Commissioner of Income Tax vs Rajasthan State Warehousing Corporation

Rajesh Balia, J.—At the instance of the Revenue, the following question of law arising out of the order dated March 31, 1986, passed by the Income Tax Appellate Tribunal in I. T. A. Nos. 551 and 552/JP of 1985, has been referred to this court for its opinion :

"Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in upholding the findings of the Commissioner of Income Tax (Appeals) that the entire income of the assessee is exempt u/s 10(29) of the Income Tax Act, 1961 ?"

The respondent-assessee is a corporation established under the provisions of the Rajasthan Warehousing Corporation Act. It claimed that it being a corporation constituted under the law for the marketing of the commodities, its entire income derived from whatever source is exempt u/s 10(29) of the Income Tax Act, 1961 (for short "the Act"). This plea of the assessee-respondent did hot find favour with the Assessing Officer. The Assessing Officer was of the opinion that the income derived only from letting of godowns or warehouses for storage, processing or facilitating'' the marketing of commodities is exempt from tax but the income from other activities is not so exempt and is thus taxable. With this finding, he apportioned the expenditure incurred by the assessee which were common to both the sets of income, i.e., taxable and non-taxable, and assessed the taxable income on that basis. The taxable income consisted of fumigation service charges, interest, supervision charges, and surplus from cement activities and proportionate expenses referrable to gross total income. The same methodology was adopted for the assessment years 1981-82 and 1982-83.

The Commissioner of Income Tax (Appeals), vide his order dated March 30, 1985, allowed the appeals filed by the assessee-respondent. Before the Commissioner of Income Tax (Appeals), two grounds were raised. Firstly, it was contended that the entire income including income from ancillary activities of the corporation is exempt from tax within the meaning of Section 10(29) of the Income Tax Act, 1961. In the alternative, it was submitted that the business of the assessee being indivisible, the Assessing Officer was not justified in apportioning the common expenses between taxable income and non-taxable income in the manner it was done. The Commissioner of Income Tax (Appeals) upheld both the contentions raised on behalf of the respondent-assessee and set aside the assessment and demand.

On further appeal, the Income Tax Appellate Tribunal (for short "the Tribunal") confined its order only to the question of exemption u/s 10(29) of the Income Tax Act in respect of the entire income of the corporation and agreed with the Commissioner of Income Tax (Appeals) following its own earlier orders in other cases. However, the Judicial Member of the Tribunal, after striking a discordant note by referring to the decision of the Madhya Pradesh High Court reported in M.P. Warehousing Corporation Vs. Commissioner of Income Tax, concurred with the opinion of the Accountant Member of the Tribunal for maintaining consistency with the earlier orders.

In the aforesaid circumstances on the applications being made u/s 256(1) of the Income Tax Act, the question quoted above is referred to this court for its opinion.

Section 10(29) of the Income Tax Act, 1961, reads as under :

"10. Incomes not included in total income.--In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-

(29) in the case of an authority constituted under any law for the time being in force for the marketing of commodities, any income derived from the letting of godowns or warehouses for storage, processing or faci litating the marketing of commodities."

From the reading of the language of Section 10(29) of the Income Tax Act, 1961, it would be clear that it does not exempt the whole income of an authority constituted under the law for the marketing of commodities but exempts only such income which is derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities by such authority constituted under the law for the marketing of commodities.

This controversy also came up for consideration before the Supreme Court in Orissa State Warehousing Corporation Vs. Commissioner of Income Tax, . In that case, the court said (page 594) :

"On a plain reading of Section 10(29) of the Act as above, it appears that the pre-requisite element for the entitlement as regards the claim for exemption is the income which is derived from letting out of godowns or warehouses for storage, processing or facilitating marketing of commodities and not otherwise. The Legislature has been careful enough to introduce in the section itself, a clarification by using the words ''any income derived therefrom'', meaning thereby obviously for marketing of commodities by letting out of godowns or warehouses for storage, processing or facilitating the same. If the letting out of godowns or warehouses is for any other purpose, the question of exemption would not arise."

In Orissa State Warehousing Corporation Vs. Commissioner of Income Tax, , the assessee derived income from warehousing charges, administrative overheads being surplus of recovery over cost on procurement activities on behalf of the FCI/State Government fumigation service charges, interest and miscellaneous income. The court, after referring to its earlier decision in Union of India v. U. P. State Warehousing Corporation [1991] 187 ITR 54 , affirming the decision of the Allahabad High Court in U.P. State Warehousing Corporation Vs. Income Tax Officer, A-Ward and Another, , distinguished the same and held as above. In these circumstances, it must be held that the Tribunal was not justified in holding that the finding of the Commissioner of Income Tax (Appeals) that the entire income of the assessee is exempt u/s 10(29) of the Income Tax Act, was right.

It has been pointed out by Mr. N. M. Ranka, learned counsel appearing for the respondent-assessee, that though the decision rendered in Orissa State Warehousing Corporation Vs. Commissioner of Income Tax, fully governs the present controversy but, however, this issue has been referred to a larger Bench of the Supreme Court for consideration by noticing the conflicting decisions in Orissa State Warehousing Corporation Vs. Commissioner of Income Tax, and Union of India v. U. P. State Warehousing Corporation [1991] 187 ITR 54 in CIT v. Gujarat State Warehousing Corpn. Ltd., However, as of now the binding precedent and law declared by the Supreme Court in terms of article 141 of the Constitution of India remains as enunciated in Orissa State Warehousing Corporation Vs. Commissioner of Income Tax, , which has been rendered after considering the other view in U. P. State Warehousing Corporation''s case [1991] 187 ITR 54 , which, accordingto the Supreme Court, needs to be resolved by a larger Bench. Therefore, that decision to refer the issue to a larger Bench will have no bearing on the decision of this reference.

It has been alternatively contended by learned counsel appearing for the respondent-assessee, as was contended before the Tribunal, while considering the application u/s 256(1) of the Income Tax Act, 1961, that if the entire expenses of the individual income of the assessee are being taken into account, it will be taxable surplus in the hands of the assessee and, therefore, the question referred to this court was otherwise academic and the question referred to this court need not be answered. For the purpose of the said contention, learned counsel for the respondent-assessee relied on a recent decision of the Supreme Court in Rajasthan State Warehousing Corporation Vs. Commissioner of Income Tax,

It is true that the decision in Rajasthan State Warehousing Corporation Vs. Commissioner of Income Tax, does support the contention of learned counsel for the respondent that where the business of the warehousing corporation is an indivisible one, the expenses incurred wholly or exclusively for carrying out the said business cannot be apportioned artificially between taxable and non-taxable income as has been done by the Assessing Officer. However, since the said question does not arise out of the Tri bunal''s order and there being lack of necessary findings, we shall not be justified in going into that question and shall refrain from entering into that arena. It will necessarily require determination of gross total income, its division into taxable and non-taxable income and total allowable expenses. Such question may require determination of any issue relating to their computation by the Tribunal on the income and expenses of the business.

Such questions, the Tribunal has to decide in each case in accordance with the law and in the light of the binding precedents and the law declared by the Supreme Court as also the jurisdictional High Courts and other High Courts if the issue is not covered by the decision of the Supreme Court or the jurisdictional or other High Courts.

As a result of the aforesaid discussion, we answer the question referred to us by the Tribunal against the Tribunal in the negative, i.e., against the assessee and in favour of the Revenue. There will be no order as to costs.