2000 (10) TMI 186 - AT - Income Tax

Issues Involved:
1. Entitlement of the assessee to deduction under Section 80P(2)(e) of the Income Tax Act.
2. Quantum of deduction under Section 80P(2)(e).

Analysis:

1. Entitlement of the Assessee to Deduction under Section 80P(2)(e):

Background and Claims:
The assessee, a consumer co-operative store, filed revised returns for the assessment years 1989-90 and 1990-91, claiming deductions under Section 80P(2)(e) for storage charges received from the State Government. The original returns did not claim this deduction, but the revised returns were filed after the assessee became aware of the Supreme Court decision in CIT vs. South Arcot Dist. Co-op. Marketing Society Ltd., which held similar income as exempt under Section 80P(2)(e).

Revenue's Argument:
The Revenue argued that the assessee's activities were of a trading nature and not merely letting out godowns or warehouses. The Revenue contended that the assessee was engaged in the purchase and sale of controlled commodities, earning a trading margin, and thus the income should be taxable as business income, not exempt under Section 80P(2)(e).

Assessee's Argument:
The assessee argued that it had agreements with the State Government for holding stocks of foodgrains and sugar in its godowns for further distribution. The assessee received fixed amounts for these activities and claimed exemption under Section 80P(2)(e) after the Supreme Court's decision. The assessee contended that the nature of the income was storage charges, not trading income.

Tribunal's Observations:
The Tribunal noted that the deduction under Section 80P(2)(e) is for income derived from letting godowns or warehouses for storage, processing, or facilitating the marketing of commodities. The Tribunal considered the Supreme Court's decision in South Arcot Dist. Co-op. Marketing Society Ltd., which emphasized a liberal construction of the term "letting" to include storage services incidental to the use of godowns.

Key Points of Distinction by AO:
1. No contract with the State Government.
2. Commission received was for wholesale distribution, not as a stockist.
3. Transactions were in the nature of purchase and sale with a fixed margin.

Tribunal's Analysis:
- Contract Issue: The Tribunal found that the State Government's order in 1976 specified the terms and conditions for distribution, serving the purpose of a contract.
- Commission Nature: The Tribunal concluded that the commission was essentially storage charges, as the assessee was remunerated for storage and distribution.
- Transaction Nature: The Tribunal noted that the assessee did not have ownership of the goods and was merely handling them on behalf of the Government. The procedural requirements of depositing costs and recovering them were to secure Government interests.

Conclusion:
The Tribunal held that the assessee's income from storage charges was eligible for deduction under Section 80P(2)(e), as the essence of the arrangement was letting godowns for storage, aligning with the Supreme Court's decision.

2. Quantum of Deduction under Section 80P(2)(e):

Observations:
The AO did not quantify the deduction, considering it inadmissible. However, the Tribunal directed the AO to consider the quantum of deduction on merit, following the principles laid down by the Supreme Court in Rajasthan State Warehousing Corporation vs. CIT. The Tribunal emphasized that the entire permissible expenditure in earning the income should be deductible if the ventures constitute one indivisible business.

Principles for Determination:
1. Deduction permissible under respective heads of income.
2. Entire expenditure deductible if ventures constitute one indivisible business.
3. Apportionment of expenditure if ventures do not form an integral part of the business.

Final Judgment:
Both appeals of the Revenue were dismissed, affirming the assessee's entitlement to deduction under Section 80P(2)(e) and directing the AO to determine the quantum of deduction on merit.

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