- Bookmark
- Share
- CaseIQ
Commissioner Of Income-Tax v. Rajasthan State Warehousing Corporation
Factual and Procedural Background
The Revenue referred a question of law to the court arising from an order dated March 31, 1986, passed by the Income-tax Appellate Tribunal (ITAT) in appeals concerning the income tax exemption claim of the respondent-assessee, a corporation constituted under the Rajasthan Warehousing Corporation Act. The assessee claimed exemption of its entire income under section 10(29) of the Income-tax Act, 1961, arguing that as a corporation constituted for marketing commodities, all its income is exempt. The Assessing Officer disagreed, holding only income from letting godowns or warehouses for storage, processing, or marketing of commodities was exempt, while income from other activities was taxable. The Assessing Officer apportioned common expenses accordingly and assessed taxable income from fumigation service charges, interest, supervision charges, and surplus from cement activities for assessment years 1981–82 and 1982–83. The Commissioner of Income-tax (Appeals) allowed the assessee’s appeals, holding that the entire income was exempt and that the Assessing Officer was not justified in apportioning expenses. The ITAT upheld the exemption finding but confined its order to the exemption question, following its earlier decisions. The matter was then referred to this court for opinion under section 256(1) of the Income-tax Act.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in upholding the findings of the Commissioner of Income-tax (Appeals) that the entire income of the assessee is exempt under section 10(29) of the Income-tax Act, 1961?
Arguments of the Parties
Respondent-Assessee's Arguments
- The entire income of the corporation, including income from ancillary activities, is exempt under section 10(29) of the Income-tax Act, 1961, as the corporation is constituted under law for marketing commodities.
- Alternatively, the business of the assessee is indivisible, and the Assessing Officer was not justified in apportioning common expenses between taxable and non-taxable income.
- It was further contended that if all expenses are taken into account, the taxable surplus would be nil, rendering the question of exemption academic.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Orissa State Warehousing Corporation v. CIT, [1999] 237 ITR 589 (SC) | Clarification that exemption under section 10(29) applies only to income derived from letting godowns or warehouses for storage, processing or facilitating marketing of commodities, not the entire income. | The court relied on this binding Supreme Court precedent to hold that the Tribunal was not justified in exempting the entire income of the assessee under section 10(29). |
| Union of India v. U.P State Warehousing Corporation, [1991] 187 ITR 54 (SC) | Earlier Supreme Court decision considered and distinguished in Orissa State Warehousing Corporation case regarding scope of exemption under section 10(29). | Referenced as part of the comparative analysis confirming the limited scope of exemption. |
| M.P Warehousing Corporation v. CIT, [1982] 133 ITR 158 (MP High Court) | Decision referred to by a Judicial Member of the Tribunal expressing a differing view on exemption. | The Judicial Member concurred with the Accountant Member for consistency, but the court noted this decision as discordant to the binding Supreme Court precedent. |
| Rajasthan State Warehousing Corporation v. CIT, [2000] 242 ITR 450 (SC) | Supports the contention that if the business is indivisible, expenses cannot be apportioned artificially between taxable and non-taxable income. | The court acknowledged this principle but refrained from deciding on it as it was not part of the Tribunal’s order or findings. |
| CIT v. Gujarat State Warehousing Corporation Ltd., [2000] 245 ITR 1 (SC) | Noted for referring the conflicting decisions of Orissa and U.P State Warehousing Corporations to a larger Bench. | The court clarified that this reference does not affect the binding nature of the Orissa State Warehousing Corporation decision for the present case. |
Court's Reasoning and Analysis
The court analyzed the language of section 10(29) of the Income-tax Act, 1961, which exempts only income derived from letting godowns or warehouses for storage, processing, or facilitating marketing of commodities by an authority constituted under law for marketing commodities. The court emphasized that this exemption does not extend to the entire income of such an authority but is limited to income from the specified activity. The court relied heavily on the Supreme Court’s decision in Orissa State Warehousing Corporation v. CIT, which clarified this limited scope of exemption and distinguished earlier decisions. Although the respondent-assessee argued that the business is indivisible and expenses should not be apportioned, the court refrained from addressing this issue due to lack of findings and because it was not raised in the Tribunal’s order. The court also noted that the conflicting decisions on this issue have been referred to a larger Bench of the Supreme Court, but until that decision, the Orissa State Warehousing Corporation ruling remains binding under article 141 of the Constitution. Consequently, the court concluded that the Tribunal was not justified in upholding the exemption of the entire income.
Holding and Implications
The question referred to the court is answered against the Tribunal and the assessee, and in favour of the Revenue.
The direct effect of this decision is that the entire income of the assessee is not exempt under section 10(29) of the Income-tax Act, 1961; only income derived from letting godowns or warehouses for specified purposes qualifies for exemption. This ruling requires that taxable income from other activities be assessed accordingly. The court did not set any new precedent beyond affirming the binding nature of the Supreme Court’s earlier ruling and declined to address the apportionment of expenses issue, which remains to be decided by the Tribunal in accordance with law. There is no order as to costs.
Rajesh Balia, J.:— At the instance of the Revenue, the following question of law arising out of the order dated March 31, 1986, passed by the Income-tax Appellate Tribunal in I.T.A Nos. 551 and 552.JP of 1985, has been referred to this court for its opinion:
“Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in upholding” the findings of the Commissioner of Income-tax (Appeals) that the entire income of the assessee is exempt under section 10(29) of the Income-tax Act, 1961?”
2. The respondent-assessee is a corporation established under the provisions of the Rajasthan Warehousing Corporation Act. It claimed that it being a corporation constituted under the law for the marketing of the commodities, its entire income derived from whatever source is exempt under section 10(29) of the Income-tax Act, 1961 (for short “the Act”). This plea of the assessee-respondent did not find favour with the Assessing Officer. The Assessing , Officer was of the opinion that the income derived only from letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities is exempt from tax but the income from other activities is not so exempt and is thus taxable. With this finding, he apportioned the expenditure incurred by the assessee which were common to both the sets of income, i.e, taxable and non-taxable, and assessed the taxable income on that basis. The taxable income consisted of fumigation service charges, interest, supervision charges, and surplus from cement activities and proportionate expenses referrable to gross total income. The same methodology was adopted for the assessment years 1981–82 and 1982–83. The Commissioner of Income-tax (Appeals), vide his order dated March 30, 1985, allowed the appeals filed by the assessee-respondent. Before the Commissioner of Income-tax (Appeals), two grounds were raised. Firstly, it was contended that the entire income including income from ancillary activities of the corporation is exempt from tax within the meaning of section 10(29) of the Income-tax Act, 1961. In the alternative, it was submitted that the business of the assessee being indivisible, the Assessing Officer was not justified in apportioning the common expenses between taxable income and non-taxable income in the manner it was done. The Commissioner of Income-tax (Appeals) upheld both the contentions raised on behalf of the respondent-assessee and set aside the assessment and demand.
3. On further appeal, the Income-tax Appellate Tribunal (for short “the Tribunal”) confined its order only to the question of exemption under section 10(29) of the Income-tax Act in respect of the entire income of the corporation and agreed with the Commissioner of Income-tax (Appeals) following its own earlier orders in other cases. However, the Judicial Member of the Tribunal, after striking a discordant note by referring” to the decision of the Madhya Pradesh High Court reported in M.P Warehousing Corporation v. CIT, [1982] 133 ITR 158 concurred with the opinion of the Accountant Member of the Tribunal for maintaining consistency with the earlier orders.
4. In the aforesaid circumstances on the applications being made under section 256(1) of the Income-tax Act, the question quoted above is referred to this court for its opinion.
5. section 10(29) of the Income-tax Act, 1961, reads as under:
“10. Incomes not included in total income.— In, computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included—
(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.”
6. From the reading of the language of section 10(29) of the Income-tax Act, 1961, it would be clear that it does not exempt the whole income of an authority constituted under the law for the marketing of commodities but exempts only such income which is derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities by such authority constituted under the law for the marketing of commodities.
7. This controversy also came up for consideration before the Supreme Court in Orissa State Warehousing Corporation v. CIT, [1999] 237 ITR 589. In that case, the court said (page 594):
“On a plain reading of section 10(29) of the Act as above, it appears that the pre-requisite element for the entitlement as regards the claim for exemption is the income which is derived from letting out of godowns or warehouses for storage, processing or facilitating marketing of commodities and not otherwise. The Legislature has been careful enough to introduce in the section itself, a clarification by using the words ‘any income derived therefrom’, meaning thereby obviously for marketing of commodities by letting out of godowns or warehouses for storage, processing or facilitating the same. If the letting out of godowns or warehouses is for any other purpose, the question of exemption would not arise.”
8. In Orissa State Warehousing Corporation's case, [1999] 237 ITR 589 (SC), the assessee derived income from warehousing charges, administrative overheads being surplus of recovery over cost on procurement activities on behalf of the FCI/State Government fumigation service charges, interest and miscellaneous income. The court, after referring to its earlier decision in Union of India v. U.P State Warehousing Corporation, [1991] 187 ITR 54, affirming the decision of the Allahabad High Court in U.P State Warehousing Corporations. ITO, [1974] 94 ITR 129, distinguished the same and held as above. In these circumstances, it must be held that the Tribunal was not justified in holding that the finding of the Commissioner of Income-tax (Appeals) that the entire income of the assessee is exempt under section 10(29) of the Income-tax Act, was right.
9. It has been pointed out by Mr. N.M Ranka, learned counsel appearing for the respondent-assessee, that though the decision rendered in Orissa State Warehousing Corporation's case, [1999] 237 ITR 589 (SC), fully governs the present controversy but, however, this issue has been referred to a larger Bench of the Supreme Court for consideration by noticing the conflicting decisions in Orissa State Warehousing Corporation v. CIT, [1999] 237 ITR 589 (SC) and Union of India v. U.P State Warehousing Corporation, [1991] 187 ITR 54 (SC) in CIT v. Gujarat State Warehousing Corporation Ltd., [2000] 245 ITR 1 (SC). However, as of now the binding precedent and law declared by the Supreme Court in terms of article 141 of the Constitution of India remains as enunciated in Orissa State Warehousing
10. Corporation's case, [1999] 237 ITR 589 (SC), which has been rendered after considering the other view in U.P State Warehousing Corporation's case, [1991] 187 ITR 54 (SC), which, according to the Supreme Court, needs to be resolved by a larger Bench. Therefore, that decision to refer the issue to a larger Bench will have no bearing on the decision of this reference.
11. It has been alternatively contended by learned counsel appearing for the respondent-assessee, as was contended before the Tribunal, while considering the application under section 256(1) of the Income-tax Act, 1961, that if the entire expenses of the individual income of the assessee are being taken into account, it will be taxable surplus in the hands of the assessee and, therefore, the question referred to this court was otherwise academic and the question referred to this court need not be answered. For the purpose of the said contention, learned counsel for the respondent-assessee relied on a recent decision of the Supreme Court in Rajasthan State Warehousing Corporation v. CIT, [2000] 242 ITR 450.
12. It is true that the decision in Rajasthan State Warehousing Corporation's case, [2000] 242 ITR 450, does support the contention of learned counsel for the respondent that where the business of the warehousing corporation is an indivisible one, the expenses incurred wholly or exclusively for carrying out the said business cannot be apportioned artificially between taxable and non-taxable income as has been done by the Assessing Officer. However, since the said question does not arise out of the Tribunal's order and there being lack of necessary findings, we shall not be justified in going into that question and shall refrain from entering into that arena. It will necessarily require determination of gross total income, its division into taxable and non-taxable income and total allowable expenses. Such question may require determination of any issue relating to their computation by the Tribunal on the income and expenses of the business.
13. Such questions, the Tribunal has to decide in each case in accordance with the law and in the light of the binding precedents and the law declared by the Supreme Court as also the jurisdictional High Courts and other High Courts if the issue is not covered by the decision of the Supreme Court or the jurisdictional or other High Courts. As a result of the aforesaid discussion, we answer the question referred to us by the Tribunal against the Tribunal in the negative, i.e, against the assessee and in favour of the Revenue. There will be no order as to costs.
Alert