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TMI Blog2022 (1) TMI 540X X X X Extracts X X X X X X X X Extracts X X X X ..... perative 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? - HELD THAT:- 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 principles of the state policy, it becomes explicit that the co-operative movement is top priority of the Central Government s Policy and its implementation. Merely, because separate definitions are provided for the words Co-operative and Co-operative Society under Section 2[e] and [g] respectively of Sec.2 of Souharda Act, it cannot be construed as their characteristic is different, since their nomenclature is different. Importance has to be given to the word Cooperative which is found in both the enactments i.e., Act No.11 of 1959 and Act No.17 of 1997, as adjective pre-fixed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the Souharda Act which is a State enactment would certainly be construed as Co-operative Society coming within the ambit of Section 2[19]. We find no jurisdictional error in the order passed by the learned Single Judge in extending the benefit of Section 80P to the entities registered under the Souharda Act.Writ appeals stand dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the appellant was not a co-operative society which was not the case of the Assessing Officer, nor the CIT[A], thus has passed a perverse order on the facts and circumstances? iv. Whether the Tribunal erred in law in not holding that the proceeding could be made on the appellant, pursuant to the denial of status of co-operative society and consequently gave a perverse direction, on the facts and circumstances of the case? In ITA No.295/2019: (i) Whether the Tribunal was justified in not adjudicating any of the grounds raised by the appellant and have thus passed a perverse order on the facts and circumstances of the 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? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act and consequently gave a perverse direction, on the facts and circumstances of the case." 5. The assessees claim to be Co-operatives registered under the provisions of the Karnataka Souharda Sahakari Act, 1997 ['Souharda Act' for short] and engaged in the business of promoting interest of all its members. The assessees approached the Writ Court seeking declaration that the Souharda Act would fall within the meaning of the phrase 'any other law for the time being in force in any state for the registration of Co-operative Societies' inter alia 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order submitted that no rate of tax has been prescribed for 'Co-operative' under the provisions of the Income Tax Act, 1961. If the arguments of the Revenue are accepted that the assessees-institutions are coming within the ambit of 'Co-operative' as defined under Section 2[e] of the Souharda Act and not Co-operative Society as per Section 2[g] of the Souharda Act, it will lead to the consequences beyond comprehension which would result in absurdity. Reference was made to the judgment of the Hon'ble Apex Court in Govind Saran Ganga Saran 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 Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :- …………… Provided …." 11. In the case of Delhi Cloth & General Mills Co. Ltd., V/s. State of Rajasthan and Others [(1996) 2 SCC 449], the Hon'ble Apex Court has held thus: "16. The Validating Act provides that, notwithstanding anything contained in Sections 4 to 7 of the 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 Mahara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... term "co-operative bank" for purposes of licencing under the Banking Regulation Act. The RBI has to go by the meaning given to this term in the Banking Regulation Act." 13. In the case of Commissioner of Income-tax V/s. Mother India Refrigeration Industris [P.] Ltd., [(1985) 23 Taxman 8 (SC)], the Hon'ble Apex Court has held thus: "10. It is true that proviso (b) to Section 10(2)(vi) creates a legal fiction and under that fiction unabsorbed depreciation either 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -operative Societies Act is a completely self-contained Statute with its own provisions and has created specific offences quite different from the offences in the Indian Penal Code. Both Statutes have different objects and created offences with separate ingredients. They cannot thus be taken to be Statutes in pari materia, so as to form one system. This being the position, even though the Legislatures had incorporated the provisions of Section 21 of the Indian 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State Governments are governed by the relevant entries in the three lists given in 7th Schedule. 47. Entry 66 in List I provides for Coordination and determination of standards in institutions for higher education or research and scientific and technical institutions. Prior to 42nd Amendment, education including Universities subject to the provisions of the Entries 63, 64, 65, 66 of List-I and Entry 25 of List III was shown in Entry 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in the status of 'Hindu Undivided Family and assessment made by the Income-tax Officer on such a return would have been invalid in law because the notice under s. 34 had been issued in the status of 'individual' 'and sanction of the Commissioner for the issue of a notice under s. 34 was also obtained on that basis. We therefore consider that the Income-tax Officer was 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the High Court should be answered in the affirmative and against the assessee. There will be no order as to costs in this appeal." 18. In the case of Gutta Anjaneyalu V/s. Commissioner of Income-tax [(2013) 30 taxmann.com 66 (Andhra Pradesh)], while considering the Full Bench decision of the Hon'ble High Court of Andhra Pradesh in Pannabai V/s. CIT [(1985) 153 ITR 608/23 Taxman 517], has 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State of Karnataka; Be it enacted by the Karnataka State Legislature in the Tenth Year of the Republic of India as follows-" 23. A comprehensive reading of the Preambles of the aforesaid Acts vis-à-vis objects and reasons would indicate that both the Statutes support and promote Co-operative 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section particularly when the language of the section is clear and unambiguous but, being part of the statute, it prima facie furnishes some clue as to the meaning and purpose of the section (vide Bengal Immunity Company Limited v. State of Bihar [(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 faciliti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perative societies by the State Legislature. Article 243- ZI of the Constitution of India reads as under:- "243-ZI. Incorporation of co-operative societies. Subject to the provisions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r title under which he traded or carried on business at the date on which this Act comes into operation. (2) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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