in-trade of the business, or if the total income exceeds Rs, 20,000 or if the co-operative society is a housing society or an urban consumers' society or carries on transport business. It cannot be said in respect of a banking co-operative society that interest earned by it on securities is always a part of its profits and gains of business. A banking co-operative society can hold securities as capital assets and, if so, the interest earned on them is not profits and gains of its business and is exempt only if Clause (iv) is applicable. Therefore, it cannot be said that Clause (iv) is more specific than Clause (i) and that no income from interest on securities is within the scope of Clause (i). The Supreme Court has rejected this argument in respect of set-off and exemption under Sections 24 and 25 and it must be rejected in respect of exemption under Section 14(3). Clause (i) is applicable to all profits and gains of business without any exception and the other clauses are in respect of certain other sources of income ; therefore, no repugnancy exists between Clause (i) and Clause (iv) and it cannot be said that allowing exemption under Clause (i) would be repugnant to its not being allowed under Clause (iv) or would defeat the provision of Clause (iv) not allowing it. Clause (iv) allows exemption in respect of certain income earned by a small banking co-operative society (by "small" I mean one, the total income of which does not exceed Rs. 20,000) and leaves untouched the question of exemption of income of a large banking co-operative society which remains governed by other clauses (so far as they are applicable). It does not lay down that such income earned by a large banking co-operative society shall not be exempt.
14. The facts in Bihar State Co-operative Bank Ltd. v. Commissioner of Income-tax, [1960] 39 I.T.R. 114 ; [1960] 3 S.C.R. 58 were that a banking co-operative society received interest on short-term deposits, which was treated by it as income from " other sources ", and claimed that it was exempt from taxation under a certain notification. The notification was to the effect that profits of a co-operative society were exempt from taxation and by an Explanation, the profits were deemed not to include any profits or gains from (1) investments in securities referred to in Section 8 or property of the nature referred to in Section 9, (2) dividends, or (3) "other sources" referred to in Section 12. Only one question was raised before the Supreme Court and it was whether the income was profits of the assessee and was not income from " other sources" referred to in Section 12. The Supreme Court held that the short-term deposits on which the income was earned by the assessee were made by it in the ordinary course of its business as a bank, that consequently the income was profits of the business, that the various heads mentioned in Section 6 and the provisions of Sections 7 to 12 applicable to them are mutually exclusive, that head (v) is a residuary head and does not come into operation until the preceding heads are excluded and that the interest was profits exempt from taxation under the notification. Section 14(3) server the same purpose as was served by the notification in that case. What was exempted from taxation was " the profits of any co-operative society " ; this exemption is similar to the exemption in Clause (i) of Section 14(3). Not much assistance can be derived by the assessee from this decision. The essence of it was that the interest earned on short-term depesits by a banking co-operative society amounted to profits and gains of its business. In the case before us it was not contended that the interest on securities held by the assessee could not be said to be its profits and gains from business. It was not disputed that the securities were held as trading assets. Head (v) is a residuary head and no income can come under it so long as it comes under any other head. The same cannot, however, be said about head (iv) and the reasoning available for holding that income from short-term deposits earned by a banking society is its profits and gains of business and not income from "other sources" is not available for holding that income earned by a banking society from interest on securities held as stock-in-trade is its profits and gains of business and cannot be interest on securities chargeable under Section 8. Punjab Co-operative Bank Ltd. v. Commissioner of Income-tax is an authority for the proposition that a profit made by a banking society by sale of shares and securities held by it was its profits and gains from business assessable to tax. The reason was that " the purchase and sale of shares and securities are so much linked with the deposits and withdrawals of clients that with the existing articles of association the purchase and sale of shares and securities are as much part of the assessee's business as receiving deposits from clients and paying them off are (page 645, Viscount Maugham, quoting the Assistant Commissioner).
15. My answer to the question, therefore, is that the two amounts are exempt from tax under Section 14(3)(i).
16. A copy of this judgment should be sent under the seal of the court and the signature of the Registrar to the Income-tax Appellate Tribunal as required by Section 66(5) of the Act. The assessee should get its costs of the reference which may be assessed at Rs. 300 from the Commissioner of Income-tax. Counsel's fee may be assessed at Rs. 300.
Manchanda, J.
17. I agree.