1989 (5) TMI 158 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility of ginning and pressing charges for deduction under section 80P(2)(e) of the Income-tax Act, 1961.
2. Interpretation of the agreement between the assessee and the Federation regarding ginning, pressing, and storage charges.
3. Applicability of previous ITAT and High Court decisions to the present case.

Issue-wise Detailed Analysis:

1. Eligibility of Ginning and Pressing Charges for Deduction under Section 80P(2)(e):

The central issue in these appeals is whether the ginning and pressing charges received by the assessee from the Federation qualify for deduction under section 80P(2)(e) of the Income-tax Act, 1961. The assessee, a co-operative society running a Ginning and Pressing Factory, claimed that these charges are exempt, arguing that they are essentially rent for storage, as ginning and pressing cannot be done without storing cotton.

The Income Tax Officer (I.T.O.) and the Appellate Assistant Commissioner (A.A.C.) both rejected this claim. The A.A.C. concluded that the ginning and pressing charges are distinct from storage rent, which is separately stipulated in the agreement. The A.A.C. emphasized that the primary activity of the assessee was ginning and pressing, with storage being incidental. Consequently, only the rent received for storage, as specified in the agreement, is eligible for deduction under section 80P(2)(e).

2. Interpretation of the Agreement Between the Assessee and the Federation:

The agreement between the assessee and the Federation specified that the assessee would provide free open space for storage and receive separate payments for ginning and pressing. Clause 4 of the agreement detailed the ginning and pressing charges, while Clause 6 specified the conditions under which storage rent would be paid. The A.A.C. found that the agreement clearly differentiated between ginning/pressing charges and storage rent, with the latter being eligible for deduction under section 80P(2)(e).

The Tribunal upheld this interpretation, noting that the ginning and pressing charges are for services rendered and do not include any element of rent. The Tribunal emphasized that section 80P(2)(e) specifically refers to income derived from letting godowns or warehouses for storage, processing, or facilitating marketing of commodities, and does not cover ginning and pressing activities.

3. Applicability of Previous ITAT and High Court Decisions:

The assessee relied on several previous ITAT decisions, including those in the cases of Bhandara Zilla Sahakari Kharedi Vikri Sangh Ltd., Chikhali Ginning & Pressing Factory Ltd., and Akola Ginning & Pressing Co-op. Factory Ltd., which had ruled in favor of similar claims. However, the Tribunal distinguished these cases, noting that they did not consider the Gujarat High Court's decision in Surat Vankar Sahakari Sangh Ltd., which clarified that section 80P(2)(e) applies only to income from letting godowns or warehouses for specific purposes.

The Tribunal also reviewed other High Court decisions, including those from the Gujarat High Court and the Madras High Court, which supported a strict interpretation of section 80P(2)(e). These decisions emphasized that the exemption applies only to income directly derived from specified activities and not to ancillary activities like ginning and pressing.

Conclusion:

The Tribunal concluded that the assessee is not eligible for deduction under section 80P(2)(e) for the ginning and pressing charges received from the Federation. The deduction is available only for the rent received for storage as specified in the agreement. The Tribunal upheld the A.A.C.'s decision, dismissing the assessee's appeals.