State Bank of India Staff Co-operative Society Ltd. and others vs Income Tax Officer and others

E. Padmanabhan, J.—In all the writ petitions, the co-operative society is the petitioner.

In the first batch of writ petitions, the petitioner prays for the issue of a writ of declaration to declare that the petitioner is not a finance company

within the meaning of section 2(5B)(va) of the Interest-tax Act, 1974 (Central Act 45 of 1974).

In the second batch of writ petitions, the petitioner-co-operative societies contended that section 2(5A)(i) of the Interest-tax Act, is not

applicable to the respective societies.

In the remaining cases, the petitioner-co-operative society contended that section 2(5B)(va) of the Interest-tax Act is not applicable to the

petitioner-co-operative society and on that basis, the petitioner seeks for the issue of a writ of certiorari to quash the notice issued by the first

respondent.

The Interest-tax Act, 1974 (Central Act 45 of 1974), came into force with effect from September 23, 1974. In all the writ petitions, the Income

Tax Officer issued a notice either calling upon the petitioner-society to furnish certain information and details of interest-tax return if any filed by the

respective societies for the assessment years 1992-93 and 1993-94, such as the date of furnishing the said return and copy of the computation

statement and other details. A few of the writ petitions have been filed challenging the said notice calling upon the petitioner-society to furnish

details.

In a few of the writ petitions, the Income Tax Officer proposed to assess the interest for the period from October 1, 1991, to March 31, 1992

(assessment year 1992-93), and called upon the petitioner to file a return within 30 days from the date of service of notice.

In some other writ petitions, the Assessing Officer issued a notice to the writ petitioner to the effect that he had reason to believe that chargeable

interest assessable under the provisions of the Interest-tax Act, 1974, for the assessment year 1992-93 has escaped assessment within the

meaning of section 10 of the Interest-tax Act, 1974, and, therefore, he called upon the petitioner to file a return within 30 days.

In respect of the other cases, the Income Tax Officer called upon the petitioner-society to furnish full details besides forwarding it with a model

working statement as and by way of clarification.

After receipt of such communications, the writ petitioners have come before this court challenging the action of the Income Tax Officer mainly

contending that the entire action is without jurisdiction, that the co-operative societies, not being banking companies, are not liable to pay interest-

tax and that the action of the respondent is arbitrary, barred by limitation and without jurisdiction.

In all the writ petitions, interim stay has been granted by this court.

The respondent-income tax Officer had filed counter in W.P. Nos. 3067, 3068, 3759, 5228, 5108, 5612, 5613, 6043 and 8929 of 1997.

Learned senior counsel appearing for the respondent-Revenue mainly contended that the writ petitions are premature and they are liable to be

dismissed in limine, besides contending that the action taken by the respondent is well within his jurisdiction and that the petitioner-co-operative

society is liable to pay interest-tax for the period from October 1, 1991, to March 31, 1992, and interest-tax is leviable and payable by the

petitioner-society.

Common arguments were advanced by learned counsel appearing for the petitioners. Mr. N. Krishna Mitra, Mr. V. Karthic; Mr. Kovi

Ramalingam, Mr. K. V. Anantha Krishnan, Mr. A. B. Sampathkumar, Mr. R. Malaichamy, Mr. H. Naziruddeen and Mr. K. Shanmugakani

argued for the respective writ petitioners and Mr. S. V. Subramaniam, senior counsel, appeared and argued for the respondents in all the writ

petitions.

The main contentions raised by learned counsel for the petitioners in all the writ petitions are : (1) the provisions of the Interest-tax Act have no

application to the co-operative society as co-operative societies are not banking companies; (2) the action of the respondent is without jurisdiction

and authority of law; and (3) in any event, the action taken by the respondent is barred by limitation.

On the other hand, learned senior counsel appearing for the respondent-Revenue contended that for the particular period for which the

respondent had called for particulars or issued notice, the co-operative societies engaging in carrying on business of banking or providing credit

facilities to farmers or village artisans, are liable to pay interest-tax in terms of the provisions of the Interest-tax Act and the action taken by the

respondent is well within the authority. Learned senior counsel further contended that the petitioner in each of the writ petitions had come before

this court against a notice calling upon them to furnish particulars or calling upon them to file returns and that the respondent is competent to decide

the question and statutory appeal is provided for in terms of the provisions of the Interest-tax Act, and that the writ petitions are premature and

they are not maintainable. Learned senior counsel further contended that the action taken by the respondent is not barred.

This court is not going to decide the individual cases or the liability of the petitioner-society in these writ petitions and this court has to confine

itself only to the common issues.

In terms of sub-section (2) of section 4 which is the charging section in respect of credit institutions other than scheduled banks, interest-tax

shall be charged on every credit institution for every assessment year. Sub-section (2) of section 4 reads thus :

Notwithstanding anything contained in sub-section (1) but subject to the other provisions of this Act, there shall be charged on every credit

institution for every assessment year commencing on and from the 1st day of April, 1992, interest-tax in respect of its chargeable interest of the

previous year at the rate of three per cent. of such chargeable interest.

It is essential to refer to the definition of the term ""credit institution"" as defined in the Act. Section 2(5A) defines the term ""credit institution"" thus

:

''credit institution'' means, -

(i) 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)"" - ""or a co-operative society engaged in carrying on the business of banking not being a co-operative society providing

credit facilities to farmers or village artisans"" - omitted by the Finance Act, 1992, with effect from April 1, 1993.

(ii) a public financial institution as defined in section 4A of the Companies Act, 1956 (1 of 1956);

(iii) a State financial corporation established u/s 3 or section 3A or an institution notified u/s 46 of the State Financial Corporations Act, 1951 (63

of 1951); and

(iv) any other financial company.

This definition of credit institution was introduced with effect from October 1, 1991. However, by the Finance Act, 1992, with effect from

April 1, 1993, the following portion has been deleted from the definition section :

or a co-operative society engaged in carrying on the business of banking not being a co-operative society providing credit facilities to farmers or

village artisans.

It is vehemently contended that a co-operative society not being a banking company and the provisions of the Banking Regulation Act, 1949,

not being made applicable,, cannot be taken as a credit institution. Learned counsel for the petitioners had obviously overlooked the second limb

of the definition section. The term ""a co-operative society engaged in carrying on the business of banking"" refers to a particular kind of co-

operative society and it need not necessarily be a banking company or a company to which the provisions of the Banking Regulation Act, 1949,

are made applicable. It is true that with respect to co-operative societies, the provisions of the Banking Regulation Act, 1949, had not been made

applicable and they are not banks. But the specific portion, namely, the second limb of the section has to be given its meaning, which would

definitely mean that a co-operative society engaged in or carrying on the business of banking, falls within the definition of credit institution. The

attempt on the part of learned counsel for the petitioners to read the second limb of the definition section, as if it is subject to the first limb of the

provision, cannot be appreciated and it cannot be sustained. The terms contained in the definition section with respect to co-operative society have

to be given full textual meaning and they have got a special significance and meaning. It is also to be pointed out that certain varieties of co-

operative societies, which provide credit facilities to farmers or to village artisans, have been excluded from the definition of credit institution. This

court is definite that a co-operative, society which undertakes the business of banking, such as lending money to its members or accepting deposits

or raising loans from the financial or banking institutions and advancing the same to its members, is definitely engaged in the business of banking.

Such co-operative societies will definitely fall within the definition of ""credit institution"". In respect of such credit institutions, in sub-section (2) of

section 4, charging has been placed. As such, the petitioner co-operative society, in each of the writ petitions, cannot contend that it is not a credit

institution falling within the meaning of section 2(5A) of the Interest-tax Act, 1974.

There is certainly an attempt to contend that some of the co-operative societies are not carrying on banking business. In other words, it was

suggested that a particular society is not engaged in advancing loans or accepting deposits and no part of the business could be termed as ""business

of banking"". Such individual cases cannot be gone into in these writ petitions and it is for the respective petitioner to raise objections before the

respondent and contend that they have neither collected interest nor have paid interest on loans nor have they carried on banking business.

It is next contended by learned counsel for the petitioners that in terms of section 10, action should have been taken within four years of the

end of the assessment year and in the present case, action not having been taken, the entire action is barred by limitation and without jurisdiction.

On the other hand, senior counsel for the Revenue contended that action is not barred by limitation. In this respect, section 10 has been

considered. However, it is not at this stage at which this court would decide the issue finally as it is always open to raise such objection before the

respondent and thereafter agitate the issue by way of appeal and further proceedings. Prima facie, for the purpose of the present writ petitions, it

would be sufficient to point out that the action of the respondent cannot be said to be barred by limitation. In cases falling under clause (a) of

section 10, the assessing authority may, at any time, and in cases falling under clause (b) of section 10 at any time within four years of the end of

that assessment year, serve on the assessee a notice containing all or any of the requirements which may be necessary u/s 10. If it is to be

construed that the action taken falls under clause (a) of section 10, in that event, the respondent would take action at any time and even if it is to be

construed that action taken falls under clause (b) of section 10, the respondent would take action within 4 years of the end of that assessment year.

In the present case, four years have not elapsed and immediately after the issue of notice, the petitioners in all the writ petitions, have rushed to this

court and obtained an order of stay of all further proceedings. Thus, prima facie this court is of the view that the action taken by the respondent by

issue of notice either calling for particulars or filing of returns or for details or a notice u/s 10, is not barred by limitation.

Incidentally, it has been contended that accepting deposits or raising loans from the financial bank and advancing the same to the members of

the society, would not amount to the petitioner-society carrying on the business of banking. Such a contention cannot be accepted. Accepting for

the purpose of lending or investment of deposits of money from the public repayable on demand or otherwise, is definitely banking business.

In Additional Commissioner of Income Tax Vs. U.P. Co-operative Cane Union, , the Division Bench of the Allahabad High Court had

occasion to consider an activity of a co-operative society with reference to the exemption of its income in terms of section 81 of the Income Tax

Act. A particular co-operative society, in that case, had engaged itself in the business of providing credit facility. In that context, the Division Bench

held thus (page 73) :

A person or a society may not be a banker in that wide sense yet he may be providing credit facilities which is a part of a banking business. The

expression ''providing credit facility'' thus takes its colour from the activity of banking. In order that a banking or providing of credit facility may

constitute a business, it is necessary that these activities must be the chief source of income. A person who advances loans or supplies goods on

credit in connection with and in the course of some other business of manufacture or purchase or sale of goods, etc., cannot be said to be carrying

on the business of banking or providing credit facilities.

It is not necessary to refer to any other authority, even though learned counsel for the Revenue relied upon various other pronouncements.

Further, as rightly contended by learned counsel for the Revenue, the present writ petitions are premature, in that, either the notice calling for

details, had been served or a model calculation form had been served, or the petitioner had been called upon to furnish particulars or file returns. It

is always open to the, petitioner-society to raise objection before the respondent contending that the petitioner-society had not carried on business

in banking or in that matter, the action of the respondent is barred by limitation. No such objection has been taken. Further, any decision by the

respondent including a decision with respect to the jurisdiction aspect of the matter could be agitated by way of further appeal under the provisions

of the Interest-tax Act, 1974. As it is, it cannot be contended that the respondent has acted without authority or jurisdiction. One of the

contentions of learned counsel for the petitioners is that an alternate remedy is not a bar to the filing of the writ petition. Learned counsel for the

petitioners referred to various decisions. However, this court is of the view that it is not necessary to refer to those decisions. Each case has to be

decided on the facts of the case and in terms of the provisions of a particular enactment. It cannot be held that a co-operative society is not

carrying on the business of banking and advancing loans to its members and it cannot be said that the co-operative society is not a credit institution

and, consequently, the petitioners cannot contend that the respondent has no jurisdiction at all to issue notice. This court is not setting out the

details set out in each writ petition as well as in the counter affidavit filed by the respondent as it is not necessary in view of the course this court

decided to adopt. This court is not deciding the other objections as the petitioners are given liberty to raise other legal objections as well as factual

objections before the respondent. In the circumstances,, this court holds that the writ petitions are premature and these writ petitions are liable to

be dismissed on this short ground.

In the circumstances, these writ petitions are dismissed and consequently, W.M.P. Nos. 6048, 6284, 6597, 6811, 6844, 7658, 8276, 8512,

8676, 8726, 9234, 9296, 10015, 10034, 10871, 13729 and 14241 are dismissed. This order of interim stay granted in these writ petitions is

vacated.

It is open to the respective petitioner to state their objections to the respondent within one month from today, and in such objection statement,

it is well open to the petitioner to raise all objections including the objections as to jurisdiction, limitation as well as factual disputes while filing

returns. The respondent shall offer necessary opportunity, conduct an enquiry and thereafter pass appropriate orders in terms of the Interest-tax

Act, 1974.