1993 (8) TMI 2 - SC - Income Tax

Co-operative Society - engaged in purchase of agricultural implements, seeds, livestock, etc., for supply to members - Since the average rate of income-tax is defined in s. 2(10), the deduction in income-tax to which a co-operative society doing the business envisaged u/s 81(i)(d) would be entitled, can only be the average rate of income-tax on the amount on which no income-tax is payable and nothing more.

Issues Involved:
1. Interpretation of section 81(i)(d) of the Income-tax Act regarding tax exemption on profits and gains of a co-operative society.
2. Applicability of sections 66 and 110 of the Income-tax Act in computing total income and tax deductions for co-operative societies.
3. Determination of whether the exemption under section 81(i)(d) applies to gross or net profits and gains.

Issue-wise Detailed Analysis:

1. Interpretation of section 81(i)(d) of the Income-tax Act:
The primary issue in these appeals was whether the exemption from income tax provided under section 81(i)(d) of the Income-tax Act applies to the gross profits and gains of a co-operative society or only to the net profits and gains. The assessee, a co-operative society engaged in the purchase of agricultural implements, seeds, livestock, and other articles intended for agriculture, claimed that the entire amount of profits and gains from its business with its members should be exempt from tax. However, the Income-tax Officer, Appellate Assistant Commissioner, and the High Court held that the exemption applies only to the net profits and gains, not the gross amount.

2. Applicability of sections 66 and 110 of the Income-tax Act:
Section 66 requires that in computing the total income of an assessee, all income on which no income-tax is payable under Chapter VII must be included. Section 110 provides the mode of computing the tax in cases where exempted income is included in the total income, allowing a deduction from the amount of income-tax chargeable on the total income. The court held that these sections necessitate including the income exempted under section 81(i)(d) in the total income computation, and the exemption applies only to the net income computed according to the provisions of the Income-tax Act.

3. Determination of whether the exemption under section 81(i)(d) applies to gross or net profits and gains:
The court examined the legislative scheme and relevant provisions of the Income-tax Act, including sections 28, 29, 37, and 110, to determine that the exemption under section 81(i)(d) applies only to the net profits and gains of the co-operative society's business. The court referenced the Andhra Pradesh High Court's decision in CIT v. Anakapalli Co-operative Marketing Society and the Constitution Bench decision in Distributors (Baroda) P. Ltd. v. Union of India, which supported the view that exemptions and deductions under the Income-tax Act are based on net income.

Conclusion:
The court upheld the Gujarat High Court's judgment, affirming that the exemption under section 81(i)(d) of the Income-tax Act applies only to the net profits and gains of a co-operative society's business, not the gross amount. The appeals were dismissed, and no order as to costs was made.

Civil Appeals Nos. 1549-51 (NT) of 1977:
These appeals were dismissed as well, relying on the judgment upheld in Civil Appeals Nos. 793-95 (NT) of 1977, without any order as to costs.

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