Shri Bhaktinagar Co.-Op. Ho.Soc. Ltd., Rajkot V. The ITO-Ward- 3 (1) (1), Rajkot

ITA 71/RJT/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 2271 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-05-2024
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 21-02-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 21-03-2023
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ASHISH KUMAR PANDEY
• Keywords: Gift; Earning of tax free income; Question of law
• Section: 63; 80P; 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (Conducted through E-Court at Ahmedabad) BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T .A . N o.7 1/R j t/ 2 023 (As s es s me n t Y e a r: 2 016-17) Sh ri B ha kti n a ga r C o . O p . Ho u s in g So c ie ty Ltd . , C / o . A .D . V ya s & C o . C h a r te r ed Ac c ou n tan ts , K o tec h ana ga r M a in R o ad , Op p . K o te ch a G ir ls’ H i gh S c h oo l O f . K a la w a d R oad , R a jko t-3 6 00 01 Vs . C o m mi s s io ne r o f In c o me Ta x ( Ap p ea ls ) , N F AC , De lh i (In c o me T a x O f fi c e r, W a rd-3 (1 )(1 ), R a jk o t) [P AN N o .A A AA S2 3 63 M] (Appellant) .. (Respondent) Appellant by : Shri Gautam Achary, A.R. Respondent by: Shri Ashish Kumar Pandey, Sr. D.R. D a te of H e a r i ng 22.02.2024 D a te of P r ono unc e me nt 20.05.2024 O R D E R PER SIDDHARTHA NAUTIYAL, JM: This appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 24.02.2023 passed for Assessment Year 2016-17. 2. The assessee has taken the following grounds of appeals:- “1. The grounds of appeal mentioned here are without prejudice to one another. 2. On the facts and in the circumstances of the case, the order passed by the learned Ld. CIT(A) under Section. 250 of the I.T. Act is ab initio void being bad in law. ITA No.71/Rjt/2023 Shri Bhaktinagar Co. Op. Housing Society Ltd. vs. ITO Asst.Year –2016-17 - 2 - 3. Ld. CIT(A) has erred in disallowing exemption of income, as we are registered co-op society having exempt income. 4. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming addition into taxable income, They forgot to appreciate the facts that the assessee is registered co-op housing society, and working with concept of mutuality. Therefore, benefit of mutuality to be offered to the assessee. 5. On the facts and in the circumstances of the case, the learned CIT(A) erred in disallowing deduction claim under Section 80P of the Income Tax Act, 1961. As we never claimed any deduction under Section 80P of the Act, 1961. 6. Your Honour’s Assessee pray to produce any other materials on fact in support of the case during the hearing.” 3. The brief facts of the case are that the assessee / appellant filed its return of income for the year under consideration on 09.05.2017 declaring total income at 'NIL' after claiming deduction under Section 80P of the Act amounting to Rs. 17,41,466/-. The case was selected for limited scrutiny through CASS. One of the reason for selection of case under scrutiny is ‘Large deduction claimed under Chapter VIA from total income’. The AO observed that the assessee earned rental income from FD with Oriental Bank and SBI and from the above it can be seen that the assessee is virtually doing business and merely by suffixing the word 'Society' behind its name, it is claiming the entire income as exempt. None of the above income has been received or distributed amongst the members. The P&L account nowhere shows distribution of profit amongst the members. The lone favour granted to the members was a sum of Rs. 2,92,500/- towards gift to members. Therefore, the Ld. Assessing Officer was of the view that the assessee is an institution with the sole aim of doing adventure in the nature of trade and earning profit therefrom. During the course of assessment proceedings, the assessee submitted that even if Assessee is denied exemption under Section 80P, even then the assessee’s total Income is exempt since the society has been formed under the old Income Tax Act. The Assessee is a registered Housing Co ITA No.71/Rjt/2023 Shri Bhaktinagar Co. Op. Housing Society Ltd. vs. ITO Asst.Year –2016-17 - 3 - operative Society registered on 10.03.1949 with Registrar of Co-operative Societies with United State of Saurashtra i.e. in the erstwhile Part B State known as Saurashtra prior to 01.04.1950. Accordingly, assessee’s income is exempt from Income Tax under Part B states (Taxation Concession) Order 1950 vide Amendment to Notification No S. R.O. 998 dated 2 nd December 1950 read with Notification SRO 1800 dated 14 th November 1951. The assessee further relied on the decision of Rajkot Income Tax Appellate Tribunal in assessee's own case decided in it’s favour in ITA No 3861/Ahd/1993 for the Assessment Year 1989-90. Further, the Ld. Counsel for the assessee distinguished the decision of Shri Gopal Gram Seva (Gujarat High Court) having been rendered on a different set of facts and placed reliance on the decision of Hon'ble Supreme Court in the case of Maharao Bhim Singh (though rendered in context of income of Rulers of erstwhile States). Reliance was also placed on the case of Bhavnagar Sahakari Haat vs. ITO in ITA 240/Ahmedabad/2020 in support of it’s contention. 4. In response, the Ld. DR submitted that the reference was made to Section 297(2)(l) of Income Tax Act, 1961 states that any notification issued under Section 60A of the repealed Act and in force before the commencement of this Act shall, not continue to remain in force if a specific provision has been made under this Act, to deal with income under a particular head. The Parliament has introduced Section 80P to deal with the taxation of Co- operative Societies, and therefore, SRO 1800 would no more be applicable in respect of deduction / exemption of income of Co-operative Societies. This view also finds support from the decision of jurisdictional High Court in the case of Shri Gopal Gram Seva Sahakari Mandli Ltd. [2015] 54 taxmann.com 132 (Gujarat) in which it was held that where assessee co- ITA No.71/Rjt/2023 Shri Bhaktinagar Co. Op. Housing Society Ltd. vs. ITO Asst.Year –2016-17 - 4 - operative society claimed exemption under Notification No. SRO 992 dated 22.12.1950 of the Income Tax Act, 1922 which was repealed by IT Act, 1961, the claim of the assessee was to be decided according to Section 80P of the new Act. The Ld. D.R. further placed reliance on the decision of Hon’ble Supreme Court in the case of Ramnath and Company vs. CIT which has held that, exemption / deduction / rebate provisions are all essentially the form of tax incentives given by the Government and therefore the artificial difference between exemption to Co-operative Societies under SRO 1800 and deduction to Co-operative Societies under Section 80P as sought to be made out by the Counsel for the assessee is not available. Without prejudice to the above, even if the Hon'ble Bench was to uphold the applicability of SRO 1800 in the case of the assessee for the assessment year under consideration, Ld. D.R. submitted that the assessee shall not be liable for any exemption since the income earned by the assessee is not (i) according to the objectives of the Trust (ii) is not earned from its own members rather has been earned from third parties and (iii) fails the test of mutuality which is sacrosanct for availing any deduction for a Co-operative Society. 5. We have heard the rival contentions and perused the material on record. 6. The primary issue for consideration before us is whether under the Income Tax Act, 1961, after the introduction of Section 80P of the Act, Notification No. SRO 1800 (paragraph 15 (iv)) providing exemption to co- operative societies, continues to be operative and further, whether in absence of any specific order withdrawing the aforesaid Notification No. SRO 1800, does the same still continue to exist and the assessee is eligible for claiming exemption in terms of the aforesaid Notification No. SRO 1800, despite introduction of Section 80P of the Act, which has been specifically ITA No.71/Rjt/2023 Shri Bhaktinagar Co. Op. Housing Society Ltd. vs. ITO Asst.Year –2016-17 - 5 - incorporated to deal with deduction to co-operative societies. It would be useful to reproduce the aforesaid Notification No. SRO 1800 for ready reference, before deciding on the issue: “Part ‘B’ States (Taxation Concession) Order, 1950 – Amendment. Notification No. SRO 1800 Dated 14-11-1951 In exercise of the powers conferred by section 60A of the Indian Income-tax Act, 1922 (XI of 1922), the Central Government hereby directs that the following amendment shall be made in the Part ‘B’ States (Taxation Concession) Order, 1950 namely:- After clause (iii) of paragraph 15 of the said order, the following caluse shall be added, namely:- (iv) The profit of any Co-Operative society registered under any Act in force in Part ‘B’ State, or dividends or other payments received by members of any such society out of such profits.” 7. We shall first deal with the judicial precedents on which reliance has been placed by the counsel for the assessee. In our considered view, the Tribunal decisions on which reliance has been placed by the Counsel for the assessee cannot be relied upon, for the simple reason that these decisions did not have the benefit of considering the impact of the Gujarat High Court decision in the case of CIT v. Shri Gopal Gram Seva Sahakari Mandli Ltd. 54 taxmann.com 132 (Gujarat), in which while dealing with the identical issue before us, the High Court held that where assessee co-operative society claimed exemption under Notification No. SRO/992 dated 22.12.1950 of Income Tax Act, 1922, which was repealed by Income Tax Act, 1961, claim of assessee was to be decided according to Section 80P. Further, reliance by the assessee on the Hon’ble Supreme Court decision in the case of Maharao Bhim Singh (supra) cannot be accepted since this decision was rendered on a different set of facts, in which it was held that as long as an assessee continues to remain in occupation of his official residential palace for his own use, he would be entitled to claim exemption under Section 10(19A) for entire palace ITA No.71/Rjt/2023 Shri Bhaktinagar Co. Op. Housing Society Ltd. vs. ITO Asst.Year –2016-17 - 6 - notwithstanding fact that a part of his official residence has been let out. Further, in our considered view, the case of the assessee is directly covered by the Gujarat High Court in the case of CIT v. Shri Gopal Gram Seva Sahakari Mandli Ltd. 54 taxmann.com 132 (Gujarat), in which the Gujarat High Court made the following relevant observations: “The assessee took a number of objections to the show cause notice issued to it and mainly contended that its income was exempt as per notification No.SRO/998 dated 22.12.50 which was though issued under the Act of 1922 but was not withdrawn. The assessee has contended that on behalf of the assessee that like contention was accepted by the Tribunal in ITA No.1946/Ahd/82 for A.Y.1984 and in ITA No.2319/Ahd/92 for A.Y. 1978-79 in the case of Shri Moti Marad Juth Vividh Karyakari Sahakari Mandli Ltd., the Tribunal had taken a view that the income of a Co-op. Society was exempt..... 7. Therefore, Mr.Bhatt has contented that it is well settled principle of law that once the new Act comes, unless there is specific mention in the earlier Act and the notifications issued therein cannot be made applicable. In this case, under the new Act, the notification issued under the earlier Act stood repealed and the present case will be governed by Sections 80P and 80T of the Act. ............. 10. We have heard counsel for both the sides. The questions which are referred has been gone into detail in view of the order passed by the ITO, relying on alteration of 1922 Act, which is repealed by the Act of 1961. The notification also stands repealed. Those notifications issued under Sections 60 and 60A will govern the field. 11. The question of law as it is framed will have to be answered in favour of the Revenue , the reason being the old notification could not have been relied by the Appellate Tribunal or the Assessing Officer and the Appellate Tribunal cannot be said to be right in setting aside the order of the Commissioner of Income Tax . 12. As far as the second question is concerned, it being interconnected and once we have held that Section 297 governs the field, the Appellate Tribunal is not right in law. 13. The second argument regarding exemption and hearing, in our view once the notification has been repealed, it cannot stand in the eye of law. This distinction is not plausible or reasonable. In above view of the matter, this argument is also required to be rejected. 14. Accordingly, both the questions are answered in favour of the department and against the assessee. The order of the CIT(A) is restored and the matter is remitted back to decide the same afresh by the Income Tax Officer to decide the case under Section 80P of the 1961 Act.” 8. Accordingly, in our considered view, the case of the assessee is directly covered by the decision of the Hon’ble Gujarat High Court, while dealing with identical question. ITA No.71/Rjt/2023 Shri Bhaktinagar Co. Op. Housing Society Ltd. vs. ITO Asst.Year –2016-17 - 7 - 9. Further, the Hon’ble Supreme Court in the case of Ramnath & Co. v. CIT 116 taxmann.com 885 (SC) has made the following observations regarding the arena of exemption, deduction, rebate provisions: “19. Without expanding unnecessarily on variegated provisions dealing with different incentives, suffice would be to notice that the proposition that incentive provisions must receive "liberal interpretation" or to say, leaning in favour of grant of relief to the assessee is not an approach countenanced by this Court. The law declared by the Constitution Bench in relation to exemption notification, proprio vigore, would apply to the interpretation and application of any akin proposition in the taxing statutes for exemption, deduction, rebate et al., which all are essentially the form of tax incentives given by the Government to incite or encourage or support any particular activity.” 10. Therefore, we are unable to agree with the fine distinction sought to be drawn by the counsel for the assessee with regards the fact that the Notification No. SRO 1800 was an “exemption” provision, while Section 80P of the Act, as a “deduction” provision and therefore, since Section 80P of the Act deals with “deduction” relating to income of cooperative societies, and Notification No. SRO 1800 being an “exemption” provision they operate in different realms and SRO 1800 continues to co-exist alongwith the provisions of Section 80P of the Act. 11. The next issue for consideration is whether in view of the introduction of Section 80P of the Act, Notification No. SRO 1800 stands withdrawn, in view of the language of Section 297 of the Act. It would be useful to reproduce the relevant extracts of the Section 297 of the Act for ready reference: “Repeals and savings. 297. (1) The Indian Income-tax Act, 1922 (11 of 1922), is hereby repealed. (2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (11 of 1922) (hereinafter referred to as the repealed Act),— ....... (1) any notification issued under sub-Section (1) of Section 60 [or Section 60A] of the repealed Act and in force immediately before the commencement of this Act shall, to the extent to which provision has not been made under this Act, continue in force 30[***Words "until rescinded by the Central Government" omitted by the Rulers of Indian States (Abolition of Privileges) Act, 1972, w.e.f. 9-9-1972.]: ITA No.71/Rjt/2023 Shri Bhaktinagar Co. Op. Housing Society Ltd. vs. ITO Asst.Year –2016-17 - 8 - [Provided that the Central Government may rescind any such notification or amend it so as to rescind any exemption, reduction in rate or other modification made thereunder;]” 12. Accordingly, in view of the plain language of Section 297(2)(l) of the Act, any notification issued under sub-Section (1) of Section 60 or Section 60A of the repealed Act and in force immediately before the commencement of this Act shall continue in force only to the extent to which “provision” has not been made under this Act. As may be seen, Section 297(2)(l) of the Act is not particular whether such newly introduced “provision” is by way of exemption or deduction. Further, as held by the Hon’ble Supreme Court in the case of Ramanath and Company (supra), deduction/exemption/rebate provisions are all falling in the same category, being incentive/beneficial provisions. Therefore, Notification No. SRO 1800, issued under sub-Section (1) of Section 60 or Section 60A , in our considered view, stands effectively superseded by the provisions of Section 80P of the Act, and there is no specific requirement for a formal withdrawal of such notification. Section 297(2)(l) of the Act contains a clear cut wording that once a specific “provision” has been introduced to deal with a specific head of income, then any notification issued under Section 60/60A under the repealed Act shall not continue to remain in force. The specific omission of the words “until rescinded by the Central Government" omitted w.e.f. 09.09.1972 also lends support to the fact that no specific notification withdrawing the erstwhile Notification No. SRO 1800 is required, once Section 80P has been introduced specifically to deal with deduction relating to taxability of income earned by cooperative societies. Further, so far as the proviso to Section 297(2)(l) of the Act is concerned, the Karnataka High Court in the case of H.H. Sri Jaya Chamaraja Wadiyar, Maharaja of Mysore vs. Union of India 129 ITR 652 has clarified that power to rescind any Notification was not created by or flowed from the proviso to the said Section (Sections 60A or proviso to Section 297(2)) and the ITA No.71/Rjt/2023 Shri Bhaktinagar Co. Op. Housing Society Ltd. vs. ITO Asst.Year –2016-17 - 9 - proviso merely recognises this power. The Central Government has inherent power to rescind any Notification. Accordingly, the proviso to Section 297(2)(l) of the Act is only classificatory in nature and only recognises that the Central Government has inherent powers to rescind any Notification. However, as discussed in the foregoing paragraphs, in view of the plain language of Section 297(2)(l) of the Act, once a specific “provision” has been introduced to deal with the taxability of income of cooperative societies in the form of Section 80P of the Act, then to that extent any notification issued under the erstwhile Section 60/60A of the repealed Act, would not continue to operate. 13. Accordingly, in light of the above discussion, the decision rendered by the Hon’ble Gujarat High Court in the case of Shri Gopal Gram Seva Sahakari Mandli Ltd. (supra), we are of the considered view, that income of the assessee trust shall be governed by the provisions of Section 80P of the Act. Further, we also observe that on merits, the assessing officer has given a detailed finding that the assessee is not having any objects which would confirm the provisions of Section 80P of the Act and further, the assessee is also not earning any income from its members, but from third parties and therefore, the assessee is not eligible for claim of benefit under Section 80P of the Act. 14. In the result, in light of the aforesaid discussion, the appeal of the assessee is dismissed. This Order pronounced in Open Court on 20/05/2024 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 20/05/2024 TANMAY, Sr. PS TRUE COPY ITA No.71/Rjt/2023 Shri Bhaktinagar Co. Op. Housing Society Ltd. vs. ITO Asst.Year –2016-17 - 10 - आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आयु त / Concerned CIT 4. आयकर आयु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील य अ धकरण, राजोकट / DR, ITAT, Rajkot 6. गाड फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asstt.Registrar) आयकर अपील य अ धकरण, राजोकट / ITAT, Rajkot