1978 (4) TMI 12 - HC - Income Tax

Carrying On Business, Income Tax Act, Income Tax, Manufacture And Sale, Marketing Of Commodities, Rental Income

Summary

Issues:
Interpretation of Section 10(29) of the Income-tax Act, 1961 regarding exemption for income derived from letting of godowns, Definition of "authority" under the Act, Distinction between entities constituted for marketing of commodities and ordinary business/commercial activities.

Analysis:
The case involved M/s. Singhal Brothers Private Ltd., a private limited company, claiming exemption under Section 10(29) of the Income-tax Act, 1961 for rental income from letting out godowns. The company had ceased its manufacturing operations and was only earning income from rent. The Assessing Officer (AO) rejected the claim, stating the company was not constituted for marketing commodities. The Appellate Authority Commission (AAC) and Tribunal upheld the decision, emphasizing the company's main object was manufacturing, not marketing.

The Tribunal referred the question of law to the High Court, focusing on whether the company qualified as an "authority" under Section 10(29). The company argued its objects, including acting as a contractor, commission agent, warehousing, and general suppliers, aligned with marketing of commodities. Citing U.P. State Warehousing Corporation case, the company contended that marketing encompassed activities beyond buying and selling, including storage and warehousing.

On the other hand, the revenue contended that being incorporated under the Companies Act did not automatically qualify the company as an "authority" for marketing commodities. Referring to Calcutta State Transport Corporation case, the revenue highlighted characteristics needed to be considered an "authority," such as governmental or quasi-governmental powers.

The High Court analyzed the scheme of Section 10 and the term "authority." It emphasized that merely being created under a statute for marketing commodities did not make an entity an "authority." The Court disagreed with the Allahabad High Court's interpretation that any entity created for marketing commodities would be an "authority." It held that a joint stock company engaged in ordinary business activities did not qualify as an "authority" under Section 10(29) unless it had jurisdiction in public matters.

Ultimately, the High Court ruled in favor of the revenue, stating the company did not meet the primary test of being an "authority" under Section 10(29). The Court did not delve into whether the company's activities aligned with marketing of commodities, as it failed to satisfy the fundamental requirement of being an "authority."

In conclusion, the judgment clarified the interpretation of Section 10(29) regarding exemption for income derived from letting of godowns, defined the term "authority" under the Act, and distinguished between entities constituted for marketing commodities and those engaged in ordinary business/commercial activities.