Karnataka High Court
Addl. Commissioner Of Income-Tax, ... vs Karnataka State Warehousing ... on 9 March, 1980
Equivalent citations: (1980)19CTR(KAR)169, [1980]125ITR136(KAR), [1980]125ITR136(KARN), [1981]5TAXMAN54(KAR)
JUDGMENT
1. Srinivasa Iyengar, J.-The Income-tax Appellate Tribunal, Bangalore Bench, has referred the following two questions for the opinion of this court:
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in holding that the assessee is entitled to exemption under section 10(29) of the Income-tax Act, 1961, in respect of the income from letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities ?
(2) If the answer to the first question is in the negative, whether, on the facts and in the circumstances of the case, the contributions made by the assessee to the provident fund maintained for its employees are deductible from its income from business under section 37(1) of the Income-tax Act, 1961 ?"
2. At the outset, we must mention that the frame of the second question is not quite accurate. It should have been an independent question as it does not depend upon the answer to the first question. The subject matter of the second question is whether an expenditure by way of contribution to the provident fund scheme established by the assessee for the benefit of its employees was deductible in the computation of its income from business. The first question deals with the exemption from the levy of income-tax on certain types of income. As such, the second question will be considered independently of the first question.
3. The assessee is the Karnataka State Warehousing Corporation governed by the Warehousing Corporations Act, 1962 (Central Act No. 58 of 1962). The preamble to the Act specifies it to be "an Act to provide for the incorporation and regulation of corporations for the purpose of warehousing of agricultural produce and certain other commodities and for matters connected therewith." The functions of the warehousing corporation are detailed in section 24 of the Act, which is as follows:
"24. Subject to the provisions of this Act, a State Warehousing Corporation may-
(a) acquire and build godowns and warehouses at such places within the State as it may, with the previous approval of the Central Warehousing Corporation, determine;
(b) run warehouses in the State for the storage of agricultural produce, seeds, manures, fertilizers, agricultural implements and notified commodities;
(c) arrange facilities for the transport of agricultural produce, seeds, manures, fertilizers, agricultural implements and notified commodities to and from warehouses;
(d) act as an agent of the Central Warehousing Corporation of the Government for the purposes of the purchase, sale, storage and distribution of agricultural produce, seeds, manures, fertilizers, agricultural implements and notified commodities; and
(e) carry out such other functions as may be prescribed."
4. The preamble read with s. 24(d) of the Act makes it clear that the Corporation is an authority constituted by law for the purpose of marketing of agricultural produce, etc. The matter relates to the assessment for the assessment year 1970-71. That was the first year when after setting off the losses of the earlier years, there accrued a positive profit to the assessee. That income was derived by the assessee by providing storage facilities for agricultural produce by letting out the warehouses belonging to it. The assessee claimed exemption of this income under s. 10(29) of the I.T. Act which provided that in computing the income of an authority constituted under any law for the time being in force the marketing of commodities, any income derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities shall not be included. But the ITO did not accede to this request. His action was confirmed by the AAC who held that the assessee could not be considered to be an authority constituted for the marketing of commodities and, therefore, the provisions of s. 10(29) of the I.T. Act was not attracted. He also held that by virtue of s. 39 of the Warehousing Corporation Act the assessee could not claim the benefit of s. 10(29) of the I.T. Act.
5. On further appeal by the assessee to the Tribunal, the contention on behalf of the assessee was accepted. The Tribunal held that the decision of the Allahabad High Court in U. P. State Warehousing Corporation v. ITO [1974] 94 ITR 129, on which reliance had been placed on behalf of the assessee, was applicable to the instant case. The assessee had made certain regulations styled " Employees' Provident Fund Regulations, 1961" by virtue of the powers conferred by s. 54 of the Agricultural Produce (Development and Warehousing) Corporations Act, 1956, with the previous sanction of the State Government and constituted a fund for that purpose. The contribution in that behalf amounted to Rs. 15,676. The ITO as well as the AAC disallowed the claim of the assessee that this was an expenditure deductible in the computation of its business income. But in second appeal the Tribunal held that the expenditure was fully and exclusively for the purpose of business and came within the ambit of s. 37(1) of the I.T. Act, 1961, and directed the deduction of the same in the computation of the income.
6. It is in these circumstances that the two questions have been referred for the opinion of this court at the instance of the Commissioner.
7. As noticed earlier, there can be no dispute that the assessee is an authority constituted for the marketing of commodities. It is obvious that the AAC did not take note of the provisions of s. 24(d) of the Warehousing Corporations Act which included purchasing and selling of commodities also as one of the functions of the Corporation. That is why he based his conclusion on an observation that the basic function of purchasing and selling was absent in the case of Corporation. The view taken by the Tribunal that the assessee was an authority constituted by law for the marketing of commodities is correct on the material on record. The expression "marketing of commodities" must not be construed in a narrow sense and it includes every activity of purchase, selling and distribution as also warehousing. This is also the view taken by the Allahabad High Court in the decision noticed above as also that of the Punjab and Haryana High Court in CIT v. Haryana Warehousing Corporation [1978] 112 ITR 374.
8. The view taken by the AAC that s. 39 of the Warehousing Corporations Act prevented the assessee from claiming the benefit under s. 10(29) of the I.T. Act is equally untenable. The provision of s. 39 of the Warehousing Corporations Act only provides that the status of the Corporation for the purpose of assessment to income-tax shall be taken as that of a company and nothing more. The assessability of a particular receipt to income-tax would be governed by the specific provisions in the I.T. Act. Section 10(29) of the I.T. Act specifically provides for exclusion of the income derived from letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities. Therefore, the Tribunal was right in holding that the assessee was entitled to the exclusion of this particular type of income in the computation of its income from business.
9. So far as the second question is concerned, the view taken by the Tribunal is that though the provident fund scheme would not come within the ambit of s. 36(1)(iv), the expenditure was wholly and exclusively for the purpose of business and came within the purview of s. 37(1) of the I.T. Act. The mere fact that the contribution could not come within the ambit of the provisions of s. 36(1)(iv) would not disentitle the assessee to claim the benefit under s. 37(1) if the requirements thereunder were satisfied. There is no dispute that the expenditure was wholly and exclusively for the purpose of business. Therefore, it was deductible in computing the income chargeable under the head "Profits and gains of business".
10. Accordingly, we answer both the questions in the affirmative and in favour of the assessee.