RAJASTHAN STATE WAREHOCSING CORPORATION versus COMMISSIONER OF INCOME TAX

Citation: [2000] 1 S.C.R. 1113 · Decided: 23-02-2000 · Supreme Court of India · Bench: D.P. WADHWA · Disposal: Appeal(s) allowed

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Judgment (excerpt)

RAJASTHAN STATE WAREHOCSING CORPORATION 
A 
v. 
COMMISSIONER OF INCOME TAX 
FEBRUARY 23, 2000 
(D.P. WADHWA AND S.S.M. QUADRI, JJ.] 
Income Tax: 
Income Tax Act 1961: 
Section 37-Business expenditure-Deductibility of-A Y 1977-
7ErAssessee's bu#ness was one and indivisible and part of its income was 
exempt from income tax under S.10(29)-Held : The entire expenditure is 
deductible and not only that propo1tion of it which is referable to the taxable 
income. 
B 
c 
D 
The appellant-assessee, a State Government Corporation, derived its 
income in is assessment year 1977-78 from interest, letting out the 
warehouses and administrative charges for procurement of foodgrains 
while working for the Food Corporation of India as well as the State Govern· 
ment. The business of the assessee was one and indivisible. The assessee 
claimed deduction of expenditure under Section 37 of the Income Tax Act, E 
1961 in computing its income under the head 'profits and gains of business 
or profession'. The Income Tax Officer allowed only so much of the expendi-
ture as could be allocated to the taxable income and disallowed the rest of it 
which was referable to the non-taxable income, being exempt under Section 
10(29) of the Act. The Commissioner oflncome Tax accepted the claim of the 
assessee but the Income Tax Appellate Tribunal allowed the Revenue's ap-
peal. The High Court confirmed the order of the Tribunal. Hence this ap· 
peal. 
Allowing the appeal, this Court 
HELD : 1. The following principles may be laid down on the basis of 
settled legal petition : 
(i) if income of an assessee is derived from various heads of income, he 
is entitled to claim deduction permissible under the respective head whether 
F 
G 
or not computation under each head results in taxable income. (1118-H] 
•. H 
1113 
A 
B 
1114 
SUPREME COURT REPORTS 
[20GOJ l S.C.R. 
(ii) if income of an assessee arises under any of the heads of income 
but from different items e.g. different house properties or different 
securities etc., and income from one or more items alone is taxable whereas 
focome from the other item is exempt under the Income Tax Act, 1961, the 
entire permissible expenditure in earning the income from that head is 
deductible; and (1118-H] 
(iii) in computing 'profits and gains of business or profession' when 
an assessee is carrying on business in various ventures and some among 
them yield income and the others do not, the question of allowability of the 
expenditure under Section 37 of the Act, will depend on (a) fulfillment of 
C 
requirements of that provision; and (b) on the fact whether all the ventures 
carried on by him constituted one indivisible business or not; if they do 
the entire expenditure will be permissible deduction but if they do not the 
principle of appointment of the expenditure will apply. (1119-B] 
CIT v. Indian Bank Ltd., 56 ITR 77 (SC) and CIT v. Maharashtra 
D Sugar Mills Ltd., 87 ITR 452 (SC), relied on. 
E 
F 
G 
Punjab State Co-operative Supply a11d Marketi11g Federatio11 Ltd. v. 
CIT, 128 ITR 189 (P & H), approved. 
Wateifall Estates Ltd. v. CIT, 131 ITR 207 (Mad.) and Wateifall 
Estates Ltd. v. ClT, 219 ITR 563 (SC), held inapplicable. 
2. In view of the above, the impugned order upholding the apportion· 
ment of the expenditure and allowing deduction of only that proportion of 
it which is referable to the taxable income, is unsustainable. 
CIVIL APPELLATE JCRISDICTION : Civil Appeal No. 4049 of 
1994. 
From the Judgment and Order dated 9.11.93 of the Rajasthan High 
Court in D.B.l.T.R. No. 86 of 1987. 
C.S. Vaidyanathan, Additional Solicitor General, Ashok Desai, Dr. 
V. Gauri Shanker, Dr. D.P. Pal, Joseph Vellapally, K.N. Shukla, Pallav 
Shishodia, A.P. Medh, Ms. Priya Hingorani, B.K. Prasad, S.N. Terdol, S. 
Rajappa, Ms. Hemantika Wahi, N.L. Garg, C.V. Sobba Rao, Ranbir 
Chandra, Ms. Sumita Hazarika, S.K. Dwivedi, Tarun Gulati, Hemant 
H Sharma, Arvind Kr. Sharma and (Mrs. Sushma Suri) (NP) for the appear-
R.AJ~i'HAJ"lj S'IA'n::. WAREHOU~ING CORPN. ~- CJ.T. ~s s. MOHAMMED QUAD RI, J.j 
1115 
ing parties. 
The Judgment of the Court was delivered by 
SYED SHAH ~IOHAMMED Ql:ADRI, J. This appeal arises from 
the judgment and order of the Division Bench of the High Court of 
Judicatun: for Rajasthan Bench at Jaipur in Income-tax Rderem:;e No.86 
of 1987 dated November 9, 1993. The assessee is the appellant. 
By the order undt:r challenge the High Court answered the following 
qnt.:stion, reforred to it unde

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