P.M. Jagtap, A.M.

Both these appeals are preferred by the revenue against a common order of Commissioner (Appeals), dated 28-10-1993 for assessment years 1989-90 and 1990-91.

2. The only ground taken by the revenue which is common in both the appeals read as under :

"On the facts and in the circumstances of the case the learned Commissioner (Appeals) has erred in allowing the deduction of Rs. 1,87,500 under section 80P(2)(e) by observing the commission received on the business of controlled commodities was for the consideration of storing the commodities in its godown on behalf of the Government, ignoring the fact that the assessee had lifted the commodities on cost and sold it to the retailers by charging its own commission fixed by the Government, which clearly indicates that activities of the assessee were of trading in nature and, therefore, the commission, so received was taxable as business income and not exempt under section 80P(2)(e)."

3. The facts giving rise to these appeals are that the assessee engaged in running a consumer co-operative store having 30 branches in the city of Udaipur filed its original return of income for assessment years 1989-90 and 1990-91 declaring gross total income of Rs. 2,57,500 and Rs. 18,781 and claiming therefrom a deduction under section 80P(2)(e) amounting to Rs. 70,000 and Rs. 18,781 respectively. Subsequently, a revised return for assessment year 1989-90 was filed by the assessee claiming a further deduction of Rs. 1,87,500 under section 80P(2)(e). In the said revised return the assessee did quantify the deduction allowable to it under section 80P(2)(e) but only restricted it to Rs. 1,87,500 meaning thereby that it was entitled for further deduction under section 80P(2)(e). Along with these revised return the assessee also filed a letter justifying its claim for deduction under section 80P(2)(e) on the following grounds :

1. During the year under assessment the assessee has entered into an agreement with the State Government for holding stocks of (i) food grains (wheat and rice) and (ii) sugar on behalf of the State Government in its own godown.

2. The State Government has paid a sum of Rs. 11, 15,388 as storage charges for the above commodities which has been described as gross profit by the assessee.

3. In the original return the above income from letting of godowns being storage charges has been shown as taxable.

4. The Hon'ble Supreme Court of India in the decision in the case of CIT v. South Arcot Distt. Co-op. Marketing Society Ltd. (1989) 176 ITR 117 (SC) had held such income as exempt under section 80P(2)(e) and on the basis of the above decision the assessee had claimed the remaining income as deductible under section 80P(2)(e).

For assessment year 1990-91, even though the assessee did not claim such deduction for want of positive income, a note was attached with the return of income reserving its right to claim the deduction under section 80P(2)(e) to the extent of Rs. 7,52,834.

4. While completing the assessment under section 143(3) the assessing officer examined the facts of the assessee's case and noted certain differences in the facts of assessee's case as compared to the facts of the case involved in the Hon'ble Supreme Court's decision (supra) which have been enumerated by the assessing officer in para No. 6 in his assessment order for assessment year 1989-90. He, accordingly, held that the assessee was not entitled for the deduction under section 80P(2)(e). The matter was carried before the Commissioner (Appeals) who overruled all the objections raised by the assessing officer in assessee's case before concluding that the assessee is very much entitled for the deduction under section 80P(2)(e) for assessment year 1989-90 and 1990-91. Aggrieved by the same, the revenue is in appeal before us.

5. The learned Departmental Representative at the outset referred to the provisions of section 80P(2)(e) and submitted that the deduction under the said section is available only in respect of income derived by the co-operative society from the letting of the warehouses or godowns. He further submitted that the assessee has not shown any income from the rent of godown or warehouses but has shown the income under the head "Income from business or profession". He further submitted that the assessee in this case carried on the transactions of purchase and sale of controlled commodities and earned trading income in the form of margin on such transactions. He, therefore, contended that this is not a case of letting out of godown or warehouses and as such exemption under section 80P(2)(e) cannot be allowed. He further submitted that the facts involved in the case of South Arcot Dist. Co-op. Marketing Society Ltd. (supra) were altogether different from the facts of the instant case and contended that this issue has been elaborately dealt with by the assessing officer in his assessment order. He further contended that the Commissioner (Appeals) in this case has given a relief on the basis of irrelevant judgment and therefore urged that the order of the assessing officer be restored. He also submitted that for claiming the deduction under section 80P(2)(e) the income should be derived from letting out of godown or warehouses wherein relationship of landlord and tenant must be established. He further submitted that such arrangement should specify the space as well as the period and the amount of rent should be fixed with reference to the space allotted by the owner to the tenant. According to him, these basic and essential ingredients are absent in the arrangement under reference. He further submitted that the assessee has shown the commission income earned on these transactions in its trading accounts and the revenue has accordingly taxed such income as business income.

6. The learned counsel for the assessee submitted that the assessee entered into agreements with the State Government for holding stock of food grains and sugar on behalf of the State Government in its godown for further distribution of the same to specified parties at the specified rates. He further submitted that the assessee was getting fixed amounts for such activities and after becoming aware of the judgment of the Hon'ble Supreme Court, the assessee claimed exemption of such income under section 80P(2)(e) by filing the revised return. He further submitted that the assessee owned some big godowns for storage/warehousing and had also taken godowns on rent for storage/warehousing. He further submitted that the assessing officer ignored the submissions made by the assessee before him and disallowed the claim by wrongly distinguishing the aforesaid decision of Hon'ble Supreme Court. He also submitted that the distinction made by the assessing officer while disallowing the assessee's claim is of trivial nature having no substance at all. He further submitted that the learned Commissioner (Appeals) has extensively met with each and every objection raised by the assessing officer before inferring that the facts of the assessee's case fall within the ratio of the judgment of Hon'ble Supreme Court (supra). He further submitted that though the assessee paid purchase price to the State Government before taking the delivery of the controlled goods, the assessee was not having all the elements of ownership of such goods inasmuch as the assessee has no right to sell the said controlled goods to any person of his choice and also had no right to charge the price as per its wish. He further contended that the act of warehousing is very wide and exhaustive which includes transportation, storage, marketing and distribution. For this contention, he relied on the decisions U.P. State Warehousing Corpn. v. ITO (1974) 94 ITR 129 (All), Union of India v. U.P. State Warehousing Corpn. (1991) 187 ITR 54 (SC), CIT v. South Arcot Distt. Co-operative Mfg. Society Ltd. (1973) 92 ITR 371 (Mad) and (1989) 176 ITR 117 (SC) (supra) and also placed copies of said judgments on record. He also submitted that the assessing officer was not justified in making observations in para 2 of his assessment order to allow deduction only in respect of proportionate income and contended that such a view is contrary to the judgment of the Hon'ble Supreme Court Rajasthan State Warehousing Corporation v. Commissioner Of Income Tax. (2000) 14 DTC 45 (SC) : (2000) 242 ITR 450 (SC). To summarize, the learned counsel for the assessee relied on the order of learned Commissioner (Appeals) and submitted that the first appellate authority after examining and scrutinizing the assessment record has dealt with this issue elaborately in paras 1 to 5 of the appellate order while arriving at the conclusion that the instant case is covered by the decision of the Hon'ble Supreme Court in the case of South Arcot Dist. Co-op. Marketing Society (supra). He therefore, contended that the order of the learned Commissioner (Appeals) on this issue deserves to be upheld.

7. We have considered the rival submissions and also perused the relevant material on record including the cited decisions to which our attention was drawn during the course of hearing.

8. It is observed that the assessee claimed the deduction under section 80P(2)(e) after becoming aware of the decision of the Hon'ble Supreme Court in the case of CIT v. South Arcot Dist. Co-op. Marketing Society Ltd. (supra) as the facts of the said case were found by the assessee to be identical one with its own case. It is also observed that the assessing officer disallowed the claim of the assessee for deduction under section 80P(2)(e) mainly on the following three grounds which according to him were distinguishable from the aforesaid case before the Hon'ble Supreme Court :

1. The assessee has not entered into any contract with the State Government.

2. The assessee was getting commission at fixed percentage attributable to the wholesale distribution work and not as a stockist, and

3. The very nature of transactions involved in the assessee's case was that of purchase and sale in which fixed margin was earned by the assessee.

9. It is observed that the deduction under section 80P(2)(e) has been provided in respect of any income derived by the co-operative society from the letting of godown or warehouses for storage, processing or facilitating the marketing of commodities. A plain reading of the said section makes it abundantly clear that the exemption is provided for income derived from the letting of godown or warehouses for the specified purposes and going by the general meaning of the word "letting", it specifically connotes the granting on hire the godown or warehouses as contemplated in the said section. The Hon'ble Gujarat High Court in the case of Surat Vankar Sarkan Sangh Ltd. v. CIT (1971) 79 ITR 722 (Guj) has held that the exemption under section 80P(2)(e) is available only in respect of income derived from letting of godown or warehouses where the purpose of letting is storage, processing or facilitating the marketing of commodities. Taking a clue from this judgment of Hon'ble Gujarat High Court, the Bangalore Bench of Tribunal in the case of Udipi Taluk Agriculture Produce Co-op. Marketing Society Ltd. v. ITO (1984) 28 TTJ (Bang-Trib) 334 observed that what is exempt under section 80P(2)(e) is the income derived from letting of godown or warehouses if they are let out for storage, processing or facilitating the marketing of commodities and the income derived from letting of godown or warehouses for those purposes alone is exempt under the said provision. Elaborating further the Tribunal observed that the assessee in the case before it only derived income by way of commission for procurement of paddy and rice from the Karnataka Food and Civil Supplies Corporation Ltd. as also the reimbursement of transportation charges and held that the income derived by the assessee from such activity is not exempt under section 80P(2)(e).

10. Considering the ratio laid down by the Honble Gujarat High Court in the aforesaid case and going by the popular meaning attached to the term "letting", the contention of the learned Departmental Representative of revenue that the income from letting of godown or warehouses should be just like rental receipt on letting of premises would have carried some force. However, the judgment of the Hon'ble Supreme Court delivered subsequently in the year 1989 in the case of CIT v. South Arcot Dist. Co-op. Marketing Society Ltd. (supra) has brought about sea changes in the concept of "letting" contemplated in section 80P(2)(e). Having regard to the object with which the said provisions has been enacted, the Honble Supreme Court felt that a liberal construction should be given to the language of the said provision. Considering the facts of the case before it the Hon'ble Supreme Court observed that what the assessee did was to let out its godown for the purpose of storing the goods handed over to it by the State Government and the remaining services performed by the assessee were merely incidental to the essential responsibility of using the godown for the storage of the goods. Elaborating further, the Hon'ble Supreme Court observed that even though a certain sum was paid to the assessee and described as commission for the services performed by it, but having regard to the totality of the circumstances and to the true substance of the agreement, it seems plain that the amount was paid merely by way of remuneration for the use of godown and therefore held that the assessee is entitled to exemption under section 80P(2)(e).

11. It is observed that the assessing officer has distinguished the instant case from the aforesaid case before the Honble Supreme Court mainly on the three grounds. Firstly, he observed that the assessee had not entered into any contract with the State Government during the relevant period. In this regard, the learned counsel for the assessee has placed on record (pp 16 & 17 of PB) a copy of order issued by the State Government in 1976 specifying the rules and regulations of distribution of controlled commodities (food grains) which governed the wholesale distribution work of the controlled commodity involved in the public distribution scheme. The terms and conditions arising out of the said order, as outlined by the learned counsel for the assessee are enumerated below :

(i) The assessee has to lift the goods from Food Corporation of India and Rajasthan Rajya Upbhokta Sangh as per directives from State Government. The assessee deposits the cost of controlled commodities in advance and thereafter the goods procured are stocked in the godowns of the assessee.

(ii) The goods from the godown of the assessee are given to the retailers as per authorisation by the District Supply Officer each month.

(iii) The transportation charges and loading and unloading expenses are borne by the assessee.

(iv) The procurement price for lifting the goods as well as issue price is fixed by the Government from time to time.

(v) The assessee receives fixed commission as well as transportation charges from Government which are recovered by it from the retailers on behalf of the Government.

(vi) Whenever there is any variation in the prices of the controlled commodities the same is payable/receivable by the Government.

(vii) The assessee has no ownership on such controlled goods and it keeps these goods only on behalf of the Government.

(viii) Whatever commission is received by the assessee it is in the nature of storage charges for the controlled commodities.

(ix) The assessee has worked as wholesaler on behalf of the State Government for procurement and distribution of controlled commodities under public distribution scheme of the Government.

(x) The controlled commodities on behalf of the Government are retained by the assessee till these are to be issued to the retailers as per authorisation issued by the District Supply Officer.

(xi) The goods are not issued prior to their reaching in the godown of the assessee.

12. From the perusal of the above-mentioned terms and conditions given in the aforesaid order of the State Government, it is evident that although there was no separate agreement entered into between the assessee and the State Government, the terms and conditions of the distribution arrangement between the assessee and the State Government were specifically prescribed and the arrangement for wholesale distribution was regulated by the said order. As such, we are of the view that even in the absence of the separate agreement between the assessee and the State Government, the purpose of having such an agreement specifying the terms and conditions of the arrangement of wholesale distribution work is very well served by the aforesaid order issued by the State Government rendering the distinction pointed out by the assessing officer touching this point meaningless.

13. Secondly, the assessing officer has noticed that the commission received by the assessee from the State Government is attributable to the wholesalers and terminology used therein does not consider the assessee as a stockist. In this regard it is observed that the assessee was getting a commission/margin at fixed rate in the form of difference between purchase and sale price fixed by the Government from time to time. This amount of margin/commission was earned by the assessee as remuneration for the wholesale distribution work. The scope of distribution work mainly involved storage and transportation of goods for which such commission/margin was allowed to the assessee. It is also observed that the transportation charges were separately paid by the State Government to the assessee at fixed rate and thereafter what in effect remained in the form of margin/commission is mainly attributed to the storage charges. In such a case, we are of the view that one has to understand the nature and character of the commission/margin received by the assessee as well as manner and method by which the same was really accrued to the assessee. The relevant documents produced before us in support of the arrangement throws abundant light on the nature and character of the commission/margin amount received by the assessee in this case as discussed here in above. It is crystal clear that the assessee received the commission/margin amount on account of remuneration for distribution arrangement of which the letting of godowns for storage of goods was the immediate and proximate cause and that being so, what really accrued to the assessee is certainly an income derived from letting of godowns, the terminology/nomenclature used in the documents notwithstanding.

14. The third point of distinction raised by the assessing officer in this case is with regards to the transactions involved in the instant case being in the nature of purchase and sale in which fixed margin was earned by the assessee. It is observed that the assessee was required to deposit the cost of controlled commodities in advance before procuring the said goods. It is also observed that the assessee was subsequently required to distribute/deliver the said goods strictly as per the authorisation issued by the District Supply Officer each month. As per the terms and conditions of the distribution arrangement, the assessee was not entitled for the absolute ownership of the controlled goods and the said goods were merely handled by the assessee on behalf of the Government. The controlled commodities were retained by the assessee on behalf of the Government and subsequently sold or distributed to the retail shops as per the direction of the Government agency. It is also observed that the assessee was not authorised to store any other goods along with the controlled goods in its godown, and as such, the concerned godowns were entirely earmarked for storage of the controlled commodities. It is also observed that all these godowns were under the vigil of the State Government and subjected to checking and inspection by the Government agency during the relevant time. As per terms of the arrangement, the assessee was also required to maintain and furnish complete particulars of the commodities received/distributed and lying in stock periodically to the Government agency which was again subjected to checking and verification. It is also observed that the assessee was entitled for the commission or margin amount at fixed rate and any variation in the price of the controlled commodities was to be transferred to the Government account. After going through all these factual details arising out of terms and conditions of the distribution arrangement between assessee and State Government, it is apparent that the assessee was entitled for only the commission/margin amount at fixed rate on account of remuneration for the distribution work carried out by the assessee and as such depositing the full cost of controlled commodities in advance against purchases and recovering the same from the retailers against the delivery/sale were merely the procedural requirements to suit the stringent rules and regulations involved in the Government dealings in order to secure the interest of the Government as a whole. In the case of CIT v. Bhandara Zila Sahakari Kareedi Bikri Sangh Ltd. (1995) 212 ITR 124 (Bom), similar facts were involved in as such as the assessee therein was to hold the stocks, store the goods in godown, preserve them, maintain accounts and well the goods as per the directions of the Government for which it was to get commission at varying rates on goods actually sold and considering these facts and circumstances of the case Hon'ble Bombay High Court has observed the case that there is no difference whatsoever on the essential nature of the agreement considered in the case of CIT v. South Arcot Dist. Co-op. Marketing Society Ltd. (supra). It is, therefore, held by the Hon'ble Bombay High Court that the ratio of the said decision of the Hon'ble Supreme Court straightaway applies to the entire income from commission received by the assessee under the distribution agreement and the whole of it is entitled to deduction under section 80P(2)(e). Therefore, considering the essence of distribution arrangement in the instant case, and following the aforesaid decision of the Hon'ble Bombay High Court, we are of the opinion that the assessee has received the commission/margin amount on account of the distribution work which essentially pertains to the letting of godown as observed herein above.

15. As such, taking a circumspect view of the fact-situation and considering the nature and character of the income accrued to the assessee in the instant case, as well as the essence of distribution arrangement discussed here in above, we are of the opinion that the ratio of decision of Hon'ble Supreme Court in the case of CIT v. South Arcot Dist. Co-op. Marketing Society Ltd. (supra) directly applies to the case before us and accordingly the whole of the income received by the assessee in the form of commission/margin amount is entitled to deduction under section 80P(2)(e).

16. Before us the learned counsel for the assessee has referred the following decisions :

1. CIT v. Gujarat State Warehousing Corpn. (1980) 124 ITR 282 (Guj);

2. Broach Dist. Co-op. Cotton Sales Ginning & Pressing Society v. CIT (1989) 177 ITR 418 (SC);

3. Asstt. CIT v. Agricultural Procedure Co-op. Marketing Society Ltd. (1978) 115 ITR 709 (Karn);

4. Union of India v. UP. State Warehousing Corporation (supra); and

5. U.P. State Warehousing Corporation v. ITO (supra).

After carefully going through all these above decisions, it is observed that the same are rendered with reference to section 10(29) and the then prevailing section 81(i)(c). To consider the relevance of these decisions in the instant case, we feel it appropriate to reproduce the relevant provisions :

"10(29) in the case of an authority constituted under any law for the time being in force for the marketing of commodities, any income derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities."

"81. Income of co-operative societies-Income-tax shall not be payable by a co-operative society :

(i) in respect of the profits and gains of business carried on by it, if it is,

(c) a society engaged in the marketing of the agricultural produce of its members, or"

From the perusal of the aforesaid provisions, it is evident that the emphasis has been laid down on the "marketing" activities to be eligible for availing exemption and accordingly the wide scope of the term "marketing" was described in all the aforesaid decisions to include various activities which essentially form part of the marketing activity or are incidental or ancillary to such activities. We are of the view that in the instant case, section 80P(2)(e) is relevant wherein the scope of the term "letting" is in question and certainly not the scope of the term "marketing". Therefore, we are of the opinion that these cases cited by the learned counsel for the assessee are not directly relevant in the instant case.

17. The other issue raised by the assessee in this appeal relates to the quantum of deduction under section 80P(2)(e). It is observed that the assessing officer has not made any efforts to quantify the amount of deduction under section 80P(2)(e) considering that such deduction was not at all admissible in the assessee's case. However, he has made certain observations in his assessment order for assessment year 1989-90 to the effect that if such deduction is to be allowed it should be allowed in respect of proportionate net income attributable to the income from letting of godowns. Aggrieved by these observations, the learned counsel for assessee has contested this issue and contended that the view expressed by the assessing officer is contrary to the judgment of the Hon'ble Supreme Court in the case of Rajasthan Warehousing Corpn. v. CIT (supra). It is observed that this issue has not been considered by the learned Commissioner (Appeals) on merits. It also appears from the order of the assessing officer that even the assessee did not quantify the deduction allowable under section 80P(2)(e) in his revised return of income for assessment year 1989-90 filed on 30-8-1990. The relevant details of such quantification for assessment year 1990-91 are also not fully available on record before us. It is worthwhile to note here that the assessee has neither preferred any appeal nor filed any cross objection disputing this issue. Here it may be noted that the Tribunal is a final fact-finding authority. In order to render justice, or for that matter, to render real and substantive justice, the law has vested ample jurisdiction in the Tribunal under section 254(1) having wide embracement for the purpose. Keeping conscious awareness with the above legislative spirit, and considering the nature and effect of this issue being consequential to the main issue so also to avoid multiplicity of litigation, we consider it appropriate and in the interest of justice to direct the assessing officer to consider this issue on merit, in the light of following principles laid-down by the Hon'ble Supreme Court in the case of Rajasthan State Warehousing Corporation (supra) :

(i) If income of an assessee is derived from various heads of income, he is entitled to claim deduction permissible under the respective head whether or not computation under each head results in taxable income;

(ii) If income of an assessee arises under any of the heads of income but from different items, e.g. different house properties or different securities etc., and income from one or more items alone is taxable whereas income from the other item is exempt under the Act, the entire permissible expenditure in earning the income from that head is deductible; and

(iii) In computing "profits and gain of business or profession" when an assessee is carrying on business in various ventures and some among them yield taxable income and the other do not, the question of allow ability of the expenditure under section 37 of the Act will depend on :

(a) Fulfilment of requirements of that provision noted above; and

(b) on the fact whether all the ventures carried on by him constituted one indivisible business or not; if they do the entire expenditure will be a permissible deduction but if they do not, the principle of apportionment of the expenditure will be no nexus between the expenditure attributable to the venture not forming an integral part of the business and the expenditure sought to be deducted as the business expenditure of the assessee."

18. In the result, both these appeals of the revenue are dismissed as indicated above.