2008 (10) TMI 342 - HC - Income Tax

Exemption - The assessee was a warehousing corporation and claimed exemption under section 10(29) of the Act in respect of income received from procurement of wheat and paddy as agent of the Food Corporation of India. The claim was allowed on the ground that exemption under section 10(29) was confined to income derived from letting of gowdowns from warehousing or storage etc. The Tribunal held based on an appeal filed by assessee for the assessment year 2000-01that the rent received by the assessee on account of providing storage facilities was part of its business income and had to be computed under the hed Profits and gains of business and not under Income from house property . Held that - (i) the income derived from procurement of wheat and paddy as agent of Food Corporation of India was not exempt u/s 10(290 of the Act. (ii) that it was the case of the assessee itself that providing storage facility to Food Corporation of India was its main business and not merely incidental business. Thus, the income derived from storage facility would not be covered by the head Income from house property . There was nothing to show that assessee had challenged the treatment of the income as Income from business in the previous year as noted by the Tribunal. The income of the assessee directly fell under the head Business and not under the head Income from house property .

Summary

Issues:
1. Exemption under section 10(29) of the Income-tax Act for income from procurement of wheat and paddy.
2. Apportionment of expenses between taxable and non-taxable income.
3. Classification of income from rent of warehouses under 'Income from house property' or 'Profits and gains of business'.

Analysis:

Issue 1:
The appellant, a warehousing corporation, claimed exemption under section 10(29) for income from procuring wheat and paddy as an agent of Food Corporation. However, the claim was denied as the exemption was deemed applicable only to income from letting of godown or storage. The Tribunal upheld this decision citing precedents, including the Supreme Court judgment in Orissa State Warehousing Corporation v. CIT. The court found no substantial question of law in this regard.

Issue 2:
The question of apportioning expenses between taxable and non-taxable income was remitted back to the Assessing Officer. The court held that this issue did not constitute a substantial question of law, as it was a procedural matter to be resolved by the tax authorities.

Issue 3:
Regarding the classification of income from rent of warehouses, the Tribunal determined that the income was part of the appellant's business income and not 'Income from house property'. The court noted that the appellant's main business was providing storage facilities, making the income fall under the head of business. Citing judgments from the Madras High Court and the Supreme Court, the court emphasized that the nature of the business determines the classification of income. The court disagreed with the Madras High Court's decision in a similar case, reinforcing that income directly covered by one head should be classified accordingly. As the matter was settled by previous Supreme Court judgments, the court found no substantial question of law and dismissed the appeal.

In conclusion, the court upheld the decisions of the Tribunal and Assessing Officer, emphasizing the importance of the nature of the business in determining the classification of income for tax purposes.