The main legal point established in the judgment is the interpretation of 'profits' and the classification of income derived from investments in Government securities under the Income-tax Act, supported by comparisons with relevant English cases.

1. This is a case stated for our opinion by the Commissioner of Income-tax, at the request of the Madras Central Urban Bank, Ltd. This is a Society registered under Act 2 of 1912, and the question arises from its assessment on interest derived by it from investments in Government securities. The Society contends that it is exempted from paying tax in respect of these investments by a notification in the Finance Department issued under Section 60, Income-tax Act,. 1922 which corresponds to Section 28, Co-Operative Societies Act, enabling the Governor-General-in-Council to remit income-tax payable in respect of the profits of the society. The question is whether this interest is part of the profits of the society. The notification Ex. A exempts the profits of any Co-operative Society...registered under the Co-operative Societies Act 1912, or the dividends or other payments received by the members of any such Society on account of profits.

2. The notification has been interpreted to include interest on securities which according to the Commissioner is consistently termed " income. " " Profits " according to him does not include interest on securities and hence the latter is taxable. The contention for the bank is that it is bound by the Government orders to keep 40 per cent of its total liability under call deposits in a liquid or fluid form and that, instead of keeping these fluid assets in their safe or till, they keep them in as nearly a fluid form as possible in Government securities upon which of course they receive interest. It is said that this is part of the business of the bank and that unless this interest were received the activities of the bank would be very severely handicapped. That of course is a matter for detailed examination of accounts and balance-sheets and so on of which nothing has been attempted before us. But what we have to decide is as to whether this investment in Government securities is part of the business of the bank, or whether such investment falls under Section 8 of the Act which says:

The tax shall be payable by an assesses under the head interest on securities in respect of the interest receivable by him on any security of the Government of India or of a Local Government, whereas the bank contends that it should be assessed under Section 10 (1).

The tax shall be payable by an assessed under the head, business in respect of the profits or gains of any business-Carried on by him.

3. If the bank is assessed under that head no tax will be payable. Mr. M. Subbaraya Ayyar, for the bank has referred us to several English cases. Before referring to them, however, it may be as well to note that the English Income-tax Act, 1918, is a good deal more complicated than the Indian Act and that the English Statute is divided under schedules with rules under each schedule. For instance, Schedule (c) concerns tax charged in respect of profits arising from interest, annuities, dividends and shares of annuities payable out of public revenue; Schedule (d) tax charged in respect of profits or gains to any person residing in the United Kingdom, (1) from any kind of property whatsoever, (2) from any trade or profession etc.; so that, really the only question that arises on this reference is, whether the investment is part of the banks trade or not. En other words, whether it falls under l-(3) of their bye-laws to carry on general business of banking not repugnant to the provisions of the Cooperative Societies Act. Turning to the Indian Act, it will be observed that this complication of schedules is absent, but that Section 6, which is the first section in Oh. 3 headed "taxable income" divides heads of income which are chargeable to income-tax into (1) salaries, (2) interest on securities, (3) property, (4) business, (5) professional earnings and (6) other sources. To refer to the cases cited by Mr. M. Subbaraya Ayyar; Smiles v. Australasian Mortgage and Agency Co. 2 Tax Cases 367 a company in the course of wool br