TaxTMI 
TaxTMI 
2022 (1) TMI 540
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....ATHI, ADV.) J U D G M E N T S. SUJATHA, J., Since common and akin issues are involved in these appeals, they are taken up together, heard and disposed of by this common judgment. 2. The intra Court appeals are filed by the Revenue under Section 4 of the Karnataka High Court Act, 1961 assailing the common order dated 16.01.2020 passed in W.P.No.48414/2018 and 3. The Income Tax Appeals are filed by the assesses under Section 260A of the Income Tax Act, 1961 ('Act' for short) challenging the orders passed by the Income Tax Appellate Tribunal, Bengaluru ('Tribunal' for short). 4. The appeals were admitted by this Court to consider the following substantial questions of law:- In ITA Nos.832/2018 and 833/2018: i. Whether the definition of 'cooperative' in Section-2[e] of the Karnataka Souharda Sahakari Act, 1997, enacted by the Government of Karnataka, deeming to be "Cooperative Society" for the purpose of the enactments mentioned in the said society is only illustrative or exhaustive and not restricted to the enactments mentioned in the said Section? ii. Whether the Appellant Cooperative registered under the Karnataka Souharda Sahakari....
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....he case? (ii) Whether the Tribunal was justified in law, in not adjudicating the ground raised by the appellant, more so in relation to the denial of deduction under Section 80P of the Act, that the appellant is not a Co-operative Bank, on the facts and circumstances of the case? (iii) Whether the Tribunal was justified in adjudicating an argument of the respondent revenue and holding that the appellant was not a co-operative society which was not the case of the AO, nor the CIT(A), thus has passed a perverse order on the facts and circumstances of the case? (iv) Whether the Tribunal was justified in remanding the matter to the file of the AO to ascertain whether the appellant was a society, while holding in the order that the appellant was not a society and not eligible to claim deduction under Section 80P of the Act, thereby passing a perverse order on the facts and circumstances of the case? (v) Whether the Tribunal erred in law in not holding that no proceeding could be made on the appellant, pursuant to the denial of status of society and consequently gave a perverse direction, on the facts and circumstances of the case? In ITA No.3....
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....ia seeking a direction that Income Tax Act, 1961 ['Act' for short] is not excluded from the definition clause of 2[e] of the Souharda Act. The petitioner in W.P.No.48414/2018 [W.A.No.406/2020] has also challenged the notice issued under Section 148 of the Act. Thus, in substance, the prayer was that the petitioners are entitled to seek deduction in respect of their income in terms of the scheme envisaged under Section 80P of the Act. Writ Court after hearing both the parties, allowed the writ petitions holding that the entities registered under the Souharda Act fit into the definition of "Cooperative Society" as enacted under Section 2[19] of the Act and therefore, subject to all just exceptions, assessees are entitled to stake their claim for the benefit of Section 80P of the Act. The impugned notice dated 30.03.2018 [Annexure-D] in W.P.No.48414/2018 has been quashed. Being aggrieved by the said common order, the Revenue has preferred the present appeal. 6. Learned counsel Sri.K.V.Aravind appearing for the appellant/Revenue argued that the definition of Co-operative Societies defined under Section 2[19] of the Act means a Co-operative Society registered under the provis....
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....an V/s. Commissioner of Sales Tax and Others [1985 (Supp) SCC 205]. Secondly, it was argued that the definition clause of Souharda Act opens with the phrase 'unless the context which other requires' as such the assessees-institutions cannot be termed as not Co-operative Societies. Thirdly, it was submitted that 'all purposes' mentioned in Section 2[e] of the Souharda Act assumes significance. 8. Learned senior counsel argued that there is no cavil on the proposition relating to Article 254[2] but the same is not applicable to the facts of the present case. Learned counsel has referred to the Karnataka Souharda [Amendment] Act, 2021 wherein Section 2[e] has been substituted defining 'Co-operative' means a Souharda Co-operative Society including a Cooperative bank doing the business of banking registered or deemed to be registered under Section 5 and which has the words 'Souharda Co-operative Society' in its name and for the purposes of the Income Tax Act, 1961 (Central Act 43 of 1961), including other enactments specified therein and for all purposes mentioned in all Central and State legislation, it shall be deemed to be a Co-operative Society. Thus, it was argued that by virtue....
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....1959 Act or in any judgment, decree, order or direction of any court, the villages of Raipura and Ummedganj should be deemed always to have continued to exist and they continue to exist within the limits of the Kota municipality, to all intents and for all purposes. This provision requires the deeming of the legal position that the villages of Raipura and Ummedganj fall within the limits of the Kota municipality, not the deeming of facts from which this legal consequence would flow. A legal consequence cannot be deemed nor, therefrom, can the events that should have preceded it. Facts may be deemed and, therefrom, the legal consequences that follow." 12. In the case of Apex Co-operative Bank of Urban Bank of Maharashtra & Goa Ltd., V/s. Maharashtra State Co-operative Bank Ltd., and Others [(2003) 11 SCC 66], the Hon'ble Apex Court has held thus: "8. The questions which arise for considerations are: (a) whether a co-operative society registered under the Multi State Act can be granted a license by the RBI to commence and carry on banking business, (b) whether a co-operative society registered under the Multi State Act can be recognized and notified by the State Go....
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....r with or without current year's depreciation is deemed to be the current year's depreciation but it is well settled, as has been observed by this Court in Bengal Immunity Company Limited v The State of Bihar (1955) 2 SCR 603 at p. 606 that legal fictions are created only for some definite purpose and these must be limited to that purpose and should not be extended beyond that legitimate field. Clearly, the avowed purpose of the legal fiction created by the deeming provision contained in proviso (b) to Section 10(2)(vi) is to make the unabsorbed carried forward depreciation partake of the same character as the current depreciation in the following year, so that it is available, unlike unabsorbed carried forward business loss, for being set off against other heads of income of that year. That that is so becomes clear from this court's observations in Jaipuria China Clay Mines (P) Ltd. case (supra) appearing at p. 561 of the Report which run thus : "The unabsorbed depreciation allowance is carried forward under proviso (b) to Section 10(2)(vi) and the method of carrying it forward is to add it to the amount of the allowance or depreciation in the following year a....
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....ian Penal Code into the Co-operative Societies Act, in order to define a public servant but those public servants cannot be prosecuted for having committed the offence under the Indian Penal Code. It is a well known principle of construction that in interpreting a provision creating a legal fiction, the Court is to ascertain for what purpose the fiction is created, and after ascertaining this, the Court is to assume all those facts and consequences which are incidental or inevitable corollaries to giving effect to the fiction. But in so construing the fiction it is not to be extended beyond the purpose for which it is created, or beyond the language of the Section by which it is created. A legal fiction in terms enacted for the purposes of one Act is normally restricted to that Act and cannot be extended to cover another Act. When the State Legislatures make the Registrar, a person exercising the power of the Registrar, a person authorised to audit the accounts of a society under Section 81or a person to hold an inquiry under Section 83 or to make an inspection under Section 84 and a person appointed as an Administrator under Section 78 or as a Liquidator under Section 103 shall be....
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.... 11 of the List II - State List. By 42nd Amendment of Constitution w.e.f. 3rd January, 1977 Entry 11 of List II-State List was omitted and was added as Entry 25 of List-III. At present the aforesaid provisions read as follows: "SEVENTH SCHEDULE List I - Union List 66. Co-ordination and determination of standards in institutions for higher education or research and scientific and technical institutions. List III - CONCURRENT LIST 25. Education, including technical education, medical education and universities, subject to the provisions of entries 63, 64, 65 and 66 of List I; vocational and technical training of labour."" This judgment would be of little assistance to the Revenue as there is no cavil on this proposition. 16. In the case of Commissioner of Income-tax, Rajkot V/s. Govindbhai Mamaiya [(2014) 52 taxmann.com 270 (SC)], the Hon'ble Apex Court has held thus: "19. In the case of CIT v. Indira Balkrishna, AIR 1960 SC 1172, this Court held that "association of persons" meant an association in which two or more persons joined in a common purpose or common action. As the words occurred in a section which imposed a ....
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....entitled to ignore the return filed by the assessee as non est in law. It is not disputed that the Income-tax Officer issued the first notice under s. 34 of the Act on March 22, 1957 to the assessee in the status of 'individual'. The Appellate Tribunal has stated in para 3 of the statement of the case that the lncome-tax Officer had taken the view that the correct status of the assessee was 'individual' and in accordance with that view "a notice under s. 34 was issued to the assessee as above for making an assessment in the status of 'individual' ". As there was some ambiguity in the statement of the case on this point, we referred to the original file of the income-tax proceedings and satisfied ourselves that the assertion of fact made in the statement of the case is correct. It appears that on February 13, 1957 the Income-tax Officer had applied for the sanction of the Commissioner for instituting proceedings under s. 34(1)(a) of the Act against the assessee to make an assessment in the status of an 'individual' with regard to the procurement agency business. Sanction of the Commissioner was given to the proposal of the Income-tax Officer ....
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....as held thus: "To sum up, the Tribunal having held that Smt.Panna Bai could not be assessed to tax in the status of an individual" on the income derived from the firm erred in modifying the assessment in the status of a "body of individuals" consisting of Smt. Panna Bai and her minor children. The Tribunal should have annulled the assessment with liberty to the ITO to assess the income in the status of a body of individuals, if permitted by law, after issuing notice to that body of individuals to submit a return as required by s.139(2) of the I.T. Act." Thus, modifying the assessment changing the status of the assessee as co-operative is not permissible. 19. Statement of objects and reasons to Karnataka Act No.17/2000 [Souharda Act] reads thus: "The Karnataka Souhardha Sahakari Bill, 1997 among other things provide for.- (1) the recognition, encouragement and voluntary formation of co-operatives based on self help, mutual aid, wholly owned, managed and controlled by members as accountable, competitive, self- reliant and economic enterprises guided by co-operative principles specified therein; (2) removing all kinds of restrictions that have....
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....erative movement. No hyper technical view can be taken to exclude the entities registered under the Souharda Act as not falling under the definition of 'Cooperative Society' as defined in Section 2[19] of the Act. Now, it is further clarified by the Amendment Act No.35/2021 brought out to Section 2[e] of the Souharda Act by substitution whereby 'Co-operative' means a Souharda Co-operative Society including a Co-operative bank during the business of banking registered or deemed to be registered under Section 5 and which has the words 'Souharda Co-operative Society' in its name and for the purposes of the Income Tax Act, 1961 also amongst other enactment specified therein. By substituting amongst the others "The Income Tax Act, 1961" it has been clarified that for the purpose of the Income Tax Act, Co-operative under Souharda Act is a Co-operative Society as such, the assesses are entitled for the benefit of Section 80P of the Income Tax Act, 1961. It cannot be gainsaid that the amendment by substitution relates back to the date of original enactment unless specified from a particular date. In the absence of any specified date mentioned, the Amended Act certainly relates back to the ....
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....[(1955) 2 SCR 603])." 28. Secondly, for purposes of eligibility for deduction, the assessee must be a "cooperative society". A co-operative society is defined in Section 2(19) of the IT Act, as being a co-operative society registered either under the Co-operative Societies Act, 1912 or under any other law for the time being in force in any State for the registration of co-operative societies. This, therefore, refers only to the factum of a co-operative society being registered under the 1912 Act or under the State law. For purposes of eligibility, it is unnecessary to probe any further as to whether the co-operative society is classified as X or Y. 29. Thirdly, the gross total income must include income that is referred to in subsection (2). 30. Fourthly, sub-clause (2)(a)(i) with which we are directly concerned, then speaks of a co-operative society being "engaged in" carrying on the business of banking or providing credit facilities to its members. What is important qua sub-clause (2)(a)(i) is the fact that the co-operative society must be "engaged in" the providing credit facilities to its members. As has been rightly pointed out by the learned Additio....
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....ovisions of this Part, the Legislature of a State may, by law, make provisions with respect to the incorporation, regulation and winding up of co-operative societies based on the principles of voluntary formation, democratic member control, member-economic participation and autonomous functioning." It appears, it was thought fit to encourage cooperative movement by formation of co-operative societies by incorporating the same in Part-IV i.e., directive principles of State policy in the Constitution of India. The amendment incorporated as Article - 43-B by the Constitution [ninety seventh amendment] Act, 2011, S-3 with effect from 15.02.2012 reads as under:- "43.B. Promotion of co-operative societies, - The State shall Endeavour to promote voluntary formation, autonomous functioning, democratic control and professional management of co-operative societies." 26. The fallout of the object and reasons and the subsequent amendment which takes the forefront by this 97th Constitution Amendment is appreciating "Cooperative movement." By incorporating part IX-B in the Constitution under the head "The Co-operative Society" and making it part of directive principle....
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....Whoever contravenes the provisions of this section shall be punishable with fine which may extend to fifty rupees, and in the case of a continuing offence with further fine of five rupees for each day on which the offence is continued after conviction therefor." 32. At this juncture, the arguments advanced by the learned counsel for the Revenue that the Karnataka Act No.35/2021 - the State Amendment Act runs contrary to the Central enactment of Co-operative Societies Act, 1912 resulting in repugnancy with the Central enactment cannot be countenanced for the reason that we are not adjudicating upon the Constitutional validity of the Karnataka Act No.35/2021, Amended Souharda Act. Hence, the amended Section 2[e] of the Souharda Act is applicable to the facts of the case. The judgments cited by the learned counsel for the Revenue inasmuch as Articles 246 and 254 would be of no assistance in adjudicating the dispute in the case on hand. If a strict literal interpretation is given to the word 'Co-operative' as canvassed by the learned counsel for the Revenue, in the absence of rate of tax fixed for such 'Co-operative', no tax liability would arise in the light of the judgment of the ....