RAMANUJAM J. - The assessee in these cases is a co-operative society registered under the 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 the assessee agreed to hold ammonium sulphate stock of the Government of Madras and to safely store them on their behalf and to maintain a true and full account for the stocks received and returned twice every month for a commission of Rs. 5 per ton on the quantity of fertiliser issued by the assessee from the stock. The assessee received a sum Rs. 31,316 on this account. Though this sum was originally included in its turnover, in the course of the assessment proceedings, the assessee claimed exemption in regard to the said sum under section 14(3)(iv) of the Indian Income-tax Act, 1922, hereinafter referred to as 'the Act'.
The Income-tax Officer held that the assessee was not entitled to the exemption on the ground that the amount had been received for services rendered. The assessee appealed to the Appellate Assistant Commissioner. He also agreed with the Income-tax Officer that the amount received was for services rendered and as such the assessee was not entitled to the exemption. There was a further appeal to the Appellate Tribunal.
Before the Tribunal the assessee contended that the receipts were for letting its godowns for storage, and, therefore, the said receipts came directly under section 14(3)(iv) of the Act. The revenue, however, contended that having regard to the various clauses in the said section the receipts from letting of the godowns, etc., to members alone were exempt and the receipts in the present case being on a commercial basis it will not fall within the scope of the exemption. The Tribunal, however, held that the assessee was entitled to have the said sum exempt under section 14(3)(iv) by observing :
'We have gone through the various terms of the agreement with the Government of Madras and we are satisfied that the receipts were mostly for letting out the godowns. There was no doubt that some servicing was done, but, in our opinion, it would be an insignificant portion of the whole amount. We cannot accept the departmental representatives submission that the letting out should be to the members. The sub-section does not refer to members at all.'
At the instance of the revenue the following two questions have been referred to this court, one in each of the above two cases :
'Whether, on the facts and in the circumstances of the case, the sum of Rs. 31,316 received by the assessee-society from the Madras Government under an agreement for stocking and distribution of ammonium sulphate was exempt under section 14(3)(iv) of the Indian Income-tax Act, 192 ?
Whether, on the construction of the agreement between the assessee and the State Government, the Appellate Tribunals finding that the receipts were mostly for letting out the godowns and that the servicing was an insignificant portion of the whole amount is reasonable and consistent with the material on recor ?'
Before we proceed to consider the scope of section 14(3)(iv) under which exemption is claimed, it is necessary to see the terms of the agreement entered into by the assessee with the Government of Madras. Under the agreement the assessee as a stock-holder has agreed to hold ammonium sulphate stock of the Government of Madras and safely store the same on their behalf and to issue the same on certain terms and conditions. The assessee has to take delivery of the fertiliser at such times and at such places notified by Collector of the District and store the same in dry godowns where the fertiliser will not be affected by dampness. The fertiliser bags shall be stocked in such a manner as to admit of easy checking and inspection by the officers of the Government and they shall be in the custody of the assessee who is responsible for the same until disposed of under instructions from the Government. The assessee has to strictly observe the instructions of the Government issued from time to time for the stocking and storage of the fertiliser bags in the godowns and the doors of the godowns should be kept open between certain stated hours. If the ammonium sulphate is sent by rail the assessee shall take delivery of the same from the concerned railway stations after check and weighment and should transport the same to its godowns or its distribution depots at its own cost. The assessee has to maintain and render true and full particulars of fertilisers received, released and held in stock once in a fortnight. The assessee has to engage at its own cost, clerks, godown keepers, assistants or servants or watchmen at such wages and for such period as may be necessary for properly and efficiently carrying on its duties under the agreement. The assessee has to also bear the cost of all loss, deterioration and damage due to its negligence in carrying out the instructions of the Government or their officers. The assessee will get a commission of Rs. 5 per ton of the quantity of fertiliser issued from the stocks on the instructions of the Government. It is clear from the terms of the said agreement that the assessee has acted as a stockholder to take custody and store the fertiliser in proper places and distribute the same in accordance with the instructions of the Government. The Tribunal took the view that the sum of Rs. 5 per ton shown as commission from the Government was mostly for letting of the godowns of the assessee and that though some servicing has been done, that would be an insignificant portion of the amount received. If the Tribunal is right in its view that the receipts were mostly and substantially for letting of the godowns, then section 14(3)(iv) will stand attracted. The question is whether the Tribunals view is correct.
Section 14(3)(iv) of the Act runs as follows :
'The tax shall not be payable by a co-operative society in respect of any income derived from the letting of godowns or ware-houses for storage, processing or facilitating the marketing of commodities.'
It is the contention of Mr. Padmanabhan, the learned counsel for the assessee, that if any income has been received by letting of godowns or ware-houses for storage, processing or facilitating the marketing of commodities such receipts are liable to be exempted under the said provision, that the assessee in this case had acted as a stockholder of the Government whose responsibility it is to safely store the fertilisers belonging to the Government and to issue the same on the instructions of the Government. One of the essential obligations undertaken by the assessee was to take delivery of the fertilisers and store them in dry godowns where the fertiliser will not be affected by dampness, until the stocks are released on the instructions of the Government. According to the learned counsel, though the assessee has undertaken the obligation of transporting the goods from the railway stations to its godowns, the main obligation undertaken is to stock them in dry godowns until they are released on the instructions of the Government. It is stated that though the amount received under agreement has been called a commission, it is really in the nature of payment for the user of the godowns and distribution depots maintained by the assessee for storage, that the word 'letting' occurring in section 14(3)(iv) cannot be understood in a strict sense of letting out to another and that in the context of the words 'any income derived' occurring in the same clause the word 'letting' has to be understood as having a wider connotation such as 'permitting', etc. It is pointed out that if the word 'letting' is to be understood in a strict and narrow sense, the legislature would have used the words 'in respect of any rent received by the letting of godowns, etc.,' and that, therefore, such a narrow construction of the word 'letting' should not be adopted. It is then urged by the assessee that though the godowns had not been let out to the Government, the same having been used for the purpose of stocking the fertiliser belonging to the Government, the payment received should be treated as one for the using of the godowns for storage. It is also pointed out that the object of the section is to exempt co-operative societies which permit the user of their godowns by the agriculturists for purpose of storage, processing or facilitating the marketing of their commodities, that, therefore, the word 'letting' occurring in the section cannot be understood as parting with the possession of the godown to another as a lessee. If the user of a portion of the godown should be taken to be within the word 'letting' any amount received for permitting such user of the godowns by others or for the assessees own user of the godowns for storing the goods entrusted to it by agriculturists or others for storage will attract the exemption.
On a due consideration of the matter, we are inclined to agree with the said contention put forward on behalf of the assessee. As pointed out by the assessee, the clause in question will have a very restricted operation if the word 'letting' is understood in the sense of 'letting out', that is, parting away with the possession of the godowns for rent, and such letting out of godowns is very rare. Normally, co-operative societies who have got storage facilities receive goods from its members, agriculturists or others for storage and charge certain fee depending upon the quantity of the goods delivered for storage. In such cases the godowns are not let out to the others but possession of the godowns is retained by the society and the society merely takes charge of the goods brought by the members, agriculturists or others and stores the same. Thus, most of the activity of the society consists in taking custody of the goods of others and storing the same in their godowns or ware-houses. It must be taken that the legislature when it introduced the above provision was quite aware of the usual activities of the co-operative society which maintained the godowns and ware-houses for storage purposes. It cannot be taken to be the intention of the legislature to exempt only the rents received from letting out of the godowns and not the amounts received by the co-operative society for permitting the user of the godowns for storage by its members, agriculturists or others. We are, therefore, of the view that in the setting in which the word 'letting' occurs, it should be understood as having a wide and comprehensive sense so as to include even the mere user of the godowns either by the society or by others. This provision cannot also be construed to have application only when the letting out is to the members. The said provision does not refer to members at all. It is only in the various sub-clauses occurring in section 14(3)(i) there is reference to the members. The provision in question appears to be general in nature so as to include the user of the godowns either by the assessee or by any one else for storage. We are, therefore, of the view that the Tribunal is right in holding that the assessee is entitled to the exemption claimed and that the agreement on the basis of which the amounts were received related only to the user of the godowns and the servicing was an insignificant portion of the total sum received. In that view both the questions are answered in the affirmative and against the revenue. The assessee will have its costs. Counsels fee Rs. 250.
Questions answered in the affirmative.