TMI Blog1992 (1) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... rning income of commission under the two different agreements--(i) dated March 31, 1970, for distribution of fertilisers with the State of Maharashtra (" the fertiliser agreement " for short), (ii) dated September 13, 1968, pertaining to sub-agency for procurement of paddy/rice under the Monopoly Purchase Scheme of the Government, with the Maharashtra State Co-operative Marketing Federation Limited (" the paddy agreement " for short). The assessee claimed exemption in respect of those commissions under section 80P(2)(e) of the Income-tax Act. The Income-tax Officer disallowed the claim on the ground that no part of the claim fell under section 80P(2)(e). The Appellate Assistant Commissioner and the Tribunal allowed the full deduction applying the ratio of 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 which, since then, has been affirmed by the Supreme Court in CIT v. South Arcot District Co-operative Marketing Society Ltd. [1989] 176 ITR 117. Since the whole controversy centres round the application of the ratio of that decision, it would be proper to first notice what the said case decides a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " Since much depends upon the terms and nature of the agreement and comparisons are inevitable, we reproduce from the Madras High Court decision in CIT v. South Arcot District Co-operative Marketing Society Ltd. [1973] 92 ITR 371, the gist of the agreement, it was called upon to examine : " Under the agreement the assessee as a stock-holder has agreed to hold ammonium sulphate stock of the Government of Madras and safely store the same on their behalf and to issue the same on certain terms and conditions. The assessee has to take delivery of the fertiliser at such times and at such places notified by the Collector of the District and store the same in dry godowns where the fertiliser will not be affected by dampness. The fertiliser bags shall be stocked in such a manner as to admit of easy checking and inspection by the officers of the Government and they shall be in the custody of the assessee who is responsible for the same until disposed of under instructions from the Government. The assessee has to strictly observe the instructions of the Government issued from time to time for the stocking and storage of the fertiliser bags in the godowns and the doors of the godowns shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T v. South Arcot District Co-operative Marketing Society Ltd. [1989] 176 ITR 117, observed : " We have considered the matter carefully and to our mind, it seems clear that the Appellate Tribunal and the High Court are right in the view adopted by them. As was observed by the Gujarat High Court in CIT v. Ahmedabad Maskati Cloth Dealers Co-operative Warehouses Society Ltd. [1986] 162 ITR 142, while considering the analogous provision of section 80P(2)(e) of the Income-tax Act, 1961, the provision for exemption was intended to encourage co-operative societies to construct warehouses which were likely to be useful in the development of rural economy and exemption was granted from income-tax in respect of income derived from the letting of such warehouses for the storage of fertilisers and other related commodities concerned with co-operative marketing. Having regard to the object with which the provision has been enacted, it is apparent that a liberal construction should be given to the language of the provision and that, therefore, in the circumstances of the present case, it must be regarded that what the assessee did was to let out its godowns for the purpose of storing the ammoni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee was entitled to commission at the rate of Rs. 4.80 per quintal (out of the commission received at the rate of Rs. 9.90 per quintal from the Government) the break-up of which was as under: (Rs. p.) (i) Charges for unloading of paddy from carts, bagging, weighing, stitching and arranging bags in godowns/mills 0.50 (ii) Godown rent and insurance for paddy/rice 0.25 (iii) Depreciation for old gunny bags provided by the sub-agent 0.75 (iv) For shortage in paddy 0.40 (v) Milling charges (including all expenses in the mill compound) 2.00 (vi) Charges for weighment, hamali and loading at the time of sale 0.15 (vii) For shortage of rice 0.20 (viii) Commission (purchasing/milling/sale) 0.55 ------------------- 4.80 -------------------- Two submissions are made regarding the paddy agreement by Shri Chandurkar, learned counsel for the Revenue. The first submission is to the effect that income derived by way of commission under the agreement was totally ineligible for deduction because no part of it represents income from letting out of godowns. In support of this proposition strong reliance was placed upon the Karnataka High Court decision in the case of Udupi Taluk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire income cannot be said to have been derived from the letting of godowns. Shri Thakkar, learned counsel for the assessee, fairly did not dispute the obvious position that the entire income from commission of Rs. 4.80 per quintal was not entitled to exemption under section 80P(2)(e). He submitted before us that the activities can be split up broadly in two groups--(a) pertaining to use of godowns, and (b) pertaining to milling. Items Nos. (i) to (iv) mentioned in the breakup would fall in category (a) and item Nos. (v) to (viii) would fall in category (b). He further submitted that deduction restricted to a sum calculated at the rate of Rs. 1.90 per quintal (total of items (i) to (iv)) can be straightaway allowed as deductible right here. While we agree with the principle that adoption of such a course of splitting up, wherever possible, will in law be fair and permissible, having regard to the scanty material before us, it will not be proper to undertake the exercise of adjudicating upon the exact quantum of deduction. In our view, the ratio of CIT v. South Arcot District Co-operative Marketing Society Ltd. [1989] 176 ITR 117 (SC) will have to be applied to each item (if nece ..... X X X X Extracts X X X X X X X X Extracts X X X X
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