THE HARYANA STATE COOP.SUPPLY AND MARKET vs. CHIEF COMMISSIONER OF INCOME TAX PKL.

Facts

The petitioner, Haryana Marketing Federation Limited (HAFED), a cooperative society, filed a writ petition seeking directions to allow its waiver petition for interest under Sections 234-B and 234-C of the Income Tax Act, 1961, for assessment years 1996-97, 1997-98, and 1998-99. HAFED had been availing exemption under Section 80(P)(2)(a)(iii) of the Act since its inception, based on High Court and Supreme Court judgments. However, for AY 1998-99, the Assessing Officer disallowed the deduction based on an amended Section 80(P)(2)(a)(iii) and charged interest. The waiver petition was rejected by an order dated 15.07.2002.

Held

The Tribunal held that the impugned order rejecting the waiver of interest was unsustainable because it was based on a Supreme Court judgment (Assam Cooperative Apex Marketing Society Limited) that has since been overruled. The Tribunal noted that as of the present, it is settled law that cooperative societies like the petitioner are entitled to exemption from tax. Therefore, there was no occasion for the petitioner to deposit advance tax. Consequently, the rejection of the waiver of interest under Sections 234-B and 234-C for assessment years 1996-97, 1997-98, and 1998-99 was wrongful. The Tribunal quashed and set aside the order dated 15.07.2002, holding that the petitioner society is entitled to claim the waiver of interest for the specified period. The ratio decidendi is that if the basis for disallowing a deduction and charging interest is an overruled judgment, the waiver of interest should be granted, especially when subsequent settled law confirms the assessee's entitlement to the deduction.

Key Issues

1. Whether the rejection of the waiver petition for interest under Sections 234-B and 234-C for assessment years 1996-97, 1997-98, and 1998-99 was sustainable, given the retrospective amendment of Section 80(P)(2)(a)(iii) of the Income Tax Act, 1961. Assessee's Arguments: - The petitioner argued that interest was wrongly charged due to a retrospective amendment of the law. They relied on a CBDT Circular dated 23.05.1996 (under Section 119) which suggests waiver of interest in such cases where an assessee becomes liable due to retrospective amendments or Supreme Court decisions. - They further contended that a previous writ petition for waiver of interest for AYs 1991-92 to 1993-94 was allowed, establishing a precedent. - The petitioner argued that they had not paid advance tax based on existing High Court and Supreme Court judgments, and the retrospective amendment should not lead to penal interest. Revenue's Arguments: - The revenue contended that the exemption under Section 80(P)(2)(a)(iii) was disallowed based on the Supreme Court judgment in Assam Cooperative Apex Marketing Society Limited vs Commissioner of Income-Tax (Addl.) 201 ITR 338, which impliedly overruled the High Court's view that only primary societies were eligible. - They stated that while the Assam Cooperative case was later overruled by the Supreme Court in Kerala State Cooperative Marketing Federation Limited’s case, the amendment to Section 80(P)(2)(a)(iii) was retrospective from 01.04.1968, meaning the apex society like the petitioner was not entitled to exemption for AYs 1996-97 onwards, as the benefit was only available until the law was in force.