2019 (7) TMI 749 - HC - Income Tax

Reopening of assessment - entitled to the benefit of Section 80P - Whether assessee is to be treated as primary agricultural society and is carrying on the business of banking or providing credit facilities to its members and is entitled for deduction with respect to the interest received from Class B members who were involved in non-agricultural activity? - HELD THAT - a) All the four impugned notices will be kept in abeyance and there will be no further proceedings pursuant to the same until disposal of the Special Leave Petitions said to have been filed by respondent / Revenue in Hon'ble Supreme Court against the aforesaid order of Hon'ble Division Bench of this Court particularly in TIRUCHENGODE AGRICULTURAL PRODUCERS COOPERATIVE MARKETING SOCIETY LTD., S-1308 AMMAPET PRIMARY AGRICULTURAL COOPERATIVE BANK LTD. 2016 (8) TMI 560 - MADRAS HIGH COURT wherein held held that the assessees are not co-operative bank and that their activities in the nature of accepting deposits, advancing loans etc., carried on by the assessees are confined to its members only and that too in a particular geographical area. Therefore, the respondent Societies are eligible for deduction under Section 80P (2) (a) (i) b) Subject to the outcome of the aforesaid Special Leave Petitions, i.e., if the Special Leave Petitions are in favour of the Revenue, the impugned orders will stand revived and law will take its course. If the aforesaid scenario unfolds, it is open to the writ petitioner assessee to take all objections and defences available to section 148 notice including calling for reasons and limitation. c) If the Special Leave Petitions end in favour of assessees and if the aforesaid Hon'ble Division Bench orders are confirmed or if the Hon'ble Supreme Court refuses to interfere with the orders of the High Court, all the four impugned notices will stand set aside without further reference to this Court. d) Though obvious it is made clear that this order pertains to benefit under Section 80-P of IT Act qua writ petitioners covered by Hon'ble Division Bench orders against which Revenue submits that SLPs have been filed before Hon'ble Supreme Court and therefore, this order will not preclude Revenue from proceeding against writ petitioners in a manner known to law with regard to other issues, if any.

Summary

Issues Involved:

1. Applicability of Section 80P of the Income Tax Act, 1961 to Cooperative Societies.
2. Validity of notices issued under Section 148 of the Income Tax Act.
3. Limitation period for issuing notices under Section 148 of the Income Tax Act.
4. Pending Special Leave Petitions (SLPs) before the Supreme Court challenging the High Court's decision on Section 80P.

Issue-wise Detailed Analysis:

1. Applicability of Section 80P of the Income Tax Act, 1961 to Cooperative Societies:

The core issue revolves around the applicability of Section 80P of the Income Tax Act, 1961, which provides tax deductions to Cooperative Societies. The petitioners, being Cooperative Societies, claimed entitlement to benefits under Section 80P. The Court referenced a prior Division Bench judgment dated 02.08.2016, which ruled that Cooperative Societies akin to the petitioners are entitled to the benefits of Section 80P. The Division Bench had addressed substantial questions of law regarding whether the societies qualify as primary agricultural societies and whether they can be treated as cooperative banks under Section 80P(4).

2. Validity of Notices Issued Under Section 148 of the Income Tax Act:

The respondents issued notices under Section 148 of the Income Tax Act, alleging escaped income assessment under Section 147 for various assessment years. The petitioners challenged these notices, arguing that the Division Bench's ruling in favor of Cooperative Societies under Section 80P should preclude further proceedings based on these notices. The Court noted that the Division Bench's decision would ultimately bind the authorities, rendering the impugned notices ineffective.

3. Limitation Period for Issuing Notices Under Section 148 of the Income Tax Act:

The respondents raised concerns about the limitation period for issuing notices under Section 148. Different limitation periods are prescribed under Section 147, Section 149(1)(b), and Section 149(1)(c). The Court acknowledged that if the notices were set aside, the Revenue might be time-barred from issuing fresh notices if the Special Leave Petitions (SLPs) were decided in their favor. However, the Court did not express an opinion on the limitation plea due to the nature of the order being passed.

4. Pending Special Leave Petitions (SLPs) Before the Supreme Court:

The respondents informed the Court that SLPs had been filed before the Supreme Court challenging the Division Bench's decision on Section 80P. The Court noted that as of the date of the order, the Division Bench's decision had not been stayed or reversed and thus remained in force. Consequently, the Court decided to keep the impugned notices in abeyance until the SLPs were resolved.

Order:

The Court issued the following directions:

a) All impugned notices are to be kept in abeyance, and no further proceedings shall occur until the disposal of the SLPs filed by the Revenue in the Supreme Court.

b) If the SLPs are decided in favor of the Revenue, the impugned notices will be revived, and the law will take its course. The petitioners may then raise all available objections and defenses, including those related to reasons and limitation.

c) If the SLPs are decided in favor of the assessees, or if the Supreme Court refuses to interfere with the High Court's orders, the impugned notices will be set aside without further reference to the Court.

d) The order pertains solely to the benefit under Section 80P of the Income Tax Act concerning the petitioners and does not preclude the Revenue from proceeding against the petitioners on other issues.

The writ petition was disposed of on these terms, with no order as to costs, and the connected miscellaneous petition was closed.