JUDGMENT

RANGANATH MISRA, J. : —This appeal at the instance of the Revenue is by special leave. Two questions out of six referred by the Income-tax Appellate Tribunal, Allahabad, survive for consideration in this appeal and these are :

(1) Whether on the facts and in the circumstances of the case, and on a true interpretation of the agreement, the Tribunal erred in holding that the sum of Rs. 9,000/- received as interest from Bazpur Co-operative Sugar Factory Ltd. is not covered under S. 14(3) of the Income-tax Act?

(2) Whether on the facts and in the circumstances of the case, and, on a true and correct interpretation of the various clauses of the agreement, the sum of Rs. 51,295/- and Rs. 58,937/- received as interest on advances would not be assessees income from coal and sugar business and would thus be exempt under Section 14(3) of the Income-tax Act, 1961 [( *or I.T. Act (1922) Ed.)

2. At the hearing it has been clarified by counsel for both parties that in the second question referred to above, the dispute is confined to the sum of Rs. 51,295/- only.

3. The relevant assessment year is 1961-62 corresponding to the accounting year ending with 30th June, 1960. The assessee is a cooperative society registered under the Cooperative Societies Act, 1912. This being an apex body, its members are various District Cooperative Societies, District Cooperative Banks and some Government and other cooperative societies within the State of Uttar Pradesh. The principal object of the Society is to regulate the distribution and supply of items like coal, sugar, cloth etc. through the member cooperative societies.

4. In the year in question, the assessee inter alia maintained that the income earned on the various advances made by it to the member societies-was entitled to exemption under S. 14(3) of the Income-tax Act, 1922. The Income-tax Officer while rejecting the claim of deduction on the ground of exemption on several heads included interest of Rs. 9,000/- received from Bazpur Cooperative Sugar Factory Ltd. and a sum of Rs. 51,295/- received by way of interest from various cooperative societies on temporary loans for financing sugar business at the rate of 6 per cent on the amount given as loan as taxable items. The two questions which have survived for decision in this appeal relate to refusal of these two deductions on the ground of statutory exemption. The stand of the assessee had not been accepted by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal but the High Court has accepted the claim in regard to both the amounts.

5. The High Court dealing with the amount of Rs. 9,000/- held :

"The Tribunal considered the claim for exemption in respect of amount of Rs. 9,000/- received by the assessee from the Bazpur Cooperative Sugar Factory and held that this represented the interest received on the cash security of Rs. 2,00,000/- which was furnished by the assessee for carrying on the sugar agency business, and as such it could not be said that it was interest from securities or interest from investments and as such rejected the claim made in respect of this amount under Section 14(3)(iii) of the Act."

6. The High Court considered the eligibility of the sum of Rs. 9,000/- to tax analogously with the taxability of the other sum and did not pointedly take note of the fact that the sum of Rs. 2,00,000/- had been given as security and the arrangement entered into between the assessee and the Bazpur Cooperative Sugar Factory stipulated payment of interest of 41/2 per cent per annum.

7. We may refer here to clauses (1) and (20) of the agency agreement :

"1. That the manufacturer hereby appoints the Agent as one of their two agents for the whole of the Indian Union for the sale of sugar produced by the manufacturer during the crushing seasons 1958-59 and 1959-60 and the Agent hereby agrees to act as such. agent in the said area on the terms mentioned. herein. The manufacturer hereby undertakes not to appoint more than two agen