9911796707
TMI Blog1989 (5) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... d appointed the Maharashtra State Co-operative Marketing Federation (Federation in short) as their Chief Agent under section 42 of the Maharashtra Raw Cotton (Procurement, Processing and Marketing) Act, 1971 for the purpose of purchasing, processing and selling cotton and cotton seeds in the entire state of Maharashtra. In its turn, the Federation appointed as its Sub-Agents entities such as the assessee society. Again, each year, the Federation entered into agreements with Sub-Agents for the purpose of regulating the entire matter. We will be presently noticing the salient features of the agreement. It would suffice at this stage to state that the said agreement provided, inter alia, for the payment by the Federation to its Sub-Agents of ginning and pressing charges. Under the said agreement, it is common ground, the assessee received from the Federation such charges and the assessee earned net income of Rs. 92,230 and Rs. 73,700 respectively during the previous years, relevant to the assessment years 1981-82 and 1982-83. 4. To turn now to the salient features of the agreement referred to above. As pointed out earlier, separate agreements were entered into for each season. Even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per bale per month. 3. Shed. : 10 paise per bale per month. For the purpose of determining the godown rent the storage capacity of godown in terms of bales will be considered irrespective of the fact whether bales/lint/seed kapas etc. is stored in the godown. For calculating the capacity of the godown 200 sq. ft. area will be treated as the capacity of 100 bales. The Federation will pay rent accordingly and no special rent will be payable to any unit for storing procured stock received or transferred from other factories i.e. a ginning unit will not been entitled to get extra rent for bales stored in its godown at enhanced rate but will receive rent at the rate as would be worked out on capacity basis till the end of the season (For this purpose, end of season will be the month during which processing operations were completed in a particular factory). The factory will get rent at revised rates from the following month. No godown rent will be paid if the said godown is completely vacated by the Federation. In the event of the Federation requiring such storage facilities for the period after closure of season, the Federation shall have the prior right to use such facilities an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The I.T.O negatived the assessee's claim for more reasons than one. First, the I.T.A.T.'s order referred to and relied upon by the assessee was the subject matter of reference application to which was still pending. Secondly, though specifically asked to do so, the assessee failed to give and analysis of the charges received from the federation in terms of ginning charges, pressing charges and storing rent. In this of the view of the matter therefore the I.T.O refused to accept the assessee's contention that the entire charges received by it were towards the storage rent. Accordingly, the I.T.O brought to tax the amounts in question in both the assessment years. 11. The assessee took up the matter in appeal before A.A.C. It was contented before that A.A.C that the I.T.O. ought to have followed the decision of the I.T.A.T referred to and relied upon by the assessee. Indeed, in the said order, the Tribunal had followed its earlier order relating to the assessment years 1970-71 to 1974-75 in the case of Bhandara/Zilla Sahakari Kharedi Vilri Sangh Ltd's case the Tribunal relied upon the decision if the Madras High Court in the case of CIT v. South Arcot District Co-operative Markett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly allowed the assessee's appeals. 17. It is in these circumstances that the assessee society is now before us. 18. Before us, Shri C.P. Fattepuria, the learned Counsel for the assessee, reiterated the arguments that he had earlier advanced before the lower authorities. According him, the entire premises of the assessee was used for the purpose of storage, in the course of ginning and pressing of cotton procured by the Federation. In this connection, he drew our attention to the scale-plan of the assessee's factory premises and contended that storage of the procured cotton, ginned cotton and pressed cotton bales was the main activity. He vehemently contended that, under the agreement in question, the assessee has virtually handed over to the Federation the factory premises and that, therefore, it should be held that the ginning and pressing charges received, by the assessee is nothing but rent received for storage which is eligible for deduction under section 80P(2)(e). 19. In this connection, he referred to and relied upon the following : (i) I.T.A.T., Nagpur Bench's order relating to the assessment year 1970-71 to 1974-75 in the case of Bhandara Zilla Sahakari Kharedi Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Broach District Co-operative Cotton Sales, Ginning Pressing Society Ltd. [1974] 97 ITR 575 held that under section 81(i) read with the proviso there to exemption is granted to such activities and profits and gains arising from such business activities of a co-operative society as may fall clauses (a) to (f) of section 81(i). If a society carries on certain activities which are not exempted, the profits and gains attributable to such non-exempted activities must necessarily be taxed. In that case, the assessee society was engaged mainly in marketing of cotton. It also carried on ginning and pressing of cotton with the aid of power. The High Court has held that the income of the assessee from ginning and pressing of cotton with the aid of power was not exempt under section 81(i)(c) of the Income-tax Act, 1961. 25. In the case of CIT v. Sabarkantha Zilla Kharid Vechan Sangh Ltd. [1977] 107 ITR 447, the Gujarat High Court carried the theme further and held that in a case where the assessee society engaged in both exempted and not exempted activities, apportionment of expenditure has to be resorted to in order to give effect to the scheme of the Income-tax Act. The High Court went o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee by providing facilities not to its members but to the members of its members is not exempt under section 80P(a)(i) of the Act. 30. In the case of CIT v. Karjan Co-op. Cotton Sale, Ginning Pressing Society Ltd. [1981] 129 ITR 821, the Gujarat High Court Court reiterated the proposition that income earned by the society not from its members but from outsiders who purchased cotton from the society was not exempt under section 80P(2)(i)(a). However, the court held that such income was exempt because it was received by the assessee-society as part of its marketing activity. This case also will go to show that unless there is direct and close nexus between the specified activities and the income in question, exemption will not be available. 31. The following principles emerge from the foregoing analysis : (a) Deduction under section 80P is available only to the income arising out of the activities specified in that section. Income from non-specified activities is not eligible for the deduction. (b) To decide whether income arises out of the specified activities, one has to see whether there is direct and proximate nexus between the income and the specified activities. Ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and pressing cannot be done without storing cotton. Further, the assessee, by processing cotton, was facilitating marketing of processed cotton bales. Hence the deduction under section 80P(2)(e) is available to the assessee. 35. We are unable to agree. As pointed out earlier, section 80P(2)(e) deals with any income derived by a co-operative society from letting of godowns or ware houses for the following purposes : (i) Storage ; (ii) Processing ; (iii) Facilitating marketing of commodities. The emphasis is obviously on the activity of letting of godowns or warehouses and the income derived therefrom. Such letting must be for the purpose of storage, or for the purpose of processing of goods, or for the purpose of marketing of commodities. There is nothing in section to indicate to the contrary. 36. In the case of Surat Vankar Sahakari Sangh Ltd., the Gujarat High Court had an occasion to interpret the provisions of the old section 81(iv). While construing the provisions, the Hon'ble High Court observed as follows : "Turning first to the language of section 81(iv), it exempts a co-operative society from tax in respect to income derived from the letting of godowns or wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure would have, according to the dictates of plain grammar, used the word "income derived from processing of from facilitating the marketing of commodities". The introduction of the words "or from" before "Processing and facilitating the marketing of commodities" would have brought about the disjunctive effect so as to relate the three alternative to the words "income derived from". But the legislature instead used words which clearly go to suggest that the words "storage, processing or facilitating the marketing of commodities" are merely purposes for which godowns or warehouses should be let to attract the exemption under section 81(iv). The presence of the definite article "the" before letting and its absence before the words "processing" and "facilitating the marketing of commodities" considerably reinforces this conclusion. It is again difficult to see why the legislature should have indiscriminately mixed up in section 81(iv) widely different sources of income such as "letting of godowns or warehouses for storage, processing and facilitating the marketing of commodities." The conclusion appears to be clear on a plain natural construction of the language used in section 81(iv) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not drawn to the said decision of the Gujarat High Court. 42. In the circumstances, therefore, the decision of the I.T.A.T. in Bhandara Zilla Sahakari Kharedi Vikri Sangh Ltd.'s case cannot avail the assessee. 43. The Chikhali Ginning Pressing Factory Ltd.'s case on September 21, 1982 and the Akola Ginning Pressing Co-op. Factory Ltd.'s case on 15-10-1987 cannot help the assessee because those were decided by following the Bhandara Zilla Sahakari Kharedi Vikri Sangh Ltd.'s case. Further, the Gujarat High Court decision in Surat Vankar Sahakari Sangh Ltd.'s case was not brought to the notice of the Tribunal in those cases. 44. the Madras in South Arcot District Co-operative Marketing Society Ltd's case cannot help the assessee either. This is because there the High Court held that in the setting in which the word 'letting' occurred, it should be understood as having a wide and comprehensive sense so as to include even the mere user of the godowns either by the society or by others and cannot be construed to have application only when the letting out is to members. Them is nothing in the said decision to suggest that the ginning and pressing charges must somehow be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 87]. In that case also, the Tribunal was considering the fees received by the assessee under Maharashtra Raw Cotton (Procurement) Purchase Act, 1971. In that case also reliance was placed on behalf of the assessee, on the I.T.A.T.'s order in Bhandara Zilla Sahakari Kharedi Vikri Sangh Ltd.'s case. On an examination of the facts and circumstances of the case, the Tribunal held that what was received by the assessee society was processing and ginning charges which could not be equated with rent or fee for storage. It was on that basis, the Tribunal dismissed the assessee's appeal. 49. In view of the foregoing, therefore, we hold that the assessee is not eligible for any deduction in respect of the ginning and pressing charges received by it from the Federation. It is entitled to such deduction only in respect of the rent or fee for storage received by it under the relevant agreement. In this view of the matter, therefore, we decline to interfere with the order of the A.A.C. 50. Before taking leave of this matter, we may point out that the assessee it would appear, had earlier sought to raise some additional grounds before the Tribunal. There is nothing in the records to indicate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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