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TMI Blog1993 (8) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase of agricultural implements, seeds, livestock and other articles intended for agriculture, for the purpose of supplying them to its members as well as to its non-members. It filed the income-tax returns before the concerned Income-tax Officer for the assessment years 1964-65, 1965-66 and 1966-67, under the Income-tax Act, 1961 (for short the "Act"). In those returns, it sought to claim exemption from payment of income-tax on profits and gains of its business for every assessment year, purporting to be under section 81(i)(d) of the Income-tax Act, as it stood then. According to it, amount of profits and gains of the business carried on with its members represented its income and that income in its totality was exempt from payment of income-tax under section 81(i)(d) of the Income-tax Act. But, the Income-tax Officer did not accede to the claim so made. He took the view that the income tax exemption allowed to an assessee under section 81(i)(d) of the Income-tax Act was not on the amount of gross profits and gains of business with its members but only on such portion of gross profits and gains of business includible in the computation of total income under section 110 thereof, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue. The High Court disposed of all the said three cases, by its common judgment adverted to at the outset. The assessee having preferred the present appeals against the said common judgment of the High Court, it is these appeals which need our consideration. Since the main controversy requiring our decision in these appeals relates to "profits and gains" of business carried on by a co-operative society on which no income-tax is payable under section 81(i)(d) of the Income-tax Act, it would be advantageous to excerpt the material portion of that provision, here itself : " 81. Income of co-operative societies. - Income-tax shall not be payable by a co-operative society (i) in respect of the profits and gains of business carried on by it, if it is ..... (d) a society engaged in the purchase of agricultural implements, seeds, livestock, or other articles intended for agriculture for the purpose of supplying them to its members." The said provision, as seen therefrom, undoubtedly exempts an assessee-co-operative society, which carries on the business envisaged therein, from payment of income-tax on profits and gains of such business. But the controversy which relates to the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus, the said section makes it clear that the business expenditure not covered by the preceding sections 30 to 36 could be deducted in computing profits and gains of business. Sections 38 to 43C cover specific items of expenditure, not deductible in computation of the income under the head "Profits and gains" of business. Section 4(1), which assumes importance in the context, reads : "4. (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with and subject to the provisions of this Act in respect of the total income of the previous year or previous years, as the case may be, of every person." Then section 5 tells that the total income of any previous year of a person includes all income from whatever source derived, varying, of course, according to the factor of residence. When we come to section 66, it requires that in computing the total income of an assessee, there shall be included all income on which no income-tax is payable under Chapter VII thereof. What needs to be noticed here is, that clause (45) of section 2 defines "total i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xemption allowed under section 81(i)(d) of the Income-tax Act is based on the applicability of the express provisions in the Income-tax Act bearing thereon, it would be enough to refer to two decided cases-one of the Andhra Pradesh High Court in CIT v. Anakapalli Co-operative Marketing Society [1989] 175 ITR 584 and the other of this court in Distributors (Baroda) P. Ltd v. Union of India [1985] 155 ITR 120, which directly bear on the controversy. In Anakapalli Co-operative Marketing Society's case, [1989] 175 ITR 584 (AP), the question referred for the decision of the Andhra Pradesh High Court under section 256(1) of the Income-tax Act was (at page 585): "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the entire amount of Rs. 3,72,038 relating to marketing of agricultural produce of its members and interest on loans given to its members should be allowed as deduction under section 80P(2)(a) of the Income-tax Act, and not Rs. 73,720 with reference to the proportionate net profit referable to those activities only?" Section 80P, which provided for exemption to a co-operative society from payment of income-tax, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which had replaced section 81 of the Income-tax Act, fully supports the view we have already expressed on the 'income exemption" of profits and gains of a business of a co-operative society as envisaged under section 81 of the Income-tax Act read in conjunction with sections 66 and 110 thereof. The case of Distributors (Baroda) P. Ltd. [1985] 155 ITR 120 (SC), is a decision of the Constitution Bench of this court. There, this court was concerned with the interpretation to be placed on section 80M of the Income-tax Act. That section read thus (at page 132) : "80M. Deduction in respect of certain inter-corporate dividends.(1) Where the gross total income of an assessee being a company includes any income by way of dividends received by it from a domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends of an amount equal to- (a) where the assessee is a foreign company (i) in respect of such income by way of 80% of such income ; dividends received by it from an Indian company which is not such a company as is referred to in section 108 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If, what is stated above is the requirement of section 80M of the Income-tax Act, regarded as a clarificatory provision on its plain language, the requirement of section 81(i)(d) of the Income-tax Act, on its plain language read in conjunction with sections 66 and 110 of the Income-tax Act, makes it manifest that the scheme of "income-tax exemption" provided for under the Income-tax Act for a co-operative society in relation to profits and gains of its business, is not in any way different. Thus the view we have taken as to the income-tax exemption envisaged under section 81(i)(d) of the Income-tax Act receives full support from the decision of the Constitution Bench. Then, coming to the question of actual amount to be deducted as income-tax to which a co-operative society becomes entitled under section 81(i)(d), section 110 makes it clear that the deduction to which such co-operative society would be entitled from the amount of income-tax with which it is chargeable on its total income, is an amount equal to the income-tax calculated at the average rate of income-tax on the amount on which no income-tax is payable. Since the "average rate" of income-tax is defined in section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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