UDAIPUR SAHAKARI UPBHOKTA THOK BHANDAR LTD. vs. COMMISSIONER OF INCOME-TAX

CIVIL APPEAL No. 4399/2009Supreme Court[2009] 11 S.C.R. 9016 July 2009Bench: 2 JudgesAuthor: S.H. KAPADIA, AFTAB ALAM28 pages
AI SummaryDismissed

What were the facts?

The appellant, Udaipur Sahakari Upbhokta Thok Bhandar Ltd., is a cooperative society dealing in both controlled and non-controlled commodities. It acts as an authorized holder for controlled commodities under the Rajasthan Foodgrains and Other Essential Articles (Regulation of Distribution) Order, 1976, storing them in its owned and hired godowns. The society earns commission for storing these controlled commodities. For the relevant assessment years, the appellant claimed a deduction under Section 80P(2)(e) of the Income Tax Act, 1961, on this commission income. The Assessing Officer disallowed the claim. The Appellate Authority and the Tribunal allowed it. However, the High Court reversed this, holding that the appellant was storing the commodities as part of its own trading stock and was acting as a trader, thus not entitled to the deduction.

What did the Supreme Court hold?

The Supreme Court held that the High Court was correct in concluding that the assessee was storing the controlled commodities as part of its own trading stock and was therefore not entitled to claim a deduction under Section 80P(2)(e) of the Income Tax Act, 1961. The Court reasoned that Section 80P(2)(e) provides a special deduction, and the burden is on the assessee to establish that the income falls within its scope, specifically for the letting of godowns for storage, processing, or facilitating the marketing of commodities. If the godown is used for any other purpose, the exemption is not available. The Court distinguished the present case from Commissioner of Income-tax, Madras v. South Arcot District Co-operative Marketing Society Ltd. (1989) 176 ITR 117 (SC) by noting the presence of statutory or compulsory sales, a two-tiered sale structure (Government to appellant, appellant to Fair Price Shops), and crucially, the netting of issue price against sale price. This netting indicated that the difference constituted receipt on a commercial basis or net profit, implying the appellant treated the stock as its own trading stock. Consequently, the appeal was dismissed.

What were the issues?

1. Whether the assessee, a cooperative society storing controlled commodities under the Rajasthan Foodgrains and Other Essential Articles (Regulation of Distribution) Order, 1976, is entitled to a deduction under Section 80P(2)(e) of the Income Tax Act, 1961, on the commission earned for such storage, when the High Court held it was storing them as part of its own trading stock. Assessee's Contention: The appellant, a cooperative society, argued that it was entitled to the deduction under Section 80P(2)(e) for the commission earned on storing controlled commodities. It relied on the decision in Commissioner of Income-tax, Madras v. South Arcot District Co-operative Marketing Society Ltd. (1989) 176 ITR 117 (SC), suggesting the receipts were for letting out godowns. Revenue's Contention: The revenue contended that the assessee was not entitled to the deduction as it was storing the commodities as part of its own trading stock and acting as a trader in essential commodities. The High Court's view was that the appellant was not entitled to the deduction.

Which sections of the Income-tax Act were involved?

Section 80P(2)(e)

AI-generated summary — verify with the full judgment below

[2009] 11 S.CR. 90 A UOAIPUR SAHAKARI UPBHOKTA THOK BHAN DAR LTD. v. 8 COMMISSIONER Of INQOM!;=TAX {Q!vi! ApP-§81 NP, 4~~9 gf 4QOa) JULY 16, 2Q09 [S.H. KAPADIA ANO AFTA6 Al-AM, JJ.] Income Tax Act, 1961 - s.80P(2)(e) - Exemption from income tax - On the income of commission for storage of C controlled commodities under Rajasthan Foodgrains and Other Essential Articles (Regulation of Distribution) Order, 1976- Held: The assessee was not entitled to the exf3.mptfgn as the assessee was storing the commodities as p~rt of it$ own D trading stock.

Appellant a Cooperative society was dealing in a composite business. It was a dealer in non-controlled commodities and it was also an authorised holder in respect of controlled commodities under Rajasthan E Foodgrains and Other Essential Articles (Re91:Jlqt,iQ!1 gf Distribution) Order, 1976. It owned godowns as well i~ hired godowns for storing the goods. Appellant e~rned. commission on the principle of 'netting' i.e. it set off 'issue price' against 'sale price' and retained fixed commission. F Appellant filed its return for the relevant assessment years claiming deduction on the income of commission for storage of

The order continues below.

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