IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.258 OF 2005

Commissioner of Income Tax, Nagpur         ...Appellant(s)

Versus

Baba Saheb Kedar Ginning and Pressing Cooperative Society Ltd.       ...Respondent(s)

With   C.A. Nos.259/2005,   260/2005, 261/2005 and   262/2005   

O  R  D  E  R

Heard learned counsel on both sides.

In this batch of civil appeals, the assessee(s) is  

engaged  in  ginning  and  pressing  of  cotton  for  State  

Cooperative Cotton Market Federation [`Federation(s)', for  

short].  The assessee(s) receives income by way of ginning  

and  pressing  charges.   The  assessee(s)  and  the  

Federation(s) have entered into an Agreement which governs  

conditions of processing, ginning and pressing of cotton,  

fixation of processing rates and godown rent.  The rates  

for  ginning  and  pressing  have  been  defined  in  the  

Agreement between the assessee(s) and the Federation(s).

A narrow question arises for determination, before  

us, in this batch of civil appeals filed by the Department  

is, whether  the rate  prescribed by the Agreement between

...2/-

- 2 -  

the  assessee(s)  and  the  Federation(s)  is  a  composite  

charge, as submitted by the assessee(s), or whether the  

said rate is exclusively for ginning and pressing de hors  

the godown rent?  According to the assessee(s), the work  

undertaken  by it  is not  merely processing,  ginning and  

pressing of cotton but, in addition to the afore-stated  

activities, a facility is also provided by it for storage  

of  bales  in  the  godowns/warehouses  owned  by  the  

assessee(s).   

On the basis that the rate is a composite charge,  

the  Department,  during  the  relevant  years,  has  been  

attributing  an  ad-hoc amount  applying  the  rule  of  

proportionality  towards  rental  income.   Each  of  these  

assessees are claiming fifty per cent of the total ginning  

and  pressing  charges  receivable  by  the  assessee(s)  as  

rental  income.  In that  connection, the  assessee(s) is  

relying upon the judgement of the Bombay High Court in the  

case  of  Commissioner  of  Income  Tax vs.  Bhandara  Zilla  

Sahakari  Kharedi  Vikri  Sangh  Limited reported  in  212  

I.T.R.124.   On  the  other  hand,  it  is  the  case  of  the  

Department  that  the  assessee(s)  has  separately  credited  

the  godown  rent  to  profit  and  loss  account,  hence,  on  

their own showing, the rate under the Agreement with the  

Federation(s) is not a composite charge.

In the present case, it is not in dispute that the  

assessee(s) provides storage facilities to the members of  

the  Federation(s)  carrying  on  ginning  and  pressing  

activities.  It appears from the record that, during the  

relevant years, the Department has been adopting an ad-hoc  

measure  of  attributing  fifty  per  cent  of  the  charges  

payable to the assessee(s) as rental income.  In our view,  

...3/-

- 3 -  

the Department has failed to take into account number of  

factors,  namely,  the  provisions  of  Cotton  Ginning  and  

Pressing  Factories  Act,  1925,  the  expenses  incurred  

towards payment of labour charges, etc.  The Department  

ought  to  have  also  examined  the  proportion  of  income  

accruing to the assessee(s) from storage facility vis-a-

vis the income accruing to the assessee(s) from ginning  

and pressing activities.  This exercise has not been done  

by the Department.  The rule of fifty per cent cannot be  

applied  as across  the board  principle.  Ordinarily, we  

would have remitted the matter to the Assessing Officer  

but it would not be in the interest of justice to remit  

the cases now after almost fifteen years as it would be  

impossible  for  the  Assessing  Officer  to  decide  the  

questions  raised  hereinabove.   In  each  case,  the  

Department will have to examine the total income of the  

assessee(s)  and  after  applying  the  principle  of  

proportionality, the Department has to determine as to how  

much  should  be  allocated  as  rental  income  in  the  said  

composite  charge.   This  norm  would  apply  to  future  

assessment years.   

In  view  of  what  is  stated  hereinabove,  these  

appeals filed by the Department are disposed of with no  

order as to costs.

......................J.            [S.H. KAPADIA]

......................J.            [H.L. DATTU]

......................J.            [DEEPAK VERMA]

New Delhi, December 03, 2009.