COMMISSIONER OF INCOME TAX vs. SRI VASAVI MULTIPURPOSE SOUHARDA SAHAKARI

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ITA/505/2013HC KarnatakaKAHC01042840201327 June 2014Bench: B.MANOHAR,N.KUMAR6 pages
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What did the High Court hold?

The High Court held in favour of the assessee on both substantial questions of law. Regarding the first question, the Court referred to its prior decision in ITA No.5006/2013 (Commissioner of Income Tax vs. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot). It reiterated that if a cooperative society is not exclusively carrying on banking business and does not possess a Reserve Bank of India license, it is considered a cooperative society providing credit facilities to its members, covered under Section 80P(2)(a)(i). The amendment to Section 80P(4) was not intended to deny this benefit to such societies. Therefore, the assessee was entitled to the deduction. For the second question, the Court held that if the assessee is a cooperative society and not a cooperative bank, and the assessment order granting the Section 80P deduction is correct, then the assessment order cannot be considered prejudicial to the revenue. Consequently, the revisional authority's order under Section 263 was without jurisdiction, and the Tribunal rightly set it aside. The operative direction was to answer the substantial questions of law in favour of the assessee and against the revenue.

What were the facts?

The Revenue, comprising the Commissioner of Income Tax and the Income Tax Officer, appealed against an order of the Income Tax Appellate Tribunal (ITAT). The ITAT had granted the assessee, Vasavi Multipurpose Souharda Sahakari Niyamita, a deduction under Section 80P of the Income Tax Act, 1961. Additionally, the ITAT held that the Commissioner of Income Tax had erred in exercising jurisdiction under Section 263 of the Act. The assessment year in question is 2007-2008. The appeal challenges the ITAT's decision to allow the deduction and to cancel the order passed under Section 263.

What were the issues?

The Tribunal had to decide two substantial questions of law: 1. Whether, in the circumstances of the case, the Tribunal is right in holding that the assessee is entitled to deduction under Section 80P, ignoring the provisions of Section 80P(4) read with Section 2(24)(viia) introduced with effect from 01.04.2007? 2. Whether the Tribunal is right in cancelling the order passed under Section 263 on the ground that the assessment order passed is not prejudicial to the interests of the revenue, despite detailed reasons recorded in the order under Section 263 as to how the assessment order was prejudicial to the revenue? Assessee's Contentions: The judgment does not record specific contentions for the assessee. However, the Tribunal's decision implies the assessee argued for the eligibility of the Section 80P deduction and that the Section 263 order was not justified. Revenue's Contentions: The Revenue contended that the Tribunal erred in allowing the deduction under Section 80P by overlooking the amended provisions of Section 80P(4) and Section 2(24)(viia). The Revenue also argued that the Tribunal was incorrect in cancelling the Section 263 order, as the assessment order was indeed prejudicial to the revenue.

Which sections of the Income-tax Act were involved?

Section 80P,Section 263,Section 2(24)(viia),Section 80P(4),Section 80P(2)(a)(i)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KARNATAKA AT BANGALORE

DATED THIS THE 27TH DAY OF JUNE, 2014 PRESENT

THE HON’BLE MR. JUSTICE N KUMAR

AND

THE HON’BLE MR. JUSTICE B MANOHAR

ITA NO. 505/2013

BETWEEN:

1.

The Commissioner of Income Tax

No.55/1, ‘Shilashree’, Vidyarany Complex,

Vishveshwaranagar,

Mysore 570 008.

2.

The Income Tax Officer

No.55/1, ‘Shilpashree’,

Vidhyaranya,

Vishveshwaranagar,

Mysore 570 008.

…Appellants

(By Sri E.I. Sanmathi, Adv.)

AND:

Vasavi Multipurpose Souharda Sahakari Niyamita, VVS Bhavan, Nekar Street, Chikkamagalur.

…Respondent

(By Sri K.R. Prasad, Adv.)

This ITA filed under Section 260-A of I.T. Act, 1961 arising out of order dated 10.05.2013 passed in ITA No.97/Bang/2013, for the Assessment year 2007-2008, praying to (i) formulate the substantial questions of law stated therein; (ii) set aside the appellate order dated 10.05.2013 passed by the ITAT, ‘C’ Bench, Bangalore in ITA No.97/Bang/2013.

This ITA coming on for hearing this day, N. KUMAR J delivered the following:

J U D G M E N T

This appeal is preferred by the revenue against the order passed by the Tribunal granting deduction under Section 80P of the Income Tax Act, 1961 (for short ‘the Act’) and also holding that the Commissioner of Income Tax committed an error in exercising its jurisdiction under Section 263 of the Act.

2.

The two substantial questions of law which arise for consideration are as under:

(i) “Whether in the circumstances of the case, the Tribunal is right in holding that assessee is entitled for deduction under Section 80P ignoring provisions of Section 80P(4) read with Section 2(24)(viia) introduced in statute with effect from 01.04.2007?

(ii) Whether the Tribunal is right in cancelling order passed under Section 263 on the ground that the assessment order passed is not prejudicial to the interests of revenue, though detailed reasons were recorded in order under Section 263 as to how the assessment order passed is prejudicial to interest of revenue?”

3.

Insofar as the first question of law is concerned, this Court had an occasion to consider the said question in ITA No.5006/2013 dated 05.02.2014 in the case of THE COMMISSIONER OF INCOME TAX vs. SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA,

BAGALKOT, where, after referring to the relevant provisions of the Income Tax Act, and the banking Regulation Act, held as under:

“If a Co-operative Bank is exclusively carrying banking business, then the income derived from the said business cannot be deducted in computing the total income of the assessee. The said income is liable for tax. A Co-operative bank as defined under the Banking Regulation Act includes the primary agricultural credit society or a primary co-operative agricultural rural development bank. The Legislature did not want to deny the said benefit to a primary agricultural credit society or a primary co-operative agricultural and rural development bank. They did not want to extend the said benefit to a co- operative bank which is exclusively carrying on banking business i.e., the purport of the amendment. If the assessee is not a Co-operative bank carrying on exclusively banking business and if it does not possess a license from the Reserve Bank of India to carry on business, then it is not a Co-operative bank. It is a Co-operative society which also carries on the business of

lending money to its members which is covered under Section 80P(2)(a)(i) i.e., carrying on the business of banking for providing credit facilitates to its members. The object of the aforesaid amendment is not to exclude the benefit extended under Section 80P(i) to the society.”

Therefore, the said issue was held in favour of the assessee and against the revenue.

4.

Insofar as the second question of law is concerned, in the aforesaid judgment this Court has held, when status of the assessee is a co-operative society and not a co-operative bank, the order passed by the Assessing Authority extending the benefit of the exemption from payment of tax under Section 80P(2)(a)(i) of the Act is correct. There is no error. When there is no error, question of order being prejudicial would not arise and therefore, the order passed by the revisional authority is not at all with jurisdiction and rightly the tribunal entertained the appeal

against this order and set aside the said order. The same holds good even in this case.

5.

Thus, the substantial question of law is answered in favour of the assessee and against the revenue.

(SD/-) JUDGE

(SD/-) JUDGE VP/-

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