Pushtikar Laghu Vyaparik Pratishthan Bachat Evam Sakh Sahkari Samiti Limited V. Union of India and anr

CW/8537/2011

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The case involves Pushtikar Laghu Vyaparik Pratishthan Bachat Evam Sakh Sahkari Samiti Limited, a cooperative society, challenging a reassessment notice issued by the Income Tax Department under Sections 147/148 of the Income Tax Act, 1961. The notice was issued for the assessment year 2004-2005, concerning interest income of Rs.11,99,228 earned from fixed deposits, which the department considered taxable under 'income from other sources'. The petitioner argued that the notice was time-barred and that the interest income was deductible under Section 80P(2)(a)(i) as it was part of banking business activities. The respondents contended that the notice was valid as it was issued with the approval of the Commissioner and that the interest income was rightly taxable. The court decided that these issues require factual determination and thus dismissed the writ petition, allowing the assessing authority to examine the matter further.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 803121 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 05-12-2011
• Assessment Year: misc
• Other Referred Cases: M/s Totgar's Coop. Society Ltd vs. Union of India
• Laws Referred To: Income Tax Act, 1961, Multi-State Cooperative Societies Act, 2002
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: K K BISSA
• Assessee Lawyers: DINESH MEHTA
• Keywords: Banking Business; Cooperative Society; Income Tax; Interest income; Notice; Reassessment; Taxable income
• Section: 147; 148; 80P; 149; 151

Judgement Text

"S.B.CIVIL WRIT PETITION NO.8537/2011– Pustikar Laghu Vyaparik Pratishthan Bachat Evan Sakh Sahakari Samiti Limited V/s Union of India and anr. Order dt: 5/12/2011 1/19 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR O R D E R S.B. CIVIL WRIT PETITION NO.8537/2011 Pushtikar Laghu Vyaparik Pratishthan Bachat Evam Sakh Sahkari Samiti Ltd. V/s Union of India and ors. DATE OF ORDER : 5th December, 2011 HON'BLE DR.JUSTICE VINEET KOTHARI Mr. Dinesh Mehta, for the petitioner. Mr.K.K.Bissa, for the respondents. Reportable BY THE COURT: 1. The petitioner, a cooperative society known as Pushtikar Laghu Vyaparik Pratishthan Bachat Evam Sakh Sahkari Samiti Limited, has approached this Court by way of present writ petition challenging the reassessment/reopening proceedings under section 147/148 of the Income Tax Act by impugned notice under section 148 of the Act dtd.18.3.2008 for assessment year 2004-2005. 2. The Assessing Authority – Dy. Commissioner, Income Tax, Circle-2, Jodhpur gave the said notice and supplied the reasons for issuance of said notice upon demand by the assessee vide his letter dtd.11.4.2011 which reasons according to the Assessing Authority are as under: S.B.CIVIL WRIT PETITION NO.8537/2011– Pustikar Laghu Vyaparik Pratishthan Bachat Evan Sakh Sahakari Samiti Limited V/s Union of India and anr. Order dt: 5/12/2011 2/19 “REASONS FOR RE-OPENING THE CASE U/s 147 OF THE I.T. ACT, 1961 M/s Pushtikar Laghu Vyaparik Pratishthan Evam Shakh Sahakari Samiti Ltd. Jodhpur. In this case assessee has filed return of income for A.Y. 2004-2005 amounting of Rs.81,23,534/- and claiming exemption u/s 80P of the I.T. Act, 1961 and declared NIL Income on 29.10.2004. The assessment has been completed u/s 143 (3) on 6.07.2005 at the returned income NIL. The hon'ble Supreme Court of India has announced decision in favour of department in the case S.L.P. (C. No.7527 of 2009) in the case of M/s Totgar's Coop. Society Ltd –reg – The decision is quoted in the 322 ITR at page No.283 (S.C.). There is similar issue involved in the M/s Pustikar Laghu Vyaparik Pratisthan Evan Shakh Sahakari Samiti Ltd., Jodhpur. The A.O. has allowed 80P on the interest received of Rs.11,99,228/- on various FDRs. As per the decision of Hon'ble Supreme Court it will be taxed as income from other sources and it is taxable. I have reason to believe that income to tune of Rs.11,99,228/- chargeable to tax has escaped assessment of the for the A.Y.2004-05. Dated: 05-03-2011” S.B.CIVIL WRIT PETITION NO.8537/2011– Pustikar Laghu Vyaparik Pratishthan Bachat Evan Sakh Sahakari Samiti Limited V/s Union of India and anr. Order dt: 5/12/2011 3/19 3. The present writ petition was filed by the assessee in this Court on 12.9.2011 and while issuing notice to the respondents, this Court vide order dtd.22.9.2011 directed that assessing authority – respondent No.2 will not pass any final order in pursuance of impugned notice under Section 147/148 of the Act. The respondents have filed reply to the writ petition along with the additional affidavit of respondent with approval of CIT for issuance of such notice, to which a rejoinder has also been filed by the petitioner. 4. The certificate of registration and objectives and functions of petitioner – society to the relevant extract are extracted below: “In pursuance of the provisions of the Multi-State Cooperative Societies Act, 2002, a Society by the name of Pustikar Laghu Vyaparik Prastisthan Bachat Evam Sakh Sahkari Samiti Ltd., Jodhpur (Rajasthan) with the registered office at 4 F.71, New Power House Road, Jodhpur (Rajasthan) has been registered, by conversion, as Multi-State Cooperative Society under Section 22 of the Multi-State Cooperative Societies Act, 2002 (39 of 2002) and the Rules thereunder. The S.B.CIVIL WRIT PETITION NO.8537/2011– Pustikar Laghu Vyaparik Pratishthan Bachat Evan Sakh Sahakari Samiti Limited V/s Union of India and anr. Order dt: 5/12/2011 4/19 registration number of the Society is MSCS/CR/253/2007. The area of operation of the Society will be confined to the States of Rajasthan, Maharashtra & Andhra Pradesh. 5. OBJECTIVES AND FUNCTIONS The following are the objectives and functions of the Society: a. Promote social and economic betterment of members through self help and mutual aid in accordance with co-operative principles specified in the First Scheduled of the act. b. To make available funds for members for establishing business, trading activities, meeting social, domestic and religious requirements. This fund is available for members, non-members and other similar financial institution” 5. The learned counsel for the petitioner, Mr. Dinesh Mehta mainly raised following two contentions before this Court for assailing the impugned notice under Section 147/148 of the Act : (i)The said notice dtd.18.3.2011 for assessment year 2004-2005 S.B.CIVIL WRIT PETITION NO.8537/2011– Pustikar Laghu Vyaparik Pratishthan Bachat Evan Sakh Sahakari Samiti Limited V/s Union of India and anr. Order dt: 5/12/2011 5/19 is barred by limitation of 4 years prescribed under Section 147 of the Act. (ii)The petitioner – Society admittedly being banking company, its total income is deductible under Section 80P(2)(a)(i) of the Act and therefore, the impugned reassessment notice purportedly issued to impose tax on the interest income of Rs.11,99,288/- earned by the petitioner – Society by way of interest on fixed deposits with various banks is not justified and assessing authority apparently, misapplying the Supreme Court decision in the case of M/s Totgar's Cooperative Socieity Ltd. (supra) reported in 322 ITR 283 (SC), a copy of which has also been placed on record as Annex.7 has issued the impugned notice. He, therefore, submitted that the impugned notice and reassessment proceedings deserve to be quashed by this Court in the present writ petition. 6. Per contra, Mr.K.K. Bissa, learned counsel appearing for the Revenue submitted that limitation of four years would not apply in the present case, as contended by the learned counsel for the petitioner, for the reason that assessing authority has obtained the approval of the Commissioner of Income Tax for issuance of said notice in accordance with Section 151 first proviso of the Act S.B.CIVIL WRIT PETITION NO.8537/2011– Pustikar Laghu Vyaparik Pratishthan Bachat Evan Sakh Sahakari Samiti Limited V/s Union of India and anr. Order dt: 5/12/2011 6/19 according to which, the bar of limitation of four years is lifted in case such approval or sanction is granted by the Chief Commissioner or the Commissioner for issuance of said notice under Section 148 of the Act. He also submitted that Section 149 of the Act providing for time limit for issuing notice under Section 148 of the Act also provides 6 years' limitation under Section 149(1)(b) of the Act, if the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. He also contended that that proviso to Section 147 of the Act itself provides that limitation of four years would not apply in case assessee fails to disclose fully and truly all material facts necessary for his assessment for that assessment year in pursuance to the notice under section 148 of the Act. 7. Relying upon the decision of Hon'ble Supreme Court in the case of M/s Totgars Cooperative Society Sale Society Limited (supra), the learned counsel for the Revenue further contended that even a Cooperative Society engaged in banking business can be subjected to tax denying deduction under Section 80P (2) of the Act to the extent of interest income taxable as income from other sources under section 56 and not as 'income from business or profession' under section 28 as such, if such interest income is earned not out of banking business activity but investment activity as held by the Hon'ble Supreme Court. He, therefore, contended that it would be S.B.CIVIL WRIT PETITION NO.8537/2011– Pustikar Laghu Vyaparik Pratishthan Bachat Evan Sakh Sahakari Samiti Limited V/s Union of India and anr. Order dt: 5/12/2011 7/19 premature to examine the validity of impugned notice under Section 147/148 of the Act and if such notice for reopening is quashed then enquiry into the nature of income being connected with nature of banking business of the petitioner – society as claimed by the assessee cannot be undertaken. He also submitted that there is no question of misapplying the Supreme Court decision in the case of present assessee. It is open to the assesee to contend and establish before the assessing authority the relevant facts to establish his claim of deduction under Section 80P(2) of the Act in respect of such interest income on fixed deposits made by him with various banks including private banks. He, therefore, prayed for dismissal of the writ petition. 8. Having heard the learned counsels, this Court is of the opinion that both the questions raised by the writ petitioner namely, of limitation and of deductibility of the interest income under Section 80P(2) of the Act are mixed questions of facts and law which deserve to be and are yet to be adjudicated upon by the assessing authority and therefore, it would be premature for this Court at this stage to pronounce upon both the issues. 9. The relevant provisions of Section 147 to 151 of the Act to the extent relevant for the present controversy are reproduced below for ready reference: S.B.CIVIL WRIT PETITION NO.8537/2011– Pustikar Laghu Vyaparik Pratishthan Bachat Evan Sakh Sahakari Samiti Limited V/s Union of India and anr. Order dt: 5/12/2011 8/19 “147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub- section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and S.B.CIVIL WRIT PETITION NO.8537/2011– Pustikar Laghu Vyaparik Pratishthan Bachat Evan Sakh Sahakari Samiti Limited V/s Union of India and anr. Order dt: 5/12/2011 9/19 truly all material facts necessary for his assessment for that assessment year. 148. Issue of notice where income has escaped assessment (1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139. 149. Time limit for notice. (1) No notice under section 148 shall be issued for the relevant assessment year, - (a) If four years have elapsed from the end of the relevant assessment year, unless the case falls under sub-clause (b) or sub-clause (iii); (b) If four years, but not more than six years, have S.B.CIVIL WRIT PETITION NO.8537/2011– Pustikar Laghu Vyaparik Pratishthan Bachat Evan Sakh Sahakari Samiti Limited V/s Union of India and anr. Order dt: 5/12/2011 10/19 elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees one lakh rupees or more for that year; 151. Sanction for issue of notice (1) In a case where an assessment under sub-section (3) of section 143 or section 147 has been made for the relevant assessment year, no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Assistant Commissioner or Deputy Commissioner unless the Joint Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of such notice : Provided that, after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice.” 10. The Hon'ble Supreme Court in the aforesaid recent decision in the case of M/s Totgars' Cooperative Sale Society Limited (supra) dealing with the case of interest earned by the Cooperative S.B.CIVIL WRIT PETITION NO.8537/2011– Pustikar Laghu Vyaparik Pratishthan Bachat Evan Sakh Sahakari Samiti Limited V/s Union of India and anr. Order dt: 5/12/2011 11/19 Society engaged in the business of providing credit facilities to its members and marketing agriculture produce of its members seized with the question as to whether the interest income earned by it on deposit of surplus funds of members was entitled to deduction under section 80P(2)(a)(i) of the Act or not, held against the assessee, affirming the decision of High Court and the Income Tax Appellate Tribunal that such interest income of investment would not be business profit and therefore, would not be deductible from income under Section 80P(2) of the Act. The following extract from the judgment makes the position in this regard clear: “At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under Section 80P (2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under Section 56 of the Act is the interest income arising on the surplus invested in short- term deposits and securities which surplus was not required for business purposes. Assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. S.B.CIVIL WRIT PETITION NO.8537/2011– Pustikar Laghu Vyaparik Pratishthan Bachat Evan Sakh Sahakari Samiti Limited V/s Union of India and anr. Order dt: 5/12/2011 12/19 Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is - whether interest on such deposits/securities, which strictly speaking accrues to the members' account, could be taxed as business income under Section 28 of the Act? In our view, such interest income would come in the category of “Income from other sources”, hence, such interest income would be taxable under Section 56 of the Act, as rightly held by the Assessing Officer. In this connection, we may analyze Section 80P of the Act. This section comes in Chapter VI-A, which, in turn, deals with “Deductions in respect of certain Incomes”. The Headnote to Section 80P indicates that the said section deals with deductions in respect of income of cooperative Societies. Section 80P(1), inter alia, states that where the gross total income of a cooperative Society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee-Society. An income, which is S.B.CIVIL WRIT PETITION NO.8537/2011– Pustikar Laghu Vyaparik Pratishthan Bachat Evan Sakh Sahakari Samiti Limited V/s Union of India and anr. Order dt: 5/12/2011 13/19 attributable to any of the specified activities in Section 80P(2) of the Act, would be eligible for deduction. The word “income” has been defined under Section 2(24)(i) of the Act to include profits and gains. This sub-section is an inclusive provision. The Parliament has included specifically “business profits” into the definition of the word “income”. Therefore, we are required to give a precise meaning to the words “profits and gains of business” mentioned in Section 80P (2) of the Act. In the present case, as stated above, assessee-Society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression “profits and gains of business”. Such interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee-Society provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under S.B.CIVIL WRIT PETITION NO.8537/2011– Pustikar Laghu Vyaparik Pratishthan Bachat Evan Sakh Sahakari Samiti Limited V/s Union of India and anr. Order dt: 5/12/2011 14/19 Section 80P(2)(a)(i) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in specified securities as “investment”. Further, as stated above, assessee(s) markets the agricultural produce of its members. It retains the sale proceeds in many cases. It is this “retained amount” which was payable to its members, from whom produce was bought, which was invested in short-term deposits/securities. Such an amount, which was retained by the assessee-Society, was a liability and it was shown in the balance-sheet on the liability-side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2) (a)(i) of the Act or in Section 80P(2)(a)(iii) of the Act. Therefore, looking to the facts and circumstances of this case, we are of the view that the Assessing Officer was right in taxing the interest income, indicated above, under Section 56 of the Act. An alternative submission was advanced by S.B.CIVIL WRIT PETITION NO.8537/2011– Pustikar Laghu Vyaparik Pratishthan Bachat Evan Sakh Sahakari Samiti Limited V/s Union of India and anr. Order dt: 5/12/2011 15/19 the assessee(s) stating that, if interest income in question is held to be covered by Section 56 of the Act, even then, the assessee-Society is entitled to the benefit of Section 80P(2)(a)(i) of the Act in respect of such interest income. We find no merit in this submission. Section 80P(2)(a)(i) of the Act cannot be placed at par with Explanation (baa) to Section 80HHC, Section 80HHD(3) and Section 80HHE(5) of the Act. Each of the said sections has to be interpreted in the context of its subject- matter. For example, Section 80HHC of the Act, at the relevant time, dealt with deduction in respect of profits retained for export business. The scope of Section 80HHC is, therefore, different from the scope of Section 80P of the Act, which deals with deduction in respect of income of cooperative Societies. Even Explanation (baa) to Section 80HHC was added to restrict the deduction in respect of profits retained for export business. The words used in Explanation (baa) to Section 80HHC, therefore, cannot be compared with the words used in Section 80P of the Act which grants deduction in respect of “the whole of the amount of profits and gains of business”. A number of S.B.CIVIL WRIT PETITION NO.8537/2011– Pustikar Laghu Vyaparik Pratishthan Bachat Evan Sakh Sahakari Samiti Limited V/s Union of India and anr. Order dt: 5/12/2011 16/19 judgements were cited on behalf of the assessee(s) in support of its contention that the source was irrelevant while construing the provisions of Section 80P of the Act. We find no merit because all the judgements cited were cases relating to Cooperative Banks and assessee-Society is not carrying on Banking business. We are confining this judgement to the facts of the present case. To say that the source of income is not relevant for deciding the applicability of Section 80P of the Act would not be correct because we need to give weightage to the words “the whole of the amount of profits and gains of business”; attributable to one of the activities specified in Section 80P(2)(a) of the Act. An important point needs to be mentioned. The words “the whole of the amount of profits and gains of business” emphasise that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the Society. In this particular case, the evidence shows that the assessee- Society earns interest on funds which are not required for business purposes at the given point of time. Therefore, on the facts and S.B.CIVIL WRIT PETITION NO.8537/2011– Pustikar Laghu Vyaparik Pratishthan Bachat Evan Sakh Sahakari Samiti Limited V/s Union of India and anr. Order dt: 5/12/2011 17/19 circumstances of this case, in our view, such interest income falls in the category of “Other Income” which has been rightly taxed by the Department under Section 56 of the Act. 11. The rival contentions raised by the learned counsels in the present writ petition about the limitation as well as taxability or deductibility from income under section 80P(2)(a)(i) of the Act are undisputedly mixed questions of facts and law. The factual foundation for claiming 100% deduction in respect of interest income of Rs.11,99,228/- by the petitioner – society under Section 80P(2)(a) (i) of the Act are yet to be laid by the assessee before the Assessing Authority. Merely because the petitioner – society is engaged prima facie in banking activities does not disentitle the assessing authority from issuing the impugned notice under Section 147/148 of the Act and calling in question, the taxability/deductibility of the aforesaid interest income of Rs.11,99,228/- as 'income from other sources' unless such interest income is shown to be 'profits and gains from business' of banking society. Deduction under Section 80P(2) of the Act would not be available to the assessee if such interest income is taxable under section 56 as 'income from other sources' as held by the Hon'ble Apex Court. The petitioner has not even placed any evidence on record showing its governance by RBI under Banking Regulations Act to show that it is exclusively a banking business S.B.CIVIL WRIT PETITION NO.8537/2011– Pustikar Laghu Vyaparik Pratishthan Bachat Evan Sakh Sahakari Samiti Limited V/s Union of India and anr. Order dt: 5/12/2011 18/19 society. Therefore, it is a question still open and yet to be adjudicated upon by the assessing authority in present proceedings under section 147/148 of the Act. 12. As far as question of limitation is concerned also, it would be premature to hold the impugned notice itself as time barred. The limitation of 4 years provided in Section 147 of the Act is extendable upto 6 years and even more if the case falls within the parameters of Section 149(1)(b) of the Act or first proviso to Section 151 of the said Act. Apparently, the assessing authority having obtained sanction from the Commissioner as shown by the additional affidavit filed by the assessing authority, the case may fall under first proviso of Section 151 of the Act. The applicability of Section 149(1) (b) of the Act also cannot be ruled out and since the amount of interest of Rs.11 lacs and odd is more than Rs.1 lac as provided under the said provision. The limitation of 4 years provided in first proviso to Section 147 of the Act gets extended like in contingency of assessee not disclosing fully and truly all material facts necessary for his assessment in pursuance of notice issued under Section 142 or section 148 of the Act. Therefore, the limitation of 4 years is not rigid and inflexible and the same is extendable further. Therefore, the contention of the learned counsel for the petitioner that the impugned notice deserves to be quashed as ex facie time barred having been issued on 18.3.2011 after 4 years but within 5 years from the end of S.B.CIVIL WRIT PETITION NO.8537/2011– Pustikar Laghu Vyaparik Pratishthan Bachat Evan Sakh Sahakari Samiti Limited V/s Union of India and anr. Order dt: 5/12/2011 19/19 assessment year 2004-2005, cannot be accepted and it is left open to the assessee to the contend and establish before the learned assessing authority that for the given reasons, such notice is time barred or not. 13. Consequently, for both the contentions raised by the learned counsel for the petitioner, this Court is not inclined to pronounce finally at this stage and in the opinion of this Court, it would be premature to do so. 14. Consequently, this writ petition is dismissed and the assessee is left free to establish its case before the assessing authority. No order as to costs. (DR.VINEET KOTHARI), J. item no.27 ss/- "