Chhattisgarh State Warehousing Corporation Vs ACIT (ITAT Raipur)
ITAT Raipur held that warehousing charges received by the assessee is taxable under the head ‘Income from Business’ and not under the head ‘Income from house property’.
Facts-
During the course of the assessment proceedings, it was observed by the A.O that the assessee company derived income from rendering various services to the persons who store their goods in warehouses. It was observed by the A.O that the warehousing charges were fixed by the assessee company as per the directions of the Central Ware Housing Corporation after considering various factors and services rendered. Holding a conviction that the aforesaid income derived by the assessee was liable to assessed under the head “Income from house property” as against that disclosed by the assessee under the head “Income from business”, the A.O called upon the assessee to put forth an explanation as regards the same.
Conclusion-
We are of the considered view that the warehousing charges received by the assessee had rightly been offered by it to tax as its income from business. We, thus, in terms of our aforesaid observations set-aside the order of the CIT(Appeals) and direct the A.O to assess the warehousing charges received by the assessee under the head “Income From Business”.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The present appeal filed by the assessee is directed against the order passed by the CIT(Appeals)-I, Raipur dated 05.11.2018, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income-tax Act, 1961 (in short ‘the Act’), dated 20.12.2016 for the assessment year 2014-15. The assessee has assailed the impugned order on the following grounds of appeal before us:
“1. For that the order passed by the learned Commissioner of Income Tax (Appeals)-1, Raipur is bad in law as well as on facts.
2. The Ld. CIT(A) erred in confirming the addition of Rs.63,22,58,355/- treating the receipt from warehousing charges as income from house property instead of income from business.
3. For that the appellant craves leave to add, alter or amend any ground/s of appeal on or before hearing of the case.”
2. Succinctly stated, the assessee which is a state government company engaged in the business of warehousing had e-filed its return of income for the A.Y.2014-15 on 29.09.2014, declaring an income of Rs. 4,86,61,460/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s.143(2) of the Act.
3. During the course of the assessment proceedings, it was observed by the A.O that the assessee company derived income from rendering various services to the persons who store their goods in warehouses. It was observed by the A.O that the warehousing charges were fixed by the assessee company as per the directions of the Central Ware Housing Corporation after considering various factors and services rendered. Holding a conviction that the aforesaid income derived by the assessee was liable to assessed under the head “Income from house property” as against that disclosed by the assessee under the head “Income from business”, the A.O called upon the assessee to put forth an explanation as regards the same. In reply, it was claimed by the assessee that income from warehousing was rightly disclosed by it as its business income. The assessee in support of its said claim had relied upon the judgment of the Hon’ble Supreme Court in the case of Chennai Properties and Investments Ltd. Vs. CIT (2015) 373 ITR 673 (SC), wherein it was held that the entire income derived from rent by the assessee before them was liable to be brought to tax as its business income. Apart from that, it was the claim of the assessee that the ITAT, Raipur Bench in assessee’s own case for A.Y.2003-04 to 2008-09 in ITA No. 18 & 19/BLPR/2010, ITA Nos. 27/BLPR/2011 to 30/BLPR/2011 & ITA No.178/BLPR/2011, dated 12.06.2015 had accepted the assessee’s claim and had held that the income from warehousing was to be assessed as the assessee’s income from business. However, the A.O did not find favor with the aforesaid claim of the assessee. It was observed by the A.O that as the principles of res-judicata were not applicable to income-tax proceedings, therefore, the view taken in the case of the assessee for the preceding years would not be binding upon him qua the issue in hand. It was also observed by him that as the order of the ITAT, Bilaspur had not been accepted by the revenue and had been assailed before the Hon’ble High Court of Chhattisgarh, therefore, the view therein taken had not attained finality. Also, it was observed by the A.O that the CIT(Appeals) in exercise of his jurisdiction u/s.263 of the Act was taking necessary action for quashing the assessment order passed by the A.O u/s.143(3) for A.Y 2012-13, in which, it was observed by him that the income from warehousing was rightly disclosed by the assessee as its business income. Considering the aforesaid facts, the A.O vide his order passed u/s.143(3), dated 20.12.2016 after, inter alia, recharacterizing the head of income under which the warehousing receipts were to be brought to tax assessed the income of the assessee at Rs. 68,09,19,820/-.
4. Aggrieved the assessee carried the matter in appeal before the CIT(Appeals), who upheld the view taken by the A.O by observing as under :
“2.3 Appellant has cited provisions of section 24 of Ware Corporation Act. The perusal of the same shows that the corporation is authorized to carryout the activity of providing warehousing facility on rent. However, it does not and cannot provide for the manner in which the income from this activity has to be taxed. That the domain of the Income Tax Act, 1961. Chhattisgarh State Warehousing Corporation has been established to provide warehousing facilities to store grains and other items meant to distribution and for other purposes. The corporation has been established for this main purpose and not to undertake the business of constructing building and giving these on rent. When a particular income in this case income from letting out the warehouse is assessable under the head house property, the mere fact of appellant having business in lettering out the property by itself will not conclusively point out that the income is business income. Appellant’s contention is misplaced that since warehouse constructed by the appellant are commercial asset and are constructed to expedite these commercially, therefore, income of the corporation is business income. Corporation has been constituted not to do business per-se of giving warehouses on rent but to provide warehousing facilities in the state and any income arising out of venture will be treated according to the nature of that income as defined in the Income Tax Act. It has been reiterated in several judicial decisions that when the income had arisen by exploitation of the property by the assessee and not by way of exploitation of business assets, the income will be rental income and assessee’s contention that nature of receipt will be decided by nature of business cannot be accepted. This contention could be acceptable in the case of a business but in the case of income from exploitation of property for which a separate Chapter VI(c) “Income from house property” has been enacted in the income Tax Act, 1961 for precisely this type of receipt. Therefore, the A.O’s action of taxing the income of the assessee under income from house property is hereby sustained and appellant’s grounds are dismissed.”
5. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
6. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions.
7. We have deliberated at length on the issue in hand, i.e., as to whether income derived by the assessee company from its warehousing activities were to be construed and brought to tax as its business income (as claimed by the assessee), or were liable to be assessed as its income from house property (as claimed by the department). As stated by the Ld. AR, and, rightly so, the issue under consideration is squarely covered by the order passed by the Tribunal in assessee’s own case for A.Y. 2003-04 to 2008-09 (supra), wherein, after exhaustive deliberations the Tribunal had concluded that the warehousing charges were liable to be brought to tax under the head “Income from business”, observing as under:
“6. After hearing both the parties and on a perusal of the material on record, we find that the main function of the assessee Corporation are as under:-
a) Acquire and build godowns and warehouse within state with previous approval of Central Warehousing Corporation;
b) Run warehousing in the State, for the storage of agricultural produces, seeds, manures, fertilizers, agricultural implements and notified commodities;
c) Arrange facilities for the transport of agricultural produce, seeds, manures, fertilizers, agricultural implements and notified commodities;
d) Act as agent of the Central Warehousing Corporation or of the State Government for the purpose of the purchase, sale, storage and distribution of agricultural produce, seeds, Manures, Fertilizers agricultural implements and notified commodities;
e) To carry on other functions as may be notified. However, during the years under consideration the Corporation is doing only one business of warehousing.
7. The assessee Corporation during the course of business rendered various services to persons who store their goods in the warehousing. These are as under:-
a) The proper arrangements are made for transportation inside the godown premises, loading and unloading of the goods in the premises and store it scientifically in the godowns.
b) Preservation activities are carried out so the quality of goods is preserved.
c) Security is provided by employing the staff. d) The goods stored in the warehouses are insured; e) In the case of loss / storage in the goods on the part of Corp. in the same is reimbursed.
8) The warehousing charges is decided after considering the size of bags, drums, tins, open quantity and period of storage. In the light of the above, we find considerable cogency in the statement of the learned Counsel that there is a basic difference in giving the premises on rent on one hand and on the other hand, allowing persons to store their goods in the control and supervision of the assessee Corporation. In this regard, we may also gainfully refer to the difference brought out by the learned Counsel as under:-
