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

Citation: [1993] SUPP. 1 S.C.R. 484 · Decided: 05-08-1993 · Supreme Court of India · Bench: B.P. JEEVAN REDDY, N. VENKATACHALA · Disposal: Dismissed

Judgment (excerpt)

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 1964-65 
to 1966-67 claiming exemption from pa)ment of income tax on profits and 
gains of its business purportiug to be under Section 81(i) (d) of the Income 
Tax Act 1961.Thc Income-Tax Otlicer held that the exemption allowed to 
an assessee under Section 8l(i)(d) was not on the amount of gross profits 
F and gains of business "ith its members !Jut only on such portion of gross 
profits and gains of business inclutlib1e in computation of total inconte 
under Section 110 since. the income exempted from income-tax under 
Section 81 (i) ( d) was includible in total income of the asses see as required 
by Section 66. The assessee's appeals were dismissed hy the Appellant 
G Assistant Comn1issioner. 'fhe assessee filed further appeals before the 
Tribunal which allowed two appeals and dismissed the third. the refer-
ences made at the instance of the revenue as well as the assessee \\'ere 
decided by the High Court against the assessee. Hence the appeals by 
special leave. 
H 
Dismissing the appeals, this Court 
484 
ZILLA KHARID v. C.I.T. 
485 
HELD: 1.1. In view of Section 66 of the Income Tax Act, 1961 
A 
con1putation of the total inccnne of every person is to be done by including 
all income on which no income-tax is payable under Chapter VII. There-
fore, the income on which no income-tax is payable by a co-operative 
society under Section 81 (i) (d) falling in Chapter VII, has to be necessarily 
included in its total inco1ne and it becon1es entitled to a deduction from 
the amount of income-tax chargeable on its total inco111e as envisaged by 
Section 110. Accordingly, the co-operative society concerned becomes en-
titled 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 Income Tax Act for 
B 
the purpose of charging income-tax thereon and which is included in its C 
total income anti not on the amount of its gross profits and gains of 
business. [490-F-H] 
1.2. The provisions of the Income Tax Act clearly envisage a legisla-
tive scheme of giving income-tax exemption to a co-operative society car- D 
11ing on its business contemplated in Section 8l(i) (d) of the Income Tax 
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., 
inconie of its business otherwise computable according to the provisions 
of the Incon1e Tax Act for the purpose of charging income-tax as a part of 
the total income of the assessee, as rel)uired under Section 110 of the E 
Income Tax Act. [491-A-R] 
1.3. The rel)uirement of Section 81(i) (d) of the Income Tax Act, on 
its plain language read in conjunction "ith 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. [494-F-G) 
Conunissioner of lncon1c Tax v. Sabarkantha Zilla K11a1id Vechan 
F 
Sangh Ltd., 107 l.T.R 447; upheld. 
G 
Disllibut01s (Baroda) P. Ltd. v. Union of India and 01s., 155 l.T.R. 
120, relied on. 
Conunissioner of Inconze-tax v. Anakapalli Cooperative Ma'rketing 
So

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