2020 (1) TMI 358 - HC - Income Tax

Deduction u/s 80P(2) - assessee are Co-operative Societies registered under the Kerala Co-operative Societies Act 1969 - Claim for deduction denied by AO by treating them as Co-operative Banks and not as Primary Agricultural Credit Societies - contention of the appellants is that in view of the circular No.133/6 of 2007 dated 09.05.2007 issued by the Central Board of Direct Taxes in order to ascertain whether a cooperative society is conducting the business of banking what shall be considered is whether it is a co-operative bank within the meaning of Part V of the Banking Regulation Act 1949 and that the criteria shall not be as stated by the Full Bench of this Court in Mavilayi 2019 (3) TMI 1580 - KERALA HIGH COURT - HELD THAT - The aforesaid contention is misconceived. Clarificatory circulars are issued by Government departments for the guidance of the officers. Such circulars or instructions do bind the department and its officers. But they do not bind the Court in interpretation of statutory provisions. Circulars issued by a Government department cannot have any primacy over the decision of the jurisdictional High Court. Circulars and instructions thus issued will not survive if they are contrary to the decision of a Constitutional Court. If a circular provides an interpretation of law that runs contrary to the interpretation given by the jurisdictional High Court it no longer survives. Circulars or instructions given by the department are no doubt binding on the authorities under the Act but when the Supreme Court or the High Court has declared the law on the question arising for consideration it will not be open to a party to contend that the circular should be given effect to and not the view expressed in the decision of the Supreme Court or the High Court. Any direction issued by the Government in a circular would be mere expression of its opinion. But once a provision has been interpreted by the superior court then it will not be open to the assessee to project an interpretation on the concerned provision in tune with the circular but against the law laid down by the Court. It is true that when the Tribunal passed the orders the decision in Mavilayi (supra) was not in existence. But the decision in Chirakkal 2016 (4) TMI 826 - KERALA HIGH COURT was then in force. In view of the decision in Chirakkal (supra) it was not necessary for the Tribunal to consider the effect of the circular issued by the department. A circular issued by the department is not binding on the Income Tax Appellate Tribunal also - Decided in favour revenue

Summary

Issues:
1. Claim for deduction under Section 80P(2) of the Income Tax Act by Co-operative Societies.
2. Classification of Co-operative Societies as Primary Agricultural Credit Societies.
3. Interpretation of Section 80P(4) of the Income Tax Act.
4. Effect of Circular No.133/6 of 2007 on the classification of Co-operative Societies.
5. Binding nature of clarificatory circulars issued by Government departments on the Court.

Analysis:
1. The case involved Co-operative Societies registered under the Kerala Co-operative Societies Act, 1969, seeking deduction under Section 80P(2) of the Income Tax Act, 1961. The Assessing Officer initially denied the deduction, considering them as Co-operative Banks instead of Primary Agricultural Credit Societies.

2. The appellate authority allowed the deduction under Section 80P(2) based on the classification of the societies as Primary Agricultural Credit Societies by the Registrar of Co-operative Societies. This decision was influenced by a previous judgment, which held that such societies are entitled to the benefits of sub-section (4) of Section 80P.

3. A subsequent challenge by the revenue before the Income Tax Appellate Tribunal was dismissed, relying on the earlier judgment. However, a Full Bench decision overruled the previous judgment, emphasizing that the Assessing Officer must conduct an inquiry into the activities of the society to determine eligibility for deductions under Section 80P(4).

4. The appellants contested the Tribunal's decision, arguing that the Circular No.133/6 of 2007 should be considered to define a Co-operative Bank. The Court clarified that while such circulars guide departmental officers, they do not bind the Court in interpreting statutory provisions. The Court emphasized that circulars cannot override decisions of the jurisdictional High Court.

5. Citing legal precedents, the Court reiterated that circulars issued by Government departments are not superior to High Court decisions. The Tribunal's decision, based on the earlier judgment, was upheld, emphasizing that the circular issued by the department does not bind the Tribunal. The Court dismissed the appeals challenging the Tribunal's decision, stating that no substantial question of law arose for consideration.