V.K.SINGHAL, J. - (1.) THE Tribunal has referred the following question of law arising out of its order dt. 16th July, 1986 in respect of asst. year 1977 -78 under S. 256(1) of the INCOME TAX ACT, 1961 : "Whether, on the facts and in the circumstances of the case and the business of the assessee being one and indivisible, the Tribunal was right in law in holding that the expenses have to be allocated in the same percentage as the different sources of income and are not to be allowed in entirely as allowed by the CIT(A) after following decisions noted in para 11 of the order dt. 31st Jan., 1980 for the asst. yrs. 1974 -75, 1975 -76 and 1980 -81 ?''
(2.) THE brief facts of the case are that the assessee is State Government owned Corporation which derives its income from letting out of the warehouses. It also earned the income from interest and administrative charges for procurement of food grain which work was done by the assessee on behalf of the Food Corporation of India as well as the State Government. The various sources of income were claimed to be exempt under S. 10(29) of the IT Act. Alternatively it was also claimed that, in case the part of the income is to be treated as exempted income under S. 10(29) then the expenses incurred for earning all the incomes should be allowed in toto. In this year the assessee has shown the income under the various heads in the P&L account as per details given below : The ITO found that the income on account of letting out of warehouses alone is exempt and the other incomes, namely, the interest, administrative overheads, supervision charges etc. aggregating to Rs. 38,13,555.17, is not covered by the provisions of S. 10(29). In this respect, the matter is being separately considered. The total income which was considered as not exempt was found to be Rs. 38,13,555.17 as per details given below : . Rs. (i) By Warehousing charges 1,48, 10,084.35 (ii) By fumigation service charges 3,511.90 (iii) By interest 8,38,475.82 (iv) By supervision charges 78,617.86 (v) Administrative overhead 29,18,391.28 (vi) By misc. charges of gunnies 56.30 . Rs. (i) Interest after deducting interest paid 7,58,202.52 (ii) Misc. income 58,287.26 (iii) Supervision charges 78,617.86
(3.) THE claim of the assessee for allowing the entire expenses incurred in respect of all the categories of the income was not allowed and the ITO allowed the expenditure on proportionate basis for taxable and non -taxable income which was common to both the categories of income and the expenditure directly relating to warehousing charges was allowed in full. The appeal before the CIT(A) -II was allowed and since the entire income was held by the appellate authority as exempt under S. 10(29), the matter with regard to the expenditure was not considered in the appeal so allowed. It may be noted that in respect of the appeals for 1974 -75, 1975 -76 and 1980 -81 relying upon the decision of the Punjab & Haryana High Court in the case of Punjab State Marketing Federation vs. CIT (1980) 18 CTR (P&H) 71 : (1981) 128 ITR 189 (P&H) against which the special leave petition was dismissed [(1983) 143 ITR (St) 64]. The CIT(A) was of the view that the ITO was not justified in allowing the proportionate expenses against the taxable income and the entire expenses were held to be admissible. The Punjab & Haryana High Court in the case of Punjab State Marketing Federation (supra) has observed, "If the business of the assessee is one and in pursuing various activities the assessee incurs expenditure wholly or exclusively for the purpose of the business irrespective of the fact that the income from one or more parts of the activities is not liable to income -tax, the entire expenditure incurred by the assessee in connection with business has to be allowed.";