Vildirect: IncomeTax-caselaws-1973-VIL-435-ALH-DT

1973-VIL-435-ALH-DT

Equivalent Citation: [1974] 94 ITR 129

ALLAHABAD HIGH COURT

Date: 30.11.1973

UP. STATE WAREHOUSING CORPORATION

INCOME-TAX OFFICER, A-WARD. CIRCLE II, LUCKNOW AND ANOTHER.

BENCH

Judge(s) : H. N. SETH., SATISH CHANDRA.

JUDGMENT

The judgment of the court was delivered by

SATISH CHANDRA J.-The U.P. State Warehousing Corporation has approached this court under article 226 of the Constitution, with a prayer that the notice of demand dated 22nd May, 1973, issued by the Income-tax Officer, Lucknow, requiring the petitioner to pay a sum of Rs. 30,12,669 as advance tax for the assessment year 1974-75 be quashed and the respondents be directed not to recover any advance tax from the petitioner. The petitioner alleges that in its assessments for the last several years it had been claiming exemption from income-tax in respect of its income from letting its warehouses, but this claim has been consistently rejected by the Income-tax Officer as well as the Appellate Assistant Commissioner and the matter is now pending in appeal before the Tribunal. It is hence futile to raise the same objection before the Income-tax Officer who has issued the impugned notice of demand. The petitioner prays that the question of law whether the petitioner is entitled to exemption under section 10(29) of the Income-tax Act, 1961, be decided this court.

Section 10(29) of the Act of 1961 provides :

"10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included .......

(29) in the case of an authority constituted under any law for the time being in force for the marketing of commodities, any income derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities.

Under this provision, an assessee would be entitled to exemption if-

(1) it is an authority constituted under any law

(2) it is an authority constituted for the marketing of commodities ; and

(3) the exemptible income is in respect of letting of godowns or ware-houses for storage, processing or facilitating the marketing of commodities.

Section 28 of the Agricultural Produce (Development and Warehousing) Corporation Act, No. 28 of 1956, provided that the State Governments may, with the approval of the Central Warehousing Corporation, establish State Warehousing Corporations. Accordingly, the U. P. State Warehousing Corporation, the petitioner, was established by the State Government of U.P. on 19th March, 1958. The aforesaid 1956 Act was repealed, and re-enacted as the Warehousing Corporations Act, 1962. Clause (g) of section 43(2) of this Act provided that notwithstanding the repeal of the 1956 Act, a State Warehousing Corporation established for a State under the repealed Act shall be deemed to be the State Warehousing Corporation established for that State under this Act. It is thus evident that the petitioner was in law established under the 1962 Act.

The next question is whether the petitioner is an "authority" within the meaning of section 10(29). The Income-tax Act does not define the term "authority ". For the revenue it was submitted that under the circumstances the word "authority" should be understood in its dictionary meaning. Our attention was invited to the meaning of the word "authority" given in Webster's Third New International Dictionary that "authority" is a public administrative agency or corporation having quasi-governmental powers and authorised to administer revenue producing public enterprises. Learned counsel placed reliance upon the Supreme Court decision in Rajasthan State Electricity Board v. Mohan lal to emphasise that in that case the Supreme Court has accepted this meaning of the word "authority" to understand the significance of the term "other authorities" occurring in article 12 of the Constitution.

A look at the dictionary itself shows that the word "authority" has several connotations. Corpus Juris Secandum, volume 7, page 1291, defines the term "authority" to mean, inter alia, a body having jurisdiction in certain matters of public nature. This meaning does not import that the corporation should have governmental powers. If the submission raised on behalf of the revenue that possession of quasi-governmental power is an essntialal ingredient of an "authority" be accepted, so as to exclude purely business enterprises, even though they may have been constituted by a statute, section 10(29) would become redundant and mere surplusage. section 10(29)applies to an authority constituted for the marketing of commodities. Evidently, such, authority will specifically be a business enterprise. Ex hypothesi, the term "authority" as occurring in section 10(29) cannot possibly be construed as referring to an authority having quasi-governmental powers.

It is trite that a term used by the legislature must be understood in the sense which the context indicates. Here we find that section 10(29) specifically indicates the kind of authority, it refers to the authority as one which is constituted for the marketing of commodities. If an entity is created by statute primarily or specifically for the purpose of marketing of commodities, it will, on the plain language, be an authority within the meaning of this provision. The specification of the quality of the authority to which the section applies excludes reference to any dictionary. Any legal entity or juristic personality constituted by law for the purpose of marketing commodities would be an authority within the meaning of section 10(29). The petitioner has been established under the Warehousing Corporations Act, 1962. It is an "authority" constituted under a law within the meaning of section 10(29).

We have now to consider it the petitioner has been constituted for the marketing of commodities.

Section 24 of the Warehousing Corporations Act, 1962, lays, down the functions of the State Warehousing Corporation. It provides :

" 24. Functions of the State Warehousing Corporation.-Subject to the provisions of this Act, a State Warehousing Corporation may-

(a) acquire and build godowns and warehouses at such places within the State as it may, with the previous approval of the Central Warehousing Corporation, determine ;

(b) run warehouses in the State for the storage of agricultural produce, 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 to and from warehouses ;

(d) act as an agent of the Central Warehousing Corporation of the Government for the purposes of purchase, sale, storage and distribution of agricultural produce, seeds, manures, fertilizers, agricultural implements and notified commodities ; and

(e) carry out such other functions as may be prescribed."

The question is whether these various functions of the Warehousing Corporation are functions of marketing of commodities. For the petitioner our attention was invited to several authoritative works to indicate that the term "marketing" is now commonly used in a wide sense to refer to the performance of business activities directed towards, and incidental to, the flow of goods and services from producer to consumer or user. Activities like transporting, storing and selling goods are all marketing activities.

On behalf of the revenue it was stressed that buying and selling on its own behalf constitutes the vital and the central element of marketing. A person who does not buy or sell commodities for himself cannot be said to engage in marketing of commodities even though he may be carrying on other activities or functions which are ancillary or incidental to buying or selling, like transportation, storage or distribution of commodities. This is the narrow or the strict sense of the term " marketing ".

Section 10(29) consists of one single sentence. In it the term "marketing of commodities" has been used at two places. In the beginning it has been used to indicate the purpose for which the authority should have been constituted. In the last clause this term has been used to indicate the purposes for which godowns or warehouses are to be let in order to gain exemption. The last clause is : "any income derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities". The expression "for facilitating the marketing of commodities" cannot possibly refer to the functions of buying and selling on one's own behalf because when a person buys or sell she, according to the definition propounded by the revenue, indulges in marketing. He cannot be said to facilitate marketing. The use of the word "facilitating" seems to refer to functions like gradation or standardisation in the warehouses or giving of facilities by way of distribution by the authorities running the warehouses of goods or commodities belonging to others. Intrinsically, the term "marketing of commodities" as used in this clause excludes an activity done by the assessee for its own benefit because it refers to income from letting of godowns or warehouses, for purposes, inter alia, of facilitating the marketing of commodities. Obviously, if the owner of the warehouse does the activity of facilitating for his own benefit, he will not earn any income from letting of the warehouse. He will earn income from letting of his warehouse only if the activity of facilitating is done for the benefit of some one else. In the last clause the term "marketing" clearly excludes the idea of an activity done for one's own benefit.

If Parliament had intended a different meaning in using the same term "marketing of commodities" in the opening part of the section, one would have found an indication by qualifying the term "marketing" appropriately. But we find that the same term "marketing of commodities" has been used at both the places in the same sentence. At both the places it has been used to qualify its subject, namely, the "authority", in the opening part and the purpose of letting in the latter part. It is a sound rule of construction of statutes that where the same term is used in the same sentence more than once, it should be deemed to have been used in the same sense at both the places unless a different intention can be gleaned from the provision read as a whole. In our judgment, no such contrary intention is deducible from section 10(29) or from the rest of the Act. It appears to us that the word "marketing" has been used in the wider sense to include the various activities which generally go to form the trade of marketing.

In Mahadeolal Kanodia v. Administrator-General of West Bengal it was was held that it is a sound rule of interpretation of beneficent that in case of ambiguity the construction which advances the beneficent purpose should be accepted in preference to the one defeats that purpose. Section 10(29) is a piece of beneficent legislation. It is designed to benefit corporations earning income from letting of godown or ware-houses for, inter alia, facilitating the marketing of commodities If a corporation constituted for, inter alia, warehousing of commodities is excluded, the purpose of exempting income from letting of warehouses, inter alia, for facilitating the marketing of commodities would be defeated. This is another reason for not construing the term "marketing" in its narrow sense.

A slight shift in view-point also leads in the same direction. In Bengal Immunity Co. Ltd. v. State of Bihar and in several subsequent decisions of the Supreme Court, the 'Supreme Court has reiterated that for the sure and true interpretation of all statutes in general (be they penal or beneficial, restrictive or enlarging of the common law) four things are to be discerned and considered :

1st. What was the common law before the making of the Act ;

2nd. What was the mischief and defect for which the common law did not provide ;

3rd. What remedy Parliament has resolved and appointed to cure the disease of the Commonwealth ; and

4th. The true reason and the remedy ;

and then the office of judges is always to make such construction as shall suppress the mischief and advance the remedy, and to suppress subtle inventions and evasions for continuance of the mischief and to add force and life to the cure and remedy, according to the true intent of the makers of the Act.

Let us consider the legislative history.

The Agricultural Finance Sub-Committee (1945) remarked :

" The construction of a chain of warehouses is unlikely to attract immediately sufficient private capital. Hence, we recommend that the State should itself undertake the planning and construction of warehouses at all nuclear points of trade in agricultural produce. The warehousing system should be operated by a public corporation organised on lines similar to those of the improvement trust."

The Rural Banking Enquiry Committee, 1950, also emphasised the importance of storage and warehousing in relation to the rural credit and rural, banking. It suggested the formation of a Warehousing Development Board with large capital for the purpose of giving loans and subsidies to those who were prepared to take up this line of activity as a business. The Committee of Direction of the All-India Rural Credit Survey, 1954, investigated thoroughly the question of warehousing and recommended the establishment of National Co-operative Development and Warehousing Board and an All India Warehousing Corporation by a statute. As a result, Parliament enacted the Agricultural Produce (Development and Warehousing) Corporation Act, 1956. It established the National Co-operative Development and Warehousing Board. The function of the Board was to plan and promote programmes for agricultural produce, processing, marketing and storage, warehousing of agricultural produce through co-operative societies or warehousing corporations. The Central Warehousing Corporation was constituted to carry out its functions at centres of all India importance, while State corporations were established to work at centres of State importance and above sub-divisional level. The constitution of co-operative societies was contemplated for carrying out warehousing functions below sub-divisional level.

In 1962, Parliament enacted the National Co-operative Development Corporation Act, 1962, and the Warehousing Corporations Act, 1962. These Acts repealed the 1956 Act. The State Warehousing Corporation established under this Act were to work within their respective States. In addition to establishing godowns and warehouses for the storage of agricultural produce, etc., they would also arrange facilities for the transport of agricultural produce, etc. They could also act as an agent of the Central Warehousing Corporation or of the Government for the purpose of purchase, sale and distribution of agricultural produce, etc. It was provided that the Central Warehouusing Corporation will confine its activities to terminal markets, marketing centres of all-India importance and specialised storage techniques, like cold storage. The State Warehousing Corporations function at marketing centres of regional and State importance requiring storage facilities from 2,000 to 4,000 tonnes. The rest of the areas needing storage facilities below 2,000 tonnes were left to the co-operative societies.

Coinciding with the enactment of the 1956 Act, Parliament amended the Indian Income-tax Act, 1922, by the Finance Act of 1955. It introduced subsections (3), (4) and (5) to section 14 of that Act. By these provisions exemptions were granted from income-tax. These provisions provided

(3) The tax shall not be payable by a co-operative society ....

(iii) in respect of any income derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities .....

(5) The tax shall not be payable by an assessee, which is an authority constituted under any law, for the time being in force for the marketing of commodities, in respect of any income derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities."

The Income-tax Act, 1961, re-enacted these, provisions as sections 81, 82 and 83. The Finance (No. 2) Act of 1967 deleted these sections but the provisions of these sections were incorporated, by the same Finance Act in sections 80P, 80Q and 10(29) respectively. In spite of this change in the placing of the provisions in the Act, there was no material change in the language of the provisions. Section 10(29) is in identical terms as section 14(5) of the 1922 Act.

It will be seen that with the establishment of the warehousing corporations and co-operative societies for marketing of commodities, Parliament by way of giving incentive to these newly created business institutions granted exemption in respect of income derived from the letting of godowns or warehousing for storage, processing or facilitating the marketing of commodities. Both these steps were taken by Parliament as a result of the recommendations of the Committee of Direction of the All-India Credit Survey, 1954. Evidently, the legislative intent was to encourage the warehousing industry by granting substantial tax exemptions.

Previously, there was virtually no warehousing industry in the country. Feeling that private business is not likely to come forward to invest in this till then unexplored trade, Parliament resolved to remedy the situation by creating statutory authorities to carry on the functions of warehousing, transporting and distributing agricultural commodities. In order to stabilise these statutory authorities it granted substantial tax exemptions in respect of their incomes from letting of warehouses for specified purposes. Evidently, the authorities constituted by the statute for purposes of transportation, storage, grading and standardisation and distribution of commodities were intended to be benefited in respect of the mentioned class of income. If the term "marketing" is held to mean buying, and selling alone, the remedy resolved by Parliament will not be advanced but would be frustrated. According to the settled rule of construction of statutes, an interpretation leading to the failure of the remedy is to be avoided.

The submission made on behalf of the petitioner that the term "marketing" has a wider significance is substantiated by various dictionaries and authorities. In Corpus Juris Secutdum, volume 55 page 785, the term "marketing" has been defined as follows :

" 'Marketing' signifies a bringing or, sending to market, and includes buying as well as selling."

This would show that buying and selling is an activity which is included in the term "marketing". Obviously, it cannot be its whole content.

In Principle and Practice of Marketing in India by Dr. C. B. Mamoria and B. L. Joshi, it has been stated :

" Marketing includes all activities involved in the creation of place, time and possession utilities. Place utility is created when goods and services are available at the places they are needed, time utility when they are needed, and possession utility when they are transferred to those who need them. The process of marketing makes goods and services much more valuable when they are wanted and transferred to the people and place who want them.

These authors have made the following classification of the marketing functions :

(1) Activities involving transfer of ownership :

(a) buying ;

(b) selling ;

(2) Activities involving physical, supply :

(a) transportation ;

(b) storage ;

(3) Activities facilitating the foregoing functions :

(a) standardisation and grading ;

(b) financing ;

(d) market research.

It has been explained that "storage" is the marketing function which involves holding and preserving goods between the time of production and their use. It will thus be seen that the marketing process consists of process of concentrating and dispersing all goods between the producers and the consumers. In both these processes, storage and warehousing form important activities. Warehousing or storage is, therefore, an essential element of the process of marketing. Encyclopedia Britannica, 1960 edition, volume 14, page 915, says that marketing consists of those activities which effect transfers in the ownership of goods and services and provide for their physical distribution. The Encyclopedia of Social Science, 1959 edition, volume 10, page 133, says that as an economic concept the term "marketing" is susceptible of various interpretations. A common but fallacious theory is that it is concerned chiefly, if not wholly, with finished goods and is the activity of specialised class, of middlemen or that it is limited to adding time, place and possibly possession utilities to completed goods. The marketing process is infinitely far-reaching than the transfer of goods from manufacturers to final consumers.

It is thus evident that all business activities directed towards the flow of goods and services from producer to consumer are within the concept of "marketing ".

Section 10(29) uses the term " marketing of commodities "' simpliciter If the legislative intent was to confine it to buying and selling, then, in view of the well understood wider meaning of the term "marketing", Parliament would have used the words "baying and selling of commodities". The legislative history also suggests that the term "marketing" has been used to include, inter alia, warehousing, transporting and other similar activities which would constitute marketing. If a corporation has been established to carry on any one or more of these essential activities of marketing, it will, in our judgment, be an authority constituted by law for marketing of commodities within the meaning of section 10(29). The U.P. Warehousing Corporation, the petitioner, having been established under the 1962 Act, to function for running warehousing, for storage of agricultural produce and for their transport was an authority established for marketing of commodities. It was entitled to exemption in respect of its income derived from letting of godowns and the warehouses for the mentioned activities, including facilitating marketing of commodities.

It has not been disputed that if such income earned by the petitioner in the financial year 1973-74 is excluded, the petitioner would not be liable to pay any advance tax for the assessment year 1974-75. Under the circumstances, the impugned notice of demand must be held to be invalid.

In the result, the petition succeeds and is allowed. The impugned notice of demand is quashed. The petitioner will be entitled to costs.

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