1997 (2) TMI 168 - AT - Income Tax

Summary

Issues Involved:
1. Exemption of income from trading in wheat under section 10(29) of the Income-tax Act.
2. Exemption of interest income.
3. Exemption of income from forfeiture of earnest money.
4. Exemption of income from supervision charges.
5. Levy of interest under section 234B.

Issue-Wise Detailed Analysis:

1. Exemption of Income from Trading in Wheat under Section 10(29) of the Income-tax Act:
The assessee, a Warehousing Corporation, claimed exemption under section 10(29) for income derived from various sources including trading in wheat. The Assessing Officer denied the exemption for income from trading in wheat, citing that only income from letting of godowns or warehouses for storage, processing, or facilitating the marketing of commodities was exempt. The CIT(A) upheld this view, noting that the assessee was engaged in two distinct activities: letting of godowns and trading in wheat. The latter did not qualify for exemption as it was not incidental to warehousing but a separate marketing activity. The Tribunal agreed, emphasizing that the income from trading in wheat was not derived from letting of godowns and thus was not exempt under section 10(29).

2. Exemption of Interest Income:
The assessee received interest from loans advanced to the Sugar Federation of India and its employees. The Assessing Officer taxed this interest income under "income from other sources." The CIT(A) deleted the addition, concluding that the assessee had not earned any net interest income as the interest paid on loans raised was higher than the interest received. The Tribunal upheld the CIT(A)'s decision, noting that the relief was granted based on the factual finding that the assessee did not earn net interest income, rather than on the provisions of section 10(29).

3. Exemption of Income from Forfeiture of Earnest Money:
The Assessing Officer taxed the income from forfeiture of earnest money under "income from other sources," arguing it was not connected with warehousing activity. The CIT(A) held that this income was inseparable from warehousing activity as it was related to contracts for constructing godowns and directed its deletion. The Tribunal restored this matter to the CIT(A) for re-examination, noting that the CIT(A) had concluded without adequate reasoning that the income was from letting of godowns.

4. Exemption of Income from Supervision Charges:
The assessee earned supervision charges for handling and transporting goods stored in its warehouses. The Assessing Officer denied exemption, stating these charges were not part of income from letting out warehouses. The CIT(A) deleted the addition, reasoning that these charges were inseparable from rental income. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's decision in South Arcot District Co-operative Marketing Society Ltd., which supported the view that supervision charges related to storage activities are incidental and thus exempt.

5. Levy of Interest under Section 234B:
The assessee contested the levy of interest under section 234B, arguing that the exemption for income from trading in wheat was denied suddenly and the relevant adverse judgment was delivered after the due date for advance tax payments. The Tribunal admitted this additional ground and restored the matter to the Assessing Officer to decide the issue of levy of interest in accordance with the law.

Conclusion:
The Tribunal upheld the CIT(A)'s decision on denying the exemption for income from trading in wheat and interest income, while it restored the issue of forfeiture of earnest money to the CIT(A) for re-examination. The Tribunal also upheld the CIT(A)'s decision on supervision charges and admitted the additional ground regarding the levy of interest under section 234B, restoring it to the Assessing Officer for a fresh decision.