1. This appeal, by the assessee, relates to assessment year 1984-85 and arises from the order dated 31-3-1988 passed by the CIT (A).
2. Ground No. 1 relates to the question whether the assessee was liable to tax in view of Section 10(29) of the Income-tax Act, 1961, hereinafter referred to as the Act. The facts of the case are that the assessee is a Warehousing Corporation of the State of Punjab and it is constituted under Section 18(1) of the Warehousing Corporation Act, 1962 (58 of 1962). The assessee-corporation claimed total exemption regarding the entire income received and earned by it on the plea that Section 10(29) of the Act granted total exemption to it. Section 10(29) reads as under :- 10. 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.
The Assessing Officer, however, allowed exemption in respect of income derived by the assessee-corporation from warehousing charges amounting to Rs. 3,44,57,147 under Section 10(29) of the Act. However, income from other sources and under different heads amounting to Rs. 13,25,171 was disallowed from exemption on the ground that tills was not an income received from letting of godowns or warehouses. The assessee had received certain interest from banks on its deposits and also hire charges of stitching machine and platform scale. Income under other heads also included GPF forfeiture, application fee and certain misc.
income.
3. The ld. counsel has argued that the assessee was a statutory corporation constituted under a Central statute and was, therefore, entitled to exemption relating to income from all its activities within the meaning of Section 10(29) of the Act. It has been argued that what Section 10(29) requires is that it should be an authority constituted under any law and it should be constituted for the marketing of commodities. The third condition required to be fulfilled under Section 10(29) is that such an authority should derive income from letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities. The ld. counsel has argued that the assessee fulfills all the three conditions laid down in Clause (29) and the income disallowed by the Revenue authorities was entitled to exemption within the meaning of Section 10(29). His main plank of argument is that the word 'marketing' has a wide connotation and, not only that, activity relating to storage, processing or the act of facilitating the marketing of commodities is also covered by the definition of the word 'marketing'. Reliance has been placed on a decision of the Allahabad High Court in the case of U.P. Slate Warehousing Corporation v. ITO [1974] 94 ITR 129. In that case, it has been held that the U.P. State Warehousing Corpn. was an authority within the meaning of Section 10(29) of the Act. It was also observed that the word 'marketing' has been used in wider sense to include various activities which generally go to form the trace of marketing. It was further observed that, if the term 'marketing' is held to mean buying and selling alone, the remedy resolved by Parliament will not be advanced but would be frustrated.
According to the settled rule of construction of statutes, an interpretation leading to the failure of the remedy is to be avoided.
'Storage' is the marketing function which involved holding and preserving goods between the time of production and their use. The marketing process is infinitely far-reaching than the transfer of goods from manufacturers to final consumers. All business activities directed towards the flow of goods and services from producer to consumer are within the concept of 'marketing'. The ld. counsel has, on the basis of the ratio of the aforesaid judgment, contended that: the other activities of the assessee-corporation are nothing but activities related to marketing.
4. The ld. D.R. has, on the other hand, argued that the judgment of the Allahabad High Court, relied upon by the ld. counsel, helps the Revenue inasmuch as income derived from letting alone has been held to be exempt and not other income. This matter came up before the Supreme Court in the case of Union of India v. U.P. State Warehousing Corporation [1991] 187 ITR 54 and the decision of the High Court was affirmed. It was observed that there were three tests for entitling an assessee under Section 10 (29): first, that the assessee must be an authority constituted under a law; second, that the authority should be constituted for marketing of commodities and the third, that it should derive income from letting of godowns or warehouses for storage, processing or facilitating the marketing commodities. Since all the three tests were satisfied by the U.P. State Warehousing Corpn., the appeal filed by the Union of India was dismissed.
5. The ld. counsel has invited our attention to Clause (d) of Section 24 of the Warehousing Corporations Act, which reads as under :- 24. Subject to the provisions of this Act, a State Warehousing Corporation may; (d) act as an agent of the Central Warehousing Corporation or of the Government for the purposes of the purchase, sale, storage and distribution of agricultural produce, seeds, manures, fertilizers, agricultural implements and notified commodities.
It has been argued by the ld. counsel that aforesaid Clause (d) authorised and permitted the assessee-corporation to engage itself in many other activities as an agent of the Central Warehousing Corpn.
This clause also authorised the corporation to engage into purchase, sale and distribution of many commodities. Therefore, the functioning of the corporation is not limited to marketing alone. Since Section 24(d) has widened the scope of the assessee-corporation, it can legitimately engage itself in all those activities as permitted by Clause (d) of Section 24 of the aforesaid Act.
6. The ld. D.R. has, in reply, submitted that the Revenue authorities have allowed the assessee-corporation to be treated as an authority and it is also not under dispute that the assessee is engaged in marketing.
He has contended that the controversy here is confined only to certain other activities which are not relevant for the purposes of claiming exemption under Section 10(29) of the Act. His main thrust of argument is that Section 10(29) grants exemption in respect of income from letting of godowns or warehouses only. This letting of godowns or warehouses may be for any of the purposes, namely, storage, processing or facilitating the marketing of commodities. Therefore, the processing or facilitating of marketing is the object for which a godown or warehouse may be given on charges to anyone by the assessee. It does not authorise the assessee to derive income from processing or the act of facilitating the marketing of commodities so as to claim exemption under Section 10(29). What Clause (29) of Section 10 envisaged is that the authority constituted under any law for marketing of commodities may derive income from letting of godowns or warehouses and such godowns or warehouses may be used for the purposes of storage, processing or facilitating the marketing of commodities. Our attention has been invited to a decision of the Madhya Pradesh High Court in the case of M.P. Warehousing Corporation v. CIT [1982] 133 ITR 158, wherein the income received from interest on deposits and commission charges for handling the work of loading and unloading of agricultural commodities, has been held to be not exempt under Section 10(29) of the Act. Reliance has also been placed on a decision of the Gujarat High Court in the case of CIT v. Gujarat State Warehousing Corporation [1980] 124 ITR 282. It has been observed therein that the Gujarat State Warehousing Corporation was an authority with the meaning of Section 10 (29) but it was made clear that the exemption was limited only to the income arising from letting of godowns or warehouses. The observation regarding income of that corporation, is as under :- There is no controversy as regards the third ingredient because the exemption is claimed only in respect of that part of the income which is in respect of letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities. The controversy has only centered round the first two ingredients.
As we have already seen there were three ingredients in Clause (29), namely, that it should be anauthority constituted under any law in force, that it should be constituted for marketing of commodities and that the income is derived from letting of godowns or warehouses. There was no controversy in that case relating to the third ingredient and the other two ingredients were found to be in favour of the assessee-corporation.
7. The ld. counsel has placed reliance on certain other decisions of the High Courts in respect of his plea that the assessee-corporation was entitled to exemption for its income from its entire activities.
First case, relied upon, is of the Rajasthan High Court in the case of Addl. CIT v. Rajasthan State Warehousing Corporation [1987] 167 ITR 694. In that case also, it was held that the Rajasthan State Warehousing Corpn. was an authority within the meaning of Section 10(29) of the Act. The second case, cited by the ld. counsel, is from the Punjab and Haryana High Court in the case of CIT v. Haryana Warehousing Corporation [1978] 112 ITR 374. In that case again, a reference to the High Court was made on a limited question whether the assessee was an authority within the meaning of Section 10(29) and whether it was constituted for marketing of commodities. The reference was answered in the affirmative in favour of the assessee-corporation.
The third case, relied upon by the ld. counsel, is from the Karnataka High Court in the case of Addl. CIT v. Karnataka State Warehousing Corporation [1980] 125 ITR 136. In that case again the question was only limited to the point whether the warehousing corporation was an authority. The second question there was on a different ground whether contribution to provident fund was an expenditure wholly and exclusively for the purposes of business within the purview of Section 37(1) of the Act. The ld. counsel has also relied upon a decision of the Delhi High Court in the case of CIT v. Central Warehousing Corporation [1985] 156 ITR 407. Here again, the only question was whether the assessee was an authority or not. It was answered in the affirmative.
8. We have considered the rival contentions and we find that the Revenue authorities have treated the assessee as an authority engaged in the marketing of commodities and have, therefore, treated income from warehousing charges to be exempt under Section 10(29) of the Act.
Therefore, there is no controversy before us whether the assessee is an authority or not and whether it is engaged in marketing or not. The only question in this appeal is whether income derived by way of interest from bank, application fee, hire charges of stitching machine and platform scale and supervision charges were covered by the third ingredient of Section 10(29) of the Act? The third ingredient requires the income to be an income from letting of godowns or warehouses.
Therefore, the decisions of different High Courts, relied upon by the ld. counsel, do not help the assessee so far as the precise question arising in this appeal is concerned. Since the Revenue authorities have not challenged the status of the assessee-corporation as an authority or its activities as marketing, the decisions relied upon by the ld.counsel are of no avail to him. On the other hand, we notice that the decision of the Madhya Pradesh High Court is very relevant in the matter whereby interest received on deposits with the bank and commission charges for handling work of loading and unloading of agricultural commodities have been held to be not exempt. Following the said ratio, we find ourselves unable to accept the plea of the ld.counsel that the income disallowed by the Revenue authorities must be treated to be exempt within the meaning of Section 10(29). The question before us is not whether the assessee should engage or not in activities other than marketing and derive income therefrom. The precise point in issue before us is whether the income other than that received from letting of godowns or warehouses could get exemption under Section 10(29) of the Act? What Section 24(d) of the Warehousing Corporations Act, provided was that the assessee-corporation could act as an agent of the Central Corporation or of the Government for any purpose. But the aforesaid Section 24(d) would not override Section 10(29) of the IT Act. Simply because the assessee-corporation has been authorised by a statute to engage itself in many other activities relating to marketing, it will not imply that all other income shall also be entitled to be exempt under Section 10(29) of the Act.
9. The ld. D.R. has also submitted that part of income of the assessee was assessed by the Revenue authorities in the past also. The assessee was also deriving income from sale of fertilizers and from rent from NBT and PFC. It has thus been argued that the assessee-corporation, in its wider jurisdiction, is engaged in various other activities but that would not authorise it to claim exemption regarding all other income.
10. Ground No. 1 raised in this appeal is general in nature as if the Revenue authorities have totally disallowed the assessee to be entitled to claim exemption under Section 10(29) of the Act. As we have stated earlier, the Revenue authorities have granted exemption to the assessee, treating it to be an authority engaged in the marketing of commodities, on its income from warehousing charges. Ground No. 3 related to the income from GPF forfeiture amounting to Rs. 5,227 and application fee of Rs. 49,882. Income under these two heads has been held to be taxable by the Revenue authorities. In ground No. 4, the assessee has raised an objection that the interest received has also been treated to be taxable. We have already observed that income other than from letting is not entitled to exemption under Section 10(29) of the Act. Therefore, the plea raised in ground Nos. 3 and 4 cannot be accepted.
11. In ground No. 4, there is yet another plea to the effect that interest income has not been set off against Interest paid by the assessee. We, however, find that this plea was not raised before the CIT (A) and, therefore, we find no justification for this point being raised before us. If the assessee had claimed set off of interest received against the interest paid, that would have been considered by the Revenue authorities. This plea contained in ground No. 4 appears to be not arising from the order of the CIT (A) and is, therefore, rejected. Therefore, we find no force in ground Nos. 1, 3 and 4 and these are rejected.
12. Ground Nos. 2 and 5 relate to the expenditure disallowed by the Revenue authorities on the ground that certain expenditure related to taxable income. The ld. counsel has argued that no distinction could be drawn between the expenditures relating to taxable and non-taxable income. The ld. D.R. has, however, contended that since the assessee-corporation is engaged in various activities, it was natural that extra work needed extra persons and extra expenditure. He has argued that the entire expenditure could not, therefore, be allowed and had to be bifurcated.
13. The ld. counsel for the assessee has placed reliance on a decision of the Supreme Court in the case of CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452. In that case, the Assessing Officer had disallowed part of commission paid to the managing agents on the ground that it related to the act of managing sugarcane cultivation and not sugar production from which the assessee derived income". It was observed that cultivation of sugarcane and manufacturing of sugar constituted one single and indivisible business. Reliance has also been placed on a decision of the Punjab and Haryana High Court in the case of Punjab State Co-operative Supply & Marketing Federation Ltd. v. CIT [1981] 128 ITR 189, wherein it has been held that if the business was indivisible, then the entire expenditure may be allowed. In that case, the assessee being a cooperative society was engaged in various activities and income under certain heads was exempt. It was noted that the assessee had incurred expenditure wholly and exclusively for the purposes of business and, therefore, the entire expenditure was held to be allowable. Special Leave Petition was filed against the aforesaid decision but that was dismissed by the Supreme Court - 143 ITR (St.) 14. The ld. counsel has argued that no separate employees were allocated to any particular activity of the assessee-corporation. It has been contended that the entire activities of the corporation were of the same nature, namely, marketing, therefore, the expenditure could not be bifurcated under different heads.
15. We have considered the rival contentions and we find that the activities of the assessee-corporation are inseparable and, therefore, the expenditure could not be bifurcated or allotted under different heads. We, therefore, hold that the expenditure cannot be disallowed.
Ground Nos. 2 and 5 thus succeed and it is held that the entire expenditure is allowable.
16. Ground No. 6 relates to depreciation. It has been stated that the CIT (Appeals) failed to direct the Assessing Officer to allow depreciation. The ld. D.R. has invited our attention to the grounds of appeal taken before the CIT (Appeals) by the assessee. Since no such ground was taken, no finding was given by the CIT (Appeals) and, therefore, there was no question of giving any direction regarding depreciation. It has been stated that the assessee failed to claim depreciation before the CIT (Appeals) and, therefore, ground No. 6 did not arise. It is also stated that the assessee could have also claimed depreciation before the Assessing Officer. The order of the Assessing Officer did not make it clear that any depreciation was claimed and refused. We have considered the rival contentions and we find that ground No. 6 has no force. It is rejected.
17. Ground No. 7 raises a question that interest under Sections 139(8) and 217 of the Act could not have been made consequential but should be deleted. The ld. counsel has argued that since the entire income of the assessee-corporation was claimed to be exempt under Section 10(29), the assessee could not to be burdened with any interest. He has, therefore, contended that this issue should not be decided to be of consequential nature but no interest should be made leviable at all in view of the peculiar facts and circumstances of the case.
18. The ld. D.R. has, in reply, submitted that part of income of the assessee was subjected to assessment in earlier year also and, therefore, the assessee had the knowledge that certain income was liable to tax. It has, however, been pointed out by the ld. D.R. that the matter has only been restored back to the file of the Assessing Officer by the CIT (Appeals) for passing a speaking order, after giving opportunity to the assessee.
19. We have considered the rival contentions and we find that since the matter has been restored back to the Assessing Officer for passing a speaking order, the assessee could take the plea there. Ground No. 7, therefore, is rejected.
20. Ground No. 8 is general in nature and does not require any specific comments.