Income Tax Appellate Tribunal - Bangalore
Income-Tax Officer vs Udupi Taluk Agricultural Produce ... on 8 March, 1988
Equivalent citations: [1988]27ITD241(BANG)
ORDER
K.S. Viswanathan, Accountant Member
1. These are two departmental appeals. We find it convenient to dispose them of together. The only point involved is whether the assessee, a co-operative society, is entitled to exemption under Section 80P(2)(e).
2. The assessee is an apex co-operative marketing society in respect of the agricultural produce in Udupi Taluk. The assessee-co-operative society entered into an agreement with the Civil Supplies Corporation Ltd. (Corporation for short) for the purpose of procuring paddy. Clause 12 of the contract states what are the services the assessee should carry out. These are reproduced below:
12. Charges and Remuneration.-The operations, services and supplies required of the sub-agent which are enumerated in brief hereunder shall be paid for by the party of the first part:
(a) Transportation from collection point to storage point including all incidental operations, such as testing the quality of foodgrains, weighing, bagging, loading, unloading, payment of oetroi, market cess and all other incidentals, etc.
(b) Providing gunnies of approved quality for bagging foodgrains when so required by the Sole Agent and using the same gunny (keeping it in the same condition for bagging rice) in case where paddy is required to be milled and the resultant rice required to be stocked, etc,
(c) Storage up to the date of delivery of foodgrains to the Sole Agent or any person(s) authorised by him in this behalf.
(d) Insuring the stocks of foodgrains against fire and burglary.
(e) Filling bags with rice, stitching, weighing, stencilling and loading into trucks where paddy is required to be milled and the resultant rice required to be issued.
(f) Delivering foodgrains after storage on release orders by weighment, duly loading the weighed bags into trucks.
Note: The sub-agent has normally to provide storage for paddy/ rice, ragi and jowar, up to a maximum of 12 months. If, however, the sub-agent should be required to store the foodgrains beyond 12 months, he will be given additional margin at l/7th of the charges provided for in the costing sheet towards storage. No additional storage charges would be allowed if the storage beyond 12 months was necessitated by any failure on the part of the sub-agent either on account of the instructions of the Sole Agent not being acted upon, or otherwise.
For all the services mentioned at (a) to (f) above, but excluding the cost of gunny bag which is covered earlier at para 6 a consolidated and all-inclusive rate of Rs. 3 (rupees three only) per quintal of paddy/jowar/ragi shall be given to the sub-agent.
If paddy is required to be converted into rice, the milling charges payable shall be Re. 1 per quintal of paddy.
In case paddy is required to be converted into boiled rice, a charge of Rs. 2 per quintal of paddy shall be paid for the par-boiling operations.
Whenever paddy is required to be converted into rice, either raw or boiled, the sub-agent shall retain for himself the bran and brokens and the gunny rendered surplus on milling of paddy and bagging the resultant rice.
The service charges payable by the party of the first part shall be paid on bills presented by the sub-agent in the form prescribed therefor and in accordance with financial rules and other procedure laid down by the party of the first part in this behalf.
It will be seen, from the above that the assessee should arrange for the collection of the paddy, transport it from the collection point, provide gunnies for bagging, store the paddy up to the date of delivery as directed by the Corporation and deliver the food-grains after storage. For all these services the assessee would be entitled to Rs, 3 per quintal.
3. During the accounting year, relevant to the assessment year 1975-76, the assessee had received from the Corporation Rs. 30,358. For the next year, relevant to the assessment year 1976-77, they had received Rs, 51,720. In the assessment proceedings before the Income-tax Officer the assessee claimed that these amounts are exempt under Section 80P(2)(e). The Income-tax Officer did not allow the claim. According to him the assessee had been appointed as the sub-agent of the Corporation. That the assessee was charged with taking delivery of paddy which is sold to the Government through the Corporation. He further found that the assessee did not get any right over the paddy so delivered. The assessee in its turn had appointed sub-agents, i.e., the number of societies which are situated in the various villages. From this the Income-tax Officer inferred that the seller of the paddy was the villager and the purchaser was the Government. The assessee being merely a selling agent is not entitled to the exemption.
4. The order of the Income-tax Officer was subject-matter of an appeal before the Appellate Asstt. Commissioner who did not admit this claim and a further appeal to the Tribunal. The Tribunal remitted the matter back to the Appellate Asstt. Commissioner. The Appellate Asstt. Commissioner heard the matter again. He gave a finding that the activity of the assessee was akin to the activity of the Coorg Coffee Growers" Co-operative Society Ltd. That co-operative society v/as also acting as the agent of the Coffee Board and was in receipt of commission from them. The Karnataka High Court held in their case that the assessee therein was entitled to the exemption under Section 80P(2)(e). The Appellate Asstt. Commissioner felt that this case will govern the facts of the assessee's case and, therefore, the assessee is entitled to the deduction.
5. Against this order for both the years the department has now come on appeal. Shri Sreedhar for the department submitted that the question whether the receipt from the Corporation is exempt under Section 80P(2)(e) has already been considered in the assessee's own case by the Karnataka High Court in their unreported decision in IT R.C. No. 34/1985 dated 31st July, 1986. That was in respect of the assessment year 1978-79 when the assessee had received from the Corporation Rs. 1,20,206. The High Court had held that the assessee was not entitled to the exemption. According to him this decision would govern for all subsequent assessment years. Shri Kotiankar, for the assessee, submitted that for the assessment year 1978-79 decided by the High Court (sic) the facts of this case were not properly brought out by the assesses. According to him the case had gone by default. He submitted that we should consider the case fully and decide the issue according to law.
6. The submissions of the assessee would take us to a scrutiny of the statement of the case and the question raised therefrom in the reference for the assessment year 1978-79. In para 4 of the order of the Tribunal in ITA No. 416/Bang/82, dated 23rd February, 1984, the following facts were found:
In the instant case, the assessee does not derive any income from letting of godown or warehouse for the purpose of storage, processing or marketing the commodities. The assessee only derives income by way of commission for procurement of paddy and rice from the Karnataka Food and Civil Supplies Corporation and reimbursement of transport charges. That commission was described as processing or storaging charges. Thus, the income derived by the assessee from the above activity is not exempt under Section 80P(2)(e).
It will be seen that the Tribunal had found as a fact that the assessee was not deriving any income from letting of godowns or warehouses. In the statement of the case again the Tribunal highlighted this fact and stated that the income received by the co-operative society had nothing to do with letting out of godowns or warehouses. It is on these facts that the High Court has given an answer against the assessee. They had specifically stated that the Tribunal has found that no income has been earned by the assessee from the letting out of godowns or warehouses and, therefore, the claim of the assessee was not justified.
7. The assessee's case before us is that this factual finding of the Tribunal will not be applicable for the years before us. We have to accept this submission. We find from Clause 12 of the contract, which we have extracted above in para 2, that the assessee has to store up to the date of delivery of foodgrains and such services must be only in their warehouses. Further, the assessee has to insure the stocks against fire and burglary. The delivery of the goods has to be made after storage on release orders being received. Thus the storage of foodgrains is definitely involved in the services rendered by the assessee to the Corporation. Therefore, on facts we must accept that the finding to be given by us will be different from the finding given in the assessment year 1978-79. Since the finding of facts are different, we agree with the assessee that the decision of the High Court in the assessee's own case will not be applicable. The matter has to be reconsidered again.
8. Section 80P(2)(e) states that in respect of any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income would be exempt. In order to avail of this exemption the assessee should, let out its godowns or warehouses for the purpose of storage of commodities or for the purpose of processing of the commodities or for the purpose of facilitating the marketing of the commodities, In this case godowns had been let out to the Corporation for the purpose of storage of paddy and rice. It is only for facilitating the marketing of these commodities later. Therefore, the income arising from such letting out of godowns or warehouses will be exempt.
9. However, Clause 12 clearly states that Rs. 3 per quintal of paddy paid by the Corporation is not merely for the service of letting out of godowns. It is also for several other services like transportation of goods from collection point to storage point, insuring of the stocks and filling the bags with rice, stitching, weighing and stencilling. A part of the amount paid by the Corporation is also for these services. These services cannot be equated with the income derived from letting out of the godowes. The learned counsel for the assessee submitted that the expression 'letting out of godowns or warehouses' found in the section must be liberally construed and for this purpose he relied on the decision of the Madras High Court in the case of CIT v. South Arcot District Co-operative Marketing Society Ltd. [1973] 92 ITR 371. The High Court in that case was considering the provisions of Section 14(3)(iv) of the 1922 Act which is, in substance, identical with Section 80P(2)(e). It was submitted in that case by the department that the expression 'letting' should be construed as letting out, i.e., possession being given to the tenant. This submission was rejected by the High Court. It was observed at pages 375 and 376:
... As pointed out by the assessee, the clause in question will have a very restricted operation if the word 'letting' is understood in the sense of 'letting out' that is, parting away with the possession of the godowns for rent, and such letting out of godowns is very rare. Normally, co-operative societies who have got storage facilities receive goods from its members, agriculturists or others for storage and charge certain fee depending upon the quantity of the goods delivered for storage. In such cases the godowns are not let out to the others but possession of the godowns is retained by the society and the society merely takes charge of the goods brought by the members, agriculturists or other and stores the same. Thus, most, of the activity of the society consists in taking custody of the goods of others and storing the same in their godowns or warehouses. It must be taken that the Legislature when it introduced the above provision was quite aware of the usual activities of the co-operative society which maintained the godowns and warehouses for storage purposes. It cannot be taken to be the intention of the Legislature to exempt only the rents received from letting out of the godowns and not the amounts received by the co-operative society for permitting the user of the godowns for storage by its members, agriculturists and others. We are, therefore, of the view that in the setting in which the word 'letting' occurs, 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.
We are unable to find any support for the assessee's contention from the passage. Even if we were to construe the expression 'letting' very liberally it cannot include the services by way of transportation from collection-point to storage point, insuring of the goods and filling bags with rice, stitching, weighing and stencilling, etc. These are services totally unconnected with letting of the warehouses and the remuneration received for these activities cannot be exempt.
10. Since the assessee is receiving a consolidated amount of Rs. 3 per quintal, the question of apportionment between the services would arise. No arguments had been advanced on this point before us. But on a proper appreciation of facts and after perusing the material on record, we are of opinion that 50 per cent of the receipts may be attributed to the letting of godowns and warehouses. The assessee is, therefore, entitled to exemption of half the amount claimed.
11. In the result, the appeals of the department are partly allowed.