ORDER
B. S. SALUJA, J.M. :
The assessee and the Department have filed these cross appeals against the order of CIT(A), Shimla, dt. 30th June, 1995 on various grounds. Since the appeals were heard together the same are being disposed of by this consolidated order for the sake of convenience.
ITA No. 5136/Del/1995
2. Ground No. 1 urged by the assessee relates to exemption of income of Rs. 8,27,39,992 from trading in wheat under s. 10(29) of the IT Act.
3. The assessee is a warehousing corporation set up under the Warehousing Corporation Act, 1962. The assessee showed the following income in the profit and loss account attached with the return :
(a) By warehousing charges at Rs. 7,65,76,819;
(b) by supervision charges at Rs. 27,01,231;
(c) by interest on advances at Rs. 19,90,541 and
(d) by surplus on trading of wheat at Rs. 8,27,39,992.
The assessee claimed total exemption on the abovementioned incomes under s. 10(29) of the IT Act. The AO, however, accepted that the assessee was the authority constituted as per s. 10(29) and that only income from letting of godowns or the warehouses for storage, processing or facilitating the marketing of commodities was exempt, but the income from own buying and selling of wheat was not exempt under s. 10(29). He further held that the interest income was also not exempt under that section. He, therefore, computed the taxable income of the assessee at Rs. 8,77,03,400. The AO relied on the decisions of the Honble Supreme Court in the case of Union of India vs. U.P. State Warehousing Corporation (1991) 187 ITR 54 (SC) and of the Honble Rajasthan High Court in the case of CIT vs. Rajasthan State Warehousing Corporation (1994) 210 ITR 906 (Raj).
4. On first appeal the learned counsel for the assessee made the following submissions before the learned CIT(A), namely :
(a) The assessee did not carry out any activity of purchase and sale of wheat at its own. The assessee purchased the wheat as an agent of the Govt. and the entire wheat was supplied to the Food Corporation of India. Income from supply of wheat to FCI was incidental to warehousing and was, therefore, to be exempted. He relied for this proposition on the decisions of the Honble Allahabad High Court in the case of U.P. Warehousing Corporation vs. ITO (1974) 94 ITR 129 (All), in the case of CIT vs. U.P. Warehousing Corporation (1992) 195 ITR 273 (All), as also on the decision of the Honble Supreme Court in the case of Union of India vs. U.P. State Warehousing Corporation (supra),
(b) He further submitted that the judgment of the Honble Allahabad High Court reported in (1992) 195 ITR 273 (All) (supra), goes in favour of the assessee, whereas the judgment of the Honble Rajasthan High Court reported in (1994) 210 ITR 906 (Raj) (supra) goes against the assessee and, therefore, where two views are possible, the view favourable to the assessee should be accepted by the learned CIT(A). In support of this proposition he relied on the decision of the Honble Supreme Court in the case of CIT vs. Naga Hills Steel Co. (1973) 89 ITR 236 (SC) and in the case of CIT vs. Cellulose Products of India Ltd. (1991) 192 ITR 155 (SC).
4.1 The learned CIT(A) considered the submissions and observed that he had carried out in depth study to determine the correct factual and legal position. In this connection he summarised the position as under :
(a) As per the annual report, the assessee had earned income from letting out of godown/warehouses at Rs. 7,65,76,819. The warehouses had been let out to the Government agencies like FCI, NAFED, HAFED, etc. The godowns had also been let out to public sector undertakings, corporations, merchants and producers. The assessee had received letting out charges from the said parties to the extent of Rs. 7,76,76,819 and the same were credited to the P&L a/c;
(b) Besides letting out godowns to other parties for facilitating marketing, the assessee also carried out its own trading of wheat. The relevant trading account had been given as per Schedule K of the annual accounts and a copy of the trading account was marked as Annexure B to the appellate order. The assessee had purchased wheat on behalf of Haryana Govt. and it had sold wheat to FCI. In the process the assessee earned substantial income as besides paying purchase price of wheat, FCI also paid the assessee handling charges, labour charges, establishment charges, interest charges and other incidentals. FCI agreed to pay Rs. 44.10 per qtl. of wheat in addition to the purchase price of wheat. This included payment of storage charges only to the extent of Rs. 3.10 per qtl.;
(c) The assessee was earning income from two different activities, one from letting of godown and warehouses, which income was obviously exempt under s. 10(29) and the other from trading of wheat which was not incidental to warehousing activity. The said activity in fact consisted of full-fledged marketing which also included a small fraction of storage charges earned by using the warehouses owned by the assessee.
4.2 The learned CIT(A) thereafter examined the provisions of s. 10(29) and came to the conclusion that the expression “any income derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities” cannot possibly refer to the functions of buying and selling of wheat on ones own behalf because when a person buys or sells, he indulges in marketing and he could not be said to facilitate marketing of commodities. He further held that the expression “marketing of commodities” as used in the said clause excluded an activity done by the assessee for its own benefit because the provisions of s. 10(29) referred to income from letting of godowns or warehouses for purposes, inter alia, of facilitating the marketing of commodities. The learned CIT(A) then proceeded to examine the judgments of the Honble Allahabad High Court reported in (1974) 94 ITR 129 (All) (supra); (1992) 195 ITR 273 (All) (supra) and the decision of the Honble Supreme Court reported in (1991) 187 ITR 54 (SC) (supra). He noted that the Honble Supreme Court had observed that there was no difficulty with reference to the 3rd test because it was undisputed that the income derived by the U.P. State Warehousing Corporation was from letting of godowns or warehouses. The learned CIT(A) ultimately concluded that the facts in the present case were different as the assessee was carrying out two different activities, one for letting of godowns and the other of trading in wheat and that the income from trading in wheat did not constitute income from letting out warehouses. In this connection he also observed that whatever was the element of storage charges included in the sale proceeds of wheat received from the FCI was included in the warehousing charges and that only the other receipts had been credited to wheat trading account.
4.3 The learned CIT(A) also noted that in the case of the assessee the entire income under s. 10(29) was exempted for asst. yr. 1975-76 on the basis of decision given by the then Dy. CIT(A) who placed reliance on the decision of the Tribunal, Jaipur Bench in the case of CIT vs. Rajasthan Warehousing Corporation (supra). He further noted that all income of the assessee was being exempted under s. 10(29) upto the asst. yr. 1991-92. He also noted that during the asst. yr. 1992-93 the AO had noted the decision of the Rajasthan High Court reported in (1994) 210 ITR 906 (Raj) (supra) whereby the decision of the Tribunal Jaipur Bench had been overruled. The Honble Rajasthan High Court had held that warehousing corporation was an authority constituted under law for the marketing of commodities but only income from letting of godowns or warehouses was exempted provided such letting was for storage, processing or facilitating the marketing of commodities. The learned CIT(A) also observed that the said decision of the Honble Rajasthan High Court was the latest reported decision and it had discussed at length almost all the earlier judgments given by different High Courts. He further observed that the AO had applied the said judgment and had held that income from trading of wheat was not exempt under s. 10(29) of the IT Act. The learned CIT(A) then proceeded to examine the decisions of wrong various High Courts : CIT vs. Haryana Warehousing Corporation (1978) 112 ITR 374 (P&H), M.P. State Warehousing Corporation vs. CIT (1984) 145 ITR 420 (MP); CIT vs. Karnataka Warehousing Corporation Ltd. (1990) 185 ITR 25 (Kar); and CIT vs. Rajasthan State Warehousing Corpn. (supra). The learned CIT(A) reproduced the summary of the decision of the Honble Rajasthan High Court at pp. 10-11 of his order and held that the income earned by the assessee from marketing of wheat on his own account was not exempt under s. 10(29) of the IT Act. He also referred to the provisions of s. 39 of the Warehousing Corporation Act, 1962, which provide that “for the purposes of the IT Act, 1961, the warehousing corporation shall be deemed to be a company within the meaning of that Act and shall be liable to income-tax and super-tax accordingly on its income, profits and gains”. He, therefore, observed that it was never the intention of the Central Government to exempt all kinds of income of warehousing corporation from income-tax and that the scope of exemption was limited in respect of income from letting of godown for specified purposes. He, therefore, upheld the addition made by the AO.
5. The learned counsel for the assessee Shri M. L. Garg invited our attention to the letter, dt. 2nd April, 1991 (pp. 58-59 of the paper-book) whereby the Director, Food & Supplies, Govt. of Haryana, directed the warehousing corporation to procure wheat during rabi season 1991-92 in the ratio of 10 per cent. The said letter also referred to the mandis allocated exclusively to various procurement agencies, including Haryana Warehousing Corporation, as mentioned in that letter. He further invited our attention to letter No. 192(4)/91-FCA/C, dt. 31st May, 1991 from the Govt. of India, Ministry of Food & Civil Supplies (Deptt. of Food), addressed to the Secretary, Food & Civil Supplies Deptt., Govt. of Haryana (pp. 60-62 of the paper book). The said letter conveyed the approval of Govt. of India for payment of provisional procurement incidentals and gunny prices to the Govt. of Haryana and its procurement agencies for procurement of wheat during 1991-92 rabi marketing season. It is also mentioned in the said letter that the provisional incidentals would include an element of forwarding charges @ 1.90 per qtl. It is further mentioned that in respect of those stocks which would be taken over by the FCI along with possession of godowns in which such stocks were kept and the operation of taking stocks to railway station/FCI godowns was performed by FCI, the procuring agencies would not be paid forwarding charges. He further referred to the letter, dt. 12th November, 1993 from the Govt. of India, Ministry of Food, to the Secretary, Govt of Haryana (pp. 48-53 of the paper-book) whereby incidentals for procurement of wheat and gunny prices were finalised in relation to 1991-92 rabi marketing season. In view of the foregoing facts the learned counsel submitted that the Haryana Warehousing Corporation was procuring wheat on behalf of the Govt. for the FCI at prescribed rates. He also submitted that the assessee was not selling wheat to anybody else and that the only sale of wheat was to FCI at prescribed rates. He also referred to the provisions of s. 24(d) of the Warehousing Corporation Act, 1962, whereunder the State Warehousing Corporation was to act as an agent of the Central Warehousing Corporation or of the Government for the purposes of purchase, sale, storage and distribution of agricultural produce, seeds, manures, fertilizers, agricultural implements and notified commodities. He, therefore, submitted that the assessee was acting as an agent of the Government for procurement of wheat which was ultimately to be supplied to the FCI. He further submitted that the said activities by the Haryana Warehousing Corporation facilitated the marketing of commodities as mentioned in s. 10(29) of the IT Act. The learned counsel again relied on the following decisions, namely:
1. U.P. State Warehousing Corporation vs. ITO & Anr. (supra). He particularly stressed that it has been held in the said decision that “marketing” has been used in wider sense to include various activities which generally go to form the trade of marketing :
2. Union of India & Anr. vs. U.P. State Warehousing Corporation (supra), wherein it was observed that since s. 24(d) of the Warehousing Corporation Act, 1962 enjoined upon State warehousing corporation to act as an agent of the Central Warehousing Corporation or the Govt. for the purpose of purchase, sale, storage and distribution of agricultural produce, etc. which amounted to activities facilitating marketing of commodities, the tests requiring the authority to be constituted for marketing of commodities was also satisfied :
3. CIT vs. U.P. State Warehousing Corporation (supra), wherein the Honble High Court referred to para 4 of the Tribunals order dealing with commission received by the UP State Warehousing Corporation and it had held that commission was received both for procuring and storing wheat and other food articles on behalf of FCI. The Honble High Court observed in this context that “it appears from the order of the Tribunal that it is one single indivisible activity. The dominant activity is storage. If so, this income also falls within and satisfies the second limb of cl. (29). Here too, the name given, viz., “commission on procurement of wheat is really misnomer”. The Honble High Court had answered both the following questions referred to it in favour of the assessee and against the Revenue :
Asst. yr. 1973-74
“Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the assessees income from miscellaneous receipts was exempt from tax within the meaning of s. 10(29) of the IT Act, 1961; notwithstanding the provisions of s. 39 of the Warehousing Corporations Act, 1962 ?”.
Asst. yr. 1974-75
“Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the assessees income from miscellaneous receipts and commission on procurement of wheat for FCI was exempt from tax within the meaning of s. 10(29) of the IT Act, 1961, notwithstanding the provisions of s. 39 of the Warehousing Corporation Act, 1962 ?”
4. CIT vs. Gujarat State Warehousing Corporation (1980) 124 ITR 282 (Guj), wherein it was held that “marketing includes all business activities directed towards the flow of goods and services from purchaser to consumer. The term cannot be restricted to the mere buying and selling activity …. the authority must promote marketing by its services in the mandated area and its functioning. Warehousing or storage is an essential step in the whole process of marketing. It enhances the utility of the commodities in question by making them more valuable. Therefore, it has a direct impact on the trading activities by enhancing their real value. The same is true of the other activities of processing of the commodities and facilitating the distribution by transport to and from the warehouses.
5.1 In view of the foregoing decisions the learned counsel stressed that the decision of the Honble Allahabad High Court reported in (1992) 195 ITR 273 (All)(supra), squarely covers the case of the assessee. In this connection he also stressed that the learned CIT(A) has not considered the second limb of the provisions of s. 10(29) of the IT Act and which have been considered by the Honble Allahabad High Court in the aforesaid decision whereby it has answered both the questions in the affirmative in favour of the assessee, thereby holding that the assessees income from miscellaneous receipts and commission on procurement of wheat for FCI was exempt from tax within the meaning of s. 10(29), notwithstanding the provisions of s. 39 of the Warehousing Corporation Act, 1962. He further submitted that in the said decision the Honble Allahabad High Court had also taken into account the decision of the Honble Supreme Court reported in (1991) 187 ITR 54 (SC) (supra).
5.2 The learned counsel further submitted that the tax authorities have heavily relied upon the decision of the Honble Rajasthan High Court reported in (1994) 210 ITR 906 (Raj) (supra), which has not taken into account the decision of the Honble Allahabad High Court reported in (1992) 195 ITR 273 (All) (supra). He also submitted that where two views are possible in relation to interpretation of the provisions of s. 10(29), the interpretation which is beneficial to the assessee must be adopted. In support of this proposition he relied upon the decisions of the Honble Supreme Court reported in (1973) 89 ITR 236 (SC) (supra) and the decision reported in CIT vs. Gwalior Rayon Silk Mfg. Co. Ltd. (1992) 192 ITR 149 (SC).
6. The learned Departmental Representative Shri Rajendra referred to the provisions of s. 10(29) of the IT Act and submitted that the controversy before the Honble Allahabad High Court and the Honble Supreme Court was as to whether the U.P. Warehousing Corporation was an authority falling within the provisions of s. 10(29). He submitted that on a careful reading of the said provision it would be clear that the entire income from “marketing of commodities” is not exempt and that only income from letting of godowns and warehouses for storage, processing or facilitating the marketing of commodities was exempt. In this connection he further submitted that the income from letting of godowns was also exempt provided the same were let out for specific purposes mentioned in the clause and that even where godowns or warehouses are let out for any other purpose, say for office purposes, such income will not be exempt. He further submitted that in the case of an authority constituted under any law, the provisions of the said clause were much wider with reference to “marketing of commodities”, but at the same time the income of an authority which came within the purview of the said clause could not be said to be exempted if the income accrued from marketing of commodities. He referred to the decision of the Honble Allahabad High Court reported in (1974) 94 ITR 129 (All) (supra), and submitted that the contentions for the Revenue before the Honble High Court were that : (1) the U.P. State Warehousing Corporation was not an authority within the meaning of s. 10(29) and (2) buying and selling on its behalf constituted a vital and central element of marketing but the petitioner did not buy or sell commodities for itself. He further submitted that the Honble High Court had held that the U.P. State Warehousing Corporation having been established under the 1962 Act to function for running warehouses, for storage of agricultural produce and for their transport, was an authority established for marketing of commodities and that it was entitled to exemption in respect of its income from letting of godowns and the warehouses for the mentioned activities, including facilitating marketing of commodities. He further referred to the decision of the Honble Supreme Court reported in (1991) 187 ITR 54 (SC) (supra), where the Honble Supreme Court had observed as under :
“As is apparent, the assessee would be entitled to exemption if :
(i) it is an authority constituted under any law.
(ii) it is an authority constituted for marketing of commodities.
(iii) the exemptible income is in respect of letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities.”
He submitted that the Honble Supreme Court upheld the view of the Honble Allahabad High Court that U.P. State Warehousing Corporation was an authority within the meaning of s. 10(29). In the process the Honble Supreme Court also referred to the provisions of s. 24(d) of the Warehousing Corporation Act, 1962. He further mentioned that the Honble Supreme Court had observed that the 3rd test with regard to exemptable income was in respect of letting of godowns or warehouses for storage, processing or facilitating marketing of commodities and that it presented no difficulty because it stood undisputed that the income derived by the assessee was from letting of godowns or warehouses. He, therefore, stressed that even the Honble Supreme Court had held that the exemptable income was only income from letting of godown and warehouses for specific purposes mentioned in s. 10(29). He further submitted that even before the Honble Gujarat High Court in the case reported in (1980) 124 ITR 282 (Guj) (supra), there was no controversy with reference to the exemptable income. In this connection he referred to the following extracts from the said judgments namely :
“There is no controversy as regards the third ingredient because the exemption is claimed only in respect of that part of the income which was in respect of letting of godowns or warehouses for storage, processing or facilitating the marketing commodities. The controversy has only centered round the first two ingredients.”
He further referred to the decision of the Honble Allahabad High Court reported in (1992) 195 ITR 273 (All) (supra) and submitted that the controversy before the Honble Allahabad High Court was with reference to miscellaneous receipts and commission. He submitted that the Honble Allahabad High Court referred to the finding of fact by the Tribunal that it was one single indivisible activity and that the said receipts were in the nature of rental income from warehousing for storage. The learned Departmental Representative however, stressed that it is clearly mentioned at p. 276 of ITR of the said decision that “the dominant activity is storage”. He, therefore, submitted that the said decision is distinguishable on facts. The learned Departmental Representative thereafter proceeded to refer in detail to the decision of the Honble Rajasthan High Court reported in (1994) 210 ITR 906 (Raj). He referred to the head notes and submitted that procurement of wheat on behalf of the Government/FCI constituted an independent activity and did not relate to letting of godowns or warehouses for facilitating marketing of commodities. In this connection he stressed that expression “facilitating marketing of commodities” could not be considered independently and that the same is connected with the activity of letting of godowns or warehouses. He further stressed that the Honble Rajasthan High Court have clearly held that “though the words facilitating marketing of commodities occurring in cl. (29) of s. 10 are of wider scope and include a number of activities they have to be read along with any income derived from letting of godowns or warehouses for facilitating marketing of commodities”. Income which is exempt under s. 10(29) must be derived from letting of godowns for facilitating marketing of commodities. The words facilitating marketing of commodities could not be considered independently, and, therefore, exemption which had been granted is for the income which has been derived from letting of godowns. The assessee may have different sources of income, but the exemption is not given to the assessee on its entire income, but only that part of the income which arises from letting of godowns for facilitating marketing of commodities. The income derived by the assessee from procurement of grains for the State Government/FCI was an independent activity, other than letting of godowns. Even though letting of godowns was encouraged by such an activity, the income which had been derived from the receipts from the State Govt. or the FCI, could not be considered as income from letting of godowns … the income which was independent of letting of godowns/warehouses could not be considered to be exempt even if it falls under the broader terms of facilitating marketing of commodities as both the words were to be read together.” He further referred to the provisions of s. 39 of the Warehousing Corporations Act, 1962, and submitted that the assessee is deemed to be a company within the meaning of that Act and is liable to income-tax and super-tax on its income, profits and gains since 1962. He added that the provisions of s. 10(29) were inserted in 1968 so as to grant exemption to the assessee in relation to particular income. He further referred to the P&L a/c for the year ending 31st March, 1992 (pp. 43-45 of the paper-book) and submitted that in the P&L a/c it has been clearly mentioned that income of Rs. 8,27,39,992 arose on account of trading of wheat. He further referred to pp. 46-47 of the paper-book where in Schedule K separate details of trading of wheat have been given, which include auction fee of Rs. 5,89,77,968, market fee of undelivered stock at Rs. 2,74,11,634. Similarly storage charges have been separately shown at Rs. 2,11,11,280 and allocation of expenses have been shown at Rs. 1,80,46,267. It is further mentioned that profit carried over to P&L a/c of trading of wheat is Rs. 8,27,39,992. In view of the foregoing facts he submitted that the Haryana Warehousing Corporation is a big company and the assessee knows and is clear in its mind while preparing trading of wheat account and that in the circumstances the CIT(A) has rightly brought to tax the impugned income from trading of wheat. He further mentioned that it is not a case of indivisible activity and that the assessee itself has apportioned the various receipts and expenses in relation to trading of wheat. He, therefore, summed up that the profit from trading of wheat is of the assessee and not of the Government or any other person and is liable to tax.
7. The learned counsel in his reply referred to the provisions of s. 39 of the Warehousing Corporation Act, 1962 and submitted that the scope of the provisions of s. 10(29) of the IT Act, exempting income of an authority constituted for the marketing of commodities is neither subject to nor controlled by s. 39 of the Warehousing Corporations Act. In this connection he referred to the decision of the Honble Punjab & Haryana High Court in the case of CIT vs. Haryana Warehousing Corporation (supra). With reference to the point made by the learned Departmental Representative that storage charges of Rs. 2,11,11,280 have been debited separately in relation to trading of wheat, the learned counsel submitted that it was a notional debit regarding storage of wheat on behalf of FCI and that it was just an estimate. He submitted that these charges are included in the total figure of warehousing charges at Rs. 7,65,76,819. He also submitted that the storage charges have been fixed by the Govt. of India at Rs. 1.05 per qtl. (p. 48 of the paper-book). In this connection the learned counsel further submitted that the real character of the transaction should be seen and that entries in the account books or name given to a particular receipt is not determinative of its real character. In support of this proposition he relied on the decision of the Honble Supreme Court in the case of CIT vs. Bajpore Co-operative Sugar Factory Ltd. (1988) 172 ITR 321 (SC). He further submitted that the Honble Supreme Court has held in the case reported in (1990) 187 ITR 54 (SC) (supra) that buying and selling of wheat on behalf of the Govt/FCI facilitates marketing of commodities.
8. We have carefully considered the rival submissions on this issue and have also perused the orders of the tax authorities and other relevant record to which our attention was invited during the course of hearing. We feel that the submissions made by the learned Departmental Representative have force and that the real issue involved in the present case arose before the Honble Rajasthan High Court and the Honble High Court have clearly held that exemption under s. 10(29) of the IT Act is available only in respect of income derived from the letting of godowns or warehouses for storage, processing or facilitating marketing of commodities. The Honble High Court have further held that the words “facilitating marketing of commodities” cannot be read separately and that the same have to be read in the context of income derived from the letting of godown or warehouses for that purpose. The learned counsel have greatly relied on the decision of the Honble Allahabad High Court in the case of CIT vs. U.P. State Warehousing Corporation (supra). However, on close perusal of the said decision it is clear that the Honble High Court have relied on the clear finding of fact given by the Tribunal that in the said case it was one single indivisible activity and the dominant activity was storage and that the income from miscellaneous receipts and commission fell within the second limb of cl. (29) and that the name given, viz. “commission on procurement of wheat” was really a misnomer. Thus, we feel that the said case is distinguishable on facts and is of no help to the assessee. Similarly the issue before the Honble Supreme Court in the case reported in (1991) 187 ITR 54 (SC) (supra) was as to whether the U.P. State Warehousing Corporation was an authority constituted under any law for marketing of commodities so as to be covered by the provisions of s. 10(29) of the IT Act. In the said case the Honble Supreme Court clearly held that since the income derived by the U.P. State Warehousing Corporation was from letting of godown or warehouses the third test with regard to income exempt under s. 10(29) presented no difficulty. Thus, on the facts and in the circumstances of the case we feel that the learned CIT(A) has rightly brought to tax the income from trading of wheat and that his orders need no interference. This ground is, therefore, rejected.
9. Ground No. 2 urged by the assessee relating to exemption of gross income of Rs. 8,88,87,689 was not pressed by the learned counsel and the same is, therefore, rejected.
10. The learned counsel sought permission of the Tribunal to move the following additional ground of appeal, namely :
“Without prejudice to Ground Nos. (1) & (2) with memorandum of appeal, the charge of interest amounting to Rs. 2,85,26,243 under s. 234B is wholly unjustified and against law.”
10.1 With reference to the said ground the learned counsel submitted that income of the assessee Corporation from trading of wheat was being exempted upto the preceding assessment year i.e. 1991-92 and that suddenly the said exemption was denied in the assessment year under consideration. He further submitted that the decision of the Honble Rajasthan High Court in the case of CIT vs. Rajasthan State Warehousing Corporation (supra), which was against the assessee, was delivered on 1st December, 1993 and that at best the advance tax could have been paid upto 31st March, 1992. He, therefore, submitted that the said judgment had not come till the filing of the estimates. He also referred to the provisions of s. 208 and s. 210 which fixed the liability for payment of advance tax and submitted that in view of the foregoing facts there was no default committed by the assessee. In this connection he also referred to the decision of the Honble Supreme Court in the case of J.K. Synthetics Ltd. vs. CTO (1994) 4 SCC 276. He also relied on the decision of the Honble Punjab & Haryana High Court in the case of CIT vs. Oswal Woollen Mills Ltd. (1981) 132 ITR 197 (P&H) whereby it was held that the Tribunal had rightly allowed the additional ground of appeal to be taken in relation to the provision of taxation of Rs. 2,40,966 and provision for dividend of Rs. 2,09,999 to be considered as part of capital employed in the business for the purpose of computation of capital and standard deduction.
10.2 The learned Departmental Representative strongly opposed the additional ground proposed by the assessee and submitted that the same did not arise out of the order of the learned CIT(A) and that the same was not taken before the learned CIT(A). He further submitted that interest leviable under s. 234B was not subject to appeal. He submitted that in case the income was held to be assessable, the consequences for levy of interest under s. 234B will follow.
10.3 The learned counsel in his reply on this issue submitted that a point of law can be raised at any stage of the proceedings and that interest can be challenged under the given circumstances. In support he relied on the decisions of the Honble Punjab & Haryana High Court in the case of CIT vs. Raghubir Singh & Sons (1980) 125 ITR 256 (P&H), the decision of the Honble Gujarat High Court in the case of CED vs. Babubhai Harjivandas (1981) 129 ITR 276 (Guj) and the decision of the Honble Punjab & Haryana High Court in the case of Atlas Cycle Industries Ltd. vs. CIT (1982) 133 ITR 231 (P&H).
10.4 We have carefully considered the rival submissions on this issue and have also perused the case law relied upon by the learned counsel. We feel that under the circumstances of the case the additional ground ought to be admitted and accordingly we admit the additional ground and restore this matter to the file of the AO who may decide the issue of levy of interest under s. 234B in accordance with law.
ITA No. 56481/Del/1995
11. Ground No. 1 urged by the Department relates to deletion of the addition of Rs. 19,90,541 on account of interest.
11.1 The assessee had raised loans from various banks and had also advanced loan to Sugar Federation of India and some loan had also been given to its employees. The assessee received interest of Rs. 16 lakhs from Sugar Federation of India and of Rs. 3,90,541 from staff members. The AO held that gross receipts of interest were taxable as income from other sources.
11.2 On first appeal the learned counsel for the assessee contended that the loans had been advanced by the assessee after raising interest bearing loans. He further submitted that on amount of Rs. 1 crore advanced to Sugar Federation of India, the assessee had paid Rs. 20,63,800 as interest to bank, whereas the assessee received only Rs. 16 lakhs as interest. Similarly interest bearing advances were given to the employees after raising loans from banks by paying interest. He, therefore, stressed that the assessee had not earned any income by way of interest. In the alternative the learned counsel also claimed that interest income was incidental to the warehousing activity and was exempt under s. 10(29) of the IT Act. The learned CIT(A) considered the submissions and came to the conclusion that actually the assessee had not earned any interest income and that loans were raised by paying interest which in turn were advanced as loan by charging interest and that the net result was nominal loss but no income on account of interest. He, therefore, deleted the addition of Rs. 19,90,541. The Department is aggrieved.
11.3 The learned Departmental Representative submitted that the loan had been given by the assessee to the Haryana State Federation of Co-operative Sugar Mills in contravention of the provisions of s. 29 of the Warehousing Corporations Act, 1962 r/w rr. 15(1) and 15(2) of 1969 on the directions of the Government of Haryana vide its letter No. 1675-C-5/91/4165, dt. 6th March, 1991. In this connection he invited our attention to p. 20 of the annual report for asst. yr. 1991-92, where this fact is mentioned in the annexure to the auditors report. He further submitted that there was no nexus between borrowing of funds from the bank and lending the same to Sugar Federation and the employees. He further referred to the decision of the Honble Orissa High Court in the case of CIT vs. Orissa State Warehousing Corpn. (1993) 201 ITR 729 (Ori), wherein it was held that interest received by Orissa State Warehousing Corporation on fixed deposits from banks was not exempt from tax under s. 10(29) of the IT Act.
11.4 The learned counsel for the assessee, however, relied heavily on the orders of the learned CIT(A) and submitted that interest paid to banks was much more than the interest received and the assessee had in fact not earned any interest in the process.
11.5 We have carefully considered the rival submissions on this issue and have also perused the case law relied upon by the learned Departmental Representative. It is observed that in the said case the Orissa State Warehousing Corporation had received an amount of Rs. 1,74,383 as interest on fixed deposits in different banks and that during the relevant period the assessee had also paid total interest of Rs. 1,08,063 to the banks and in the process there was a difference of Rs. 66,320 which was brought to tax by the AO. The Honble High Court had held that interest received by the assessee from banks on fixed deposits was not exempt under s. 10(29) of the Act. In the present case, however, the assessee had paid more interest to the banks than it had received from the Sugar Federation and the employees and, therefore, in the circumstances we feel that the said case does not apply on facts. We, therefore, see no reason to interfere with the orders of the learned CIT(A) in this behalf, as he has allowed the relief not in view of the provisions of s. 10(29) but keeping in view the above facts.
12. Ground No. 2 urged by the Department relates to deletion of the addition of Rs. 2,71,638 received by the assessee from forfeiture of earnest money.
12.1 The AO had held in this case that the income of Rs. 2,71,638 earned by the assessee by forfeiture of the earnest money was not connected with warehousing activity and was taxable under the head “other sources”. The assessee, however, claimed that the income was entirely attributable to the warehousing activities and was exempt under s. 10(29).
12.2 On first appeal the learned CIT(A) observed that the assessee had awarded contracts to various contractors for construction of godown and warehouses and when the contractors did not complete the construction within the prescribed time the earnest money was forfeited or penalty was imposed. He held that the said receipt was inseparable from warehousing activity and was part of income from letting out of godowns which is exempt under s. 10(29) of the IT Act. He, therefore, directed the AO to delete the addition.
12.3 The learned Departmental Representative submitted that the forfeiture of earnest money had nothing to do with the rental income and that the learned CIT(A) has ordered the addition to be deleted by wrong appreciation of facts. He submitted that the forfeiture may be connected with the activity for construction of godowns but it was not income from letting of godowns and that there was only a remote connection between the two.
12.4 The learned counsel for the assessee, however, relied upon the order of the learned CIT(A) and submitted that the said income was incidental to the activity of letting of godowns and warehouses.
12.5 We have carefully considered the rival submissions on this issue and we feel that the learned CIT(A) has somehow come to a conclusion without giving any reasons that the said income is from letting of godowns. We, therefore, feel that it will be just and fair if this matter is restored to the file of the learned CIT(A) so as to examine the issue afresh.
13. Ground No. 3 urged by the Department relates to deletion of the addition of Rs. 27,01,231 earned on account of supervision charges.
13.1 The AO had held that supervision charges credited to the P&L a/c were not part of income earned by the assessee by letting out warehouses and the same were not exempt under s. 10(29).
13.2 On first appeal the learned counsel for the assessee submitted that income of Rs. 27,01,231 was earned on account of supervision charges of the goods stored in the warehouses of the corporation by its tenants. He further submitted that the corporation extended its customers the facility to handle their stock at railhead and its transportation to the warehouses for storage on their own behalf. He also submitted that for the said services the corporation realised the actual expenditure incurred on it and also the supervision charges for supervising the handling and transportation job. He, therefore, urged that the whole operation was a part of storage activity and the income derived therefrom is exempt under s. 10(29). The learned CIT(A) observed that the supervision charges were received from the tenants to whom the godown had been let out for supervising the handling and transportation of stock kept in the warehouses and that the same were inseparable from rental income received by letting out the warehouses. He, therefore, deleted the addition of Rs. 27,01,231.
13.3 The learned Departmental Representative submitted that the supervision charges had nothing to do with letting of godowns and that the letting would actually start after the wheat had arrived in the godowns. He, therefore, submitted that the learned CIT(A) has wrongly deleted the addition and that the same may be restored.
13.4 The learned counsel, however, relied heavily on the orders of the learned CIT(A). In this connection he also referred to the decision of the Honble Supreme Court in the case of CIT vs. South Arcot Distt. Co-operative Marketing Society Ltd. (1989) 176 ITR 117 (SC). The facts in that decision were that the respondent was required to take all necessary steps to enable stocking and storing of the fertilizers, including taking delivery of the stock at the railhead and transporting it to the godowns and the respondent had received an amount of Rs. 31,316 on the said account, the amount being described as commission. The Tribunal had held that various terms of the agreement constituted supervision for letting the godowns and any servicing done in that connection represented an insignificant part of the entire transaction and, therefore, the respondent was entitled to exemption under s. 14(3)(iv) of the Indian IT Act, 1922 in regard to the entire amount. The High Court affirmed the decision of the Tribunal, which was further affirmed by the Honble Supreme Court.
13.5 We have carefully considered the rival submissions on this issue and we feel that the ratio of the decision of the Honble Supreme Court in the case reported in (1989) 176 ITR 117 (SC) (supra) squarely applies in the present case and the supervision charges are connected with the ultimate activity of storage and warehousing of the wheat and the loading/unloading of wheat is incidental to the main activity. We, therefore, see no reason to interfere with the orders of the learned CIT(A).
14. In the result, both the appeals are allowed in part for statistical purposes.