2011 (10) TMI 479 - HC - Income Tax

Exemption under 10(29) denied on following category on incomes fumigation, disinfestations charges, supervisory charges and other misc income on ground that they are not related to warehouse activity - Held That - When income is derived from letting out of godowns or warehouses to facilitate marketing of commodities and as a consequence of such letting out if the assessee incurs expenditure for facilitating commodities to be marketed by fumigation, disinfestations or for supervision, that income is included u/s 10(29). Thus, order of Tribunal is set aside and exemption u/s 10(29) is granted to assessee. See CIT v. Rajasthan State Warehousing Corpn (1993 -TMI - 19898 - RAJASTHAN High Court) - Decided in favor of assessee.

Summary

Issues Involved:
1. Exemption under Section 10(29) of the Income Tax Act, 1961.
2. Taxability of income from fumigation, disinfestation, and supervisory charges.
3. Interpretation of the Supreme Court judgment in Orissa State Warehousing Corpn. v. CIT.

Detailed Analysis:

1. Exemption under Section 10(29) of the Income Tax Act, 1961:
The primary issue in this case is whether the income derived from fumigation, disinfestation, and supervisory charges by the assessee, an authority constituted under the Karnataka Ware House Act, 1961, is exempt under Section 10(29) of the Income Tax Act, 1961. The assessee claimed exemption for its income under this section, which was contested by the Assessing Officer, who categorized various incomes such as interest income, fumigation and disinfestation services, supervisory charges, miscellaneous income, aerial spraying collections, and coffee and soil fumigation collections as taxable.

2. Taxability of income from fumigation, disinfestation, and supervisory charges:
The Appellate Commissioner and the Tribunal initially ruled against the assessee, stating that the income from fumigation, disinfestation, and supervisory charges was not exempt under Section 10(29). The Tribunal, following the Supreme Court's judgment in Orissa State Warehousing Corpn. v. CIT, held that income from other sources, other than letting out of warehouses/godowns, is taxable. The High Court, however, found that the Tribunal misinterpreted the Supreme Court's ruling. The High Court emphasized that the charges collected for fumigation, disinfestation, and supervision are directly connected with the storage and marketing of commodities, thus falling under the exemption provided by Section 10(29).

3. Interpretation of the Supreme Court judgment in Orissa State Warehousing Corpn. v. CIT:
The High Court scrutinized the Supreme Court's interpretation in Orissa State Warehousing Corpn. v. CIT, which outlined that income derived from letting out godowns or warehouses for storage, processing, or facilitating the marketing of commodities is exempt. The Supreme Court had clarified that the exemption applies only to income directly derived from letting out godowns or warehouses for the specified purposes. The High Court noted that the Tribunal misread this judgment by not considering the context of facilitating marketing of commodities, which includes activities like fumigation and supervision necessary to maintain the marketable condition of stored goods.

Conclusion:
The High Court concluded that the income from fumigation, disinfestation, and supervisory charges collected by the assessee is exempt under Section 10(29) as these activities facilitate the marketing of commodities. The High Court set aside the orders of the Tribunal, Appellate Commissioner, and the Assessing Authority, and directed the Assessing Authority to recompute the income in light of this judgment.

Order:
1. The appeals are allowed.
2. The impugned orders passed by the Tribunal, Appellate Commissioner, and the Assessing Authority are set aside.
3. The Assessing Authority is directed to recompute the income considering the High Court's findings.