Case: Sabarkantha Zilla Kharid Vechan Sangh Limited Vs. Commissioner of Income Tax

included in the gross total income of the assessee, then notwithstanding anything contained in that section for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income." * 17. Hence, the view taken by the Andhra Pradesh High Court on the scope of Section 80-P of the I.T. Act which had replaced Section 81 of the I.T. Act, fully supports the view we have already expressed on the income exemption of profits and gains of a business of a cooperative society as envisaged under Section 81 of the I.T. Act read in conjunction with Sections 66 and 110 thereof 18. The case of Distributors (Baroda) P. Ltd. is a decision of the Constitution Bench of this Court. There, this Court was concerned with the interpretation to be placed on Section 80-M of the I.T. Act. That section read thus "80-M. 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, 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 suchdividends received by it from an income;Indian company which is not such a companyas is referred to in Section 108 and whichis mainly engaged in a priority industry(ii) in respect of such income by way of 65% of suchdividends other than the dividends income;referred to in sub-clause (i)(b) where the assessee is a domestic company -in respect of any such income by way 60% of suchof dividends income." * 19. The requirement of the above sub-section (1) of Section 80-M of the I.T. Act, according to the Constitution Bench, was this : (SCC pp. 58-9, para 17) "... Sub-section (1) of Section 80-M provides that in computing the total income of the assessee, there shall be allowed a deduction from such income by way of dividends of an amount equal to the whole or a specified percentage of such income. Now, when in computing the total income of the assessee, a deduction has to be made from such income by way of dividends, it is elementary that such income by way of dividends from which deduction has to be made must be part of gross total income. It is difficult to see how the language of this part of sub-section (1) of Section 80-M can possibly fit in if such income by way of dividends were interpreted to mean the full amount of dividend received by the assessee. The full amount of dividend received by the assessee would not be included in the gross total income : what would be included would only be the amount of dividend as computed in accordance with the provisions of the Act. If that be so, it is difficult to appreciate how for the purpose of computing the total income from the gross total income, any deduction should be required to be made from the full amount of the dividend. The deduction required to be made for computing the total income from the gross total income can only be from the amount of dividend computed in accordance with the provisions of the Act which would be forming part of the gross total income. It is, therefore, clear that whatever might have been the interpretation placed on clause (iv) of sub-section (1) of Section 99 and Section 85-A, the correctness of which is not in issue before us, so far as sub-section (1) of Section 80-M is concerned, the deduction required to be allowed under that provision is liable to be calculated with reference to the amount of dividend computed in accordance with the provisions of the Act and forming part of the gross total income and not with reference to the full amount of dividend received by the assessee." * 20. If, what is stated above is the requirement of Section 80-M of the I.T. Act, regarded as a clarificatory provision on its plain language, the requirement of Section 81(i)(d) of the I.T. Act, on its plain language read in conjunction with Sections 66 and 110 of the I.T. Act, makes it manifest that the scheme of income tax exemption provided for under the I.T. Act for a cooperative 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 I.T. Act receives full support from the decision of the Constitution Bench21. Then, coming to the question of actual amount to be deducted as income tax to which a cooperative society becomes entitled under Section 81(i)(d), Section 110 makes it clear that the deduction to which such cooperative 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(10) as meaning the rate arrived at by dividing the amount of income tax calculated on the total income, by such total income, the deduction in income tax to which a cooperative society doing the business envisaged under Section 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

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]10. 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 income as the total amount of income referred to in Section 5 computed in the manner laid down in the I.T. Act. Then comes Section 110. It provides for the mode of computing the tax in cases where the exempted income is include in the totalThus, when Section 66 of the I.T. Act, requires the computation of the total income of every person to be done by including all income on which no income tax is payable under Chapter VII, the income on which no income tax is payable by a cooperative society under Section 81(i)(d) falling in Chapter VII, has to be necessarily included in its total income. The above Section 110 is then attracted because of the very words of its opening clause. Hence, when the assesseecooperative societys income is included in its total income, it becomes entitled to a deduction from the amount of income tax chargeable on its total income. That means, the cooperative society concerned becomes entitled to deduction or exemption from income tax payable by it only on its net amount of profits and gains, i.e., on income of its business otherwise computable in accordance with the provisions of the I.T. Act for the purpose of charging income tax thereon and which is included in its total income, and not on the amount of its gross profits and gains of business12. Thus, the said provisions of the I.T. Act, in our view, clearly envisage a legislative scheme of giving income tax exemption to asociety carrying on its business contemplated in Section 81(i)(d) of the I.T. Act, not with respect to the amount of gross profits and gains of its business but only with respect to the amount of net profits and gains, i.e., income of its business otherwise computable according to the provisions of the I.T. Act for the purpose of charging income tax as a part of the total income of the assessee, as required under Section 110 of the I.T. Act13. Since the above view of ours on the income tax exemption allowed under Section 81(i)(d) of the I.T. Act is based on the applicability of the express provisions in the I.T. Act bearing thereon, it would be enough to refer to two decided casesone of the Andhra Pradesh High Court in CIT v. Anakapalli Cooperative Marketing Society and the other of this Court in Distributors (Baroda) P. Ltd. v. Union of India which directly bear on theHence, the view taken by the Andhra Pradesh High Court on the scope of Sectionof the I.T. Act which had replaced Section 81 of the I.T. Act, fully supports the view we have already expressed on the income exemption of profits and gains of a business of a cooperative society as envisaged under Section 81 of the I.T. Act read in conjunction with Sections 66 and 110If, what is stated above is the requirement of Sectionof the I.T. Act, regarded as a clarificatory provision on its plain language, the requirement of Section 81(i)(d) of the I.T. Act, on its plain language read in conjunction with Sections 66 and 110 of the I.T. Act, makes it manifest that the scheme of income tax exemption provided for under the I.T. Act for a cooperative 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 I.T. Act receives full support from the decision of the Constitution Bench21. Then, coming to the question of actual amount to be deducted as income tax to which a cooperative society becomes entitled under Section 81(i)(d), Section 110 makes it clear that the deduction to which such cooperative 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(10) as meaning the rate arrived at by dividing the amount of income tax calculated on the total income, by such total income, the deduction in income tax to which a cooperative society doing the business envisaged under Section 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