MERCANTILE AND MARINE SERVICES VS COMMISSIONER OF INCOME-TAX
2000 P T D 961
[233 I T R 257]
[Kerala High Court (India)]
Before V. V. Kamat and K. Narayana Kurup, JJ
MERCANTILE AND MARINE SERVICES
versus
COMMISSIONER OF INCOME-TAX
I. T. R. No. 118 of 1992, decided on 11/09/1996.
Income-tax---
----Business income or income from property---Clearing and forwarding agents handling exports and imports of Government bodies---Contract providing for storage of goods pending despatch and payment of charges therefore---Godown rent paid by Director-General of Supplies and Disposals- Is incidental to contract---Is Business income not income from property-- Indian Income Tax Act, 1961, S.28.
The assessee was a firm of clearing and forwarding agents. Under a contract with the Director-General of Supplies and Disposals. It was appointed as a clearing agent at the port of Cochin on certain terms and conditions. Under the contract, the assessee was to handle imports and exports, both overseas and costal, of the Ministry of Supplies, Government of India, and-various branches thereof, kindred organizations attached to the Ministry as well as Government undertakings. The assessee would normally receive complete disposal instructions from the Director of Supplies and Disposals. The contract also provided for holding incoming and outgoing cargoes at the port pending despatch, and for storage, port charges and other consequential and incidental situations necessarily connected with the. clearing and forwarding activity under the contract. The assessee claimed that a sum of Rs.2,21,068 received as godown rent from the Director-General of Supplies and Disposals was income from property, but the Income-tax Officer taxed it as business income. This was confirmed by the Tribunal. On a reference:
Held, that in the process of the activity of the assessee as a clearing and forwarding agent it had demanded and the Director-General of Supplies and Disposals had paid the sum in question as godown rent. The godown rent was incidental to the activity under the agreement and the activity of the assessee was co-related with the clearing. and forwarding activity agreed under the contract. Therefore, the godown rent received by the assessee was income from business and not income from property.
CIT v. Malabar and Pioneer Hosiery (Pvt.) Ltd. (1996) 221 ITR 117 (Ker.) ref.
P. Balachandran for the Assessee
P.K.R. Menon and N.R.K. Nair for the Commissioner.
JUDGMENT
V. V. KAMAT, J.---Three questions expect our answer and they are:
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the godown rent of Rs.2,21,068 received by the appellant/assessee from the Director -General of Supplies and Disposals, under the contract in question as income from business?
(2) Whether there were materials for the Appellate Tribunal to come to the conclusion that the rent received by the appellant was income from business and not income from property?
(3) Whether the Appellate Tribunal was right in making an alleged classification based on some English decisions and in coming to the conclusion that the rent received by the appellant in the instant case fell under the, second category and hence income from business?"
Even at first blush, these questions are all questions of fact pure and simple. An amount of Rs.2,21,068 was received by the assessee from the Director-General of Supplies and Disposals in pursuance of the contract (Annexure "D" at page 28). The question is, as to whether this amount is income from business or income from property, which is the contention of the assessee.
The assessee is a firm of clearing and forwarding agents. Under the contract (Annexure "D"), on acceptance of the tender of the assessee, he was appointed as a clearing agent at the Port of Cochin on the terms and conditions forming part of this document, dated December 29, 1975. A bare perusal of this document would show the nature of obligations agreed to by the parties thereto. The assessee (see clause 5) is to render the services agreed upon between the parties. Illustratively, the assessee is to handle imports and exports, both overseas and coastal, of the Ministry of Supplies, Government of India, and various branches thereof, kindred organizations attached to the Ministry as well as Government undertakings, either owned and run by the Government or owned but run by a company or Corporation, local bodies, statutory bodies, autonomous bodies, educational institutions. and Universities, Municipal Corporation, committees and boards, community projects and any other bodies when such work is entrusted to and entertained by the Ministry of Supplies, New Delhi. The assessee is also expected to handle and clear imports and exports of miscellaneous Government and non- Government cargoes and articles of all kinds. The assessee would normally receive complete disposal instructions from the Director of Supplies and Disposals, Madras or any other officer or officers nominated by him in regard thereto. The document also spells out further duties and responsibilities of the clearing agents and in the process, even an eventuality is provided for holding incoming and outgoing cargoes at the port pending despatch. In other words, reading the document, nothing would remain doubtful that the assessee comes under the obligation thereby to do all necessary things in the process of clearing and forwarding under the document. The document also provides for situations of storage, port charges and other consequential and incidental situation inevitably and necessarily connected with the clearing and forwarding activity. under documents in question.
If in the process of activity of the assessee as a clearing and forwarding agent he has demanded and, the Director-General of Supplies and Disposals has paid the amount of Rs.2,21,068 as end by way of godown rent, there is no difficulty that this amount of godown rent will have to be understood as incidental to the activity under the agreement and the activity of the assessee will have to be understood as co related with clearing and forwarding activity agreed under the document in question.
The assessee contended before the Income-tax Officer that what is required to be understood is the real nature of the said sum. It was urged that the said sum was rent with regard to use of the property and, therefore, could be assessable only under the head ".Income from house property". The Income-tax Officer rejected, justifiably and rightly, the said submission' holding that the said sum of Rs.2,21,068 was nothing but an integral part of the clearing and forwarding charges received by the assessee in pursuance of the contract covered by the document referred to above.
Further travel of the proceedings in appeal before the Appellate Assistant Commissioner received a change to the conclusion that the storage space provided by the assessee was an additional facility given or additional service rendered by the assessee to the Director-General of Supplies and Disposals and, therefore, curiously enough, the appellate authority came to the conclusion that the amount received could not be understood to be a part of the clearing and forwarding operations. Consequently, the first appellate authority brought the amount under charge under. the head "Income from house property". No efforts are needed to find out the error in the approach, even if a cursory perusal of the document between the parties is undertaken.
The Revenue was required to approach the Income-tax Appellate Tribunal, Cochin Bench. The Tribunal has taken into consideration the document (Annexure "D"), dated December 29, 1975. It was observed by the Tribunal that the contract is a comprehensive one and it deals with all material aspect& of clearing and forwarding operations and the duties and responsibilities of the clearing agents. The Tribunal has in extenso referred to clauses 5, 7, 9, 10, 12 and other clauses of the agreement. It is on the basis of the careful examination of the agreement, the Tribunal has recorded the conclusion that the storage facility and the payment in regard thereto is a related aspect. The Tribunal has also, in great detail, referred to the decisions in the context. On an examination of the necessary case-law on the subject, the Tribunal has observed that basically in the context of the situation, .the mere fact that the property is hired out cannot be considered in the context of an ordinary landlord exercising his proprietary right over the property lets the property on hire resulting in the consequence of turning it to a profitable account. The Tribunal has emphasised that what is required to be taken into consideration is the dominant role of the assessee as a trader as the determinative factor.
In application to the factual matrix, the Tribunal applied the text adopted by Lord Summer of the Privy Council that the clearing agent is a clearing agent first and a landlord only afterwards. His role as landlord is subsidiary and incident of his business as a clearing agent. Reaching the above conclusion, the Tribunal, considered the amount of Rs.2,21,068 received by the assessee from the Director-General of Supplies and :Disposals under the clearing and forwarding contract in question was rightly brought to tax by the Income-tax Officer under the head "Income from business".
Therefore, as stated at the outset, the question is purely a question of fact to understand the assessee as the clearing and forwarding agent and receipt of the amount in regard thereto as incidental to the obligation under the contract in question. Even otherwise, reading it' in the manner in which the Tribunal has approached the question, we have no hesitation to record that left to ourselves, we would not have reached any other conclusion in the context of undisputed facts appearing in the statement of case. Incidentally, this Court in CIT v. Malabar and Poineer Hosiery (P.) Ltd. (1996) 221 ITR 117 (in which one of us--myself--was a party delivering the judgment), had occasion to consider the question of an assessee deriving income from a commercial asset connected with the activity although the income under consideration may emanate from a document relating to the transfer of property.
For the above reasons, we answer question No. 1 in the affirmative, in favour of the Revenue and against the assessee. We also answer questions Nos. 2 and 3 in the affirmative, in favour of the Revenue and against the assessee.
A copy of this judgment, under the seal of the Court and the signature of the Registrar, shall be sent to the Income-tax Appellate Tribunal, Cochin Bench.
M.B.A./3334/FCReference answered