SABARKANTHA ZILLA KHARID vs. SANGH LTD versus COMMISSIONER OF INCOME TAX

ARBITRATION PETITION No. 793/1977Supreme Court1993 INSC 25605 August 1993Bench: 2 JudgesAuthor: B.P. JEEVAN REDDY, N. VENKATACHALA B SABARKANTHA ZILLA KHARID V. SANGH LTD12 pages
AI SummaryDismissed

What were the facts?

The assessee, Sabarkantha Zilla Kharid Vechan Sangh Ltd., a cooperative society, engaged in supplying agricultural implements and other articles for agriculture to its members and non-members. For assessment years 1964-65 to 1966-67, it claimed exemption from income tax on its business profits under Section 81(i)(d) of the Income Tax Act, 1961. The Income Tax Officer restricted the exemption to the net profits included in total income, not gross profits, citing Sections 66 and 110. The Appellate Assistant Commissioner dismissed the assessee's appeals. The Income Tax Appellate Tribunal allowed two appeals and dismissed one. References made to the High Court by both the revenue and the assessee were decided against the assessee. The assessee filed appeals before the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the exemption under Section 81(i)(d) of the Income Tax Act, 1961, is available only on the net amount of profits and gains of the business, i.e., on the income of its business otherwise computable for the purpose of charging income tax thereon and which is included in its total income, and not on the gross profits and gains. This is because Section 66 mandates that the total income includes all income on which no tax is payable, and Section 110 provides for a deduction from the income-tax chargeable on the total income. The deduction is an amount equal to the income-tax calculated at the average rate on the amount on which no income-tax is payable. The Court relied on its earlier decision in Distributors (Baroda) P. Ltd. v. Union of India and others and the Andhra Pradesh High Court's view on a similar provision. The appeals were dismissed, upholding the High Court's decision against the assessee.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the assessee's case is covered by Section 81(i)(d) only and the provisions of Section 66 read with Section 110 of the Act are not attracted is erroneous in law? (Mixed law and fact, concerning Section 81(i)(d), Section 66, and Section 110). 2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee was entitled to rebate under Section 81(i)(d) of the Act on the whole of the amount of profit without deduction of proportionate overhead expenses? (Question of law, concerning Section 81(i)(d)). Assessee's contentions: The assessee contended that it was entitled to exemption from income tax on the entire amount of profits and gains of its business carried on with its members, as per Section 81(i)(d). Revenue's contentions: The revenue contended that the exemption under Section 81(i)(d) was not on gross profits and gains but only on the portion of gross profits and gains includible in the computation of total income under Section 110, as the exempted income was includible in the total income as required by Section 66.

Which sections of the Income-tax Act were involved?

Section 66,Section 81(i)(d),Section 110,Section 2(10)

AI-generated summary — verify with the full judgment below

A B SABARKANTHA ZILLA KHARID V. SANGH LTD I'. COMMISSIONER OF INCOME TAX AUGUST 5. 1993 [B.P . .JEEVAN REDDY AND N.VENKATACHALA, J.J.] Income Tax Act, I96I : Sections 66, SI(i)(d), !10-lncome of Co- operative Societies--Total inco111e including inconie on tvhich no tax is payable-De1e1111i11atio11 of lax-Co-operative Society engaged in supplying to C its 1nen1hers and nnn-nien1bers awicultural i1n11len1ents and other articles intended for afjliculiure-Exemption claimed from payment of Income tax on its profits and gains of its business'-Held, co-operative society becomes enticled to deduction or exemption from Income tax payable by it on its net anzount of profits and gains, i.e., on inco111e of its business othcnvise con1- putable for pwpose of charging Income Tax thereon and which is included D in its total income and not on the amount of its gross projits and gains of business. E The appellant, a co-operative society, was engaged in purchase of agricultural implements, seeds, livestock or other articles intended for agriculture, for the purposes of suppl)ing them to its members as well as non-members. It filed income tax returns, for the assessment years 1964

The order continues below.

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