TMI Blog2009 (7) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... (e) of the Income-tax Act, 1961 whose predecessor was Section 14(3)(iv) of the Income-tax Act, 1922. FACTS 3. The facts giving rise to this civil appeal are few and undisputed and may be briefly stated as follows. Appellant-society is a co-operative society registered under Rajasthan Co-operative Societies Act, 1965. Appellant is running a consumer co-operative store at Udaipur since 1963. It has 30 branches. Appellant is dealing in non-controlled commodities through its branches. In addition, appellant is also doing the work of distribution of controlled commodities such as wheat, sugar, rice and cloth on behalf of the Government under the Public Distribution Scheme (PDS) for which it is getting commission. The distribution of the controlled commodities is regulated by the District Supply Officer (DSO-Authoriesed Officer) under Rajasthan Foodgrains Other Essential Articles (Regulation of Distribution) Order, 1976 (for short, "1976 Order"). Appellant claims to be stockist/distributor of controlled commodities. It takes delivery from Food Corporation of India (FCI) and Rajasthan Rajya Upbhokta Sangh as per the directives of the State Government. The price, quantity and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins and other Essential Articles in the area specified therein. (2) No person other than an authorization holder shall sell any of the foodgrains or any other essential articles supplied by the Government for distribution under this Order or any other Order. Clause 20 - Power to issue directions regarding purchase/sale/distribution of foodgrains and other essential articles. - Every authorisation holder shall comply with all general or special directions given in writing, from time to time by the State Government or the Collector in regard to purchase, sale, storage for sale, distribution and disposal of foodgrains and other essential articles on permits or ration cards or otherwise and the manner in which the accounts thereof shall be maintained and returns submitted. 4. We also quote hereinbelow the Terms and Conditions annexed to the said 1976 Order which read as under: "Terms Conditions - General Clause (1) No authorization holder shall store Foodgrains other essential articles at any place other than those specified in this authorization without prior permission in writing of the Collector. Clause (2) No authorization holder shall refuse to sell F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant filed appeals before CIT (A), on 18.4.92. By order dated 28.10.93, CIT(A) held that the appellant was entitled to deduction under Section 80P(2)(e) of the 1961 Act on the income of commission received from the State Government for stocking and storing the above foodgrains. This decision was affirmed by the Tribunal vide its decision dated 20.10.2000 dismissing the Department's appeal by a common order holding that the appellant was entitled to deduction under the said Section. This view of the Tribunal, however, was overruled by the impugned decision dated 2.11.06 by the Rajasthan High Court which took the view that the appellant-society was storing the said controlled commodities in its godowns as part of its own trading stocks; that the appellant acted as a trader in the essential commodities in question and consequently the appellant was not entitled to deduction under Section 80P(2)(e) of the 1961 Act. Against the impugned decision, appellant has come to this Court by way of petition for special leave. 6. The issue which arises for determination in this civil appeal is: whether, on the facts and the circumstances of this case, "commission" received by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtation of retail dealer 2.00 2.00 2.00 255.57 267.99 283.54 10. Equalisation amount 6.43 7.01 6.46 262.00 275.00 280.00 B. if the godowns of the Food Corporation and the wholesale dealer are in different cities: Common Fine Superfine 1. Issue rate of food corporation 239.00 251.00 266.00 2. Octroi 0.20 0.20 0.20 239.20 252.20 266.20 3. Sales tax @ 3% 7.18 7.54 7.99 4. Surcharge on sale tax @20% 1.44 1.50 1.60 5. Amount payable to food corporation 247.82 260.24 275.79 6. Commission of wholesale dealer 2.25 2.25 2.25 250.07 262.49 278.04" 8. The above working indicates that Rs.247.82 (issue price) is treated by the appellant as expense and it is set-off against the sale price of Rs.251.07. In other words, the working indicates cost plus mechanism i.e. Rs.247.82 is the cost plus profit margin which includes Rs.2.25 as commission. Therefore, Rs.2.25 is part of the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax, Gujarat II - (1971) 79 ITR 722 (Guj.), in which it was held: "This section is obviously enacted with a view to encouraging and promoting growth of co-operative sector in the economic life of the country in pursuance of the declared policy of the Government. There are five different heads of exemption enumerated in the section. Each is a distinct and independent head of exemption. Whenever a question arises whether a particular category of income of a co-operative society is exempt from tax, it will have to be seen whether such income falls within any of the several heads of exemption : if it falls within any one head of exemption, it would be free from tax notwithstanding that the conditions of another head of exemption are not satisfied and such income is, therefore, not free from tax under that head of exemption : vide U. P. Co- operative Bank Ltd. v. Commissioner of Income-tax.- (1966) 61 ITR 563 (All). The ambit and coverage of clause (iv) of section 81 must, therefore, depend on the true interpretation of the language used by the legislature in that clause assisted only by such external aids of construction as are permissible according to well-recognised principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owns or warehouses for storage", "processing" and "facilitating the marketing of commodities" should be read distinctively as constituting different alternative sources of income, the legislature would have, according to the dictates of plain grammar, used the words "income derived from letting of godowns or warehouses for storage or from processing or from facilitating the marketing of commodities." The introduction of the words "or from" before "processing" and "facilitating the marketing of commodities" would have brought about the disjunctive effect so as to relate the three alternatives to the words "income derived from." But the legislature instead used words which clearly go of to suggest that the words "storage, processing or facilitating the marketing of commodities" are merely purposes for which godowns or warehouses should be let to attract the exemption under section 81(iv). The presence of the definite article "the" before letting and its absence before the words "processing" and "facilitating the marketing of commodities" considerably reinforces this conclusion. It is again difficult to see why the legislature should have indiscriminately mixed up in section 81(iv) wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) (iv) and section 81(iv), separate exemption is not granted in respect of income from the letting of godowns or warehouses for storage, income from processing and income from facilitating the marketing of commodities. But the exemption is available only in respect of income derived from letting of godowns or warehouses where the purpose of letting is storage, processing or facilitating the marketing of commodities." 13. We approve the reasoning given by the High Court on interpretation of Section 81(iv) and Section 14(3)(iv) of the 1922 Act. On reading the above judgment it becomes clear that under Section 80P(2)(e) of the 1961 Act, an assessee is entitled to claim special deduction from its gross total income to arrive at total taxable income. It is a special deduction which is provided for in that Section. It is not a charging section. The burden is on the assessee to establish that the income comes within the four corners of Section 80P(2)(e) of the 1961 Act. The burden is on the assessee to establish that exemption is available in respect of income derived from the letting of godowns or warehouses, only where the purpose of letting is storage, processing or facilitating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch letting or use of the godowns would not fall under clause (e). In the case of M/s. Vishnu Agencies (Pvt.) Ltd. etc. v. Commercial Tax Officer and others - AIR 1978 SC 449, a seven-judge Bench of this Court held that transction between the rice-millers on one hand and the wholesalers on the other hand constituted "sales" within the meaning of Bengal Finance (Sales Tax) Act, 1941 and sales tax was leviable on the turnover. In that case Vishnu Agencies was a licensed stockist of cement who was permitted to stock cement in its godown, to be supplied to persons in whose favour allotment orders are issued, at the price stipulated and in accordance with the conditions of permit issued by the authorities concerned. In that case Vishnu Agencies supplied cement to various allottees from time to time in pursuance of the allotment orders issued by Appropriate Authorities and in accordance with the terms of the licence obtained by it for dealing in cement. It was assessed to sales tax by CTO in respect of the said transactions. The main contention of Vishnu Agencies was the measures adopted to control the supply of cement left no option to parties to bargain; that, the transaction in que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1946, two Orders came to be issued, namely, Foodgrains procurement Order, 1946 and Foodgrains Licensing Order, 1946 which prohibited all trades in foodgrains including rice except by those who held licences and subject only to the terms and conditions of the licence. A. Venkata Subbarao was one such licensee who was authorized to deal in rice under the Licensing Order, 1946. It may be mentioned that the prices at which paddy could be procured as well as the prices at which the rice could be sold by the licensed dealers, were fixed by Orders, notifications issued under the Essential Supplies Act. While A. Venkata Subbarao (appellant) was carrying on his business subject to the provisions of the above two Orders, the prices at which he could sell rice which he milled out of the paddy procured by him stood enhanced on three different occasions - July 1947, December 1947 and November 1948, and on each occasion he was directed to submit a statement indicating the stock of paddy and rice held by him on the day just prior to the date on which the increased prices came into effect and on that basis the Government directed A. Venkata Subbarao to pay a "surcharge" on the amount represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bound to make over to the Government such profits that he might obtain out of the business of the agency. It was the further case of the Government that the difference between the procurement price and the price which was fixed for sale constituted "commission" or "remuneration" which would belong to the agent. In other words, two questions arose for determination before this Court, namely, the precise legal relationship between the procuring agent/dealer on one hand and the Government on the other hand as also real nature of payment received by A. Venkata Subbarao. It is interesting to note one more argument advanced on behalf of the Government. It was urged that the margin between the procurement price and the price at which the rice could be sold constituted "remuneration". This argument found favour with the High Court. However, it was rejected by this Court and while doing so this Court observed as follows: "29. Before proceeding further, it is necessary to clarify two matters. First, though Mr. Agarwala referred to the margin between the procurement price and the price at which the procured paddy or rice could be sold as "remuneration", a contention which found favour wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement sales-tax was payable which on the terms of the Madras General Sales Tax Act in force at the relevant time would not have been payable if the paddy and rice were that of Government and which they were holding merely as commission agents on behalf of the Government. 33. Next, it may be pointed out that these plaintiffs held licences under the Licensing Order under the Madras Foodgrains Control Order, 1947 in order that they might deal in the rice in their possession. In the licence which was granted to the plaintiffs which was in statutory form the foodgrains in their possession were referred to as their stocks. It may be pointed out that the form of the licence granted to procuring agents, wholesalers and retailers was the same. 34. Learned Counsel urged that even assuming that the property in the goods purchased passed to the procuring agents that would not by itself negative the relationship of principal and agent. For this purpose reliance was placed on Article 76 of Bowstead on Agency which runs : "Where an agent, by contracting personally, renders himself personally liable for the price of goods bought on behalf of his principal, the property in the goods, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .... " The second reason is that the agreement executed by the procuring agents in which this clause as regards storage in proper godowns and undertaking responsibility for the safe-custody of the grain occurs, is one which was a form intended for execution not merely by procuring agents but also authorised wholesale distributors i.e., those who purchased their requirements from procuring agents; admittedly the authorised wholesale dealers were not "agents" and the fact that this condition was insisted on even in their case is clear proof that it has no relevance to the question now under discussion. If therefore, appears to us that the expression "agent" was used in the Intensive Procurement Order as well as in the agreements merely as a convenient expression to designate this class of dealers." 17. Applying the judgment of this Court in the case of A. Venkata Subbarao (supra) we hold that the High Court was right in coming to the conclusion that the assessee was storing the commodities in question in its godowns as part of its own trading stock, hence it was not entitled to claim deduction for such margin under Section 80P(2)(e) of the 1961 Act. 18. Before concluding, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Under the Agreement, the fertilizers bags had to be stocked in a manner as directed by the officers of the Government. The stocking and storage of the bags had to be done in the manner indicated by the Government. The assessee had to maintain particulars of fertilizers received, released and held in stock. The assessee had to engage at its own cost, godown- keepers and clerks to properly and efficiently carry on its duties under the agreement. The assessee was to get a commission of Rs.5 per ton of the quantity of fertilizers issued from the stocks on the instructions of the Government. On the analysis of the agreement, the High Court came to the conclusion that the assessee was a mere stock-holder and that the sum of Rs.5 per ton shown as commission from the Government was only for letting of godowns and though some services provided to were incidental to such storage, the service element and payment thereof constituted an insignificant portion of the amount received. In the circumstances, the High Court upheld the vie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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