2004 (6) TMI 274 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to deduction under section 80P(2)(a)(iii) of the Income-tax Act.
2. Impact of retrospective amendment to section 80P(2)(a)(iii) by the Income-tax (Second Amendment) Act, 1998.
3. Applicability of the new law to completed assessments.
4. Rectification of the Tribunal's order under section 254(2) of the Income-tax Act.
5. Tribunal's power to review versus rectification of mistakes apparent from the record.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction under Section 80P(2)(a)(iii):
The assessee, a cooperative society, claimed a deduction under section 80P(2)(a)(iii) for income derived from marketing the produce of its members. Initially, the Assessing Officer denied this deduction, relying on the Supreme Court's decision in Assam Cooperative Apex Marketing Society Ltd. v. Addl. CIT [1993] 201 ITR 338, which interpreted "agricultural produce of its members" as produce grown by its members. However, the Supreme Court later reversed this decision in Kerala State Co-operative Marketing Federation Ltd. v. CIT [1998] 231 ITR 814, holding that the phrase "produce of its members" included produce belonging to members, regardless of whether they grew it.

2. Impact of Retrospective Amendment:
The Income-tax (Second Amendment) Act, 1998, amended section 80P(2)(a)(iii) retrospectively from April 1, 1968, to specify that the deduction applies only to the marketing of agricultural produce grown by its members. This amendment effectively nullified the Supreme Court's decision in Kerala State Co-operative Marketing Federation Ltd.'s case by clarifying that the deduction is only available for produce grown by the members.

3. Applicability of the New Law to Completed Assessments:
The respondent argued that the retrospective amendment could not apply to completed assessments, citing the Supreme Court's decision in National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India [2003] 260 ITR 548. The Court held that the amendment was a new law, not modifying the existing law, and did not apply to completed assessments. However, the Tribunal disagreed, stating that the retrospective amendment by fiction is deemed to be in force at the relevant time, and thus, the Tribunal's earlier decision was inconsistent with the amended law.

4. Rectification of the Tribunal's Order under Section 254(2):
The revenue filed a miscellaneous petition under section 254(2) for rectification of the Tribunal's order, arguing that the order was based on a law that was subsequently amended retrospectively. The Tribunal held that the retrospective amendment created a mistake apparent from the record, which justified rectification. The Tribunal relied on the Supreme Court's decision in M.K. Venkatachalam, ITO v. Bombay Dyeing & Mfg. Co. Ltd. [1958] 34 ITR 143, which stated that a mistake of law apparent from the record could be rectified.

5. Tribunal's Power to Review versus Rectification:
The respondent contended that the Tribunal had no power to review its own decisions, citing CIT v. K.L. Bhatia [1990] 182 ITR 361 (Delhi). However, the Tribunal clarified that the revenue's application was for rectification of a mistake apparent from the record, not a review. The Tribunal distinguished between retrospective legislation, which creates a mistake apparent from the record, and a Supreme Court pronouncement, which does not have retrospective effect in the same manner.

Conclusion:
The Tribunal concluded that the retrospective amendment to section 80P(2)(a)(iii) required the denial of the deduction for income from marketing produce not grown by the members. The Tribunal's earlier order was modified accordingly, and the revenue's miscellaneous application was allowed.