High Court Of Punjab & Haryana
CIT vs. Haryana State Co-operative Supply & Marketing Federation Ltd.
Section : 80G
Adarsh Kumar Goel And Ajay Kumar Mittal, JJ.
ITA Nos. 157,158,159 And 664 Of 2005, 268 & 477 Of 2006 & 419 Of 2007 And 275 & 276 Of 2009, 246 And 251 Of 2010
CWP No. 1897 Of 2005
September 8, 2010
JUDGMENT
Adarsh Kumar Goel, J.-This order will dispose of I. T. A. Nos. 157, 158, 159, 664 of 2005, 268, 477 of 2006, 419 of 2007, 275 and 276 of 2009, 246, 251 of 2010 and C.W.P. No. 1897 of 2005, as common questions of law are involved in all the appeals except one additional question each in I.T. A. Nos. 268 of 2006 and 276 of 2009. Common questions have been set out in I. T. A. No. 157 of 2005 as under :
“(i) Whether, in the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal has erred in law in allowing deduction under section 80P(2)(e) of the Act, when it has held that there is no provision in the main or even incidental objects of the Federation to let out godown on rent and further that the godowns and warehouses in fact had not been let out to the FCI or any other agency for the purposes of storage ?
(ii) Whether the hon’ble Income-tax Appellate Tribunal have erred in law in allowing deduction under section 80P(2)(e) of the Act once a finding had been recorded that the assessee did not fulfil the ingredients of section 80P(2)(e) of the Act as the income had not been derived from letting of godowns or warehouses for storage processing or facilitating the marketing of commodities ?
(iii) Whether the hon’ble Income-tax Appellate Tribunal was justified in issuing direction regarding calculation of correct amount of proportionate expenses of deduction under section 80P(2)(e) of the Act when the deduction under section 80P(2)(e) of the Act itself is not available?”
2. The assessee is a co-operative society and procures agricultural commodities on behalf of the Government from grain markets. Wheat is procured at price fixed by the Government and is delivered to the FCI. Till its delivery, it is kept in godown of the assessee. In addition to the price of the wheat, the assessee also got charges for storage. In respect of the income from the charges for storage, the assessee claimed deduction under section 80P(2)(e) of the Income-tax Act, 1961 (for short “the Act”), which was allowed but on appeal of the assessee against certain additions, claim under section 80P(2)(e) of the Act was disallowed on the ground that deduction permissible under section 80P(2)(e) of the Act was not in respect of income from storage but from “letting out for storage”. The Tribunal, however, restored the view taken by the Assessing Officer.
3. It will be worthwhile to reproduce the finding recorded by the Commissioner of Income-tax (Appeals) and the Tribunal The observations in the order of the Commissioner of Income-tax (Appeals) are as under :
“On further enquiries about these submissions, it transpired that the appellant was purchasing goods and then selling it to the FCI. When the FCI was lifting goods from the appellant, the appellant was issuing a proper sale memo because goods stood purchased by it. From this aspect alone, it is again ex facie clear as to what the true nature of the transactions was. The fact remains that the transactions of the appellant qua any receipt of income from godowns and ware-houses, was nothing but a business and commercial receipt which has nothing to do with the letting out of godowns as such and where the appellant was keeping/storing the goods purchased by it, which were subsequently sold to the FCI. May be the sale price of the sales made to the FCI were determined/controlled by the Government. All the same, the transaction remained as one of sale and it is to be so treated. Thus, from the very method of accounting adopted by the appellant, the income earned by the appellant was nothing but income from its normal business activities. Simple giving a different colour to any set of transaction for claiming any specific exemption, is not a good and allowable practice.”
4. The finding recorded by the Tribunal is as under :
“15. We will first consider as to whether deduction under section 80P(2)(e) is admissible in respect of the gross income derived by the assessee from storage/custody facilities. In this connection, it will be relevant to refer to section 80P, which reads as under :
’80P.(1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.’
Section 80P grants deduction out of the income included in the gross total income. Section 80AB restricts the deduction to the income as computed in accordance with the provisions of the Act, which is included in the gross total income. The said section reads as under :
’80AB. Where any deduction is required to be made or allowed under any section included in this Chapter under the heading “C.-Deductions in respect of certain incomes” in respect of any income of the nature specified in that section which is 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.’
It is evident from section 80AB that the assessee is entitled to deduction in respect of the specified income which is included in the gross total income. Since it is the only net income which is included in the gross total income of the assessee, the deduction permissible under section 80P(2)(e) has got to be restricted to the net income included in the gross total income. We, therefore, hold that the assessee is entitled to deduction in respect of the net income derived from letting of godown and warehouses for storage and other such facilities.
16. The question as to whether the proportionate administrative and office overhead expenses are to be taken into account for determination of the net income, the issue had come up before the hon’ble Supreme Court in the following cases :
(i) Sabarkantha Zilla Kharid Vechan Sangh Ltd. v. CIT [1993] 203 ITR 1027 (SC) ;
(ii) CIT v. United General Trust Ltd. [1993] 200 ITR 488 (SC) ;
(iii) CIT v. Kerala State Co-operative Marketing Federation Ltd. [1994] 207 ITR 319 (Ker); and
(iv) Kerala State Co-operative Marketing Federation Ltd. v. CIT [1998] 231 ITR 814 (SC).
On the basis of the aforesaid decisions, we are of the considered view that in computing the eligible income, which is included in the gross total income, the proportionate administrative and office overhead expenses are to be taken into account. Accordingly, respectfully following the ratio of the above decisions, we hold that proportionate administrative and office overhead expenses are to be taken into account for the purpose of computation of deduction under section 80P(2)(e).”
5. We have heard learned counsel for the parties.
6. Learned counsel for the Revenue submitted that the Commissioner rightly held that income from storage could not be treated as income from “letting out” so as to attract section 80P(2)(e). He relies on the judgments of the hon’ble Supreme Court in A. Venkata Subbarao v. State of A.P. AIR 1965 SC 1773 and Udaipur Sahkari Upbhokta Thok Bhandar Ltd. v. CIT [2009] 315 ITR 21/182 Taxman 287 (SC) and the Gujarat High Court in Surat Venkar Sahakari Sangh Ltd. v. CIT [1971] 79 ITR 722 (Guj).
7. Learned counsel for the assessee supports the view taken by the Tribunal. He submits that the judgments relied upon by the Revenue are distinguishable. He relies on the judgment of the hon’ble Supreme Court in CIT v. South Arcot District Co-operative Marketing Society Ltd. [1989] 176 ITR 117/43 Taxman 328.
8. Before considering the matter further, it will be appropriate to reproduce the relevant statutory provision of section 80P(2)(e) of the Act :
“80P. Deduction in respect of income of co-operative societies.-(1)Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.
(2) The sums referred to in sub-section (1) shall be the following, namely :-
(e) In respect of any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income.”
9. In Surat Venkar Sahakari Sangh Ltd. case (supra) it was observed by the Gujarat High Court as under (page 728) :
“The conclusion appears to be clear on a plain natural construction of the language used in section 81(iv) that what is exempted under that section is income derived from the letting of godowns or ware-houses provided the letting is for any of the three purposes, namely, ‘storage’, ‘processing’ or ‘facilitating the marketing of commodities’.” (emphasis supplied)
10. In Udaipur Sahkari Upbhokta Thok Bhandar Ltd. case (supra), the above reasoning was approved as under (page 32) :
“We approve the reasoning given by the High Court on the interpretation of section 81(iv) and section 14(3)(iv) of the 1922 Act. On reading the above judgment it becomes clear that under section 80P(2)(e) of the 1961 Act, an assessee is entitled to claim special deduction from its gross total income to arrive at total taxable income. It is a special deduction which is provided for in that section. It is not a charging section. The burden is on the assessee to establish that the income comes within the four corners of section 80P(2)(e) of the 1961 Act. The burden is on the assessee to establish that exemption is available in respect of income derived from the letting of godowns or warehouses, only where the purpose of letting is storage, processing or facilitating the marketing of commodities. If the godown is let out (including user) for any purpose besides storing, processing or facilitating the marketing of commodities, then, the assessee is not entitled to such exemption (see Law and Practice of Income-tax by Kanga and Palkhivala, Eighth Edition, page 995).”
11. In A. Venkata Subbarao (supra), question was as to how the commission charged for storage for supply of goods to the Government as per a Control Order was considered and it was held that the commission so charged could not be held to be remuneration. After referring to the above judgment, it was observed (page 39 of 315 ITR) :
“Applying the judgment of this court in the case of A. Venkata Subbarao, AIR 1965 SC 1773, we hold that the High Court was right in coming to the conclusion that the assessee was storing the commodities in question in its godowns as part of its own trading stock, hence, it was not entitled to claim deduction for such margin under section 80P(2)(e) of the 1961 Act.”
12. Thus, the submission on behalf of the Revenue that exemption under section 80P(2)(e) is available only in respect of income from “letting out” for purposes mentioned therein is fully supported by the judgment in Udaipur Sahkari Upbhokta. Income from storage without storage space having been “let out” as such is not per se eligible for exemption.
13. The judgment in South Arcot relied upon on behalf of the assessee was distinguished in Udaipur Sahkari Upbhokta, holding that therein statutory or compulsory sale was not in issue. The assessee was storing stock belonging to the Government under an agreement and in such fact situation, it was held that storage charges could be equated to hire charges.
14. In the present case, it has been clearly held that the assessee was purchasing the goods and then selling the goods to the FCI and in such a situation, storing was part of business of the assessee and did not amount to letting out of storage capacity as till the goods were sold to the FCI, goods belonged to the assessee itself, and not to the FCI. This being the factual situation, the matter is fully covered by the judgment of the hon’ble Gujarat High Court in Surat Venkar Sahakari Sangh Ltd. (supra) and A. Venkata Subbarao, AIR 1965 SC 1773 as reiterated in Udaipur Sahkari Upbhokta Thok Bhandar Ltd. (supra). The income of the assessee for storage could not be treated at par with hire charges. Questions are answered in favour of the Revenue and against the assessee. Accordingly, I. T. A. Nos. 157, 158, 159, 664 of 2005, 477 of 2006, 419 of 2007, 275 of 2009 and 246, 251 of 2010 are allowed.
15. Additional question in I. T. A. No. 268 of 2006 is as under :
“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in allowing deduction under section 80G in full out of the taxable income whereas the deduction was not allowed for want of the receipt of the donation paid ?”
16. The Tribunal upheld the claim of the assessee for deduction under section 80G of the Act, setting aside the order of the Commissioner of Income-tax (Appeals), disallowing the said claim for want of proof. The Commissioner of Income-tax (Appeals) observed :
“8.1 It was submitted before me that the appellant had given donation of Rs. 5 lakhs to Kurukshetra Development Board, which was added back while computing the income. It was claimed that, the appellant is entitled to deduction under section 80G of the Act which has not been allowed. It was, therefore, pleaded that the Assessing Officer should be directed to allow the deduction as per law. The receipt of the donation was neither produced before the Assessing Officer at the time of assessment proceedings nor during the course of hearing before me. Therefore, it is held that the appellant is not entitled to deduction under section 80G of the Act. Hence, this ground of appeal is dismissed.”
17. Reversing the said view, the Tribunal observed as under :
“6. Ground No. 4 is relating to deduction under section 80G. The income of the assessee is partly exempt and partly liable to tax. The Assessing Officer has allowed deduction to the assessee under section 80G in proportion to the taxable income. Similar issue came up for consideration of the Tribunal in the assessee’s own case for the assessment years 1995-96 and 1996-97 in I. T. A. Nos. 315 and 316/ Chandi/2000 and, vide order dated September 15, 2004, the same has been decided in favour of the assessee. We respectfully following the said decision of the Tribunal in the assessee’s own case (supra) direct the Assessing Officer to allow deduction under section 80G out of the taxable income of the assessee.”
18. It is not clear in the order of the Tribunal that the assessee had produced any proof though learned counsel for the assessee submits that proof may have been produced before the Tribunal. In this view of the matter, we answer the question in favour of the Revenue subject to the observation that if the assessee had produced any proof, this aspect will be looked into by the Assessing Officer and claim under section 80G of the Act will be allowed, if any proof is produced in that regard. I. T. A. No. 268 of 2006 will stand allowed accordingly.
19. In I. T. A. No. 276 of 2009, the following additional question has been raised :
“Whether, on the facts and in the circumstances of the case and in law, the learned Income-tax Appellate Tribunal is correct in holding that the expenditure of Rs. 37,50,000 paid for Sahakarita Bhawan and Rs. 7,00,000 paid to the Co-operative Development Federation for modernisation of the printing press is a revenue expenditure ?”
20. The expenditure for modernization of printing press was held to be capital expenditure by the Assessing Officer and the Commissioner of Income-tax (Appeals) but the Tribunal reversed the said view and held as under :
“8. The next grounds, i.e., ground Nos. 6 and 7 raised by the assessee is that the learned first appellate authority erred in not allowing the expenditure of Rs. 37,50,000 paid for construction of Sahakarita Bhawan and Rs. 7 lakhs paid to Co-operative Development Federation for modernizing the printing press. It was claimed that this issue covered by the decision of the Tribunal vide I.T.A. No. 4830/Del/ 2002. It was further claimed that the construction was done on the direction of the State Government. This claim of the assessee was not controverted by the revenue. We have found that the Tribunal in the case of Shahbad Co-operative Sugar Mills v. Joint CIT (I. T. A. No. 4830/Del/2002) the assessment year 1996-97, vide para 8 (page 3) has considered the decision from the hon’ble apex court in the case of CIT v. Bombay Dyeing and Manufacturing Co. Ltd. [1996] 219 ITR 521 (SC) and the claim was allowed as revenue expenditure. In view of these facts, these grounds of the assessee are allowed.”
21. Learned counsel for the Revenue points out that the judgment in Bombay Dyeing relied upon by the Tribunal in support of its view that expenditure was revenue in nature was clearly distinguishable as therein tenements constructed for welfare of employees did not vest in the assessee and the assessee did not get any benefit of enduring nature which was the basis of the judgment of the hon’ble Supreme Court.
22. This submission has merit. Accordingly, we decide the issue in favour of the Revenue to the extent that the matter is required to be reconsidered by the Tribunal. We do not approve the view of the Tribunal to the extent of reliance on the judgment in Bombay Dyeing. This aspect will stand remanded to the Tribunal for a fresh decision. The appeal is accordingly allowed.
23. Coming now to C. W. P. No. 1897 of 2005, it has been stated by learned counsel for the petitioner that the writ petition has become infructuous. Accordingly, the same is dismissed as infructuous.
24. All the appeals and the writ petition stand disposed of accordingly.
[Citation : 344 ITR 631]
