M.C. Chagla, C.J.
1. The question that arises in this reference is whether the assessee, the B.B. & C.I. Railway Co-operative Mutual Death Benefit Society for Indian Staff, Limited, Bombay, is exempt from income-tax under a notification issued by the Central Government under Section 60 of the Indian Income-tax Act. Under Section 2(6C) of the Act, the profits of any business of insurance carried on by a Mutual Insurance Association is income for the purpose of tax, and Section 10(7) provides a special method of computing the profits and gains of any business of insurance and the manner in which tax is to be paid on those profits and gains. Section 10(7) further provides that in place of the provisions contained in Section 8, 9, 10, 12 or 18 the rules contained in the schedule to the Act shall be substituted. Therefore the result of this provision is that instead of computing the income of an insurance company as laid down in various sections under Chapter III, you compute them in the manner laid down in the schedule to the Act, and the relevant provision of the schedule to the Act is Rule 2 which provides that the profits and gains of life insurance business shall be taken to be either what is stated in Sub-clause (a) or Sub-clause (b) and whichever is greater, and it is not disputed before us that in the case before us Sub-clause (a) would apply because the profits and gains as computed under (a) would be greater than as computed under (b), and under (a) the profits and gains of the life insurance company are to be computed as being the gross external incomings of the preceding year from that business less the management expenses of that year. Therefore, it will be noticed that instead of an insurance company making its return of income under the various heads as laid down in Section 6, it has got to submit one unit of income, a sort of notional or artificial income, as provided in the schedule to the Act. Then under Section 60 of the Act certain power is given to the Central Government to exempt classes of income or the whole or any part of the income of any class of persons in respect of income-tax, and this power can be exercised by the Central Government by a notification in the Official Gazette. Pursuant to this section and exercising the power conferred upon it under that section, the Central Government issued a notification which has come before us for consideration. That is the notification dated August 25, 1925, as amended by notification dated June 25, 1927. This notification starts by stating that the 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 the assessee for the purposes of the said Act. Then Sub-clause (2) says:
The profits of any co-operative society or the dividends or other payments received by the members of any such society out of such profits.
To Sub-clause (2) there is an explanation and that explanation is that the profits of a co-operative society shall not be deemed to include any income, profits or gains from investments, dividends and other sources referred to in Section 12 of the Indian Income-tax Act. Now, it is not disputed before us that the assessee is a co-operative society. Every policy-holder is a member of the society, there is no outsider as a member, and all the policy-holders participate in the profits of the society. The assessee claimed that under this notification the profits made by it were wholly exempt from tax. To that the answer of the Department was that the profits were not wholly exempt because the explanation to the notification applied and income derived by the assessee from the various heads mentioned in the explanation were not exempt from tax. The Appellate Tribunal decided in favour of the assessee and raised the necessary question for our determination.
2. Now, the contention put forward before us by Mr. Joshi on behalf of the Commissioner is two-fold, although only one aspect of it was urged before the tribunal. In the first place it is contended that no case can fall under Sub-clause (2) of the notification by itself, in every case Sub-clause (2) must he given effect to along with the explanation which is appended to it, and therefore it is urged that all the profits of the assessee company cannot be exempt, but only such profits are exempt as do not fall within the ambit of the explanation. This contention is obviously fallacious because the explanation only applies to those co-operative societies which have income which falls under the various heads mentioned in the explanation. As I started by saying, this assessee company has only one notional income computed in the manner laid down in the schedule to the Act, it has no income which falls under the various heads mentioned in Section 6 and which income is assessable under different heads, and therefore obviously this explanation cannot apply to the case of a co-operative society which also happens to be an insurance company.
3. The next argument of Mr. Joshi is that the notification itself does not apply to an insurance company. According to him it only applies to a co-operative society which is not an insurance company as well. This argugument is based upon the use of the language in the notification, viz. that the following classes of income shall be exempt from tax. It is argued that this notification can only apply to those assessees which have different classes of income, but if an assessee has only one class of income or only one income, in terms the notification cannot apply to such an assessee. In putting forward this construction Mr. Joshi is obviously reading into Section 60 and into the notification the words of Section 6 of the Act. Mr. Joshi wants us to read 'classes of income' as if it meant 'heads of income' within the meaning of Section 6. Mr. Joshi would have been undoubtedly right if Section 60 restricted the power of the Central Government only to exempt certain heads of income in the case of certain assessees. Then it could be said that such a notification would only apply where an assessee had more than one head of income. But the Legislature having Section 6 before it and being fully apprised of the language used in that section, has advisedly not used the expression 'heads of income' but has used the expression 'classes of income'. In my opinion, a class of income really means a category of income and it is a much wider expression than a head of income. It is difficult to see why income derived by a cooperative society is not a class or a category of income. In that wider sense the notification would certainly apply to the income derived by co-operative societies including insurance companies, even though in the case of an insurance company the income may be one and indivisible and may not fall under the different heads enumerated in Section 6 of the Act. If that be so, then only Sub-clause (2) would apply to the assessee, because its income consists only of one unit not distributed under different heads, and the explanation would not be applicable to the case of the assessee. Therefore, according to me, the notification applies both to co-operative societies which are not doing insurance business and it also applies to co-operative societies which are doing insurance business. In the case of co-operative societies which are not doing insurance business, their profits are exempt from tax, but only those profits which do not fall within the ambit of the explanation, or, in other words, the Central Government in the case of co-operative societies not doing insurance business has given exemption only in the case of certain kinds of income which do not fall under the heads set out in the explanation. In the case of cooperative societies doing insurance business, the Central Government has given exemption to the whole of the income derived by such co-operative societies because the explanation has no application to the case of such societies.
4. I would therefore answer the question raised in the affirmative. Commissioner to pay the costs.
5. I agree.