Shetkari Sahakari Sangh Ltd. vs Commissioner of Income Tax

S.P. Bharucha, J.—This reference is made at the instance of the assessee and raises, inter alia, the following three questions :

"(1) Whether the total exemption from Income Tax granted to the profits of any co-operative society registered under the merged states law under clause 13(v) of the Merged States (Taxation Concessions) Order, 1949, issued u/s 60A of the Indian Income Tax Act, 1922, has ceased to be available to the profits of the assessee-co-operative society for the relevant assessment year 1961-62 under the said Act ?

(2) Whether the total exemption from Income Tax granted to the profits of any co-operative society registered under the Merged State law under clause 13(v) of the Merged States (Taxation Concessions) Order, 1949, issued u/s 60A of the Indian Income Tax Act, 1922, has ceased to the available to the profits of the assessee-co-operative society for the relevant assessment years 1962-63 to 1969-70 inasmuch as a provision in this regard within the meaning of section 297(2)(1) of the Income Tax Act, 1961, had been made u/s 81/80P of the Act ?

(3) Whether the Tribunal was correct in law in taking the view that the exemption from tax granted under the Merged States (Taxation Concessions) Order, 1949, could not enure for an indefinite period although, in fact, the said order had not been expressly rescinded as that would be tantamount to discrimination in the eye of law ?"

We do not set out the fourth and fifth questions because Mr. Patil, learned counsel for the assessee, does not press for an answer to them.

The reference covers the assessment years 1961-62 to 1969-70.

The assessee is a society in Kolhapur. It is registered under the Bombay Co-operative Societies Act, 1925, which had been made applicable to the erstwhile Kolhapur State. Kolhapur State was merged in the Indian Union in the year 1949. For the assessment years in question, the assessee claimed that it was exempt from the payment of Income Tax upon its profits by reason of the provisions of clause 13(v) of the Merged States (Taxation Concessions) Order, 1949. The Appellate Assistant Commissioner before whom this plea was raised for the first time negatived it. The assessee carried the matter to the Income Tax Appellate Tribunal. The Tribunal held against the assessee basing itself upon the provisions of section 60A of the Indian Income Tax Act, 1922, and sections 81 (later 80P) and 297 of the Income Tax Act, 1961. From out of the order of the Tribunal, the questions before us arise.

Section 60A of the 1922 Act empowered the Central Government, if it considered it necessary or expedient so to do for avoiding any hardship or anomaly, or removing any difficulty that might arise as a result of the extension of the 1922 Act to the merged territories, to make, by general or special order, an exemption, reduction in rate, or other modification in respect of Income Tax in favour of any class of income, or in regard to whole or any part of the income of any person or class of persons. The proviso to section 60A stated that the power conferred would not be exercisable in the case of merged territories after March 31, 1955, except for the purpose of rescinding an exemption, reduction or modification already made.

Under the provisions of section 60A of the 1922 Act, the Merged States (Taxation Concessions) Order, 1949, was made. Clause 13(v) read thus :

"13. Any income falling within the following classes shall be exempt from Income Tax and super-tax and shall not be included in the total income or total world income of the person receiving them........

(v) the profits of any co-operative society registered under any Act in force in a Merged State, or dividends or other payments received by members of any such society out of such profits."

It is difficult to see why the benefit of clause 13(v) of the Merged States (Taxation Concessions) Order was not made available by the Tribunal to the assessee for the assessment year 1961-62.

Dr. Balasubramanian, learned counsel for the Revenue, submitted that the assessment for the assessment year 1961-62 had been completed after April 1, 1962, when the 1961 Act came into force and that by reason of sub-section (1) of section 297, except to the extent that there were savings under sub-section (2), the 1922 Act stood repealed. Reliance was placed by Dr. Balasubramanian upon clause (1) of sub-section (2) whereunder "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". He submitted that such provision as was required by the said clause (1) had been made in the 1961 Act so that the Merged States (Taxation Concessions) Order, in so far as it provided for an exemption to the business income of a co-operative society, ceased to have force.

It is not necessary to consider the relevant provision in the 1961 Act at this stage because, to the assessment of the assessee for the assessment year 1961-62, the provisions of clause (a) of sub-section (2) of section 297 would apply, namely, where a return of income had been filed before the commencement of the 1961 Act by any person for the assessment year, the proceedings for the assessment of that person for that year would be taken and continued as if the 1961 Act had not been passed. It is seen that the assessment of the assessee for the assessment year 1961-62 was completed under the 1922 Act. It indicates that it had filed its return for this assessment year prior to the commencement of the 1961 Act. Having regard to the provisions of the said clause (a), no part of the 1961 Act, could be taken into consideration for the assessment of the assessee for this assessment year. For this assessment year, therefore, the assessee was entitled to the benefit of clause 13(v) of the Merged States (Taxation Concessions) Order.

In so far as the subsequent assessment years are concerned, section 81 (thereafter section 80P) provided for assessment of the income of a co-operative society and stated that Income Tax would not be payable by a co-operative society in respect of the profits and gains of business carried on by it if, inter alia, it was a society engaged in the marketing of the agricultural produce of its members, which the assessee did. The question is whether this provision can be said to be a provision of the nature referred to in section 297(2)(1). Mr. Patil submitted that under clause 13(v) of the Merged States (Taxation Concessions) Order, the business income of a co-operative society was not to be treated as a part of the co-operative society''s total income whereas under the provisions of section 81 (later section 80P) what may be called a rebate was given to a co-operative society in respect of its business income provided it was engaged in, inter alia, the marketing of the agricultural produce of its members.

It is difficult to read the provisions of the Merged States (Taxation Concessions) Order and the 1961 Act in so restrictive a manner. When must be seen is whether the 1961 Act made provision for assessment of the income of a co-operative society which is what the Merged States (Taxation Concessions) Order provided for; in other words, whether they covered the same field. Clearly, section 81 (later 80P) of the 1961 Act made provision for assessment of the income of a co-operative society. Therefore, the 1961 Act and the Merged States (Taxation Concessions) Order operated in the same field and could not stand together. Hence, by reason of the provisions of clause (1) of sub-section (2) of section 297, the Merged States (Taxation Concessions) Order, in so far as it made provision for the income of a co-operative society, ceased to have effect when the 1961 Act came into force, i.e., on and from April 1, 1961. In other words, for the assessment years 1962-63 and thereafter, the assessee was not entitled to the benefit of the Merged States (Taxation Concessions) Order.

In the result, the questions are answered thus :

Question No. 1 : In the negative and in favour of the assessee.

Question No. 2 : In the affirmative and in favour of the Revenue.

Question No. 3 : In the circumstances, it is not necessary to answer this question.

We do not answer the fourth and fifth questions because they were not pressed.

No order as to costs.