Udupi Taluk Agricultural Produce Co-operative Marketing Society Ltd. vs Commissioner of Income Tax

N.D. Venkatesh, J.—This is a reference u/s 256(1) of the income tax Act, 1961 (''the Act''). The question referred is as under:

Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in not exempting the assessee''s income of Rs. 1,20,206 u/s 80P(2)(e) of the income tax Act, 1961?

The asssssee is a co-operative society. It claimed exemption u/s 80P(2)(e) of the Act regarding its income of Rs. 1,20,206 for the assessment year 1973-79. According to the assessee this amount represented the commission it had received from the Karnataka Food & Civil Supplies Corpn. for procurement of paddy and rice and reimbursement of transport charges. The ITO held that no part of the income represented the earnings from letting of godowns or warehouses of the society for the purposes of storage process or facilitating marketing of commodities and, therefore, exemption u/s 80P(2)(e) was not available to the assessee. The assessee appealed to the Commissioner (Appeals). He upheld the order of the ITO On further appeal to the Tribunal by the assessee, the Tribunal has upheld the order of the Commissioner.

Besides hearing the counsel for the assessee and the counsel for the revenue, we have also perused the records. Section 80P(2)(e) under which exemption is claimed reads thus:

80P. Deduction in respect 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:-

(a) to (d) ******

(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;

As can be seen from what is extracted above, what is exempted under clause (e) is the income derived by a co-operative society by letting out of its godowns or warehouses for purposes of storage, processing or facilitating the marketing of commodities.

It may be, as observed by the Gujarat High Court in Surat Vankar Sahakari Sangh Ltd. Vs. Commissioner of Income Tax, Gujarat II, that that 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 it out as held by the Madras High Court in Commissioner of Income Tax, Madras II Vs. South Arcot District Co-operative Marketing Society Ltd., This is a liberal construction of clause (e). But nonetheless, 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 the 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).

The Tribunal has found that no income has been earned by the assessee from letting out of godowns or warehouses for the purpose of storage, processing or facilitating the marketing of commodities. In view of this finding, we do not think that the claim of the assessee is justified under clause (e) of section 80P(2).

Accordingly, we answer the question referred in the affirmative and against the assessee.