The Commissioner of Income Tax vs Bharat Heavy Electricals Ltd., Complex Cooperative Labour Contract Society Ltd.

Chitra Venkataraman, J.—The Revenue seeks the admission of the Tax case for the assessment year 2003-04 on the following substantial

questions of law:

(i) Whether on the facts and in the circumstances of the case, the income Tax Tribunal is right in law in not considering the merits of the case but

merely dismissing the appeal on the ground of low tax effect?

(ii) Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in not considering the judgments of the High

Court which clearly state that irrespective of the low tax effect, the matter is to be decided on merits?

(iii) Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in not considering the fact that the assessee

had not established the nexus between the interest debited and the interest earned in order to claim netting? and

(iv) Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in not considering the judgment of the

Supreme Court in the case of Commissioner of Income Tax Vs. V.P. Gopinathan, wherein the Hon''ble Supreme Court had observed that only

gross interest from bank could be taxed and netting provisions may not apply?

It is seen that the assessee is a Cooperative Labour Contract Society registered under the Tamil Nadu Cooperative Societies Act with effect

from 10.7.1978. It is stated that the object of the Society is to promote economic interest of the labour members of the Society, to find suitable

employment by obtaining contract from public bodies and encouraging thrift and self help among the members.

In the return filed by the society for the Assessment Year 2003-04, admitting an taxable income of Rs. 13,130/-, the assessee claimed

deduction u/s 80-P of the Income Tax Act, 1961, to an extent of Rs. 3,44,701/-. The assessee claimed deduction u/s 80-P(2)(a)(vi) on the

interest from the members amounting to Rs. 2,98,041/-. The Assessing Authority held that the interest from members, interest from deposits and

sale of empty containers was not allowed for the deduction allowable u/s 80-P, since its receipts were not relatable or attributable to the primary

object of the society, which is collective disposal of labour of its members.

On appeal, the Commissioner of Income Tax (Appeals) held that if the amount given as a loan to the members was borrowed from outsiders at

a particular rate and given as a loan to the members, then the assessee was entitled to claim deduction for the interest paid. Hence, the Appellate

Authority held that it was not the gross receipt of interest which was liable to be taxed, but the net interest income alone would be taxable. Hence,

both on accounting as well as legal principles, the Commissioner of Income Tax (Appeals) held that the amount of interest paid to the members

should be treated as allowable expenditure against the interest receipts. However, the first appellate authority rejected the plea of the assessee on

other counts.

The Revenue preferred an appeal before the Income Tax Appellate Tribunal on the question of taxability of the interest income. It is seen that at

the time of hearing, the assessee''s counsel submitted that the tax effect involved in this appeal is less then Rs. 1,00,000/- and hence, the

Department is precluded from raising any appeal against such cases. Accepting the plea of the assessee, the Tribunal, in its order dated 16.3.2007,

dismissed the Revenue''s appeal. In so doing, it followed the decision reported in Commissioner of Income Tax Vs. Kodananad Tea Estates Co.

and Others, and held that the Revenue''s appeal pertained to the assessment year 2003-04 which was after the Circular of the Board dated

1.4.2000. Aggrieved by the said order, the Revenue is on appeal before this Court seeking admission.

It may be noted that this Court considered a similar issue in the decision rendered on 16.8.2007 in T.C.No.222 of 2004. Based on Instruction

1979 in Circular F No.279/126/98 ITJ dated 27.3.2000, referring to the statutory power u/s 119 of the Income Tax Act, 1961 under which the

circular was issued, this Court held that

We are of the considered view that none of the exceptions stated in the circular are applicable to the facts of the present case. The circular was

stated to be issued by invoking the statutory power u/s 119 of the Income Tax Act. The appeal is filed u/s 260-A of the Income Tax Act. It is well

settled principle of law that each and every provision of a statute has to be given the same importance. One provision cannot be alleviated to a

higher pedestal than the other provision, of course, unless or otherwise specifically stated either in the scheme, the Act or in the provision itself that

a particular provision is subjected to or qualified by any other provision or the provision can be given effect to notwithstanding anything contained

in any other provisions by assigning overriding effect. Hence, the contention that notwithstanding the circular, which was issued u/s 119 of the

Incometax Act, the appeal could be filed by the revenue u/s 260-A has to be rejected for the reason that if the contention is accepted, one of the

Section would become virtually otiose and that cannot be the intention of the law makers.

Thus, following the long line of case law reported in Commissioner of Income Tax Vs. Rajasthan Patrika Ltd., , Commissioner of Income Tax

Vs. P.S.T.S. Thiruvirathnam and Sons, , to which one of us is a party (K. Raviraja Pandian, J.), Commissioner of Income Tax Vs. Digvijay Singh,

and Commissioner of Income Tax Vs. Camco Colour Co., , this Court held that the long line of judicial opinion is that if the tax effect is less than

what is stated in the circular, the Revenue need not agitate the issue on appeal and that the circular is binding on the Revenue.

In the light of the said view expressed by this Court and on the admitted fact that the tax effect is also negligible and less than Rs. 1,00,000/- and

the case not falling under any of the stipulations of the circular, we do not find any justification to admit this appeal. Consequently, the same is

dismissed.