TaxTMI 
TaxTMI 
2009 (7) TMI 11
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....ch it is getting commission. The distribution of the controlled commodities is regulated by the District Supply Officer (DSO-Authoriesed Officer) under Rajasthan Foodgrains & Other Essential Articles (Regulation of Distribution) Order, 1976 (for short, "1976 Order"). Appellant claims to be stockist/distributor of controlled commodities. It takes delivery from Food Corporation of India (FCI) and Rajasthan Rajya Upbhokta Sangh as per the directives of the State Government. The price, quantity and the person from whom the delivery is to be taken is fixed by the State Government under the said 1976 Order. After taking the delivery, appellant stores these goods in its godowns, both owned and rented. The storage godowns are open to checking by the concerned officers of the State Government. The stocks stored by the appellant are delivered to the Fair Price Shops (FPS-retailers) as per the directions of the State Government. The quantity, price and the FPS to whom the delivery is to be given is fixed by the State Government. According to the appellant, therefore, the above modus operandi indicates that the State Government exercises total control over the stock of controlled commodities s....
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.... and the manner in which the accounts thereof shall be maintained and returns submitted. 4. We also quote hereinbelow the Terms and Conditions annexed to the said 1976 Order which read as under: "Terms & Conditions - General Clause (1) No authorization holder shall store Foodgrains & other essential articles at any place other than those specified in this authorization without prior permission in writing of the Collector. Clause (2) No authorization holder shall refuse to sell Foodgrains and other essential articles during business hours on the presentation to him of a valid permit/indent/ration card to the extent of the amount of Foodgrains or other essential articles due on the permit/indent/ration card. Clause (3) No authorization holder shall sell Foodgrains at a price in excess of that fixed by the State Government or the Collector or shall sell any other essential articles at a price in excess of that fixed by the Central Government or the State Government or any authority or Officer of such Government or the manufacturer, as the case maybe, in that behalf. Clause (5) The authorization holder shall maintain a stock register in Form `C' showing correctly, the....
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....s as part of its own trading stocks; that the appellant acted as a trader in the essential commodities in question and consequently the appellant was not entitled to deduction under Section 80P(2)(e) of the 1961 Act. Against the impugned decision, appellant has come to this Court by way of petition for special leave. 6. The issue which arises for determination in this civil appeal is: whether, on the facts and the circumstances of this case, "commission" received by the appellant from the State Government was really in the nature of payment for the letting of the godowns maintained by the appellant for storage? 7. At the outset it needs to be noted that appellant has composite business. Appellant is a dealer in non-controlled commodities and it is an Authorisation Holder in respect of controlled commodities under the 1976 Order. It owns godowns and it also hires godowns on rent. It earns commission during the relevant assessment years at the rate of 2.25 per quintal (e.g. for rice). As stated above, under clause 20 of 1976 Order every authorization holder has to comply with general or special directions given in writing, from time to time by the Collector in regard to p....
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....ense and it is set-off against the sale price of Rs.251.07. In other words, the working indicates cost plus mechanism i.e. Rs.247.82 is the cost plus profit margin which includes Rs.2.25 as commission. Therefore, Rs.2.25 is part of the profit margin. One aspect needs to be highlighted. According to the written submissions, filed by the appellant, it had taken into its books of accounts the consolidated value of the closing stock. This circumstance reinforces the finding of the High Court in its impugned judgment that the appellant was storing the commodities in its godowns as a part of its own trading stock. 9. The question before us is : whether appellant was entitled to claim special deduction under Section 80P(2)(e) of the 1961 Act by claiming that the amount received under the head "commission" is really in the nature of payment for the user of its godowns? 10. To answer the above question, we quote hereinbelow Section 14(3)(iv) of the Income-tax Act, 1922, Section 81(iv) and Section 80P(2)(e) of the 1961 Act which read as under: "Income-tax Act, 1922 Section 14. Exemption of a general nature - (3) The tax shall not be payable by a co-operative society - (iv) in res....
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....ion 81 must, therefore, depend on the true interpretation of the language used by the legislature in that clause assisted only by such external aids of construction as are permissible according to well-recognised principles of interpretation. Turning first to the language of section 81(iv), it exempts a co- operative society from tax in respect of income derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities. Two possible constructions of this provision were suggested before us in the course of the argument, one by the assessee and the other by the revenue. The construction put forward by the assessee was that the words "letting of godowns and warehouses for storage", "processing" and "facilitating the marketing of commodities" constituted different alternatives and income derived from three different sources was, therefore, sought to be exempted under section 81(iv), namely, (1) income derived from the letting of godowns and warehouses for storage; (2) income derived from processing; and (3) income derived from facilitating the marketing of commodities. The revenue on the other hand urged that income which was soug....
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....re the words "processing" and "facilitating the marketing of commodities" considerably reinforces this conclusion. It is again difficult to see why the legislature should have indiscriminately mixed up in section 81(iv) widely different sources of income such as "letting of godowns or warehouses for storage, processing and facilitating the marketing of commodities". The conclusion appears to be clear on a plain natural construction of the language used in section 81(iv) that what is exempted under that section is income derived from the letting of godowns or warehouse provided the letting is for any of the three purposes, namely, "storage", "processing" or "facilitating the marketing of commodities". 12. On interpretation of Section 14(3)(iv) of the 1922 Act it was held by the High Court: "There is also one other circumstance which is, in our opinion, quite decisive of the question. Section 81(iv), as we have already pointed out above, is in identical terms as section 14(3) and section 14(3) was originally introduced in the Income-tax Act, 1922, by section 10 of the Finance Act, 1955. Section 14(3) when originally introduced was, however, in a different form and it read as fo....
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....ct. The burden is on the assessee to establish that exemption is available in respect of income derived from the letting of godowns or warehouses, only where the purpose of letting is storage, processing or facilitating the marketing of commodities. If the godown is let out (including user) for any purpose besides storing, processing or facilitating the marketing of commodities, then, the assessee is not entitled to such exemption. [See: Law and Practice of Income-tax by Kanga & Palkhivala, Eighth Edition, page 995] 14. Coming to the case law on the distinction between contract of sale and contract of agency, we may state that there is no straight- jacket formula. However, some important circumstances do bring out the effect of the transaction. In the case of Ramchandra Rathore and Bros. v. Commissioner of Sales Tax, Madhya Pradesh, Nagur - (1957) 8 STC 845 (MP), the terms of the agreement between the assessee, a dealer in bidis, and his agent who was required to sell the goods, under the agreement, at prices fixed by the assessee, indicated that the assessee would not be responsible for any shortage in transit and that the assessee would not be liable to receive any unsold stoc....
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....by CTO in respect of the said transactions. The main contention of Vishnu Agencies was the measures adopted to control the supply of cement left no option to parties to bargain; that, the transaction in question constituted a "compulsory sale"; that, by virtue of the provisions of the Cement Control Act and Cement Licensing Order no volition or bargaining power was left to the assessee and since there was no element of mutual consent between the stockist and the allottee, the transaction was not a "sale" within the meaning of the Sales Tax Act. This argument was rejected by this Court observing that the limitations placed on the normal rights of the dealer and consumers to supply and obtain the goods by the Cement Control Order do not militate against the position that eventually, the parties must be deemed to have completed the transactions under an agreement by which one party bound itself to supply the stated quantity of goods to the other at a price not higher than the notified price and the other party consented to accept the goods on the terms and conditions mentioned in the order of allotment issued in its favour by the competent authority. It was held that offer and accepta....
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....y him on the day just prior to the date on which the increased prices came into effect and on that basis the Government directed A. Venkata Subbarao to pay a "surcharge" on the amount representing the increase on the stock held by him. This levy of "surcharge" became the point of challenge in the suit filed by A. Venkata Subbarao in the trial court. The principal point in controversy between the parties related to the precise legal relationship between the procuring agent and the Government. It was found by the Supreme Court that the procuring agent had to buy the grain from the producers with their own money. The grain purchased was transported to the godowns at their cost and stored by them at their own risk. The rent of the godown(s) was also paid by the procuring agent. If there was any depreciation in the quality or there was any shortfall owing to driage, action of rodents, insects, moisture, theft, etc. the loss would of the procuring agent. It was also further found by the Court that the procuring agent could pledge his goods to raise loans from banks and lastly the procuring agent had a right to sell the grain to the person authorized by and at the price not exceeding the ....
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....First, though Mr. Agarwala referred to the margin between the procurement price and the price at which the procured paddy or rice could be sold as "remuneration", a contention which found favour with the High Court, we do not find it possible to accept the submission. There was a similar margin between the price at which a wholesaler could buy rice and that at which he could sell and similarly, it was the case of the retail dealer, but it is hardly possible to call these as "remuneration". This margin or difference in the purchase and sale price was necessary in order to induce any one to engage in this business and was of the essence of a control over procurement and distribution which utilised normal trade channels. It would, therefore, be a misnomer to call it "remuneration" or "commission" allowed to an agent and so really no argument can be built on it in favour of the relationship being that of principal and agent." (emphasis supplied) 16. Coming to the question of agency, this Court in the case of A. Venkata Subbarao (supra) held that the Government can derive no advantage from the works of "Procurement agent" mentioned in the Procuring Order, 1946 whether from the agreem....
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....wstead on Agency which runs : "Where an agent, by contracting personally, renders himself personally liable for the price of goods bought on behalf of his principal, the property in the goods, as between the principal and agent, vests in the agent, and does not pass to the principal until he pays for the goods, or the agent intends that it shall pass." He also referred us to certain decisions of the Madras and Punjab High Courts in which the principle laid down in this passage had been applied. We do not consider it necessary to examine this question in its fulness because we are satisfied that the procuring agent, when he bought the goods, was purchasing it for himself and not on behalf of the Government. The acceptance of the argument addressed on this aspect would mean that if the procurement agent so desired he might contract in the name of the principal, namely, the Government and thus establish privity between the Government and the purchaser and make the Government liable to pay for the price of the goods at which he had purchased. This situation would, in our opinion, be unthinkable on the scheme of the Procurement Orders and generally of the Food Control Orders under....
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....ties in question in its godowns as part of its own trading stock, hence it was not entitled to claim deduction for such margin under Section 80P(2)(e) of the 1961 Act. 18. Before concluding, we may refer to the judgment of this Court in the case of Commissioner of Income-tax, Madras v. South Arcot District Co-operative Marketing Society Ltd. - (1989) 176 ITR 117 (SC). This judgment is heavily relied upon by the counsel appearing on behalf of the appellant. In that case the facts were as follows. Assessee was a co-operative society under Madras Co- operative Societies Act. In the previous year ending June 30, 1960, the Society entered into an agreement with the Government of Madras under which it agreed to hold ammonium sulphate stock of the Government of Madras and it agreed to store the stock on behalf of the Government of Madras and to maintain a true and full account for the stocks received and returned every month for a commission of Rs.5 per ton on the quantity of fertilizer issued by the assessee from the stock. The assessee received Rs.31,316 on this account. The said sum of Rs.31,316 was originally included in its turnover, in the case of assessment proceedings, the asse....