Holding

The corporation satisfies all the conditions of Section 10(29) and is entitled to exemption from tax on its rental income.

Summary

The Union of India, as the revenue authority, demanded advance tax from the U.P. State Ware Housing Corporation for the assessment year 1974-75, contending that the corporation's rental income from its godowns and warehouses was not exempt under Section 10(29) of the Income Tax Act, 1961. The corporation, created under the Ware Housing Corporations Act, 1962, filed a writ petition in the Allahabad High Court and obtained a decree that the income was exempt. On appeal by certificate, the Supreme Court examined whether the corporation satisfied the three criteria laid down in Section 10(29): being an authority constituted under any law, being constituted for the marketing of commodities, and deriving income from letting godowns or warehouses for storage, processing or facilitating marketing. The Court held that the corporation is a statutory authority under the 1962 Act, that its functions under Section 24(d) involve acting as an agent for marketing agricultural commodities, and that its rental income arises from letting ware‑housing facilities, thereby meeting all tests. Consequently, the corporation was entitled to the exemption. The appeal was dismissed, confirming the High Court's order.

Issues considered

Whether the U.P. State Ware Housing Corporation qualifies as an 'authority constituted under any law' for the purpose of Section 10(29) of the Income Tax Act, 1961.
Whether the corporation is constituted for the marketing of commodities as required by Section 10(29).
Whether the rental income derived from letting godowns and warehouses falls within the exemption provision of Section 10(29).

Legislation cited

Income Tax Act, 1961s. 10(29)
Ware Housing Corporations Act, 1962s. 24(d)

Subjects

income tax exemptionSection 10(29)warehousing corporationrental incomeauthority under lawmarketing of commoditiesSupreme Court of India

Judgment

UNION OF INDIA A!~m_ ANR.
A
v.
U.P. STATE WARE HOUSING CORPORATION

OCTOBER 31, 1990

[M.M. PUNCHHI AND S.C. AGRAWAL, JJ.] B

Income Tax Act, 1961-Section 10(29)-Exemption-Tests-
Whether rental income derived from godowns and ware-house· of U. P.
State Ware Housing Corporation exempted.

The Income Tax Officer required the U-P. State Ware Housing
Corporation, a creature of the Ware Housing Corporations Act, 1962, c
to pay a sum of money as advance tax for the Assessment Year 1974-75,
taking the view that rental income derived by the assessee-Respondent ·
from its godown and ware-houses was not exempted.

The claim of exemption under secton 10(29) of the Income Tax Act D
of the assessee having been repeatedly rejected by the Appellants, it
tiled a writ petition in the High Court challenging the notice.

The High Court quashed the notice, allowing the case of the
assessee-Respondent.
E
In the appeal by the certificate the Revenue-Appellants assailed
the view of the High Court.

Dismissing the appeal, this Court,

HELD: 1. The assessee would be entitled to exemption, if (I) it is F
is
an authority constituted under any law; (ii) it an authority constituted
for marketing of commodities; (iii) the exeinptable income is in respect
of letting of godowns or ware-houses for storage, processing or facilitat-
ing the marketing of commodities. [S2SD-E]

2. Plain reading of Section 10(29) makes it evident that the autOO- G
rity must be constituted under any law for the time being in force,
which In other words means that it should be a creature of law. As an
artificial person, it should be clothed with a personality ordained by
law:(S2SG] '

3. In the in'stant case, the f'lt'St test was proved that the assessee H

523
524 SUPREME COURT REPORTS [ 1990] Supp. 2 S.C.R.

A was an authority under the Ware Rousing Corporations Act, 1962. [525Fj

4. The second test requiring the authority to be constituted for
marketing of commodities is also fully satisfied by Section 24(d) of
the Ware Housing Corporations Act, 1962. The activities of the as-
sessee as an agent wer" the activities facilitating the marketing of com-
B modities, which have i1 business element and the second test was also
established. [526B-C]

5. The third test: with regard to the exemptable Income being In
respect of letting of godowns or ware-houses ·for storage, processing or
facilitating the marketing of commodities presents no difficulty becauk
C it stands undisputed that the Income derived by the assessee was from
letting of godowns or •ware-houses. The assessee having fulfilled all the
tests was rightly entitled to the exemption as claimed. [5260-E]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 455
of 1976.
D
From the Judgment and Order dated 30th November, 1973 of
the Allahabad High Court in Civil Misc. Writ No. 6122of 1973.

· B.B. Ahuja and Ms. A. Subhashini for the Appellants.
E
Sheil Sethi for the Respondent.

The following Order oHhe Court was delivered:
1
'
''This appeal by certificate is directed against the judgment and
F order dated 30.11.1973 of Allahabad High Court at Allahabad· in
Ci vi!' Miscellaneous Writ· Petition No. 6122 of 1973 whereby U.P.·
State Ware Housing Corporation, the respondent herein, was granted
exemption as envisaged under Section 10(29) of the Income Tax Act,
1961.

G ·The U.P. State Ware Housing Corporation is a creature if the
Ware Housing Corporations Act, 1962. The Income Tax Officer,
•
Lucknow, reqmred ••
the respondent to pay a sum of money as advance
tax for the Assessment Year 1974-75. The view of the Income Tax
Officer throughout in the previous years was that rentral ·income
derived by the assessee from its godowns and warehouses was not
H exempt from income tax. The claim of the assessee having repeatedly
U.0.1. v. U.P. STATE .525

been _rejected it thought it proper and did file a writ petition in. the
A
High Court of Allahabad. challenging the notice. The High Court
quashed the notice. The view of the High Court has been assailed here
by the R.evenue.

The ~!aim of the assessee is based ·o~ .Section IO (29) ·of the
Income Tax Act, 1961. It provides:· . B

Section 10 "Fo.~ computing the total income of previous year.of
. any person,' any income falling wi.thin any of the following
clauses shall not be included. .

(29) In the .case of an authority constituted under any law c
for 'the time being i'n. force for the marketing of commodities,
any income derived from the letting of godowns or warehouses
for storage, processing or facilitating the marketing of com-
modities."

As is appareni, the assessee.would be entitled to exemption if

(i) it.is an a~thoriiy constituted under any law

ii) it is an authority constituted for marketing of com.modi ties.
,; • • • • •• - • • -· c. •

(iii).· the e~6m'ptable 'incqme is in respect of letting of godowns or
warehouses for storage, processing or facilitating the marketing
ofCommodities. · . · ·

The High Court had no difficulty in coming to the conclusion
that the assessee had been established under law i.e. the Ware Hous- F
ing Corporation Act, 1962. The question whether the assessee was an
"authority" within the meaning of Section 10(29) of the Income Tax
Act, 1961 led to a long discussion, as is plain from the judgment. The
High Court agreed with the assessee that it was such an authority.
Keeping apart, the reasoning given by the High Court, plain reading of
Section 29 of Section 10 makes it evident that the authority must be o
constituted under any law for the time being in force, which in oth~r
· words means that it should be a creature of law. As an artificial
person, it should be clothed with a personality ordained by law. The
•. power of the authority whether it is wide or narrow, as discussed by the
High Court, with due respect, appears to us alien to the concept with
which we are concerned in sub-section 29 of Section 10. So the ancil- H
526 SUPREME COURT REPORTS [1990] Supp. 2 S.C.R.

A lary test, we say so unhesitatingly, was also satisfied that the assessee
was an authority constituted under the law.

The second test requiring the authority to be constituted for
marketing of commodities is also fully satisfied by Section 24( d) of the
Ware Housing Corporations Act, 1962 which enjoins upon a State
B
Ware Housing Corporation to act as agent of the Central Ware Hous-
ing Corporation on the Government for the purpose of purchase, sale,
storage and distribution of agricultural produce, seeds, manures,
fertilisers, agricultural implements and individual commodities. These
activities of the State Ware Housing Corporation as an·agent, undoub-
tedly, would be activities facilitating the marekting of commodities.
c This reasoning of ours is an addition to·the reasoning assigned by the
High Court in coming to the conclusion that .the activities of the asses-
see have a business element. We agree with the High Court on that
score also.

The third test with regard to the exemptable income being in
D respect of letting of godowns or warehouses for storage, processing or
facilitating the marketing of commodities presents no difficulty
because it stands undisputed that the income derived by the assessee
was from letting of godowns or warehouses.

The assessee having fulfilled all the tests was rightly entitled to
E the exemption as claimed. We are fully jn agreement with the High
Court that the assessee was entitled to relief on these premises.
Accordingly, we dismiss this appeal. We should have awarded costs
also but since there is no opposition, there shall be no order as to costs.

V.P.R. Appeal dismissed.

..._,