Rajasthan State Warehousing Corporation vs Commissioner of Income Tax

This Judgment has been overruled by : Rajasthan State Warehousing Corporation Vs. Commissioner of Income Tax, AIR 2000 SC 972 : (2000) 159 CTR 132 : (2000) 242 ITR 450 : (2000) 2 JT 373 : (2000) 2 SCALE 44 : (2000) 3 SCC 126 : (2000) 1 SCR 1113 : (2000) AIRSCW 629 : (2000) 1 Supreme 601

V.K. Singhal, J.—The Income Tax Appellate Tribunal has referred the following question of law arising out of its order dated July 16, 1986, in respect of the assessment year 1977-78 u/s 256(1) of the Income Tax Act, 1961 :

"Whether, on the facts and in the circumstances of the case and the business of the assessee being one and indivisible, the Tribunal was right in law in holding that the expenses have to be allocated in the same percentage as the different sources of income and are not to be allowed in entirety as allowed by the Commissioner of Income Tax (Appeals) after following decisions noted in paragraph 11 of the order dated January 31, 1985, for the assessment years 1974-75, 1975-76 and 1980-81 ?"

The brief facts of the case are that the assessee is a State Government-owned Corporation which derives its income from letting out of warehouses. It also earned income from interest and administrative charges for procurement of foodgrains which work was done by the assessee on behalf of the Food Corporation of India as well as the State Government. The various sources of income were claimed to be exempt u/s 10(29) of the Income Tax Act. Alternatively, it was also claimed that, in case part of the income is to be treated as exempted income u/s 10(29), then the expenses incurred for earning all the incomes should be allowed in toto. In this year, the assessee has shown the income under the various heads in the profit and loss account as per details given below:

Rs. Ps.

(i) By warehousing charges 1,48,10,084.35

(ii) By fumigation service charges 3,511.90

(iii) By interest 8,38,475.82

(iv) By supervision charges 78,617.86

(v) By administrative overheads 29,18,391.28

(vi) By miscellaneous charges of gunnies 56.30

The Income Tax Officer found that the income on account of letting out of warehouses alone is exempt and the other incomes, namely, the interest, administrative overheads, supervision charges, etc., aggregating to Rs. 38,13,555.17, is not covered by the provisions of Section 10(29). In this aspect, the matter is being separately considered. The total income which was considered as not exempt was found to be Rs. 38,13,555.17 as per details given below :

Rs. Ps.

(i) Interest after deducting interest paid 7,58,202.52

(ii) Miscellaneous income 58,287.26

(iii) Supervision charges 78,617.86

(iv) Income from trading activities including

commission for FCI 29,18,391.23

(v) Hiring charges for gunnies 56.30

38,13,555.17

The claim of the assessee for allowing the entire expenses incurred in respect of all the categories of income was not allowed and the Income Tax Officer allowed the expenditure on proportionate basis for taxable and non-taxable income which was common to both the categories of income and the expenditure directly relating to warehousing charges was allowed in full. The appeal before the Commissioner of Income Tax (Appeals)-II was allowed and since the entire income was held by the appellate authority as exempt u/s 10(29), the matter with regard to expenditure was not considered in the appeal so allowed. It may be noted that in respect of the appeals for 1974-75, 1975-76 and 1980-81, relying upon the decision of the Punjab and Haryana High Court in the case of Punjab State Co-operative Supply and Marketing Federation Ltd. Vs. Commissioner of Income Tax, against which a SLP was dismissed Commissioner of Income Tax, Andhra Pradesh Vs. Vijaya Spinning Mills Ltd., the Commissioner of Income Tax (Appeals) was of the view that the Income Tax Officer was not justified in allowing the proportionate expenses against the taxable income and that the entire expenses were held to be admissible. The Punjab and Haryana High Court in the case of Punjab State Co-operative Supply and Marketing Federation Ltd. Vs. Commissioner of Income Tax, has observed (headnote) : "If the business of the assessee is one and in pursuing the various activities the assessee incurs expenditure, wholly or exclusively for the purpose of the business, irrespective of the fact that the income from one or more parts of the activities is not liable to Income Tax, the entire expenditure incurred by the assessee in connection with the business has to be allowed."

Against the decision of the Commissioner of Income Tax (Appeals), the Revenue filed an appeal before the Income Tax Appellate Tribunal. It was observed that the income of the assessee from interest, supervision charges, administrative overheads, miscellaneous income, hire charges, etc., have been treated from different sources, and considered as taxable and the whole of the staff of the assessee-Corporation was engaged in earning various income, though in respect of some income the expenditure may not be directly necessary, as it may be part of the routine. In these circumstances, it was considered proper to allocate the expenditure proportionately in relation to the various sources of income. The Tribunal has also observed that it has not been established that for earning the taxable income, the assessee had more expensive (sic) and, therefore, the appeal preferred by the Revenue was allowed.

We have considered the matter. In a case where the entire business of the assessee is one and for earning the income from different sources, if no expenditure is incurred, then the position may be different, but, where for earning the income from different sources, expenditure has to be incurred, then the expenditure which is relatable to that income, which is taxable, is allowable u/s 37. If the assessee has maintained separate accounts then the expenditure could have been determined by the Income Tax Officer on the basis of such evidence which the assessed might have produced. In the present case, no evidence was produced by the assessee and there was no other option other than to allocate the expenditure relating to taxable and non-taxable income on proportionate basis. This matter has also been considered in the case of Kota Co-operative Marketing Society Ltd. v. CIT [1994] 209 ITR 276 (income tax Reference No. 135 of 1982--decided on October 12, 1993). Following the said judgment and the decision of the apex court in Sabarkantha Zilla Kharid V. Sangh Ltd. Vs. Commissioner of Income Tax, we are of the view that the Income Tax Appellate Tribunal was justified in not, allowing the entire expenditure and the allocation on proportionate basis was in accordance with law. The reference is accordingly answered in favour of the Revenue and against the assessee.