THE PRINCIPAL COMMISSIONER OF INCOME TAX, KOTTAYAM vs. M/S.VAZHAPPALLY SERVICE CO-OPERATIVE BANK LTD
What did the High Court hold?
The High Court held that the principal question was no longer res integra, citing the Supreme Court's decision in Mavilayi Service Co-operative Bank Ltd v. Commissioner of Income Tax. The Court found that the ancillary argument to bring the case under exceptions was related to the includable interest earned by the assessee from members, non-members, or other sources. The Court reasoned that the consideration of the appeal would not have a cascading effect or limit the Department's discretion in subsequent assessment years. Referring to the Supreme Court's order in Civil Appeal No. 7526/2011, which allowed the Revenue liberty to seek review, and the judgment in S.C. Naregal v. Commissioner of Income Tax, which dismissed appeals within the purport of CBDT circulars, the High Court concluded that the appeal should be dismissed as it fell within the monetary limit prescribed by Circular No. 3/2018. The dismissal was subject to the observations made in the Supreme Court's order dated October 4, 2018.
What were the facts?
The appeal was filed by the Principal Commissioner of Income Tax (Revenue) against an order dated July 19, 2016, passed by the Income Tax Appellate Tribunal (ITAT), Cochin Bench, in ITA No. 191/Coch/2016. The appeal pertains to the assessment year 2010-11 and concerns the assessee, M/s. Vazhappally Service Co-operative Bank Ltd. The Revenue argued that the tax effect in the appeal was below the ceiling limit prescribed by CBDT circulars, but contended that exceptions applied, making the appeal maintainable. The High Court noted that the tax effect was below the ceiling limit and that the issue was covered by Supreme Court decisions.
What were the issues?
1. Whether the appeal filed by the Revenue is maintainable despite the tax effect being below the prescribed monetary limit, considering potential exceptions to the CBDT circulars? Assessee's Contentions: The judgment does not record any specific contentions made by the assessee's counsel. The focus of the arguments presented in the judgment is on the Revenue's submissions and the applicability of Supreme Court decisions. Revenue's Contentions: The Revenue, through its counsel, argued that exceptions outlined in Supreme Court decisions, such as Commissioner of Income Tax v. Surya Herbal Ltd., Commissioner of Income Tax v. Tarun R. Tahliani, and S.C. Naregal v. Commissioner of Income Tax, were attracted. These exceptions, according to the Revenue, would permit the appeal to be pursued even if the tax effect was below the ceiling limit, particularly if the matter had a cascading effect or involved a group of matters. The Revenue specifically argued that its case fell under the second exception, making the appeal maintainable.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI WEDNESDAY, THE 28TH DAY OF SEPTEMBER 2022 / 6TH ASWINA, 1944 ITA NO. 3 OF 2017 AGAINST THE ORDER ITA 191/2016 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S:
THE PRINCIPAL COMMISSIONER OF INCOME TAX, KOTTAYAM
BY ADVS.NAVNEETH N NATH SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S:
M/S.VAZHAPPALLY SERVICE CO-OPERATIVE BANK LTD VAZHAPPALLY,CHANGANACHERRY,DT.KOTTAYAM-686103.
BY ADVS.SRI RAJA KANNAN SRI.M.GOPIKRISHNAN NAMBIAR SRI.P.GOPINATH; SRI.K.JOHN MATHAI SRI.JOSON MANAVALAN; SRI.KURYAN THOMAS THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 28.09.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
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J U D G M E N T S.V. Bhatti, J. Heard Adv Navneeth N Nath, holding for learned Senior Advocate Mr P K R Menon, and learned Counsel Mr Raja Kannan for parties.
The Principal Commissioner of Income Tax/Revenue is the appellant. M/s.Vazhappally Service Co-operative Bank Ltd/assessee is the respondent. The appeal, at the instance of the Revenue, is directed against the order dated 19.07.2016 of the Income Tax Appellate Tribunal (for short ‘Tribunal’) Cochin Bench in ITA No.191/Coch/2016. The appeal relates to the return filed by the assessee for the Assessment Year 2010-11. The tax effect in the subject appeal is below the ceiling limit.
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Mr Navneeth N Nath canvasses that exceptions set out in the decisions are attracted, and invites our attention to the following decisions of the Apex Court: (1) Commissioner of Income Tax v. Surya Herbal Ltd1 “Liberty is given to the Department to move the High Court pointing out that the Circular dated February 9, 2011, should not be applied ipso facto, particularly, when the matter has a cascading effect. There are cases under the Income-tax Act, 1961, in which a common principle may be involved in subsequent group of matters or a large number of matters. In our view, in such cases if attention of the High Court is drawn, the High Court will not apply the Circular ipso facto. For that purpose, liberty is granted to the Department to move the High Court in two weeks. The special leave petition is, accordingly, disposed of. (2) Commissioner of Income Tax v. Tarun R. Tahliani2 “In these appeals, the tax effect is less than Rs. 1 Crore and are covered by Circular No. 3/2018 dated 11.07.2018 of the Central Board of Direct Taxes. These appeals are, accordingly, dismissed. However, it shall be
1 (2013) 350 ITR 300 (SC) 2 Order dated 04.10.2018 in Civil Appeal No.7526/2011
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open to the Income-Tax Department to seek review in any of these matters, if it is pointed out that the tax effect is more than Rs. 1 Crore. Pending applications, if any, stand disposed of. (3) S.C. Naregal v. Commissioner of Income Tax3 “Similar question came up for consideration before this court in DIT v. S.R. M. B. Dairy Farming (P.) Ltd. reported in [2018] 13 SCC 239¹. This court after considering the decisions of different High Courts, including the Supreme Court decision on the question involved, namely, CIT v. Surya Herbal Ltd. reported in [2011] 15 SCC 4822 answered the question in favour of the assessee in the following words: "We are of the view that the matter needs to be put to rest and a clarity be obtained in view of the impact of this issue on pending cases before the High Courts as well as the cases which have been disposed of by various High Courts by applying the circular of 2011 to pending litigations. In our view the matter has been squarely put to rest taking further care of the interest of the Revenue by the order passed by the three-judges Bench of this court in Surya Herbal Ltd. case, which had put two caveats even to the retrospective application of the circular. The subsequent
3 (2019) 418 ITR (SC)
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orders have been passed by the two judges Bench without those orders being brought to the notice of the court, a duty which was cast on the Department to have done so to avoid the ambiguity which has arisen. Thus, the said view of the three-judges Bench would hold water and the circular would apply even to pending matters but subject to the two caveats provided in Surya Herbal Ltd. case." The same interpretation must apply to the instructions under consideration. In the present case, there is no possibility of cascading effect nor the issue is involved in group of matters, as such. Therefore, the appeals are allowed.”
3.1 He argues that the case comes under the second exception and therefore the appeal, at the instance of the Revenue, is maintainable and could be pursued. 4. The principal question for decision is no more res integra in view of the principle laid down by the Apex Court in Mavilayi Service Co-operative Bank Ltd v. Commissioner of Income Tax4. The ancillary argument to bring the case under one or the
4 (2021) 431 ITR 1 (SC)
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other exceptions is regarding the includable interest earned by the assessee/Society either from members or non-members or income from registered Co-operative Society or from Treasury Bank etc. Examined from any standpoint, it cannot be said that the consideration of the subject appeal by referring to the Circular would in any way have either cascading effect or would limit the discretion of the Department in subsequent assessment years. The order of the Supreme Court in Civil Appeal No.7526/2011, while giving effect to Circular No.3/2019 dated 11.07.2018, has given liberty to the Revenue to seek review of the order made following the Circular.
4.1 The value in the appeal is less than the limit prescribed by CBDT Circular. The Supreme Court in the judgment reported in S.C.Naregal v Commissioner of Income Tax5 has considered the effect of CBDT Circular and dismissed the
5(2019) 418 455 (SC)
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appeal coming within the purport of CBDT Circular. The valuation of the subject appeal since is less than the limit stipulated by CBDT Circular, the judgment of Apex Court in S.C.Naregal (supra) is applicable to the appeal. By a combined reading of the reported decisions and the order of the Supreme Court dated 04.10.2018, we are of the view that the appeal could be dismissed as coming within the monetary limit prescribed in Circular No.3/2018, subject to the observations made in the order dated 04.10.2018 in Civil Appeal No.7526/2011.
Sd/- S.V.BHATTI JUDGE
Sd/- BASANT BALAJI JUDGE
jjj
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APPENDIX OF ITA 3/2017
PETITIONER ANNEXURES ANNEXURE A ASSESSMENT ORDER U/S.143(3) DT.26.03.2013. ANNEXURE B CIT (APPEALS) ORDER NO.T-67/TLA/CIT(A)/KTM/2013- 14 DT.10.02.2016. Annexure C ITAT'S ORDER NO.191/COCH/2016 DT. 19.07.2016.
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