JUDGMENT
V.K. Gupta, J.
1. By this common judgment, we shall dispose of two references made to this court by the Income-tax Appellate Tribunal, Amritsar Bench, under Section 256 of the Income-tax Act, 1961. Because the parties are the same in both these references, the facts are identical and the question of law formulated for our advisory opinion is the same, this common judgment shall deal with both the references and dispose of them together.
2. It will be advantageous to reproduce the questions of law formulated in the two references. In Reference No. 9 of 1976, the following question of law has been formulated :
“Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the commission earned on the handling of commodities is exempt under the provisions of Section 80P(2)(e) of the Income-tax Act 1961 ?”
3. On similar and identical lines and almost couched in the same language are the two questions of law referred to us in Reference No. 2 of 1975. These questions are reproduced as under :
“Assessment year 1967-68 :
Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the commission earned on the handling of commodities is exempt under the provisions of Section 81(iv) of the Income-tax Act, 1961 ?
Assessment year 1968-69 :
Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the commission earned on the handling of commodities is exempt under the provisions of Section 80P(2)(e) of the Income-tax Act, 1961 ?”
4. Whereas for the assessment year 1967-68, the relevant section was Section 81 of the Income-tax Act, 1961, this section was substituted by Section SOP and, therefore, for the assessment year 1968-69 and thereafter Section SOP was the relevant section. For facility of reference, Section 81 and Section 80P are both reproduced hereunder :
“81. Income of co-operative societies.–Income-tax shall not be payable by a co-operative society–. …
(iv) in respect of any income derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities.”
“80P. Deduction in respect of income of co-operative societies.–(1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in Sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in Sub-section (2), in computing the total income of the assessee.
(2) The sums referred to in Sub-section (1) shall be the following, namely :–….
(e) in respect of any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income.”
5. In the statement of the case referred by the Income-tax Appellate Tribunal in both the references it has been stated that the assessee, i.e., the respondent herein, is a co-operative society registered under the Cooperative Societies Act. On February 19, 1967, the assessee was appointed by the Government of Jammu and Kashmir as its sole agent for the import and distribution of chemical fertilizers allotted to the Jammu and Kashmir Government by the Central Government or purchased from the approved manufacturers. Under the terms of the agreement entered into with the Government of Jammu and Kashmir, the assessee was to receive commission-cum-incidental charges on account of freight, handling and other charges on fertilizers to be shifted from the rail-head up to the distribution centres, etc. During the accounting periods relevant to the assessment years, the assessee disclosed income in respect of the handling of the fertilizers and claimed that the said income was exempt from payment of income-tax under the relevant sections for the relevant assessment years (section 81 or Section 80P, as the case was). The Income-tax Officer and the Appellate Assistant Commissioner rejected the claims of the assessee for such exemption and aggrieved by the orders passed by the Appellate Assistant Commissioner in appeals, the assessee filed appeals before the Tribunal. The Tribunal, after hearing the contention raised by the parties and after going through the records, came to the conclusion that the commission-cum-incidental charges received by the assessee represented income derived by the assessee from the services rendered in “facilitating the marketing of commodities”, i.e., chemical fertilizers. The Tribunal thus held that the assessee’s case was covered by the provisions of the relevant section in respect of the relevant year for the grant of exemption. Aggrieved by the aforesaid finding of the Tribunal, this reference was made to us.
6. The only point involved in these references revolves around the interpretation to be given to the relevant section. As noticed above, Section 81, relevant for the assessment year 1967-68, was substituted by Section 80P. It is, however, clear that there is no difference between the Wording of Section 81 and Section 80P of the Income-tax Act, 1961, and that both these sections dealt with and covered the same subject-matter, viz., the grant of exemption from payment of income-tax in respect of the income derived by a co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities.
7. If the income for the relevant assessment years as earned by the assessee in these two references was or was to be construed or was deemed to be the income derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, such income was entitled to the grant of exemption from the payment of income-tax and if it was not, the assessee was liable to pay income-tax thereon. To determine the nature of the activities undertaken by the assessee and, therefore, correspondingly the income earned by it, it will be advantageous to refer to the agreement made by the assessee with the Government of Jammu and Kashmir. This agreement was executed on February 19, 1967, whereby the assessee was appointed as the sole agent of the Jammu and Kashmir Government for import and distribution of chemical fertilizers allotted to the State by the Central Government, etc. The relevant clauses of the agreement are as under :
“1. The agents shall make all arrangements for taking delivery of consignments of fertilizers received at the rail-head, their onward transportation and storage in the State.
2. The agents shall lift the consignments without delay and shall send acknowledgments to the consignees and the Registrar, Co-operative Societies, for the quantities received by them, normally within a week from the date of receipt of the consignment.
3. The agents shall be responsible for payment of demurrage or wharfage, if any, to the railways (not due to any acts of negligence of the suppliers or railways) in respect of consignments despatched by the suppliers. If the railway receipts are not received in time, the agents shall take delivery of the consignments on indemnity bonds at once on receipt of the intimation of the arrival of the consignments.
(b) The agents shall have the consignments weighed at the railhead in accordance with the railway rules and prefer claims for shortages, if any, with railway authorities, within 15 days under intimation to the Registrar, Co-operative Societies.
(c) In case of refusal by the suppliers and/or the railway authorities to accept the shortage claims, the cost thereof will be borne by the agents for which suitable provision will be made by the Government in the commission-cum-incidental charges allowed to them.
4. The agents shall arrange distribution of fertilizers at such places and in such manner as may be specified by the Government or the officer authorised by them. The Government shall render all possible assistance in the matter of transport.
5. The agents shall issue the fertilizers normally in the original packing of the suppliers without any admixture.
6. The agents shall not deal in any article and concentrated fertilizers capable of competing or likely to compete with any product received by them on behalf of the Government except with the prior consent and approval of the Government.
7. The agents shall conduct sale/distribution of fertilisers in the manner and at the prices fixed by the Government from time to time.
8. The agents shall be allowed commission-cum-incidental charges for meeting the transport, handling, storage, distribution and other charges, etc., at the rates by the Government from time to time.
9. The agents shall credit the sale proceeds of fertilisers into the Government account as and when these are received by them.”
8. Appearing for the Income-tax Department, Mr. T.S. Thakur, has contended that the income earned by the assessee in the relevant assessment years covered by the two references was not by letting of godowns, or warehouses for the purposes either of storage or for processing or for facilitating the marketing of commodities and that looking at the nature of the agreement by the assessee with the State Government, this income was earned by way of handling and distribution of the chemical fertilizers. Appearing for the assessee, however, Mr. H.L. Bhagotra has submitted that the income earned by the assessee for the relevant assessment years was exempt from payment of income-tax because it fell within the four corners of Section 80P (or Section 81) of the Income-tax Act, 1961.
9. We have heard learned counsel for the parties and perused the record.
10. The Division Bench of the Gujarat High Court comprising P.N. Bhagwati C.J. (as his Lordship, then was) and T.U. Mehta J., in the case of Surat Vankar Sahakari Sangh Ltd. v. CIT [1971] 79 ITR 722, while interpreting Section 81 of the Income-tax Act, observed as under (page 727) :
“Two possible constructions of this provision were suggested before us in the course of the argument, one by the assessee and the other by the Revenue. The construction put forward by the assessee was that the words ‘letting of godowns and warehouses for storage’, ‘processing’, or ‘facilitating the marketing of commodities’ constituted different alternatives and income derived from three different sources was, therefore,
sought to be exempted under Section 81(iv), namely, (1) income derived from the letting of godowns and warehouses for storage ; (2) income derived from processing ; and (3) income derived from facilitating the marketing of commodities. The Revenue on the other hand urged that income which was sought to be exempted was only income derived from the letting of godowns or warehouses if they were let for any of the three purposes, namely, storage, processing or facilitating the marketing of commodities. The words ‘storage, processing or facilitating the marketing of commodities’, according to the Revenue, were governed by the preposition ‘for’ and they denoted the purposes for which godowns or warehouses should be let in order that the income derived from such letting should be exempt from tax. Now, on a plain grammatical construction of the language used by the Legislature, it appears that the construction suggested on behalf of the Revenue is more commendable than that canvassed on behalf of the assessee. As we read the words of the clause, it is apparent that there is no break in the continuity of idea after the word ‘storage’ ; the idea flows on into the words ‘processing or facilitating the marketing of commodities’. As a matter of fact, if we read the clause as a whole, there is no doubt that the words ‘storage, processing or facilitating the marketing of commodities’ constitute one single composite clause governed by the preposition ‘for’ signifying that the letting of godowns or warehouses contemplated by the section is letting for any of the three purposes, namely, storage, processing or facilitating the marketing of commodities. If the intention of the Legislature was that ‘letting of godowns or warehouses for storage’, ‘processing’ and ‘facilitating the marketing of commodities’ should be read disjunctively 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 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)
widely different sources of income such as ‘letting of godowns or warehouses for storage, processing and facilitating the marketing of commodities. The conclusion appears to be clear on a plain natural construction of the language used in Section 81(iv) that what is exempted under that section is income derived from the letting of godowns or warehouses provided the letting is for any of the three purposes, namely, ‘storage’, ‘processing’ or ‘facilitating the marketing of commodities’.”
11. The Madras High Court in the case of CIT v. South Arcot District Cooperative Marketing Society Ltd. [1973] 92 ITR 371, has held the view that an assessee was entitled to exemption from payment of income-tax, if the income was derived by letting of godowns, etc., for the purposes of storage, etc. It, however, gave a wider interpretation to the section by holding that the setting in which the word “letting” occurred, it should be understood as having a wide and comprehensive sense so as to include even the mere user of the godowns either by the society or by others and that this provision could not be construed to have application only when the letting out was to its members.
12. The Karnataka High Court, while dealing with the question in the case of Udupi Taluk Agricultural Produce Co-operative Marketing Society Ltd. V. CIT [1987] 166 ITR 365, also took the same view as the Gujarat and the Madras High Courts while dealing with the general interpretation of the section as also on the question of the godowns being let out to the society or to others. It observed as under (at page 366) :
“It may be, as observed by the Gujarat High Court in Surat Vankar Sahakari Sangh Ltd. v. CIT [1971] 79 ITR 722, that the exemption is available in respect of the income derived only from letting out of godowns or warehouses. This is a strict construction of Clause (e). Or, it may be available regarding the income derived by the society by the use of such godowns or warehouses without parting with possession by letting them out as held by the Madras High Court in CIT v. South Arcot District Co-operative Marketing Society Ltd. [1973] 92 ITR 371 (Mad). This is a liberal construction of Clause (e). But, none the less, it seems to us that the income derived by the co-operative society for the purpose of exemption under Clause (e) must be relatable to the letting out or the use of its godowns or warehouses. Any income derived by the society unconnected with such letting out or use of the godowns or warehouses will not fall under Clause (e).”
13. Mr. H.L. Bhagotra, appearing for the assessee, referred us to a judgment of the Supreme Court in the case of CIT v. South Arcot District Cooperative Marketing Society Ltd. [1989] 176 ITR 117, in support of his
contention that the assessee, even while dealing with the handling and the distribution of chemical fertilizers was entitled to the exemption from payment of income-tax. In fact, this judgment of the Supreme Court was on an appeal against the judgment of the Madras High Court in the case cited above, i.e., the one reported in [1973] 92 ITR 371. In this case, the Supreme Court was dealing with the terms and conditions of the agreement and it clearly held that in the circumstances of the case it must be regarded that what the assessee did was to let out its godowns for the purpose of storing the ammonium sulphate handed over to it by the State Government. The remaining services performed by the assessee were merely incidental to the essential responsibility of using the godowns for the storage of that stock. The court also observed that it was no doubt true that a certain sum was paid to the assessee and described as commission for the services performed by it, but having regard to the totality of the circumstances and to the true substance of the agreement, it seemed plain that the amount was paid merely by way of remuneration for the use of the godowns. In fact, the terms and conditions of the agreement quoted by the court in paragraph 2 of the judgment clearly spelt out that the agreement in question was one relating to the holding of the stock of ammonium sulphate and storing the said stock in the godowns. The agreement, therefore, was basically one of storage in godowns and the taking of delivery at the rail-head and transferring the stock to the godowns was a mere incidental part of the agreement.
14. In the cases before us, however, as will be seen from the various terms and conditions of the agreement executed on February 19, 1967, the main activity which the assessee was to perform was in respect of the import, carnage and distribution of the chemical fertilizers to various places in the State. Because the main activity of the assessee was not relatable to the storage of the fertilizer in the godowns, which activity could be construed as letting out of godowns by the assessee, the assessee was not entitled to the exemption from the payment of income-tax. It goes without saying that the terms and conditions of the agreement stipulated various activities on the part of the assessee in dealing with the fertilizers including taking of the delivery, their carriage, their onward transportation and distribution at such places and in such manner as was to be specified by the Government. The agreement also provided for sale of the fertilisers by the assessee. The agreement clearly stipulated that the assessee would be allowed commission-cum-incidental charges for meeting the transport, handling, storage, distribution and other activities.
15. The admitted facts of the case as are clearly borne out from the record are that the assessee did not, at any stage of the proceedings, rather from the filing of the returns before the Income-tax Officer up to the stage of the second appeal before the Tribunal, claim that the income was earned by it from letting out of the godowns only or even mainly or for storage of the fertilizers in its godowns mainly. In the face of the admitted facts and circumstances of the case, therefore, we hold that the Tribunal was wrong in allowing the appeal of the assessee and granting exemption from income-tax to it on the ground of “facilitating the marketing of commodities”, as held and observed by the Tribunal. In the light of the judgment of the Supreme Court in the case of South Arcot District Cooperative Marketing Society [1989] 176 ITR 117, and the observations made by their Lordships, we are clearly of the view that the Tribunal was not justified in taking the view that it did, in the light of the unambiguous wording of Section 80P (or Section 81) of the Income-tax Act and the interpretation placed on this section by the various High Courts as noticed above. We are of the view, therefore, that the assessee was not entitled to the grant of exemption from income-tax in the circumstances of the case.
16. As we have already noticed, with reference to the terms and conditions of the agreement dated February 19, 1967, between the assessee and the Government of Jammu and Kashmir, whereas handling, distribution and sale of fertilisers were the activities of the assessee, storage of fertilizers was also one of the activities to be performed by it. In fact, in the nature of the transaction based on the aforesaid agreement, storage of fertilizers was but one integral part of the entire chain of activities and it looks inconceivable that the chain would have been complete without the storage of chemical fertilizers in the godowns of the assessee. In view of the interpretation that we have placed on Section 80P (or Section 81) of the Income-tax Act, it is clear that the assessee was entitled to the exemption from payment of income-tax on the income derived by it from storage of the fertilizers in its godowns. It is up to the assessee, however, to indicate before the concerned income-tax authorities the manner in which this exemption is to be claimed by it and the extent of the exemption, in the light of the break-up of the figures for the relevant assessment years.
17. The references are accordingly answered, but without any order as to costs to either party.
18. After this judgment was pronounced, Mr. H.L. Bhagotra made an oral prayer for grant of a certificate in terms of Section 261 of the Income-tax Act for filing an appeal against this judgment before the Supreme Court. He may file an application in this regard which will be considered on merits.