2000 (10) TMI 188 - AT - Income Tax

Summary

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

Issue-wise Detailed Analysis:

1. Deduction under Section 80P(2)(e) of the Income Tax Act:
The Revenue contested the allowance of a deduction of Rs. 1,87,500 under Section 80P(2)(e) by the CIT(A), arguing that the assessee's activities were of a trading nature and not merely letting of godowns. The assessee, a consumer co-operative store, had agreements with the State Government to store foodgrains and sugar in its godowns, receiving storage charges described as gross profit. Initially, the AO denied the deduction, citing differences from a Supreme Court case (CIT vs. South Arcot Dist. Co-op Marketing Society Ltd.), such as the absence of a contract with the government and the nature of the transactions being purchase and sale with fixed margins. However, the CIT(A) overruled these objections, and the Tribunal upheld this decision, noting that the arrangement with the State Government, though not a formal contract, was regulated by government orders and the income was essentially from letting godowns. The Tribunal referenced the Supreme Court's liberal interpretation of "letting" in Section 80P(2)(e) and concluded that the assessee's income from storage charges qualified for the deduction.

2. Quantum of Deduction under Section 80P(2)(e):
The AO did not quantify the deduction under Section 80P(2)(e), as he believed it was not admissible. He suggested that if allowed, it should be proportionate to the net income from letting godowns. The Tribunal noted that this issue was not considered on merits by the CIT(A) and directed the AO to reassess the quantum of deduction in light of the Supreme Court's principles in Rajasthan Warehousing Corpn. vs. CIT. These principles include allowing deductions under respective income heads, deducting entire permissible expenditure if income arises from different items, and considering whether all ventures constitute one indivisible business for expenditure allowance.

Conclusion:
The Tribunal dismissed the Revenue's appeals, affirming the CIT(A)'s decision to allow the deduction under Section 80P(2)(e) and directing the AO to reassess the quantum of deduction based on established legal principles.