ORDER
Pradeep Parikh, A.M.
1. In all these are six appeals in case of two assessees. In the case of Ganesh Alu Bhandar, there are cross-appeals, two each by the assessee and the Department against the combined order of the learned CIT(A) dt. 27th May, 2002, for asst. yrs. 1998-99 and 1999-2000. In case of Ashokkumar Natandas & Co. only assessee is in appeal against the combined order of the learned CIT(A) dt. 27th May, 2002, for the asst. yrs. 1998-99 and 1999-2000. Since the issues involved in all these appeals are common and inter-connected, we find it convenient to dispose of all the six appeals together by this consolidated order. The appeals of the assessee are taken up first for consideration.
2. Both the assessees have raised common grounds in their appeals. The first common ground is against holding that payment for use of cold storage is covered under Section 194-I of the IT Act, 1961 (the Act) and, therefore, tax was deductible on such payment.
3. The AO observed that the two assessee had used part of the property owned by M/s Vinayak Cold Storage (VCS of short) by keeping their goods in the said cold storage. In consideration thereof, the assessee had made following payments to VCS :
Ganesh Alu Bhandar
Ashok Kumar Narandas & Co.
Asst yr.
Asst. yr.
Asst. yr.
Asst. yr.
1998-99
1999-2000
1998-99
1999-2000
Rs. 7,90,209
Rs. 7,54,000
Rs. 4,69,602
Rs. 1,44,760
The AO was of the view that the payment made by the assessee was nothing but rent paid for the use of property of VCS and hence, was covered by the provisions of Section 194-I of the Act. However, since the assessees had not deducted tax at source from the payments made, and since no return in the prescribed Form No. 26J was filed, show-cause notice was issued to the assessees to show-cause why the tax deductible under Section 194-I should not be charged. Assessees made detailed submissions, the gist of which is as follows:
(a) No space is taken on rent;
(b) The payments made are in substance preservation charges, though loosely it may be referred to as rent;
(c) Preservation charges are paid to save the goods from decay;
(d) Payment made is for services rendered and not for user of property;
(e) Payment is not controlled by Rent Control Act and no tenancy right is vested in the payer of the charges;
(f) Control of the cold storage rests with the cold storage operator and the payer has no access to it;
(g) Cold storage charges are determined per piece, bag or article as the case may be;
(h) Provisions of Section 194-I relate to tenancy by whatever name called; and
(i) The payment is not in the nature of rent but is for the use of plant of the cold storage building.
In short, distinction was sought to be made, between preservation charges and rent. The AO, however, did not agree with the submissions of the assessee. He referred to CBDT Circular Nos. 715 dt. 8th Aug., 1995, 718 dt. 22nd Aug., 1995, and 736 dt. 13th Feb., 1996, and held the applicability of Section 194-I in the instant case to be at par with warehousing charges for keeping goods in the warehouse. Thus, since the assessees had failed to deduct tax at source under Section 194-I of the Act, he levied tax at 20 per cent of the payment made and also levied interest under Section 201(lA),.the details of which are as follows :
Tax
Interest
Asst. yr. 1998-99 Rs.)
Asst. yr. 3999-2000 (Rs.)
Asst. yr. 3998-99 (Rs.)
Asst: yr. 1999-2000 (Rs.)
Ganesh Alu Bhandar
1,58,042
1,51,200
51,350
24,460
Ashok kumar Narandas & Co.
93,920
28,952
30,517
5,058
4. Before the CIT(A), in addition to what was stated before the AO, it was contended by the assessee that cold storage was treated as a manufacturing facility under the Factories Act, 1948 and that Section 194-I was intended to bring into tax net persons who were avoiding declaring income from property. CIT(A) accepted the contention that cold storage was not an ordinary building but a factory building. But since Section 194-I defined the word “rent” to mean not only for hire but for any use and since Section 194-I expreslsy covered factory building, he held that assessee was liable to deduct tax under Section 194-I. The CIT(A) also rejected the argument that Section 194-I covered income from house property only. He observed that income by way of rent could be taxed either as income from house property or business income or as income from other sources depending upon the facts of the case. The CIT(A) also placed reliance on the decision of the Supreme Court in the case of Delhi Cold Storage (P) Ltd. v. CIT (1991) 191 ITR 656 (SC) to hold that no processing, and by implication no manufacturing was involved in a cold storage. The CIT(A) took note of the fact that VCS (the payee) had classified the cold storage building as ordinary building and not as plant and had claimed depreciation at lower rate of 5 per cent for the years under consideration. He further observed that cold storage was a specialized storage or a warehouse with climatic control. According to him, climatic control was incidental to storage and not the other way round as was argued by the assessee. Thus, considering all the legal and factual aspects of the matter, CIT(A) held that assessee was liable to deduct tax under Section 194-I of the Act.
5. The contentions of the learned counsel were almost the same as narrated earlier. In addition, it was submitted that assessee was not a tenant but a customer of the cold storage owner, The relationship between the two was that of a bailor and bailee and not of a landlord and tenant. It was not a case of simply storing the goods but it was storing of goods under processing conditions preventing the goods from decay. Definition of the expression “manufacturing process” as defined in Section 2(k) of the Factories Act was referred to, which, inter alia, meant “preserving or storing any article in cold storage”. It was pointed out that special permission for consideration of cold storage was required specifying therein the foodstuff to be stored from the Directorate of Marketing & Inspection, Ministry of Agriculture. Similarly, licence under the Cold Storage Order, 1980 was also required. In short, it was contended that what was paid were preservation charges and not rent and hence Section 194-I was not applicable. Reliance was placed on the decision of the Punjab & Haryana High Court in the case of CIT v. Yamuna Cold storage (1981) 129 ITR 728 (P&H). Several other decisions were also relied upon listed on p. 9 of the paper book in support of the contention that cold storage was a plant.
6. The learned Departmental Representative supporting the orders of the lower authorities, submitted that the definition of the term “rent” given in Section 194-I was widely worded and hence the, case of the assessee definitely fell within its purview.
7. We have duly considered the rival contentions and the material on record. First, we would like to refer to the decision in the case of Yamuna Cold Storage (supra) on which the learned counsel has mainly rested his arguments. The question before the High Court was whether cold storage building falls under the depreciation of ‘factory building’ qualifying for depreciation as such. The High Court held that the process undertaken in the cold storage was fully covered by Clause (k)(i) of Section 2 of the Factories Act because it was certainly a process of trading the goods with a view to preserve them for their use or sale.
8. As against the above, let us refer to the decision of the Delhi High Court in the case of Delhi Cold Storage (P) Ltd v. CIT (1985) 156 ITR 97 (Del). In this decision, the High Court referred to several decisions including the one in Yamuna Cold Storage (supra) referred to above. The question before the Delhi High Court was whether the assessee-company running a cold storage could be held to be an industrial company for purposes of Section 2(7)(c) of the Finance Act, 1973 and the First Schedule thereto. The High Court rested its decision on the decision of the Supreme Court in the case of Chowgule & Co. (P) Ltd. v. Union of India 47 STC 124 (SC) to hold that process undertaken in a cold storage could not be considered a manufacturing process. The High Court did taken note of the following decision wherein the activity of a cold storage was held to be an activity of processing of goods :
(a) Addl. CIT v. Farrukhabad Cold Storage (P) Ltd. (1977) 107 ITR 816 (All) . . (b) CIT v. Radha Nagar Cold Storage (P) Ltd. (1980) 126 ITR 66 (Cal) (c) CIT v. Yamuna Cold Storage (supra)
The Delhi High Court went on to add that all the above cases were decided prior to the decision of the Supreme Court in the case of Chowgule & Co. (P) Ltd. (supra) and hence could not longer.be considered to be laying down a good law. In other words, in terms of the decision of the Delhi High Court, cold storage was not a factory building as was held in the case of Yamuna Cold Storage (supra).
9. The above decision of the Delhi High Court has been affirmed by the Supreme Court in (1991) 191 ITR 656 (SC) (supra). The Supreme Court also referred to its decision in the case of Chowgule & Co. (P) Ltd. (supra) and made pertinent observations as follows :
“In a cold storage, vegetables, fruits and several other articles which require preservation by refrigeration are stored. While, as a result of long storage, scientific examination might indicate loss of moisture content, that is not sufficient for holding that the stored articles have undergone a process within the meaning of Section 2(7)(c) Finance Act, 1973. The three-judge Bench decision must be taken to have overruled the view of the Allahabad High Court in Addl. CIT v. Farrukhabad Cold Storage (1977) 107 ITR 816 (All) and that of the Calcutta High Court in CIT v. Radha Nagar Cold Storage (P) Ltd. (1980) 126 ITR 66”.
Thus, so far as tax laws are concerned, the issue is well settled that storing of goods in a cold storage does not amount to processing in view of the aforesaid decision of the Supreme Court. At this juncture, it may be mentioned that the Supreme Court has nowhere mentioned in its decision that cold storage is not a building as has been contended by the assessee on page 3 of its paper-book, Further, before we part with this aspect of the matter, it will not be out of place or refer to the definition of the term “manufacturing process” as defined in Section 2(k) of the Factories Act. The relevant sub-clauses read as follows :
“(k) “manufacturing process” means any process for
(i) making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal, or
(ii) xxxx
(iii) xxxx
(iv) xxxx
(v) xxxx
(vi) preserving or storing any article in cold storage.”
Our specific attention was drawn to Sub-clause (vi) by the learned counsel to emphasize the point the storage of articles in a cold storage amounted to the articles undergoing manufacturing process. It is interesting to note that Sub-clause (vi) was inserted in Section 2(k) w.e.f. 26th Oct., 1976. Despite this fact, though the decision in Yamuna Cold Storage (supra) was delivered in 1981, and that in the case of Delhi Cold Storage (supra) in 1984, neither of these High Courts have referred to Sub-clause (vi). In fact, Punjab & Haryana High Court had held it to be processing on the basis of Sub-clause (i), which is reproduced above and not on the basis of Sub-clause (vi). To us, the reason appears to be that it is only by way of fiction that preserving and storing of article in a cold storage is deemed to be a manufacturing process. In the preamble to the Factories Act, it is mentioned to be an Act to consolidate and amend the law regulating labour in factories. The object of the Factories Act is to frame the benefits relating to employees’ health, safety, security, wealth, proper working hours, leave and other benefits. Thus, the fiction created in the Factories Act to deem a cold storage to be a factory is only for the benefit of the employees working in a cold storage and the fiction so created cannot be extended to other laws. It is a rule of interpretation that definitions given for the terms in one statute cannot automatically be imported for the interpretation of the same words in another statute. It has been held that neither the meaning, nor the definition of the term in one statute, affords a guide to the construction of the same term in another statute and the sense in which the term has been understood in the several statutes does not necessarily throw any light on the manner in which the term should be understood generally. Thus, in the ultimate analysis, on the basis of the decisions discussed earlier, we hold that storing of goods does not amount to manufacturing process and that the goods stored in a cold storage do not undergo any process.
10. The question, which we now need to address is, whether could storage can be called a plant despite the fact that no manufacturing or any other process is carried on therein. There are numerous Tribunal and High Court decisions wherein cold storage has been held to be a plant. The Tribunal decisions where such a view is taken are as follows :
1. Garg Cold Storage v. ITO (1985) 21 TTJ 425 (All)
2. Girdhar Refrigeration & Cold Storage (ITA Nos. 2338 & 2339/All/77-78 dt. 30th June, 1979).
3. Manipuri Ice & Cold Storage Co. (ITA No. 1488/All/82)
4. Sardar Waryam Singh Cold Storage (ITA No. 115/Asr/82 dt. 24th March, 1983)
5. Nand Lal Cold Storage (ITA No. 3979/Del/82 dt. 27th April, 1984)
The Allahabad High Court in the case of CIT v. Kanodia Cold Storage (1975) 100 ITR 155 (All) held as follows :
“In common parlance the word ‘plant’ includes within its ambit buildings and equipment used for manufacturing purposes. The definition of ‘plant’ in Section 43(3) is inclusive and does not exclude things normally included in it. Where a building with insulated walls is used as a freezing chamber, though it is not machinery or part thereof, it is part of the air-conditioning plant of the cold storage of the assessee and will be entitled to special depreciation at 15 per cent on its written down value.”
To the same effect is the decision of the Madhya Pradesh High Court in the case of CIT v. Sibbal Cold Storage. The Revenue authorities, in the present case, have equated cold sotrage with warehouse with the only difference that the former has a specially created climatic condition. In this connection, we may advantageously refer to the decision of the Supreme Court in the case of CIT v. Karnataka Power Corporation (2001) 247 ITR 268 (SC). In that case, of course, the question before the Supreme Court was about the allowability of investment allowance on power generating station building belonging to the assessee. However, one particular observation of the Supreme Court is quite pertinent and relevant to the case on hand. The observation is as follows :
“The question, basically, is a question of fact, and where it is found as a fact that a building has been so planned and constructed as to serve an assessee’s special technical requirements, it will qualify to be treated as a plant for the purposes of investment allowance.”
It cannot be gain said that a cold storage building has a specialized planning and construction and is very much an integral part of the air-conditioning plant to enable the assessee to run its business of a cold storage. Hence, it cannot be . put on the same footing as that of a warehouse. It is not necessary that in order to qualify as a plant, it needs to manufacture, produce, generate or process an article or thing. If that were to be the case, then the wide definition of ‘plant’ given in Section 43(3) to include books and vessels would be rendered otiose. Thus, though it has been held that no manufacturing process is carried out in a cold storage, yet it will qualify as a plant. The view was are taking is further strengthened by the fact that Section 80-I of the Act while granting deduction to certain industrial undertakings uses the expression, “……..or operates one or more cold storage plant or plants……” The same expression cannot be used in relation to a warehouse. There is no reason to assign any other meaning than plant to a cold storage when one of the provisions of the Act with which we are dealing describes it as a plant. Therefore, we have no hesitation in holding that a cold storage is a plant.
11. Having held that a cold storage is a plant, the question that remains to be addressed is whether Section 194-I is applicable to it. Section 194-I defines “rent” as any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee. The definition does not include any payment made for the use of a plant, which a cold storage is, as has been held in the earlier paras. Thus, when the term “plant” is specifically excluded from the definition, there is no question of applying Section 194-I for payment made for the use of cold storage. There maybe a temptation on the part of Revenue authorities to treat it as a building, though it may be a specialized building, However, in view of specific connotations ascribed to building and plant in the Act, we are not inclined to accept this proposition. At best, it may be called a structure. But as had been observed by the Supreme Court in the case of Municipal Corporation of Greater Bombay and Ors. v. Indian Oil Corporation Ltd. a ‘structure’ must have wider embrace and that every structure is not a building, though it may well be that every building is a structure. Relying on this decision, the Mumbai Bench of the Tribunal had, in the case of Gulf Oil India Ltd. v. ITO (2000) 67 TTJ (Mumbai) 182 : (2000) 75 ITD 172 (Mumbai), held oil storage tanks to be plant and hence out of the purview of Section 194-I. Deriving strength from this decision also, we hold that payment made for the use of cold storage cannot be subjected to deduction under Section 194-I of the Act.
12. The next common ground in the assessee’s appeals is against levy of interest under Section 201(1A) of the Act. In the preceding paras, we have held that assessees were not liable to deduct tax at source under Section 194-I of the Act. Therefore, there is no question of levying the impugned interest for non-deduction of tax. The levy of interest is accordingly cancelled in the cases of both the assessees for both the years.
13. In the case of Ganesh Alu Bhandar, the Department has come up in appeal for both the years. The common ground in both the years is against relief of Rs. 1,58,042 and Rs. 1,51,200 for the two years respectively.
14. As mentioned earlier, the CIT(A) had upheld the applicability of Section 194-I for payments made for the use of cold storage facilities. However, on finding that Vinayak Cold Storage, the payee, had already included these payments in its total income and the assessments in its case had become final, the CIT(A) rightly cancelled the demand of tax raised against the assessees: Interestingly, Department came up in appeal against this relief only in the case of Ganesh Alu Bhandar but not in the case of Ashokkumar Narandas & Co. In any case, since we have held that Section 194-I is not applicable to payments made for the use of cold storage facilities, the ground raised by the Department in the case of Ganesh Alu Bhandar for both the years do not survive and the same is rejected.
15. In the result,
(a) the appeals of both the assessees in ITA Nos. 837 to 840/Rajkot/2002 are allowed; and
(b) the appeals of the Department in ITA Nos. 2004 & 2005/Rajkot/2002 are dismissed.