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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI G.S. PANNU & SHRI SANDEEP GOSAIN
PER G.S. PANNU, VICE PRESIDENT
The captioned appeal preferred by the assessee is directed against the order passed by the CIT(A)-III, Mumbai dated 23.03.2007, which in turn, arises out of an order passed by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) dated 20.01.2005 for previous year relevant to assessment year 2002-03.
In this appeal, the assessee has raised the following Grounds of appeal:-
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“1:0 Re. : Erroneous taxation of income : 1:1 The Commissioner of Income-tax (Appeals) has erred in upholding the action of the Assessing Officer of taxing the income of the Appellant for the year under consideration.
1:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, its income upto 31 March 2002 was not taxable under the provisions of the Income-tax Act, 1961 in view of the non- obstante provisions of section 55 of the ‘National Bank for Agriculture and Rural Development Act, 1981’ and the Commissioner of Income-tax (Appeals) ought to have held as such.
1:3 The Appellant submits that the Assessment Order bringing its income for the year to tax be struck down as bad in law.”
Briefly put, the relevant facts are that assessee was established by the NABARD Act, 1981 for providing credit towards promotion of agriculture, small scale industries, cottage and village industries, handicrafts, other rural crafts and other allied economic activities in rural areas with a view to promoting integrated rural development and securing prosperity of rural areas. It filed the return of income for assessment year 2002-03 on 31.10.2002 declaring total income at Rs. 103216.03 lakhs, but in the course of assessment, the contention of the assessee was that the omission of Section 55 of NABARD Act, 1981 was with effect from 1st April 2002; thus, the provisions of Section 55 of NABARD Act, 1981 (under which the income of NABARD was exempted from income tax) continued to be in force and applicable till 31st March 2002. In other words, as per the assessee, the omission of Section 55 of NABARD Act, 1981 being with effect from 1st April 2002, the income of NABARD earned upto 31st March, 2002 continued to be exempt from payment of income tax in the instant assessment year and only the income earned by the Bank from 1st April
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2002 can be subject to income tax. However, the Assessing Officer did not accept the contentions of the assessee. According to him, the law applicable to assessment is the law as it stands in the year of assessment and not during the year in which the income was earned. Since the amendment to the NABARD Act, 1981 was made effective from 1.4.2002, it would be applicable to the appellant for assessment year 2002-03. Therefore, according to him, the income of the appellant for assessment year 2002-03 would be taxable under the Income tax Act, 1961.
Aggrieved by the same, assessee preferred an appeal before the CIT(A) wherein the action of the Assessing Officer has been upheld. Initially, the assessee did not prefer further appeal against the order of the CIT(A), on being advised by the then tax consultants, that it did not have a good case on this ground. Subsequently, the Tribunal in the case of National Housing Bank vs. ACIT (ITA No. 1972/Del/2007 dated 26.02.2009), under identical facts and circumstances, held that the income of National Housing Bank was liable to tax only from assessment year 2003-04 onwards. This decision relied on an unreported decision of this Bench in the case of Export Import Bank of India vs. JCIT, ITA No.7360/Mum/2005 order dated 18.06.2008. In this background, the assessee preferred to file instant appeal before the Tribunal against the order of the CIT(A) dated 23.03.2007 on 28.06.2010, i.e. after a delay of 1064 days. The assessee has also filed application seeking condonation of delay alongwith the two Affidavits of the Managing Director of the assessee, Mr. Krishna Karmarka dated 28.05.2010 and 02.07.2010 explaining the reason for delay in filing the present appeal.
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Before us, the learned Representative for the assessee drew our attention to the factual matrix, which we have discussed above. Thereafter, our attention was drawn to the request for condonation of delay and two Affidavits of the Managing Director of the assessee. The Affidavit dated 28.05.2010 reads as under: “….. 2. THAT I am the MANAGING DIRECTOR of NABARD.
THAT for the Assessment Year 2002-03 relevant to the accounting year ended on 31 March 2002 a return of income was filed by NABARD in respect of its income for the year ended 31 March 2002 under protest. The statement showing computation of total income had the following note clarifying the stand of NABARD.
"The National Bank for Agricultural and Rural Development contends that its income for the financial year ended 31st March 2002 is not liable to Income Tax by virtue of the exemption under section 55 of the NABARD Act. Since section 55 of the NABARD Act has been omitted with effect from 1 April 2002, the exemption from taxes is available to the Bank in respect of its income derived or received by it till 31 March2002.In the unlikely event of the Income Tax Department not accepting the contention of the Bank, the computation of income as per the provisions of the Income Tax Act,1961 for the financial year is given hereunder."
A copy of the statement showing computation of total income is attached herewith- refer "Exhibit- A"
THAT an assessment was framed on NABARD for the said year in terms of an Assessment Order dated 20 January 2005 passed u/s. 143(3) of the Income-tax Act,1961
THAT the said Assessment Order was appealed against by NABARD to the Commissioner of Income-tax (Appeals) on various issues inter-alia raising therein aground relating to its claim of non-taxability for the year in light of 4
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section 55 of the National Bank of Agriculture and Rural Development Act, 1981
THAT the Commissioner of Income-tax (Appeals) vide his Order dated 23 March 2007 partially allowed the appeal of NABARD interalia deciding the aforesaid ground of appeal against NABARD.
That no appeal was filed by NABARD to the Income Tax Appellate Tribunal against the Order of the Commissioner of Income-tax (Appeals) thereby not even challenging the finding of the Commissioner of Income-tax (Appeals) in view of the fact that it was orally advised by its then tax consultants that it did not have a good case on this ground.
THAT subsequently our attention was once again drawn to the phraseology of section 55 of the NABARD Act, 1981 as it stood before its deletion by 'the Finance Act, 2001' and also the provisions of section 140 of 'the Finance Act, 2001' in terms of which the said section 55 was deleted and it was pointed out to us that in consonance thereof the income of NABARD for the year ended 31 March 2002 was not liable for tax under the Income- tax Act, 1961 and also to the decision of Delhi bench of the Income-tax Appellate Tribunal in the case of National Housing Bank v/s. ACIT (ITA No. 1972/Del/2007) wherein in identical facts and circumstances the Hon'ble Tribunal has held that the income of National Housing Bank was liable to tax only from Assessment Year 2003-04. The decision interalia relies on the unreported decision of the Mumbai bench of the Income Tax Appellate Tribunal in the case of Export Import Bank of India v/s. JCIT (ITA No. 7360/Mum/2005)”
From above, it can be seen that the assessee chose not to file the appeal before the Tribunal based on the oral advice of the consultant that filing appeal before the Tribunal will not be fruitful. Subsequently, since the Tribunal decided the issue in favour of the assessee in another case, the assessee was advised to file the appeal before the Tribunal. As such, delay in filing the appeal was solely due to the bona fide and genuine belief and that no 5
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mala fide intentions were involved. In this regard, the learned Representative placed reliance on the following decisions wherein delay in filing appeal before the Tribunal due to the subsequent decision of the Tribunal / High Court / Apex Court was condoned:-
a) Magnum Exports vs. ACIT, ITA No. 1111/Kol/2012; b) My Favourite Lady Exports Pvt. Ltd. vs. ITO, ITA No. 5152/Mum/2014; c) Pahilajal Jaikishan vs. JCIT, ITA No. 1392/Mum/2012; d) Surajmal Exports vs. ACIT, ITA No. 410/Kol/2013; and, e) Nulux Engineers vs. Addl. CIT, ITA No. 2309/Mum/2012 & ITA No.7341/Mum/2014.
In light of the above decisions, the learned Representative for the assessee requested to condone the delay in filing the appeal.
Per Contra, the learned DR objected to the condonation of delay and relied on the decision of our co-ordinate bench in the case of Kunal Surana vs. ITO in ITA No. 3297/Mum/2012 wherein the Tribunal rejected the condonation of delay of four months in filing the appeal before the CIT(A).
We have carefully considered the rival submissions and pursued the material on record. At the outset, we find that undisputedly there is a delay of 1064 days in filing of appeal before us. So, firstly we shall deal with the assessee’s request for condonation of delay in filing the appeal. As discussed in the earlier part of the order, the delay in filing appeal before us was solely on the ground that the CIT(A) has decided the issue against the assessee; and, as such, based on the advice of the consultant, assessee did not prefer further appeal before the Tribunal. On subsequent favorable decisions of the Tribunal 6
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in the cases of National Housing Bank vs ACIT (supra) as well as Export Import Bank of India vs. JCIT (supra), the assessee was advised to file the appeal before the Tribunal, and accordingly assessee filed the appeal before us after a delay of 1064 days. The learned Representative relied on various decision of the Tribunal to hold that the delay in filing appeal due to subsequent decisions of the ITAT/High Court is a valid ground for condonation of delay and on this ground various Tribunal have condoned the delay. Notably, the factual matrix explained by the assessee due to which there was delay in filing the appeal has not been controverted. We shall thus now examine whether the reason cited by the assessee is good ground for delay in filing the appeal and whether the delay in filing the appeal before us is condonable.
In the case of Magnum Exports (supra), relied upon by the learned Representative for the assessee, the Kolkata Bench of the Tribunal condoned a delay of 2017 days in filing the appeal before it. In that case also, the assessee filed delayed appeal due to the subsequent decision of the Hon'ble Supreme Court. Since the facts of the present case and facts in the case of decision of the Kolkata Bench of the Tribunal in case of Magnum Exports (supra) and in the decision of our co-ordinate bench in the case of Pahilajrai Jaikishin (supra) are quite similar, following the said decisions we hereby in the interest of the justice condone the delay of 1064 days in filing the appeal and admit the appeal of the assessee. Moreover, at no stage of the proceedings, the bona fides of the reason advanced by the assessee has been assailed or doubted by the Revenue. It is also noteworthy that it is not the length of delay but the quality and bona fides of the reasons for delay, which are of paramount importance while considering application seeking condonation of delay. Thus,
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having regard to the facts and circumstances of the instant case, we have deemed it fit to condone the delay.
As regards the decision of our co-ordinate bench in the case of Kunal Surana (supra) relied upon by the learned DR, we find that the said case is distinguishable on facts in as much as in the said case, it has been observed by our co-ordinate bench that the delay in filing the appeal by the assessee was on account of gross negligence, inaction and laches on the part of the assessee and his representatives whereas in the present case, the circumstances do not show any gross negligence on the part of the assessee. As such, the decision relied on by the learned DR is of no relevance in the present case.
Coming to the sole Ground of appeal of the assessee that the CIT(A) erred in upholding the action of the Assessing Officer of taxing the income of the assessee for the year under consideration, the learned Representative for the assessee took us through Section 55 of the NABARD Act, 1981 which stands omitted w.e.f. 1.4.2002. He submitted that the assessee is incorporated as per the specific legislation enacted by the Parliament and the assessee has been given full exemption from income-tax by virtue of Section 55 which was omitted w.e.f. 1.4.2002. The learned Representative submitted that an identical issue has been considered by our co-ordinate bench in the case of M/s. Export Import Bank of India (supra). Though the said decision is rendered in the context of Sec.37 of the Export Import Bank of India, 1981, he submitted that Sec. 37 of the Export Import Bank of India, 1981 was pari materia with Sec. 55 of the NABARD Act, 1981; and, as per the principles laid down in the case of Export Import Bank of India (supra), assessee's income cannot be
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brought to tax under the Income-tax Act, 1961. We have also heard the learned DR, who has reiterated the reasoning taken by the Assessing Officer, which we have already noted in the earlier part of this order, and the same is not being repeated for the sake of brevity.
Sec.55 of the NABARD Act, 1981, before its omission w.e.f. 1.4.2002, read as under:-
“55. Notwithstanding anything contained in the Income-tax Act,1961 or the Companies (Profits) Surtax Act, 1964, or any other enactment for the time being in force relating to tax on income, profits or gains, the National Bank shall not be liable to pay income-tax, surtax or any other tax in respect of any income, profits or gains derived or any amount received by the National Bank.”
In the case of Export Import Bank of India (supra), the said corporation was also established by the Act of the Parliament and Section 37 of the Export Import Bank of India Act, 1981 provided exemption of the income from the payment of various taxes including income-tax. Present Sec.55 of the NABARD Act, 1981 is pari materia with Sec. 37 of the Export Import Bank of India Act, 1981. In the said case also, the controversy arose because Sec. 37 was omitted from the Export Import Bank of India Act, 1981 w.e.f. 1.4.1999. Therein the assessee claimed that the said omission will have the effect from assessment year 2000-01 and so far as the assessment year 1999-2000 was concerned, the assessee was entitled for exemption of its income as provided under Section 37 of the Export Import Bank of India Act, 1981. Our co-ordinate bench dealt with the aforesaid aspect as under:-
“8. We are also in agreement with the contention of the learned counsel for the assessee that non obstante provisions would always override the other 9
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general provisions in case of any conflict or inconsistency between the non obstante provisions and the other provisions. This legal position is supported by various decisions of High Courts relied upon by counsel for the assessee. Section 37 of Exim Bank Act, being non obstante provisions, would prevail over the provisions of the Income-tax Act. Consequently, in our opinion, so long as the provisions of section 37 of Exim Bank Act remain in force, the exemption from payment of income-tax cannot be denied.
Let us now understand the impact of section 37 of Exim Bank Act which, even at the cost of repetition, is being reproduced as under:
"S. 37 "Notwithstanding anything contained in the Income-tax Act, 1961, or the Companies (Profits Surtax Act, 1964 or any other enactment for the time being in force relating to tax on income, profits or gains, the Exim Bank shall not be liable to pay Income-tax, surtax or any other tax in respect of
(a) any income, profits or gains accruing to the Export Development Fund or any amount received to the credit of that Fund; and
(b) any income profits or gains derived, or any amount received by the Exim Bank.
The perusal of the section shows that:
This is an obstante provision and, therefore, in case of any conflict or inconsistency between the provisions of section 37 of Exim Bank Act and the provisions of Income-tax Act, the provisions of section 37 of Exim Bank Act would prevail
Section 37 of Exim Bank Act exempts the assessee from payment of income-tax, surtax or any other tax in respect of any income profits or gains derived, or any amount received by it.
In view of the above, we are of the view that if any income is derived by the assessee during the period when the provisions of section 37 were in existence on the statute book, then the assessee would not be liable to pay any income-tax in respect of such income irrespective of any provisions of the 10
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Income-tax Act because of overriding effect of the provisions of section 37 of Exim Bank Act. Since the provisions of section 37 of Exim Bank Act were omitted from 1.4.1999, in our opinion, the assessee cannot be asked to pay the income-tax in respect of the income derived by the assessee during the period ending 31.3.1999.
Further, a close reading of the above section reveals that it does not exempt the income of the assessee from the charging provisions of the Income-tax Act but only exempts the assessee from payment of such tax in respect of the income derived by the assessee during the period in which such provisions are in force. That means that income of the assessee may be computed as per the provisions of Income-tax Act but the income-tax payable thereon would not be payable by the assessee. Therefore, the assessee cannot be asked to pay the income-tax payable in respect of the income derived up to 31.3.1999.
Further, the words 'derived' or 'any amount received' in the above section are important. If section 37 is read independently, would mean such income derived or amount received during the period in which such provisions remain in force. If the contention the Revenue is accepted then it would amount holding such provisions as otiose during the period 1.4.1998 to 31.3.1999. In our opinion, such cannot be the intention of the Legislature. The object and intention of the Legislature was to exempt the assessee from the payment of income-tax on the income earned during the period in which such provisions remain in force
Therefore, if the provisions of both the enactments are construed harmoniously, the result would be that though the income of the assessee may be chargeable to tax as per the of the provisions of the Income-tax Act, the income-tax in respect of the income derived or received by the assessee during the period ending 31.3.1999 would not be payable by the assessee.
The view taken by us is fortified by the decision of the jurisdictional High Court in the case of McDermott International Inc. us. Union of India (supra). In that case, the assessee carried on its business activity onshore and offshore. In the financial year 1982-83, the activity of the assessee was in the offshore at a distance about 100 nautical miles from the Indian coastline. As 11
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per the provisions of the Territorial Water, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (hereafter called as 1976 Act), the limit of territorial waters was 12 nautical miles from the nearest point of the appropriate baseline. However, under section 6(1) of 1976 Act, the limit of territorial waters was extended to 200 nautical miles from the nearest baseline. By notification dated 31.3.1983, issued in exercise of the powers under the provisions of sections 6 and 7 of the 1976 Act, the Central Government extended the Income-tax Act to the Continental Shelf of India with effect from 1.4.1983. In view of such notification, the Assessing Officer was of the view that income of the assessee from assessment year 1983-84 became chargeable to tax under the provisions of the Income-tax. The assessee challenged the action of the Assessing Officer on the ground that up to 31.3.1983, the Income-tax Act was not applicable to the territorial waters where the business of the assessee was carried on. The Hon'ble Bombay High Court decided the issue in favour of the assessee by observing as under:
"The first question which requires determination is whether by virtue of the notification which came into effect from April 1, 1983, the income which has accrued within the area of continental shelf or economic zone, but beyond the territorial waters of India, in the accounting year April 1982 to March, 31, 1983, is subject to income-tax under the Income-tax Act, this period is undoubtedly the assessment year 1983-84 (April 1, 1983 to March 31, 1984) when the Income-tax Act 1961. The relevant assessment year for applicable. But, income-tax is actually levied on income which accrued during the previous accounting year which is April 1, 1982 to March, 31, 1983. As the territory in which income arose was beyond 12 nautical miles, the Income-tax Act was not applicable to such income during this accounting year. Income-tax, therefore, cannot be levied on income which accrued during the period when the territory in which it accrued was not governed by the Income- tax Act, 1961.
Similar view has been taken by the hon'ble Madras High Court in the case of CIT Us. Ronald William Trikard & Others & (supra) as well as by hon'ble Allahabad High Court in the case of CIT vs. E Hammet (supra). It may also be noted that similar issue also arose in the case of the assessee with reference to payment of income-tax for the year under 12
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consideration and the Tribunal, vide order dated 14.3.2007 in I.T.A. No.52/Mum/2005, held that the assessee was not liable to pay such tax for the period ending 31.3. 1999.”
In the present case also, Sec. 55 of the NABARD Act, 1981 has been deleted w.e.f. 1.4.2002 and hence, so far as assessment year 2002-03 is concerned, in our view, the assessee's income is not liable to income-tax as per provisions of Income-tax Act, 1961. Accordingly, we allow the appeal of the assessee on the ground of applicability of Sec.55 of NABARD Act, 1981 and hold that no tax is payable by the assessee under the Income Tax Act, 1961 for assessment year 2002-03.
In the result, appeal of the assessee is allowed, as above.
Order pronounced in the open court on 30th August, 2019.
Sd/- Sd/- (SANDEEP GOSAIN) (G.S. PANNU) JUDICIAL MEMBER VICE PRESIDENT Mumbai, Date : 30th August, 2019 *SSL* Copy to : 1) The Appellant 2) The Respondent 3) The CIT(A) concerned 4) The CIT concerned 5) The D.R, “B” Bench, Mumbai 6) Guard file By Order
Dy./Asstt. Registrar I.T.A.T, Mumbai 13