THE PR. COMMISSIONER OF INCOME TAX CIT(A) vs M/S KARNATAKA JOURNALISTS

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 16TH DAY OF NOVEMBER 2016

PRESENT

THE HON’BLE MR.JUSTICE JAYANT PATEL AND THE HON’BLE MR.JUSTICE SREENIVAS HARISH KUMAR ITA NO.343 OF 2016 BETWEEN:

THE PR. COMMISSIONER OF INCOME-TAX 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BANGALORE-560 095. PRESENTLY AT ABOVE ADDRESS

THE INCOME-TAX OFFICER WARD-1 (2) (5), 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BANGALORE-560 095 PRESENTLY AT ABOVE ADDRESS ...APPELLANTS (BY SRI.DILIP, ADVOCATE FOR SRI.ARAVIND K V, ADVOCATE)

AND:

M/S KARNATAKA JOURNALISTS CO-OPERATIVE SOCIETY LTD.,

2 SUVARNA BHAVAN, NO.11/1, QUEEN’S ROAD, BANGALORE-560 052.

...RESPONDENT

THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:16/10/2015 PASSED IN ITA NO.739/BANG/2014, FOR THE ASSESSMENT YEAR 2009-2010 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE, ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN ITA NO.739/BANG/2014 DATED:16/10/2015 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-1(2)(5), BENGALURU AND TO PASS SUCH OTHER SUITABLE ORDERS AS THIS HON'BLE COURT DEEMS FIT TO GRANT IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE INTEREST OF JUSTICE AND EQUITY.

THIS APPEAL COMING ON FOR ORDERS THIS DAY, JAYANT PATEL J., DELIVERED THE FOLLOWING:

3 ORDER

The appellants-Revenue has preferred the present appeal by raising the following substantial question of law: “Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the assessee is entitled for benefit under section 80P of the Act and setting aside order passed under section 263 of the Act when the assessee failed to satisfy all the ingredients to claim such deduction and falls out side the purview of said section as per sub-section 4 of 80P of the Act and the proceedings initiated under section 263 of the Act by Commissioner satisfy all the ingredients of said section?”

We have heard Mr.Dilip, learned Counsel for Mr.K.V.Aravind, for the appellants.

It appears that in the impugned order passed by the Tribunal, the Tribunal has relied upon the earlier decision of this Court in case of The Commissioner of Income Tax Vs. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha in ITA No.5006/2013 decided on 05.02.2014 and based on the decision of this Court, the tribunal has allowed the appeal of the assessee by holding that the Assessing Officer had rightly allowed the deduction under Section 80P(2)(a)(i) of the Income Tax Act, and the Commissioner of Income-Tax wrongly assumed the jurisdiction under section 263 of the act. 4. We may record that this Court in the above referred decision observed from paragraphs-7 to 9 as under: “7. The only substantial question of law which arises for our consideration in this appeal is:-

5 In the facts and circumstances of this case, whether the Revisional Authority was justified in invoking his power under Section 263 of the Act without the foundational fact of assessee being Co-operative bank was not there?

In the assessment order, the Assessing authority has clearly stated that the assessee is a Co-operative society and has not obtained any banking license. The business of the assessee is to provide credit facilities to its members. Since the assessee cannot carry on any banking business, the interest on investment is taxable as income from other source. Therefore, the aforesaid facts, which is not in dispute clearly establishes that it is not a Co-operative Bank. Infact, the Revisional Authority also in its order has categorically stated that the assessee is a Co-operative society, which provides credit facilities. Section 80P of the Act deals with the deduction of income of a society. In the case of any assessee being a Co-operative society, the whole of the amounts of profits and gains of business attributable to any of other activities

6 referred to sub-section (2) of Section 80P shall be deducted in computing the total income of the assessee. In other words, the said income is not taxable. It is a benefit given to the Co- operative society. Section 80P(4)

was introduced by Finance Act, 2006 with effect from 01.04.2007 excluding the said benefit to a Co-operative Bank. The said provision reads as under:-

“(4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank.

(a)“co-operative bank” and “primary agricultural credit society” shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949);

(b) “primary co-operative agricultural and rural development bank" means a society having its

7 area of operation confined to a taluk and the principal object of which is to provide for long- term credit for agricultural and rural development activities.”

Therefore, the intention of the legislature is clear. If a Co-operative Bank is exclusively carrying on 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 and rural development bank. The Legislature did not want to deny the said benefits 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 this amendment. Therefore, as the assessee is not a Co- operative bank carrying on exclusively banking business and as it does not possess a licence from Reserve Bank of India to carry on business, it is not

8 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 facilities to its members. The object of the aforesaid amendment is not to exclude the benefit extended under Section 80P(1) to such society. Therefore, there was no error committed by the Assessing Authority. The said order was not prejudicial to the interest of the Revenue. The condition precedent for the commissioner to invoke the power under Section 263 is that the twin condition should be satisfied. The order should be erroneous and it should be prejudicial to the interest of the revenue.

This Court had an occasion to consider Section 263 of the Act in the case of - COMMISSIONER OF INCOME-TAX AND ANOTHER V. DIGITAL GLOBAL SOFT LTD. [2013] 354 ITR 489 (Karn) where paragraph-18, it has held as under:

“As is clear from the wording in section 263, the Commissioner gets the jurisdiction to revise any

9 proceedings under this Act if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. Therefore, it is clear that he cannot exercise the power of revision solely on the ground that the order passed is erroneous. He gets jurisdiction only if such erroneous order is prejudicial to the interest of the Revenue. “Prejudicial to the Revenue” means, lawful revenue due to the State has not been realized or cannot be realized. In other words, by the order of the assessing authority if the lawful revenue to the State has not been realized or cannot be realized, as the said order is prejudicial to the interests of the Revenue and also erroneous, he gets jurisdiction to interfere with the said order under section 263. Therefore, for attracting section 263, the condition precedent is (a) the order of the Assessing Officer sought to be revised is erroneous, and (b) it is prejudicial to the interests of the Revenue. If one of them is absent, i.e., if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue, recourse cannot be had to section 263(1) of the Act. The satisfaction of both

10 the conditions stipulated in the section is the sine qua non for the Commissioner to exercise his jurisdiction under Section 263.”

In the instant case, when the status of the assessee is a Co-operative society and is not a Co-operative bank, the order passed by the Assessing Authority extending the benefit of 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, the question of order being prejudicial would not arise. The Tribunal has rightly entertained the appeal and set-aside the order. Therefore, the said order is in accordance with law and cannot be found fault with. The substantial question of law is answered in favour of the assessee and against the revenue.”

As the question is already covered by the above referred decision of this Court, it cannot be said that

11 any substantial questions of law would arise for consideration. 6. Hence the appeal is dismissed.

Sd/- JUDGE

JT/-

THE PR. COMMISSIONER OF INCOME TAX CIT(A) vs. M/S KARNATAKA JOURNALISTS