2019 (2) TMI 1269 - AT - Income Tax

Claim of deduction u/s 80P - assessee was Co-operative Society and had furnished the return of income declaring Nil income after claiming the deduction under section 80P - HELD THAT - First reference is made to section 80P(2)(e) of the Act, wherein it is clearly provided that where the income is derived by Co-operative Society from letting of godowns and warehouses for storage / processing or facilitating the marketing of commodities, then whole of such income is exempt under section 80P(2)(e) of the Act. The interpretation of the CIT(A) in this regard was that the words used in the said sub clause are for income derived from letting of godowns or warehouses for different purposes i.e. storage, processing and also facilitating the marketing of commodities. There is no merit in the observations of CIT(A) in this regard. The assessee has clearly pointed out that it was solely engaged in the purchase and sale of fertilizers, seeds and pesticides. It was also pointed out that during the year, the storage plant of assessee was closed. The profits earned on purchase and sale of fertilizers, seeds, i.e. from its members to its members was claimed as exempt under section 80P(2)(e) of the Act and the same was allowed in the hands of assessee. However, the receipts on account of hamali of ₹ 5,71,378/- and commission income of ₹ 4,72,710/- was held to be not eligible for the aforesaid deduction under section 80P(2)(e) of the Act. With regard to said charges received during the year, it may be pointed out that the Central Government had appointed the assessee as sub-agent and had directed it to purchase pulses from NAFED and supply it to the farmers, against which it has received the aforesaid hamali and commission. The activity undertaken by the assessee was in line with the activity carried on by it vis- -vis its members i.e. procurement of pulses and selling the same to its members. Here, the procurement was at the directive of the Central Government and for such services, the assessee received hamali and commission income. The said receipts in the hands of assessee are in line with the business activity carried on by it and hence, eligible for deduction under section 80P(2)(e). The issue raised in the present appeal is covered by the dictate CIT Vs. Bhandara Zilla Sahakari Kharedi Vikri Sangh Ltd. (1992 (1) TMI 13 - BOMBAY HIGH COURT), in the first instance, wherein it has been held that commission on sale of fertilizers is part of warehousing activity and exempt in the hands of Co-operative Society. Applying the said ratio to the facts of present case, we hold that the assessee is entitled to the deduction u/s 80P(2)(e) on the aforesaid hamali and commission income earned by it. The ground of appeal raised by assessee is thus, allowed.

Summary

Issues:
Claim of deduction under section 80P of the Income Tax Act.

Analysis:
The appeal was filed against the order of CIT(A)-2, Aurangabad, concerning the assessment year 2014-15 under section 143(3) of the Income-tax Act, 1961. The sole issue raised in the appeal was regarding the claim of deduction under section 80P of the Act. The assessee, a Co-operative Society, declared Nil income after claiming the deduction under section 80P of the Act, as it was formed for the purchase and sale of fertilizers, seeds, and pesticides. However, the Assessing Officer disallowed a sum of ?10,44,088/-, stating that hamali and commission income were not connected to the society's objectives and hence not eligible for deduction under section 80P of the Act.

Before the CIT(A), the assessee explained that it was appointed to purchase pulses and soya bean on behalf of the Central Government through NAFED, entitling it to commission and hamali charges. The CIT(A) held that the activities of procuring pulses and soya bean did not qualify as letting out of godowns or warehouses, as required by section 80P(2)(e) of the Act. The CIT(A) upheld the Assessing Officer's decision.

The assessee contended that the profits earned on the purchase and sale of agricultural products were eligible for deduction under section 80P(2)(e) of the Act. The Central Government had directed the assessee to purchase pulses and store them for sale, entitling it to hamali and commission charges. The Tribunal noted that the activities undertaken by the assessee were in line with its business operations and hence eligible for deduction under section 80P(2)(e) of the Act.

Referring to the decision of the Hon’ble Bombay High Court in a similar case, it was held that commission on the sale of fertilizers was exempt as part of warehousing activity. Applying this precedent, the Tribunal allowed the appeal, stating that the assessee was entitled to the deduction under section 80P(2)(e) of the Act on the hamali and commission income earned. The appeal was thus allowed, and the order was pronounced on February 19, 2019.