THONNAKKAL AGRICULTURAL CREDIT CO-OPERATIVE SOCIETY LTD vs. THE CENTRAL BOARD OF DIRECT TAXES

Relying upon the decision of this Court in Chirakkal Service Co-operative Bank Ltd., Kannur v. Commissioner of Income Tax (2016 (2) KHC 726), the Appellate Authority allowed the appeal and set aside the assessment order. In the meantime, the decision in Chirakkal Service Co-operative Bank Ltd., Kannur v. Commissioner of Income Tax (supra) was referred for consideration before a Full Bench of this Court. By judgment in Mavilayi Service Co-operative Bank Ltd. v. Commissioner of Income Tax, Calicut (2019 (2) KHC 287), the Full Bench declared that the law laid down by the Division Bench in Chirakkal Service Co-operative Bank Ltd., Kannur v. Commissioner of Income Tax (supra) was not good law and overruled the same.

On noticing the reversal of the law, the Appellate Authority relying upon the decision of this Court in Kil Kotagiri Tea & Coffee Estates Co. Ltd. v. Income Tax Appellate Tribunal (1989 (42) Taxman 33) held that its earlier decision in the statutory appeal amounted to a mistake apparent on the face of the record due to the subsequent decision rendered by the Full Bench and therefore constitutes a ground for rectification under section 154 of the Act. Thereafter the Appellate Authority, in exercise of the powers of rectification held that the petitioner was not entitled for the deduction claimed under section 80P of the Act on the ground that the certificate produced from the Registrar of Co-operative Societies was not sufficient to treat the petitioner as a primary agricultural credit society. The said order of rectification under section 154 of the Act issued by the Appellate Authority is impugned in this writ petition.

It is necessary to mention that, in the meantime, the Full Bench decision in Mavilayi Service Co-operative Bank Ltd. v. Commissioner of Income Tax, Calicut (supra) was reversed by the Supreme Court and held that the decision of the Full Bench of this Court in (2019 (2) KHC 287) does not lay down the correct law and restored the position of law as declared by Chirakkal Service Co- operative Bank Ltd., Kannur v. Commissioner of Income Tax (supra). The present writ petition is filed, in view of the change of law, brought in on account of the judgment of the Supreme Court in Mavilayi Service Co-operative Bank Ltd. v. Commissioner of Income Tax (2021 (1) KLT 485) (hereinafter referred to as Mavilayi 2021).

In the aforesaid judgment, the Supreme court held that for the purpose of eligibility for deduction under section 80P, the assessee must be a co-operative society, and for that purpose, it was unnecessary to prove any further as to whether the co-operative society is classified as 'X' or 'Y'. It was also held that the expression 'providing credit facilities to its members' does not necessarily mean an agricultural credit alone and that section 80P being a beneficial provision, must be construed with the object of furthering the co- operative movement generally.

In view of the declaration of law by the Supreme Court in Mavilayi 2021, the rectification carried out by the Appellate Authority is patently incorrect. There was no option for the Appellate Authority to resort to section 154 since by virtue of declaration of law by the Supreme Court, it is presumed that the said declaration relates back to the time from which the section was in force. Viewed in such a manner, the judgment of the Appellate Authority at the first instance relying upon the decision in Chirakkal Service Co-operative Bank Ltd., Kannur v. Commissioner of Income Tax (supra) holding that petitioner was entitled for deduction under section 80P is correct.

Since this Court is setting aside Ext.P6, the order of the Appellate Authority at the first instance will revive and hence there is no requirement to direct a reconsideration. This writ petition is allowed as above. BECHU KURIAN THOMAS JUDGE vps