2012 (6) TMI 678 - HC - Income Tax

Deduction under section 80P(2)(e) of the Act - godown on rent - let out to the FCI or any other agency for the purposes of storage - co-operative society Held that - assessee was purchasing the goods and then selling the goods to the FCI and in such a situation, storing was part of business of the assessee and did not amount to letting out of storage capacity as till the goods were sold to the FCI, goods belonged to the assessee itself, and not to the FCI income not entitled to special deduction Deduction under section 80G - income of the assessee is partly exempt and partly liable to tax Held that - Tribunal in the assessee s own case (supra) direct the Assessing Officer to allow deduction under section 80G out of the taxable income of the assessee - It is not clear in the order of the Tribunal that the assessee had produced any proof matter remanded to Tribunal for want of proof. Expenditure for construction of Sahakarita Bhawan and amount paid to Co-operative Development Federation for modernizing the printing press - construction was done on the direction of the State Government Held that - claim of the assessee was not controverted by the revenue - expenditure was revenue in nature was clearly distinguishable as therein tenements constructed for welfare of employees did not vest in the asses- see and the assessee did not get any benefit of enduring nature - matter remanded to the Tribunal

Summary

Issues Involved:
1. Deduction under section 80P(2)(e) of the Income-tax Act, 1961.
2. Deduction under section 80G of the Income-tax Act, 1961.
3. Classification of expenditure as revenue or capital.

Detailed Analysis:

Issue 1: Deduction under section 80P(2)(e) of the Income-tax Act, 1961

The core issue was whether the assessee, a cooperative society, was entitled to a deduction under section 80P(2)(e) for income derived from storage charges. The Tribunal allowed the deduction, but the Commissioner of Income-tax (Appeals) and the Revenue contested this, arguing that the income was not from "letting out" godowns as required by the statute.

The Tribunal's findings highlighted that the deduction under section 80P(2)(e) should be restricted to net income derived from letting out godowns and warehouses. It referenced several Supreme Court cases, including *Sabarkantha Zilla Kharid Vechan Sangh Ltd. v. CIT* and *CIT v. United General Trust Ltd.*, to support this view.

The High Court concurred with the Revenue, citing judgments such as *Udaipur Sahkari Upbhokta Thok Bhandar Ltd. v. CIT* and *A. Venkata Subbarao v. State of A.P.*, which established that income from storage without actual letting out does not qualify for the deduction. The Court emphasized that the assessee's income was from its business activities and not from letting out storage space. Thus, the appeals were decided in favor of the Revenue.

Issue 2: Deduction under section 80G of the Income-tax Act, 1961

The Tribunal allowed the assessee's claim for deduction under section 80G, despite the Commissioner of Income-tax (Appeals) disallowing it for lack of proof of donation. The Tribunal referenced its earlier decisions in similar cases to support its stance.

However, the High Court noted that the Tribunal's order did not clarify whether the assessee had produced proof of donation. The Court ruled in favor of the Revenue but allowed the assessee to present proof before the Assessing Officer, who would then allow the deduction if valid proof was provided.

Issue 3: Classification of expenditure as revenue or capital

The Tribunal had classified the expenditure for modernization of the printing press and construction of Sahakarita Bhawan as revenue expenditure, relying on the Supreme Court's decision in *CIT v. Bombay Dyeing and Manufacturing Co. Ltd.*. The Revenue argued that this judgment was distinguishable as the benefits in that case did not vest in the assessee.

The High Court found merit in the Revenue's argument and remanded the matter to the Tribunal for reconsideration, rejecting the Tribunal's reliance on the *Bombay Dyeing* case.

Conclusion:

The High Court ruled in favor of the Revenue on all major issues, disallowing the deductions claimed under sections 80P(2)(e) and 80G, and remanding the issue of classification of expenditure for fresh consideration. The writ petition was dismissed as infructuous.