2011 (2) TMI 139 - HC - Income Tax

Dis-allowance - Exemption under section 10(29) - Income under the head surplus from procurement of wheat account - Rent/storage charges - The matter is covered in favour of the revenue by earlier order of this Court The Commissioner of Income Tax Panchkula v. M/s Haryana State Coop. Supply and Marketing Federation Limited Panchkula - Hence the questions raised in the appeal are decided in favour of the revenue and against the assessee - The appeal is allowed

Summary

Issues:
1. Interpretation of taxable income under the head "surplus from procurement of wheat account."
2. Determination of income exemption under section 10(29) of the Income Tax Act.
3. Adjudication of income nature as trading receipt or storage income.
4. Consistency in denying exemption u/s 10(29) for income not related to storage charges.

Interpretation of Taxable Income:
The appeal involved the interpretation of the taxable income under the head "surplus from procurement of wheat account." The appellant contended that the assessee reduced its taxable income by notionally debiting an amount as "storage charges" and crediting the same to "Warehousing charges." The appellant argued that despite the nomenclature difference, the amount related to the "surplus from procurement of wheat account." The Income Tax Appellate Tribunal (ITAT) was questioned for not considering this fact and the absence of actual receipt of rent/storage charges from the Food Corporation of India (FCI).

Income Exemption under Section 10(29):
Another issue was the determination of income exemption under section 10(29) of the Income Tax Act. The ITAT dismissed the appeal of the Revenue, allowing the assessee's contention that the income claimed exempt under section 10(29) was received from FCI for the storage of food grains and not a trading receipt. However, the Hon'ble Punjab & Haryana High Court had previously decided that such income was a trading receipt and not exempt under section 10(29). This discrepancy led to a conflict in the interpretation of the exemption provision.

Nature of Income - Trading Receipt or Storage Income:
The ITAT was criticized for not adjudicating the basic question of whether the income claimed by the assessee as storage charges was in the nature of a trading receipt or storage income under section 10(29). The ITAT's failure to follow the precedents set by the Hon'ble Punjab & Haryana High Court and the Hon'ble Supreme Court's ruling in a similar case was highlighted. The lack of clarity on the nature of the income further complicated the decision-making process.

Consistency in Denying Exemption:
Lastly, the issue of consistency in denying exemption under section 10(29) for income not related to storage charges was raised. The Revenue had a history of denying exemption for income not classified as "storage charges" since the assessment year 1992-93. The discovery that the income in question was not related to storage charges led to the denial of exemption, emphasizing the Revenue's stance on maintaining consistency in applying the exemption provision.

In conclusion, the High Court decided in favor of the Revenue based on a previous order that favored the Revenue in a similar case. The questions raised in the appeal were resolved in favor of the Revenue, emphasizing the importance of consistency in interpreting and applying tax exemption provisions.