1973 (11) TMI 1 - HC - Income Tax

U.P. State Warehousing Corporation has approached this court under article 226 of the Constitution, with a prayer that the notice of demand issued by the Income-tax Officer, requiring the petitioner to pay a sum as advance tax be quashed - petitioner alleges that in its assessments for the last several years it had been claiming exemption from income-tax in respect of its income from letting its warehouses, but this claim has been consistently rejected by the Income-tax Officer as well as the Appellate Assistant Commissioner and the matter is now pending in appeal before the Tribunal. - Petitioner prays that the question of law whether the petitioner is entitled to exemption under section 10(29) of the Income-tax Act, 1961, be decided this court

Issues Involved:
1. Validity of the notice of demand for advance tax.
2. Entitlement to income tax exemption under Section 10(29) of the Income-tax Act, 1961.
3. Definition and scope of the term "authority" under Section 10(29).
4. Interpretation of "marketing of commodities" under Section 10(29).

Issue-Wise Detailed Analysis:

1. Validity of the Notice of Demand for Advance Tax:
The petitioner, U.P. State Warehousing Corporation, challenged the notice of demand dated 22nd May 1973, issued by the Income-tax Officer, Lucknow, requiring the payment of Rs. 30,12,669 as advance tax for the assessment year 1974-75. The petitioner argued that it had been consistently claiming exemption from income tax for income derived from letting its warehouses, which had been rejected by the Income-tax Officer and the Appellate Assistant Commissioner. The court found that if the income earned by the petitioner in the financial year 1973-74 is excluded, the petitioner would not be liable to pay any advance tax for the assessment year 1974-75. Consequently, the impugned notice of demand was held to be invalid.

2. Entitlement to Income Tax Exemption under Section 10(29):
Section 10(29) of the Income-tax Act, 1961, provides that any income derived from the letting of godowns or warehouses for storage, processing, or facilitating the marketing of commodities by an authority constituted under any law for the marketing of commodities shall not be included in computing total income. The court examined whether the petitioner met the criteria under this provision. The petitioner was established under the Warehousing Corporations Act, 1962, which repealed the Agricultural Produce (Development and Warehousing) Corporation Act, 1956. The court concluded that the petitioner was an authority constituted under the 1962 Act and thus met the first criterion for exemption.

3. Definition and Scope of the Term "Authority" under Section 10(29):
The term "authority" is not defined in the Income-tax Act. The court referred to dictionary definitions and judicial precedents to interpret the term. It was noted that the term "authority" has several connotations and does not necessarily imply possession of quasi-governmental powers. The court emphasized that if the term "authority" were to be construed narrowly to include only entities with quasi-governmental powers, Section 10(29) would become redundant. The court concluded that any legal entity or juristic personality constituted by law for the purpose of marketing commodities would be an authority within the meaning of Section 10(29).

4. Interpretation of "Marketing of Commodities" under Section 10(29):
The court analyzed whether the petitioner's functions constituted "marketing of commodities." Section 24 of the Warehousing Corporations Act, 1962, outlines the functions of the State Warehousing Corporation, including acquiring and building warehouses, running warehouses for storage, and arranging facilities for the transport of agricultural produce. The court considered authoritative works and definitions, which indicated that "marketing" includes activities directed towards the flow of goods and services from producer to consumer, such as transporting, storing, and selling goods. The court rejected the revenue's narrow interpretation that marketing solely involves buying and selling. It concluded that the term "marketing" has a wider significance, encompassing various activities like storage and transportation. The legislative history and intent also supported this broader interpretation. The court held that the petitioner, being established for running warehouses and facilitating the marketing of commodities, was entitled to the exemption under Section 10(29).

Conclusion:
The court allowed the petition, quashed the impugned notice of demand, and held that the petitioner was entitled to costs. The judgment clarified the interpretation of "authority" and "marketing of commodities" under Section 10(29) of the Income-tax Act, 1961, and upheld the petitioner's entitlement to income tax exemption for income derived from letting warehouses.

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