JKLR-Part(I)                                                   I.T.R. 22/1983                                         Back To Index

The Commissioner of income Tax                                                                                                 Petitioner
                                                                               versus
J&K Co-operative Supply & Marketing                                                                                      Respondent

I.T. Ref. No. 22 / 1983, decided on 14.11.2000.

Income-tax Act, 1961, S. 80P(2)(e) – Whether income from commission cum incidental charges for handling chemical fertilizers as sole agent of J&K Government exempt from charge of tax – Held : If the assessee wants to claim deduction under section 80 P (2) (e) of the Act, it is for him to bifurcate the income derived from execution of the labour agreement and determine what part of the income can be attributed to the storage of the fertilizers in the godowns and restrict its claim to that part of the income only.

It may be pertinent to observe that under section 80P(2)(e) of the Act, the assessee, being a co-operative society, is entitled to deduction of the whole of the income derived by it from the "the letting of godowns or warehouse or facilitating the marketing of the commodities". As is evident , the income of the assessee from the handling of fertilizers under the agreement dated 19th February, 1967 was not only for storage of fertilizers in its godowns, but also for activities which did not fall within the purview of section 80P(2)(e) of the Act. It was a composite payment by the Government of Jammu and Kashmir to the assessee – society for various services rendered by it, including storage of fertilizers in its godowns. In that view of the matter, if the assessee wants to claim deduction under section 80P(2)(e) of the Act, it is for the assessee to bifurcate the income derived by it from execution of the above agreement and to determine what part of the income can be attributed to the storage of the fertilizers in the godowns and restrict its claim to that part of the income only. If the assessee can satisfy the Income-tax authorities that any part of the income received by it from the Government of Jammu and Kashmir is attributable to the activity of storage of fertilizers in its godowns, that part of the income would be eligible for deduction under section 80P(2)(e) of the Act.                                                                     [Para 5]

Advocates who appeared in this case :
Senior Central Government Standing Counsel, Mr. Anil Bhan for the revenue
None appears for the assessee

Case referred
1. CIT v. J.K. Co-op.Supply & Mktg. Fedn. (1993) 204 ITR 289

Per Dr. B. P. Saraf, Chief Justice (Oral)

By this reference under section 256(1) of the Income-tax Act, 1961 ("Act"), at the instance of the revenue, the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar ("Tribunal") has referred the following question of law to this Court for opinion :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the income of the assessee from commission-cum-incidental charges for handling of chemical fertilizers as the sole agent of the J&K State Govt. is exempt from the charge of tax under the provisions of section 80 P (2)(e) of the Income-tax Act, 1961?"

2. The assessee is a co-operative society. It was appointed by the Government of Jammu and Kashmir its sole agent for the import and distribution of chemical fertilizers allotted to it by the Central Government or purchased by it from the approved manufacturers. Under the terms of the agreement dated 19th February, 1967 entered into between the assessee- society and the Government of Jammu and Kashmir, the assessee- society was to receive commission-cum-incidental charges on account of freight, handling and other charges on fertilizers to be shifted from rail head up to the distribution centres etc. In its assessment for the assessment year 1974-75, the assessee claimed deduction under section 80P of the Income-tax Act, 1961 ("Act") in respect of the profits from the above activity. The Income-tax Officer did not allow the claim of the assessee as he was of the opinion that the income of the assessee from handling of the fertilizers was not covered by section 80P(2)(e) of the Act. The assessee appealed to the Commissioner of Income- tax (Appeals). The Commissioner (Appeals) accepted the claim of the assessee for deduction under section 80P(2)(e) of the Act in view of the decision of the Income-tax Appellate Tribunal in the assessee’s own appeals in respect of assessment years 1967-68 and 1968-69. Revenue’s appeal to the Income-tax Appellate Tribunal against the above order of the Commissioner (Appeals) was rejected by the Tribunal by following its decision in the assessee’s own case in respect of earlier assessment years. Hence this reference at the instance of the revenue.

3. We have heard Mr. Anil Bhan, learned counsel for the revenue and perused the facts of the case. We find that identical question of law arising out of the order of the Tribunal, referred to this Court by the Tribunal in the assessee’s own case for the assessment years 1967-68 and 1968-69, has already been decided by this Court .The said decision is reported in (1993) 204 ITR 289 ( CIT v J. K. Co-op. Supply & Mktg. Fedn.). In that case, this Court, on perusal of the various terms and conditions of the agreement dated 19th February, 1967, observed as follows :

"In the cases before us, however, as will be seen from the various terms and conditions of the agreement executed on February 19th, 1967, the main activity which the assessee was to perform was in respect of the import, carriage 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 fertilizers in the godowns, which activity could not 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 fertilizers 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."

4. This Court took note of the fact that under the terms and conditions of the agreement dated 19th February, 1967 between the assessee and the Government of Jammu and Kashmir, storage of fertilizers was also one of the activities to be performed by the assessee besides handling, distribution and sale of fertilizers. It was observed that in the nature of transaction based on the aforesaid agreement, storage of fertilizers was but one integral part of the entire chain of activities and it was inconceivable that the chain would have been complete without the storage of the fertilizers in the godowns of the assessee. In view of the above, it was held that the assessee was entitled to exemption from payment of income-tax under section 80P(2)(e) of the Act in respect of the income derived by it from storage of the fertilizers in its godowns. This Court, therefore, left it open to the assessee to indicate before the concerned Income-tax authorities the manner in which this exemption was 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 year.

5. The above decision of this Court squarely applies to the present case. It may be pertinent to observe that under section 80P(2)(e) of the Act, the assessee, being a co-operative Society, is entitled to deduction of the whole of the income derived by it from "the letting of godowns or warehouse or facilitating the marketing of the commodities". As is evident from the decision of this Court cited above, the income of the assessee from the handling of fertilizers under the agreement dated 19th February, 1967 was not only for storage of fertilizers in its godowns, but also for activities which did not fall within the purview of section 80P(2)(e) of the Act. It was a composite payment by the Government of Jammu and Kashmir to the assessee- society for various services rendered by it, including storage of fertilizers in its godowns. In that view of the matter, if the assessee wants to claim deduction under section 80P(2)(e) of the Act, it is for the assessee to bifurcate the income derived by it from execution of the above agreement and to determine what part of the income can be attributed to the storage of the fertilizers in the godowns and restrict its claim to that part of the income only. If the assessee can satisfy the Income-tax authorities that any part of the income received by it from the Government of Jammu and Kashmir is attributable to the activity of storage of fertilizers in its godowns, that part of the income would be eligible for deduction under section 80P(2)(e) of the Act.

6. We answer the question referred to us accordingly. In the facts and circumstances of the case, we make no order as to costs.