1980 (7) TMI 98 - HC - Income Tax

Summary

Issues involved:
1. Interpretation of exemption u/s 10(29) of the Income-tax Act, 1961 for income from letting of godowns or warehouses.
2. Deductibility of contributions to provident fund u/s 37(1) of the Income-tax Act, 1961.

Interpretation of exemption u/s 10(29):
The Karnataka State Warehousing Corporation, governed by the Warehousing Corporations Act, 1962, claimed exemption under section 10(29) of the Income-tax Act for income derived from letting warehouses for storage and marketing of commodities. The Income Tax Officer (ITO) and the Appellate Authority Commissioner (AAC) denied the exemption, stating the Corporation was not constituted for marketing commodities. However, the Tribunal ruled in favor of the assessee, citing relevant regulations and functions of the Corporation under the Act. The Tribunal held that the Corporation was indeed constituted for the marketing of commodities, including warehousing activities. The Tribunal's decision aligned with previous judgments and the specific provisions of the Acts involved, thus entitling the assessee to the exemption under section 10(29).

Deductibility of contributions to provident fund u/s 37(1):
The Corporation had made contributions to a provident fund for its employees, which the ITO and AAC disallowed as a deductible expenditure in computing business income. However, the Tribunal disagreed and allowed the deduction u/s 37(1) of the Income-tax Act, stating the expenditure was wholly and exclusively for business purposes. The Tribunal clarified that even though the contribution did not fall under another section, it met the requirements of section 37(1) for deductibility as it was directly related to the business operations. Consequently, the Tribunal upheld the deductibility of the provident fund contributions in the computation of business income.

Conclusion:
The High Court answered both questions in the affirmative and in favor of the assessee, affirming the entitlement to exemption u/s 10(29) for income from letting warehouses and the deductibility of provident fund contributions u/s 37(1) as wholly and exclusively for business purposes.