Exempt income must still enter total income computation where the statute expressly requires inclusion.

Income exempt under section 14(3) of the Indian Income-tax Act, 1922 still had to be included in computing total income under section 16(1)(a), because the statute distinguished between income excluded from computation and income exempt only from tax liability for rate purposes. The business income of the co-operative society therefore could not be omitted merely due to exemption, and the computation had to bring that income into the total income base. The issue was decided against the assessee and in favour of the Revenue.

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Issues: Whether the income of a co-operative society exempt under section 14(3) of the Indian Income-tax Act, 1922 had nevertheless to be computed under section 16(1)(a) while determining total income.

Analysis: Section 16(1)(a) expressly required inclusion, in computing total income, of income exempt under section 14(3), even though such income was not chargeable to tax for the purpose of rates. The statutory scheme distinguished between income excluded from computation and income exempted from tax but still forming part of total income. Accordingly, the business income of the assessee-co-operative society could not be left out of computation merely because it was exempt from tax.

Conclusion: The issue was answered against the assessee and in favour of the Revenue; computation under section 16(1)(a) was and the exempt business income had to be included.

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