2011 (1) TMI 1186 - HC - Income Tax

Reopening of assement - reasons for reopening that the assessment was reopened in view of the decision of Hon‟ble Supreme Court in the case of Orissa State Warehousing Corporation (1999 - TMI - 5742 - SUPREME Court), wherein it was held that only the income derived from the letting-out of godowns or warehouses is exempted since according to the respondent a substantial part of business of the appellant was with regard to handling of Container Freight Stations which is a separate business, claim for exemption u/s 10 (29) of the Act was wrongly allowed - argument of the assessee that it was a case of change of opinion has not been addressed at all by the Tribunal which should have been gone into when it was so specifically raised by the assessee Held that - order of the Tribunal set aside and remit the case back to the Tribunal for fresh consideration limiting its discussion only on the aspect as to whether the reason given by the Assessing Officer for reopening of the reassessment was the aspect considered earlier in the original assessment proceedings and it would be a case of mere change of opinion or this aspect was not considered at all and, therefore provided proper ground for reopening the assessment, appeals stand disposed of

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147/148 of the Income Tax Act.
2. Applicability of exemption under Section 10(29) of the Income Tax Act to income derived from Container Freight Stations (CFS) and Inland Container Depots (ICD).
3. Distinction between warehousing income and other business activities for tax exemption purposes.
4. Interpretation and application of the Supreme Court's decision in Orissa State Warehousing Corporation vs. Commissioner of Income Tax.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147/148:
The appellant challenged the reopening of the assessment on the grounds that it was based on a mere change of opinion. The Assessing Officer (AO) had initially accepted the appellant's claim for exemption under Section 10(29) of the Income Tax Act. However, the AO later issued a notice under Section 147/148 to reopen the assessment, citing the Supreme Court's decision in Orissa State Warehousing Corporation vs. Commissioner of Income Tax, which clarified that exemption is only applicable to income derived from letting out godowns or warehouses for specified purposes.

The Tribunal upheld the reopening of the assessment, stating that the Supreme Court's decision constituted fresh information justifying the reassessment. The Tribunal emphasized that the decision of the Supreme Court is applicable from the date the statute came into existence and can be a valid basis for reopening or rectifying an assessment.

2. Applicability of Exemption under Section 10(29):
The AO argued that the appellant's activities related to Container Freight Stations (CFS) and Inland Container Depots (ICD) did not qualify for exemption under Section 10(29) as they were distinct from the warehousing activities specified in the Act. The AO held that the income from CFS/ICD activities did not constitute statutory functions under the Warehousing Corporations Act, 1962, and therefore, the profit generated from these activities did not qualify for exemption.

The Tribunal supported this view, stating that income from CFS/ICD activities to the extent it relates to letting down of godowns and warehouses for storage for specified purposes is exempt under Section 10(29). However, the Tribunal directed the AO to reduce the profits determined as per the provisions of the Companies Act by the amount of exempted income to be determined under Section 10(29).

3. Distinction Between Warehousing Income and Other Business Activities:
The appellant contended that its CFS/ICD activities were integral to its warehousing operations and should be considered part of the exempted income. The appellant argued that these activities had been accepted by the department as part of the warehousing activity since 1983-84. However, the AO and the Tribunal held that the activities of CFS/ICD were distinct and separate from warehousing activities and did not qualify for exemption under Section 10(29).

The Tribunal noted that the appellant had not maintained a clear distinction between income from warehousing activities and other activities. The AO had not allowed exemption on the receipts of interest on fixed deposits, agency commission, and miscellaneous receipts, as these were derived outside the warehousing activities.

4. Interpretation and Application of the Supreme Court's Decision:
The Supreme Court in Orissa State Warehousing Corporation vs. Commissioner of Income Tax held that exemption under Section 10(29) is only applicable to income derived from letting out godowns or warehouses for storage, processing, or facilitating the marketing of commodities. The Court emphasized that income derived from any other source does not qualify for exemption.

The Tribunal relied on this decision to justify the reopening of the assessment and the denial of exemption for income derived from CFS/ICD activities. The Tribunal observed that the decision of the Supreme Court provided a fresh basis for the AO to reassess the appellant's income and determine the correct amount of exempted income under Section 10(29).

Conclusion:
The Tribunal upheld the reopening of the assessment under Section 147/148, based on the Supreme Court's decision in Orissa State Warehousing Corporation. The Tribunal also held that income from CFS/ICD activities did not qualify for exemption under Section 10(29) and directed the AO to correctly determine the exempted income. The case was remitted back to the Tribunal for fresh consideration on whether the reopening was based on a mere change of opinion or on new information not considered in the original assessment.