OORUTTAMBALAM SERVICE CO OPERATIVE BANK LTD. vs. THE CENTRAL BOARD OF DIRECT TAXES

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WP(C)/1297/2021HC KeralaKLHC01003632202129 November 2021Author: HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS6 pages
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What did the High Court hold?

The High Court held that the rectification order passed by the Appellate Authority under Section 154 of the Income Tax Act, 1961, was patently incorrect. The Court reasoned that the Supreme Court's judgment in Mavilayi Service Co-operative Bank Ltd. (2021) declared the correct law, which effectively relates back to the period when the relevant provisions were in force. Consequently, the Appellate Authority had no option to resort to Section 154 to rectify its earlier order, which had correctly allowed the deduction under Section 80P based on the Chirakkal Service Co-operative Bank Ltd. decision. The Supreme Court had held that for Section 80P deduction, an assessee merely needs to be a co-operative society, and further classification or the specific nature of credit facilities is not a prerequisite. Therefore, the rectification order (Ext.P5) was set aside as it was against the law declared by the Supreme Court. The Court also noted that since Ext.P5 was being set aside, the original order of the Appellate Authority allowing the deduction would revive, obviating the need for a remand.

What were the facts?

The petitioner, Ooruttambalam Service Co-operative Bank Ltd., claimed deduction under Section 80P of the Income Tax Act, 1961, for assessment year 2011-12. The Income Tax Officer rejected the claim, finding the petitioner was not a primary agricultural credit society. The Commissioner of Income Tax (Appeals) initially allowed the petitioner's appeal, relying on the High Court's decision in Chirakkal Service Co-operative Bank Ltd. Subsequently, a Full Bench of the High Court overruled Chirakkal. The Appellate Authority then rectified its earlier order under Section 154, disallowing the deduction based on the Full Bench's decision. This rectification order is challenged in the present writ petition. Crucially, the Supreme Court later reversed the Full Bench's decision in Mavilayi Service Co-operative Bank Ltd. and restored the position of law as laid down in Chirakkal.

What were the issues?

1. Whether the rectification order passed by the Appellate Authority under Section 154 of the Income Tax Act, 1961, is valid, given the subsequent reversal of the High Court's Full Bench decision by the Supreme Court? Assessee's Contentions: The assessee argues that the rectification order is patently incorrect because the Supreme Court's judgment in Mavilayi Service Co-operative Bank Ltd. (2021) declared the law, and this declaration relates back to the time the section was in force. Therefore, the Appellate Authority's initial decision allowing the deduction under Section 80P, based on the Chirakkal case, was correct. The assessee relies on the Supreme Court's ruling that for Section 80P eligibility, an assessee only needs to be a co-operative society, and the classification or nature of credit facilities provided is not a determining factor. The Supreme Court's judgment in Mavilayi 2021 is the primary authority relied upon. Revenue's Contentions: The judgment does not record specific contentions made by the revenue in this writ petition. However, the revenue's position, as reflected in the rectification order, was that the petitioner was not entitled to the deduction under Section 80P because the certificate from the Registrar of Co-operative Societies was insufficient to classify it as a primary agricultural credit society, and the Full Bench decision of the High Court supported this view.

Which sections of the Income-tax Act were involved?

Section 80P,Section 154

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, 1989 (42

NO.AAAA01130G DATED 28.12.2016 ISSUED FOR THE YEAR 2011-12 BY THE 2ND RESPONDENT TO THE PETITIONER. EXHIBIT P3OF THE APPEAL FOR THE YEAR 2011-12 DATED 28.1.2017 FILED BEFORE THE 3RD RESPONDENT BY THE PETITIONER. EXHIBIT P4OF THE ORDER IN APPEAL NO.ITA NO.254/EF/TVM/CIT (A)/TVM/2016-17 DATED 5.3.2019 FOR THE YEAR 2011-12 OF THE 3RD RESPONDENT. EXHIBIT P5OF

THE ORDER

ITA NO.254/EF/TVM/CIT(A)/TVM/2016-17 DATED 3.9.2019 FOR THE YEAR 2011-12 OF THE 3RD RESPONDENT.

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