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Judgment
K.S. Jhaveri, J.—By way of this reference, the Tribunal as per the order of Hon''ble Supreme Court vide order dated 12.08.1996 in Civil Appeal No. 10652 of 1996, arising out of S.L.P.(C) No. 12022 of 1991 moved by the Commissioner of Income-tax, Rajkot has directed the Tribunal to raise and refer the following question said to be questions of law to the Hon''ble High Court of Gujarat for its esteemed opinion:
"1. Whether, on the facts and in the circumstances of the case, the appellate Tribunal was right in setting aside the order of the Commissioner of Income-tax.
Whether, the appellate Tribunal is right in law in holding that ''Notification No. SRO/992 dated 22.12.1950 of the old Act, 1922 was not withdrawn and, therefore, it provided a good basis to the Co-operative Society to seek exemption of its income from business."
The relevant facts of the present case are that the assessee is a cooperative society and was assessed by the Income-tax Officer in the status of A.O.P. The assessee had returned its income at Rs. 3,63,435/-. At the assessment proceedings, it was contended on behalf of the assessee that its business was to supply fertilizer, crude oil, sugar, oil seeds etc. to the members and non-members. However, it prayed that its income was exempt under notification issued in 1950. The Income-tax officer agreed that the income of the assessee was exempted under certain notifications issued in 1950. However, while examining the record of the proceedings, the learned CIT, Rajkot was of the view that the income of the assessee was not entirely exempt in accordance with the I.T. Act, 1961 but that it was entitled to certain exemptions governed by section 80P of the I.T. Act. The learned CIT was, therefore, of the opinion that the assessment made by the ITO was erroneous and prejudicial to the interest of revenue to the extent of treating the income of the assessee as wholly exempt. Learned CIT(A) therefore issued the necessary notices under section 263 of the Act and called upon the assessee to show cause as to why the assessment be not set aside and he not directed to be re-framed in which the claim of the cooperative society should be considered afresh in light of the provisions of Sec. 80P of the Act. 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 but that decision was not accepted by the department and a reference was filed u/s. 256(2) of the Act, 1961. The said references had been admitted by the Hon''ble High Court. Holding thus, the CIT set aside the order made by the ITO with a direction to him to re-frame the assessment in which the income of the Co-op.society i.e. the assessee should not be treated as complete exemption. He further directed the ITO to consider provisions of Section 80P while framing the fresh assessment order. Being aggrieved against said directions of CIT, the assessee had preferred appeal before the ITAT. The Tribunal followed the earlier decision of the Tribunal to maintain the consistency and concluded that the order of A.O. in granting the exemption to the cooperative society in respect of its business income, was not erroneous and prejudicial to the interests of Revenue and the order of the CIT(A) was set aside and then the Tribunal has referred this matter to this Court.
Learned counsel Mr. Bhatt with Mrs. Mauna Bhatt, learned counsel appearing for the applicant-Revenue, has relied on the order passed by the Assessing Officer, whereby, the Assessing Officer has followed the circular issued in the year 1922 though, the same was repealed by Section 297 of the Income Tax Act. The said Act reads as under:
"Repeals and savings
(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)-
(a) where a return of income has been filed before the commencement of this Act by any person for any assessment year, proceedings for the assessment of that person for that year may be taken and continued as if this Act had not been passed;
(b) where a return of income is filed after the commencement of this Act otherwise than in pursuance of a notice under section 34 of the repealed Act by any person for the assessment year ending on the 31st day of March, 1962, or any earlier year, the assessment of that person for that year shall be made in accordance with the procedure specified in this Act;
(c) any proceedings pending on the commencement of this Act before any income-tax authority, the Appellate Tribunal or any court, by way of appeal, reference, or revision, shall be continued and disposed of as if this Act had not been passed;
(d) where in respect of any assessment year after the year ending on the 31st day of March, 1940,-
(i) a notice under section 34 of the repealed Act had been issued before the commencement of this Act, the proceedings in pursuance of such notice may be continued and disposed of as if this Act had not been passed;
(ii) any income chargeable to tax had escaped assessment within the meaning of that expression in section 147 and no proceedings under section 34 of the repealed Act in respect of any such income are pending at the commencement of this Act, a notice under section 148 may, subject to the provisions contained in section 149 or section 150, be issued with respect to that assessment year and all the provisions of this Act shall apply accordingly."
(e) "[subject to the provisions of clause (g) and clause (j) of this subsection,] section 23A of the repealed Act shall continue to have effect in relation to the assessment of any company or its shareholders for the assessment year ending on the 31st day of March, 1962 or any earlier year, and the provisions of the repealed Act shall apply to all matters arising out of such assessment as fully and effectually as if this Act had not been passed;
(f) any proceeding for the imposition of a penalty in respect of any assessment completed before the first day of April, 1962, may be initiated and any such penalty may be imposed as if this Act had not been passed;
(g) any proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March, 1962, or any earlier year, which is completed on or after the 1st day of April, 1962 may be initiated and any such penalty may be imposed under this Act.
(h) any election or declaration made or option exercised by an assessee under any provision of the repealed Act and in force immediately before the commencement of this Act shall be deemed to have been an election or declaration made or option exercised under the corresponding provision of this Act;
(i) where, in respect of any assessment completed before the commencement of this Act, a refund falls due after such commencement or default is made after such commencement in the payment of any sum due under such completed assessment, the provisions of this Act relating to interest payable by the Central Government on refunds and interest payable by the assessee for default shall apply;
(j) any sum payable by way of income-tax, super-tax, interest, penalty or otherwise under the repealed Act may be recovered under this Act, but without prejudice to any action already taken for the recovery of such sum under the repealed Act;
(k) any agreement entered into, appointment made, approval given, recognition granted, direction, instruction, notification, order or rule issued under any provision of the repealed Act shall, so far as it is not inconsistent with the corresponding provision of this Act, be deemed to have been entered into, made granted, given or issued under the corresponding provision aforesaid and shall continue in force accordingly;
(l) 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.
[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;]
(m) where the period prescribed for any application, appeal, reference or revision under the repealed Act had expired on or before the commencement of this Act, nothing in this Act shall be construed as enabling any such application, appeal, reference or revision to be made under this Act by reason only of the fact that a longer period therefore is prescribed or provision is made for extension of time in suitable cases by the appropriate authority.
Mr. Bhatt has further relied on Section 263 of the Income Tax Act, which reads as under:
"Revision of orders prejudicial to revenue.
(1) The [Principal Commissioner or] Commissioner may call for and examine the record of any proceeding under this Act, and 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, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
[Explanation-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-
(a) an order passed [on or before or after the 1st day of June, 1988] by the Assessing Officer shall include-
(i) an order of assessment made by the Assistant Commissioner [or Deputy Commissioner] or the Income-tax Officer on the basis of the directions issued by the [Joint] Commissioner under section 144A.
(ii) an order made by the [Joint] Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer confirmed on, or assigned to, him under the orders or directions issued by the [Principal Chief Commissioner or] Chief Commissioner or [Principal Director General or] Director General or [Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120;
(b) "record" [shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the [Principal Commissioner or] Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal [filed on or before or after the 1st day of June, 1988], the powers of the [Principal Commissioner or] Commissioner under this sub-section shall extend [and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal.]
(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.]
(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, [National Tax Tribunal,] the High Court or the Supreme Court.
Explanation.- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded."
Mr. Bhatt has mainly relied upon paragraphs No. 4 and 6 of the order passed by CIT(A). The said paragraphs read as under:
"4. I have considered the submissions. The argument of the assessee that in light of the notification No. SRO/998 and the clarification issued by the Board the income of a cooperative society is exempt, is not acceptable for the following reasons.
(1) Under Section 297(1) of the Income-tax Act, 1961, the Indian Income-tax Act, 1922 is repealed.
(2) Under Section 297(2) of the Income-tax Act, 1961, Indian Income tax Act, 1922 is applicable only for specified objects narrated in clauses (a) to (m) thereof and none of the clauses specifically provides for exemption in respect of Part-B State''s cooperative Societies.
(3) Under Section 297(2)(1) of the Income-tax Act, 1961 any notification issued under Section 60A of the Indian Income-tax Act 1922 is applicable under the Income-tax Act, 1961 only if no provision had been made under the said Act. Section 80-P of the Income-tax Act, 1961 contains specific provisions for all co-operative societies in all the taxable territories.
(4) The notification under the old Act has not been withdrawn so as to preserve the validity of orders made under the old Act in respect of Cooperative Societies.
Under the circumstances, the argument of the assessee that income of a co-operative society in Saurashtra is exempt is not acceptable. The order made by the Income-tax Officer is erroneous and prejudicial to the interest of revenue. I, therefore, set aside the order made by the Income-tax Officer with a direction to reframe the assessment in which the income of co-operative society should not be treated as completely exempt. The Income-tax Officer is directed to consider the provisions of Section 80P. A suitable fresh order should be made after hearing the assessee."
Being aggrieved by the decision, the assessee has filed appeal before the Tribunal and the Tribunal by following its view taken in the earlier decisions, has opined in para 6 of its order as under:
"6. We appreciate the force in the argument of the learned D.R., but at the same time we find that the Tribunal has consistently taken the view on the subject that the notifications issued under the old Act, 1922 having not been withdrawn by the authorities concerned provide good basis to the co-op. society to seek exemption of its income from business. Therefore, consistently with the view taken by the Tribunal, we hold that in granting exemption to the assessee co-op. Society in respect of its business income, the order of the ITO was not erroneous and prejudicial to the interest of the revenue. Therefore, keeping ourselves in line with the views already expressed by the Tribunal on the point, we set aside the order under appeal and restore that of the ITO."
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. Both the Sections are reproduced herein below.
Section 80P reads as under:
"Deduction in respect of income of cooperative societies.
80P (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of the section, the sums specified in sub-section (2), in computing the total income of the assessee.
(2) The sums referred to in sub-section (1) shall be the following, namely:-
(a) in the case of a co-operative society engaged in-
(i) carrying on the business of banking or providing credit facilities to its members, or
(ii) a cottage industry, or
(iii) the marketing of agricultural produce grown by its members, or
(iv) the purchase of agricultural implements, seeds livestock or other articles intended for agriculture for the purpose of supplying them to its members, or
(v) the processing, without the aid of power, of the agricultural produce of its members, [or]
(vi) the collective disposal of the labour of its members, or
(vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members.
the whole of the amount of profits and gains of business attributable to any one or more of such activities.
[Provided that in the case of a co-operative society falling under sub clause (vi), or sub-clause (vii), the rules and bye-laws of the society restrict the voting rights to the following classes of its members namely:-
(1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities;
(2) the co-operative credit societies which provide financial assistance to the society;
(3) the State Government;
[(b) in the case of a co-operative society, being a primary society engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members to-
(i) a federal co-operative society, being a society engaged in the business of supplying milk, oilseeds, fruits, or vegetables, as the case may be; or
(ii) the Government or a local authority; or
(iii) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act (being a company or corporation engaged in supplying milk, oilseeds, fruits or vegetables, as the case may be, to the public)
the whole of the amount of profits and gains of such business;]
(c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities as [does not exceed,-
(i) where such co-operative society is a consumers'' co-operative society, [one hundred] thousand rupees; and
(ii) in any other case, [fifty] thousand rupees.
Explanation.- In this clause "consumers'' co-operative society means a society for the benefits of the consumers;]
(d) in respect of any income by way of interest or dividends derived by the cooperative society, the whole of such income;
(e) in respect of any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income;
(f) in the case of a co-operative society, not being a housing society or an urban consumers'' society or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does not exceed twenty thousand rupees, the amount of any income by way of interest on securities or any income from house property chargeable under section 22.
Explanation - For the purposes of this section, an "urban consumers'' cooperative society" means a society for the benefit of the consumers within the limits of a municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment.
(3) In a case where the assessee is entitled also to the deduction under [section 80HH] for section 80HHA [or section 80HHB] [or section 80HHC] [or section 80HHD] [or section 80-I] [or section 80-IA] or section 80J the deduction under sub-section (1) of this section, in relation to the sums specified in clause (a) or clause (b) or clause (c) of sub-section (2) shall, shall be allowed with reference to the income, if any, as referred to in those clauses included in the gross total income as reduced by the deductions under [section 80HH] [section 80HHA,] [section 80HHB], [section 80HHC.] [section 80HHD,] [section 80-I], [section 80-IA,] [section 80J and section 80JJ].
(4) The provisions of this section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank.
Explanation.- For the purposes of this sub-section,-
(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 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.]"
Section 80T reads as under:
Deduction in respect of long-term capital gains in the case of assessees other than companies.
80T [Omitted by the Finance Act, 1987, w.e.f. 1-4-1988. Original section was inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968 in replacement of section 114.]
Deduction in respect of winnings from lottery.
80TT. [Omitted by the Finance Act, 1986, w.e.f. 1-4-1987. Original section was inserted by the Finance Act, 1972, w.e.f. 1-4-1972 and amended by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981.]
Deduction in respect of interest on deposits in savings account.
80TTA. (1) Where the gross total income of an assessee, being an individual or a Hindu undivided family, includes any income by way of interest on deposits (not being time deposits) in a savings account with-
(a) a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act);
(b) a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); or
(c) a Post Office as defined in clause (k) of section 2 of the Indian Post Office Act, 1898 (6 of 1898),
there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee a deduction as specified hereunder, namely:-
(i) in a case where the amount of such income does not exceed in the aggregate ten thousand rupees, the whole of such amount; and
(ii) in any other case, ten thousand rupees.
(2) Where the income referred to in this section is derived from any deposit in a savings account held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed under this section in respect of such income in computing the total income of any partner of the firm or any member of the association or any individual of the body.
Explanation.- For the purposes of this section, "time deposits" means the deposits repayable on expiry of fixed periods.]
In view of the above sections, the present case will be governed by the said sections. In that view of the matter, notice under Section 263, since the basis of the assessment order was erroneous, is justified.
Learned counsel for the respondent Mr. Divetia submitted that the notice under Section 263, in as much as while considering assessment order, the Assessing Officer, ITO has applied its mind and stated that exemption notification will govern the field and therefore, the jurisdiction exercised under Section 263 is uncalled for.
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.
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.
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.
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.
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.