2012 (6) TMI 318 - AT - Income Tax

Whether Commissioner of Income-tax has erred in directing the Assessing Officer to treat the warehousing charges as part of Container Freight Station income eligible for deduction u/s 80IA of the Act Held that - warehousing facilities alone may not get any deduction but when they are part of CFS as a necessary infrastructure and such CFSs can come into existence and operate only if it provides minimum infrastructure facility as only then sanction for the CFS status is granted then such warehousing facility is different from the stand alone warehousing facility operated outside CFS, warehousing income to be a part of CFS income allowed and hold it eligible for deduction under section 80-IA, appeals filed by the Revenue are dismissed

Summary

Issues Involved:
1. Whether the warehousing charges should be treated as part of Container Freight Station (CFS) income eligible for deduction under section 80IA of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Warehousing Charges as Part of CFS Income

Facts of the Case:
The Revenue appealed against the order of the Commissioner of Income-tax (Appeals) [CIT(A)] which directed the Assessing Officer (AO) to treat warehousing charges as part of CFS income eligible for deduction under section 80IA of the Income-tax Act, 1961. The amounts in question were Rs. 6,08,02,007/- for Assessment Year 2002-03 and Rs. 41,65,148/- for Assessment Year 2003-04.

Assessing Officer's Observations:
The AO observed that the assessee operated both a CFS and a bonded warehouse. The AO noted that while the CFS was recognized as an infrastructural facility eligible for deduction under section 80IA(4), the bonded warehouse was not. The AO disallowed the deduction on warehousing income, stating that the assessee had derived rental income from letting out the warehouses, which should not be considered part of the CFS income.

CIT(A)'s Decision:
On appeal, the CIT(A) allowed the deduction under section 80IA on warehousing charges, following previous orders in the assessee's favor for other assessment years.

Tribunal's Decision:
The Tribunal upheld the CIT(A)'s decision, noting that the issue was covered in favor of the assessee by a previous decision of the Tribunal in the assessee's own case (reported in [2011] 7 ITR [Trib] 532 [Mds]). The Tribunal emphasized that the warehousing facilities were an essential part of the CFS infrastructure as per the guidelines and notifications issued by the Ministry of Commerce and the Central Board of Direct Taxes (CBDT).

Key Observations:
1. Infrastructural Requirements: The guidelines for setting up a CFS require adequate warehousing facilities as part of the minimum level of infrastructure. The Tribunal noted that warehousing is integral to the CFS operations and cannot be treated separately.

2. Government Notifications: The Ministry of Commerce's notification and the guidelines clearly stipulate that warehousing facilities are necessary for a CFS. The Tribunal found that these facilities are part of the essential infrastructure required for CFS operations.

3. Previous Tribunal Decisions: The Tribunal referred to its earlier decisions, which consistently held that warehousing income within a CFS qualifies for deduction under section 80IA. The Tribunal criticized the AO for not adhering to these precedents.

4. Distinction from Standalone Warehousing: The Tribunal distinguished between standalone warehousing facilities and those integrated within a CFS. It concluded that while standalone warehousing does not qualify for the deduction, warehousing within a CFS does, due to its essential role in the CFS infrastructure.

Conclusion:
The Tribunal confirmed the CIT(A)'s order, allowing the deduction under section 80IA for warehousing charges as part of the CFS income. The appeals filed by the Revenue were dismissed.

Final Order:
Both appeals filed by the Revenue were dismissed, and the warehousing charges were confirmed as part of the CFS income eligible for deduction under section 80IA.

Pronouncement:
The order was pronounced in the open court on 14.6.2011 at Chennai.