Jammu & Kashmir H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the income of the assessee from commission-cum-incidental charges for handling of chemical fertilizers as the sole agent of the J&K State Government, is exempt from the charge of tax under the provisions of s. 80P(2)(e) of the IT Act, 1961 ?

Counsel Appeared

Anil Bhan, for the Revenue : None, for the Assessee

JUDGMENT

DR. B.P. SARAF, C.J. :

By this reference under s. 256(1) of the IT Act, 1961 (‘the Act’), at the instance of the Revenue, the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar (“the Tribunal”), has referred the following question of law to this Court for opinion :

“Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the income of the assessee from commission-cum-incidental charges for handling of chemical fertilizers as the sole agent of the J&K State Government, is exempt from the charge of tax under the provisions of s. 80P(2)(e) of the IT Act, 1961 ?”

The assessee is a co-operative society. It was appointed by the Government of Jammu and Kashmir as its sole agent for the import and distribution of chemical fertilizers allotted to it by the Central Government or purchased by it from the approved manufacturers. Under the terms of the agreement dt. 19th Feb., 1967 entered into between the assessee-society and the Government of Jammu and Kashmir, the assessee-society was to receive commission-cum-incidental charges on account of freight, handling and other charges on fertilizers to be shifted from rail head upto the distribution centres, etc. In its assessment for the asst. yr. 1974-75, the assessee claimed deduction under s. 80P of the IT Act, 1961 (“the Act”) in respect of the profits from the above activity. The ITO did not allow the claim of the assessee as he was of the opinion that the income of the assessee from handling of the fertilizers was not covered by s. 80P(2)(e) of the Act. The assessee appealed to the CIT(A). The CIT(A) accepted the claim of the assessee for deduction under s. 80P(2)(e) in view of the decision of the Tribunal in the assessee’s own appeals in respect of the asst. yrs. 1967-68 and 1968-69. The Revenue’s appeal to the Tribunal against the above order of the CIT(A) was rejected by the Tribunal by following its decision in the assessee’s own case in respect of earlier assessment years. Hence, this reference at instance of the Revenue.

We have heard Mr. Anil Bhan, the learned counsel for the Revenue and perused the facts of the case. We find that identical question of law arising out of the order of the Tribunal, referred to this Court by the Tribunal in the assessee’s own case for the asst. yrs. 1967-68 and 1968-69, has already been decided by this Court. The said decision is in CIT vs. J&K Co-operative Supply & Marketing Federation Ltd. (1994) 116 CTR (J&K) 486 : (1993) 204 ITR 289 (J&K) : TC 26R.846. In that case, this Court, on perusal of the various terms and conditions of the agreement, dt. 19th Feb., 1967, observed as follows : “In the cases before us, however, as will be seen from the various terms and conditions of the agreement executed on 19th Feb., 1967, the main activity which the assessee was to perform was in respect of the import, carriage and distribution of the chemical fertilizers to various places in the State. Because the main activity of the assessee was not relatable to the storage of the fertilizers in thegodowns, which activity could not be construed as letting out of godowns by the assessee, the assessee was not entitled to the exemption from the payment of income-tax. It goes without saying that the terms and conditions of the agreement stipulated various activities on the part of the assessee in dealing with the fertilizers including taking of the delivery, their carriage, their onward transportation and distribution at such places and in such manner as was to be specified by the Government. The agreement also provided for sale of the fertilizers by the assessee. The agreement clearly stipulated that the assessee would be allowed commission-cum-incidental charges for meeting the transport, handling, storage, distribution and other activities.” This Court took note of the fact that under the terms and conditions of the agreement, dt. 19th Feb., 1967, between the assessee and the Government of Jammu and Kashmir, storage of fertilizers was also one of the activities to be performed by the assessee besides handling, distribution and sale of fertilizers. It was observed that in the nature of transaction based on the aforesaid agreement, storage of fertilizers was but one integral part of the entire chain of activities and it was inconceivable that the chain would have been complete without the storage of the fertilizers in the godowns of the assessee. In view of the above, it was held that the assessee was entitled to exemption from payment of income-tax under s. 80P(2)(e) of the Act in respect of the income derived by it from storage of the fertilizers in its godowns. This Court, therefore, left it open to the assessee to indicate before the concerned IT authorities the manner in which this exemption was to be claimed by it and the extent of the exemption in the light of the break-up of the figures for the relevant assessment year.

The above decision of this Court squarely applies to the present case. It may be pertinent to observe that under s. 80P(2)(e) of the Act, the assessee, being a co-operative society, is entitled to deduction of the whole of the income derived by it from ‘the letting of godowns or warehouse or facilitating the marketing of the commodities’. As is evident from the decision of this Court cited above, the income of the assessee from the handling of fertilizers under the agreement dt. 19th Feb., 1967, was not only for storage of fertilizers in its godowns, but also for activities which did not fall within the purview of s. 80P(2)(e) of the Act. It was a composite payment by the Government of Jammu and Kashmir to the assessee-society for various services rendered by it, including storage of fertilizers in its godowns. In that view of the matter, if the assessee wants to claim deduction under s. 80P(2)(e) of the Act, it is for the assessee to bifurcate the income derived by it from execution of the above agreement and to determine what part of the income can be attributed to the storage of the fertilizers in the godowns and restrict its claim to that part of the income only. If the assessee can satisfy the IT authorities that any part of the income received by it from the Government of Jammu and Kashmir is attributable to the activity of storage of fertilizers in its godowns, that part of the income would be eligible for deduction under s. 80P(2)(e) of the Act. We answer the question referred to us accordingly. In the facts and circumstances of the case, we make no order as to costs.

[Citation : 248 ITR 289]