2009 (4) TMI 368 - HC - Income Tax

Deduction- The return filed by the assessee-co-operative bank for the assessment year 1998-99 was processed under section 143(1) (a) on February 10, 1999. Subsequently, the Assessing Officer noticed that interest granted under section 244A amounts to Rs. 47,151 for the assessment year 1996-97 during the previous year relevant to the assessment year 1998-99 was omitted to be taxed. Since there was a mistake apparent from records, notice under section 154 was issued to the assessee. In reply, the assessee contended that since the assessee is a co operative society, engaged in the business of banking, the entire interest income was exempt under section 80P(2)(a)(i) of the Income-tax Act. The Assessing Officer rejected the claim since interest under section 244A was not derived from the business of banking. Aggrieved by that order, the assessee preferred an appeal before the first appellate authority, who citing the decision CIT v. Ramanathapuram District Co-operative Central Bank Ltd. 2002 255 1W 423 (SC) deleted the addition of Rs. 47,151. Held that- dismissing the appeal, that the tax effect involved was less than the amount prescribed under the CBDT Circular F.No. 279/126/98-ITJ, dated March 27, 2000. The revenue was bound by the Circular.

Summary

Issues:
1. Interpretation of section 80P(2)(a)(i) of the Income-tax Act regarding exemption of interest income for co-operative banks.
2. Validity of the circular issued by the Central Board of Direct Taxes regarding the monetary limit for filing appeals by the Revenue.
3. Applicability of the circular on the Revenue's decision to file an appeal when the tax effect is less than the prescribed limit.

Analysis:
1. The case involved a dispute over the taxation of interest income under section 244A for an assessment year. The co-operative bank claimed exemption under section 80P(2)(a)(i) of the Income-tax Act. The Assessing Officer rejected the claim, leading to an appeal by the bank. The Tribunal dismissed the appeal based on a circular and previous court decisions. The Revenue challenged this decision, questioning the correctness of the Tribunal's order.

2. The main issue revolved around the interpretation of the circular issued by the Central Board of Direct Taxes, setting a monetary limit for filing appeals by the Revenue. The circular specified exceptions, which were found not applicable to the case at hand. The court referred to previous judgments to establish the binding nature of the circular on the Revenue and emphasized the importance of following statutory provisions without elevating one over the other.

3. The court relied on various precedents, including its own judgment in a similar case, to establish that if the tax effect is below the limit stated in the circular, the Revenue is not required to pursue the appeal. The Gujarat High Court and the Supreme Court were also cited to support the binding nature of such circulars on the Revenue. The Revenue, conceding that the tax effect was below the prescribed limit, accepted the circular's binding effect, leading to the dismissal of the appeal.

This detailed analysis of the judgment highlights the key legal issues, interpretations of relevant provisions, and the significance of circulars in determining the course of legal actions by the Revenue in taxation matters.