The Commissioner of Income Tax vs The Salem District Urban Bank, Limited

Alfred Henry Lionel Leach, C.J.—The assessee is a co-operative central bank registered under the Indian Co-operative Societies Act of

1912. This statute has been replaced, so far as this Presidency is concerned, by the Madras Co-operative Societies Act (VI of 1932), but nothing

turns on this. The assessee corporation consists of 671 shareholders. Of the shareholders 138 are persons and 533 co-operative societies. For the

year of assessment 1937-38 the Income Tax authorities have held that the assessee had a total income of Rs. 37,445 made up as follows : - Rs.

5,293, interest on taxed securities; Rs. 1,519, interest on tax free securities; Rs. 4,009, interest obtained on deposits and Rs. 26,624, profits made

on its transactions. The assessee does hot confine its business to its shareholders but carries on an ordinary banking business as well. By virtue of a

notification of the Government of India u/s 60 of the Indian Income Tax Act of 1922 the ""profits"" of a co-operative society are exempt from

Income Tax, but the notification stipulates that the profits shall be taken into account in determining the total income for the purposes of the Indian

Income Tax Act. After excluding the Rs. 1,519, representing the interest on tax-free securities of the assessee and the Rs. 26,624 made on its

business, the Income Tax authorities have assessed the assessee on an income of Rs. 9,302, but by taking into account the Rs. 26,624 they have

held that the assessee must pay tax on the Rs. 9,302 at the fate which would be payable on an income of Rs. 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 Rs. 26,624 as a co-operative 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 total income of

an assessee, tax at the rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of

all income, profits and gains of the previous year of every individual, Hindu undivided family, company, firm and other association of individuals.

The argument is that the word ''individual'' must be taken to be used merely as denoting a person and therefore the words ""and other association

of individuals"" cannot apply to a corporate body which for the most part is composed of co-operative societies. In support of this contention great

reliance is placed on the judgment in The Commissioner of Income Tax Bombay v. Ahmedabad Millowners'' Association ILR (1939) Bom. 451.

In that case it was held that the expression ""association of individuals"" in Section 3 means an association of human beings. The question which the

Court had to decide was whether the Ahmedabad Millowners'' Association which was composed of 61 members, 60 of whom were limited

liability companies and one a person, was assessable to Income Tax. The case was decided by Beaumont, C.J. and Wadia, J. In the course of his

judgment, the learned Chief. Justice stated that he was disposed to agree with the Commissioner of Income Tax that if one merely took the

dictionary meaning of the word ''individual'' it would include a limited liability company, but he considered that to do so would not be in accordance

with its popular use by people speaking the English language. He concluded his judgment with this statement:

The question is whether ''other association of individuals'' includes an association of companies. It seems to me quite clear on the context that it

cannot do so. ''Individuals'', where first used, must mean human beings, because it is used as something distinct from a joint family, firm and

company. The whole expression seems to me to mean ""every human beings, Hindu undivided family, company, firm and other association of

human beings."" One cannot give to the word ''individuals'' in the expression ''association of individuals'' a different meaning to that which the word

''individual'' bears in the same phrase.

This opinion is in direct conflict with the opinion expressed by the learned Chief Justice in an earlier case : Currimbhoy Ebrahim Baronetcy Trust

v. The Commissioner of Income Tax, Bombay (1924) 61 I.A. 209 : ILR 58 Bom. 317 : 66 M.L.J. 643 : 5 I.T.C. 484 . 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. The Commissioner of Income Tax, Bombay (1924) 61 I.A.

209 : ILR 58 Bom. 317 : 66 M.L.J. 643 : 5 I.T.C. 484 , is preferable to that expressed in The Commissioner of Income Tax Bombay v.

Ahmedabad Millowners'' Association ILR (1939) Bom. 451. While it is true that ordinarily in conversation the use of the word ''individual'' would

be taken to denote a person, the word has in fact a far wider meaning. The first definition of the word given in the Oxford Dictionary is : ""One in

substance or essence; forming an indivisible entity; indivisible."" It is also defined as ""existing as a separate indivisible entity, numerically one, single.

If a corporate body created by a statute is an individual within the meaning of the section - and I hold that it is - a co-operative society registered

under the Co-operative Societies'' Act must fall within the same category. It is a corporate body and has perpetual succession. I consider that it is

not reasonable to suppose that the Legislature intended that there should be a difference in the meaning of the word ''individual'' and the plural

''individuals''. If the word ''individual'' includes a corporation, the words ""association of individuals"" must embrace an association of corporate

bodies, and therefore the assessee is an ""association of individuals.

Support for the opinion that the assessee comes within Section 3 is to be found in the decision of the Allahabad High Court in Ramratan Das

Madan Gopal v. The Commissioner of Income Tax, Central and United Provinces (1935) 8 I.T.C. 69 and of the Lahore High Court in Mian

Channu Factories Union v. The Commissioner of Income Tax (1935) 9 I.T.C. 246 : AIR 1936 Lah. 48. In the former case a Bench of the

Allahabad High Court held that the word ""individual"" in the proviso to Section 55 of the Income Tax Act includes an undivided Hindu family. In the

Lahore case, which was also decided by a Bench, a ""ginning factories union"" which was composed of two firms and a Hindu undivided family was

assessed to Income Tax on the basis that it was an association of individuals. To give the word ""individual"" the meaning of ""person"" only would, it

seems to me, be to disregard the scheme of the Act and to rob the word of an accepted meaning. It follows that in my opinion the first question

referred should be answered in the affirmative.

The second question requires little discussion. The Income Tax authorities have held that the assessee is carrying on an ordinary banking

business. It carries on a banking business with non-members and therefore cannot maintain the claim to be a mutual benefit society. It can only

escape taxation under the provisions of the notification which the Central Government has published tinder Section 60 of the Act, which means that

it must pay tax at the rate applicable to the amount of its total profits, namely, Rs. 37,445. The principle stated in The Commissioner of Income

Tax Vs. Trichinopoly Tennore Hindu Permanent Fund, Ltd., and repeated in The Trichinopoly Tennore Hindu Permanent Fund, Ltd., a Limited

Company with its headquarters Vs. The Commissioner of Income Tax, , applies.

I would answer the second question in that sense.

As my learned brothers agree with me, the assessee must pay the costs which we fix at Rs. 250.

King, J.

I agree.

Krishnaswami Aiyangar, J.

I agree.