Whether when assessee is into warehousing business, income earned as rental, interest on FDs and loans given to staff is also eligible for exemption u/s 10(29) - NO: Madras HC

: THE issues before the Bench are - Whether income earned by the assessee not the one derived from the letting of godowns for the stated purpose of storage, processing or facilitating of marketing of commodities and having no direct nexus to the activities, is eligible for exemption under Section 10(29) of the Act; Whether income incidental to the storage, processing or facilitating of marketing of commodities would qualify for exemption under the provisions of the Income Tax Act and Whether income from house property, from bank receipts, income on loans and advances made to the members of the staff, interest on bank deposits, dividend income, supervision charges, fumigation service charges, weigh bridge receipt, income from sale of tender forms and interest collected on belated refund of advances would be eligible for exemption under Section 10(29). And the verdict goes against the assessee.

Facts fo the case

The assessee, a Government of Tamil Nadu sponsored undertaking, was formed originally under the Agricultural Produce (Development and Warehousing) Corporations Act, 1956. The said Act was repealed and in its place, the Warehousing Corporations Act, 1962 was framed. With the repealing of the 1956 Act, by the Warehousing Corporations Act, 1962, the Corporation continued its existence as a statutory Corporation constituted under the above-said Act. Under Chapter III of the Central Act, State Warehousing Corporations were established and they were public body corporate. The functions of the State Corporation were almost on similar lines as that of the Central Warehousing Corporation. The assessee is an authority constituted under law to satisfy one of the requirements of Section 10(29) of the Income Tax Act, 1961. The State Warehousing Corporation arranges facilities for acquiring and building godowns, providing warehousing facilities, storage and transport of agricultural produce, seeds, manures, fertilizers, agricultural implements and notified commodities to and from warehouses, apart from acting 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.

The assessee, for the assessment year 1991-92, claimed the income earned from warehousing charges, supervision charges, fumigation charges, interest on advances to staff and other miscellaneous receipts, such as, tender form sales, contract registration fees, disposal of waste paper etc., dividend on shares, profit on sale of care and Dess receipts, as exempt under the Income Tax Act. The Assessing Officer held that other than the income earned on warehousing charges, the rest of income was liable for taxation. In appeal, the Commissioner of Income Tax (Appeals) allowed the assessee's appeals. However, on the taxability of dess receipts and the expenditure claimed, the assessee's appeal was rejected. Aggrieved by this, the assessee went on appeal before the Income Tax Appellate Tribunal. Revenue also filed appeal against the relief granted to the assessee. Thus, the Revenue preferred appeals before the Income Tax Appellate Tribunal for the assessment years 1991-92, 1992-93, 1993-94, 1996-97 and 1997-98.

The Tribunal, by a common order, allowed the Revenue's appeals following the decision of the Tribunal in the assessee's own case holding that the income derived by the assessee from house property, interest on bank deposits, interest on loans and advances made to members of staff, supervision charges, fumigation receipts, weigh bridge receipt, sale of tender forms etc. would not be exempt under Section 10(29) of the Income Tax Act. The Tribunal pointed out that the earlier decision of the Tribunal was in consonance with the decision of the Supreme Court reported in (1999) 237 ITR 589 (Orissa State Warehousing Corporation and Rajasthan State Warehousing Corporation V. Commissioner of Income Tax). With respect to the appeal for the assessment year 1993-94, the assessee's appeal relating to the claim on interest on fixed deposits and dividend income was also considered and following the decision reported in (1999) 237 ITR 589 (Orissa State Warehousing Corporation and Rajasthan State Warehousing Corporation V. Commissioner of Income Tax), the assessee's appeals were rejected by the Tribunal. The decision is the same as regards the other assessment years also.

The assessee filed also rectification petition under Section 154 of the Income Tax Act against the order of Assessing Officer rejecting its claim. As regards the claim on storage rent, supervision charges, income from fumigation activities and income from weigh bridge receipts, the assessee submitted that the withdrawal of exemption in respect of the above were contrary to Section 10(29) of the Income Tax Act and consequently, prayed for rectification. The Assessing Officer, however, rejected the said plea holding that the issue being a debatable one, the petition under Section 154 was not maintainable. Further, the assessee had not given the break-up of the warehousing charges and that the issue concerned in Section 143(3) was already subject matter of appeal before the Commissioner of Income Tax (Appeals). Thus the rectification petition was dismissed. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals). Thus the assessment under Section 143 as well as the order under Section 154 were subject matter of appeals before the Commissioner of Income Tax (Appeals) for the assessment years, 2000-01, 2001-02 and 2002-03. The Commissioner of Income Tax (Appeals) held that the income arising from the receipts of warehousing, supervision, fumigation and weigh bridge were exempted under Section 10(29) of the Income Tax Act. Based on the earlier year orders, the Commissioner of Income Tax (Appeals) disposed of the appeals in favour of the assessee. In appeal, the Income Tax Appellate Tribunal set aside the order of the Commissioner of Income Tax (Appeals).

Assessee contended that being a Warehousing Corporation and an authority constituted in law, the phrase 'any income derived' should not be limited or restricted in its scope.

Having heard the parties, the Court held that,

++ if any income earned by the assessee is not the one derived from the letting of godowns for the stated purpose of storage, processing or facilitating of marketing of commodities and has no direct nexus to the activities, then the question of granting exemption in respect of those income does not arise. Income earned incidental to the storage, processing or facilitating of marketing of commodities, hence, as per the decisions referred to above, would qualify for exemption under the provisions of the Income Tax Act;

++ as far as the claim of exemption on income from house property, from bank receipts, income on loans and advances made to the members of the staff are concerned, the said issue is directly covered by the decision of the Supreme Court reported in (1999) 237 ITR 589 (Orissa State Warehousing Corporation and Rajasthan State Warehousing Corporation V. Commissioner of Income Tax) as well as (1991) 187 ITR 54 (Union of India and another V. U.P.State Warehousing Corporation), as the income not being derived from the activities enumerated in Section 10(29) of the Income Tax Act, no exemption would be granted;

++ income from house property, income on bank deposits, income on loans and advances made to the members of the staff, not being derived as income from letting of godowns or warehouses for storage, processing and facilitating the marketing of commodities, the question of granting exemption under Section 10(29) of the Income Tax Act does not arise. To that extent, we agree with the decision of the Tribunal. So too, the interest on bank deposits and dividend income. However, as regards the supervision charges, fumigation service charges, weigh bridge receipt, income from sale of tender forms and interest collected on belated refund of advances are concerned, we find that these are income derived from such incidental activities relating to warehousing of the produce for storage, processing or facilitating the marketing of commodities. Thus, with the income having direct nexus to the activities, we hold that the assessee would be entitled for claim of exemption under Section 10(29) of the Income Tax Act. The claim of the assessee in this regard is fully supported by the decisions of the Supreme Court referred to above. Consequently, we have no hesitation in setting aside the order of the Tribunal to that extent;

++ as far as T.C.(A)No.2552 of 2006, relating to the assessment year 1993-94, arising out of the assessee's appeal relating to interest income on fixed deposits and dividends, is concerned, we reject the assessee's appeal, thereby confirm the order of the Tribunal;

++ the assessee is entitled to its claim of exemption on the income derived from warehousing charges, supervision charges, fumigation charges, weigh bridge receipts and sale of tender forms and interest collected on belated refund of advance alone; however, on the income from house property, income on bank deposits, loans and advances made to the members of the staff, interest on fixed deposits and dividend income, the assessee is not entitled to any relief of exemption under Section 10(29) of the Income Tax Act.