2009 (7) TMI 11 - SC - Income Tax

Section 80P(2)(e) Interpretation of - whether commission received by the appellant from the State Government was really in the nature of payment for the letting of the godowns? appellant is doing the work of distribution of controlled commodities such as wheat sugar rice and cloth on behalf of the Government under the Public Distribution Scheme (PDS) for which it is getting commission - issue price is set-off against the sale - netting/difference between the two prices constituted receipt on a commercial basis or net profit held that 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

Issues Involved:

1. Interpretation of Section 80P(2)(e) of the Income-tax Act, 1961.
2. Determination of whether the appellant acted as an agent of the Government.
3. Nature of the payment received by the appellant under the head "commission."

Issue-wise Detailed Analysis:

1. Interpretation of Section 80P(2)(e) of the Income-tax Act, 1961:

The central issue is the interpretation of Section 80P(2)(e) of the Income-tax Act, 1961, which provides special deductions for income derived from the letting of godowns or warehouses for storage, processing, or facilitating the marketing of commodities. The appellant, a co-operative society, claimed deductions under this section for the commission received from the Government for storage of controlled commodities. The Assessing Officer disallowed the claim, treating the appellant as a wholesaler, not merely a stockist. The CIT(A) and the Tribunal initially ruled in favor of the appellant, but the High Court reversed this decision, concluding that the appellant stored the commodities as part of its own trading stock, not merely for letting the godowns.

2. Determination of whether the appellant acted as an agent of the Government:

The appellant argued that it acted as an agent of the Government in storing and distributing controlled commodities. The Supreme Court examined the nature of the transactions and the terms of the agreement between the appellant and the Government. It was found that the appellant purchased the commodities, stored them at its own risk, and sold them to Fair Price Shops, indicating ownership and trading activities rather than mere agency. The Court referred to the case of A. Venkata Subbarao, where similar circumstances led to the conclusion that the procuring agents were not acting as agents of the Government but as independent traders.

3. Nature of the payment received by the appellant under the head "commission":

The appellant contended that the commission received was for the use of its godowns. However, the Supreme Court noted that the commission was part of the profit margin from trading activities. The rate-fixation mechanism showed that the appellant set off the issue price against the sale price, retaining the commission as part of the profit. The Court emphasized that the commission was not merely for letting the godowns but was intertwined with the trading operations. The appellant's accounting treatment further supported this, as it included the value of the closing stock in its books.

Conclusion:

The Supreme Court upheld the High Court's decision, concluding that the appellant was not entitled to special deduction under Section 80P(2)(e) of the Income-tax Act, 1961. The Court emphasized that the appellant's activities constituted trading in controlled commodities, and the commission received was part of the profit from these trading activities, not merely payment for letting the godowns. The appeal was dismissed with no order as to costs.

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