CLR Edictorial Notes:- In view of mandatory provisions of section 139(1) (Return of Income) of the Income Tax Act, 1961, read along with section 80A(5) (Where the assessee fails to make a claim in his return of income for any deduction under section 10A or section 10AA or section 10B or section 10BA or under any provision of this Chapter under the heading “C.”Deductions in respect of certain incomes”, no deduction shall be allowed to him thereunder) , it is mandatory for every cooperative society, claiming deduction under section 80P (Deduction in respect of income of co-operative societies) to file the return of income and to make a claim of deduction under section 80P of the Act in the return itself.
————————————————————————————————-
2013-ITS-76-ITAT-Kadachira Service Co-op. Bank Ltd. -Vs- Income-tax Officer, Ward-1, Kannur , On. JANUARY 31, 2013
IN THE ITAT COCHIN BENCH
Kadachira Service Co-op. Bank Ltd.
v.
Income-tax Officer, Ward-1, Kannur
N.R.S. GANESAN, JUDICIAL MEMBER AND B.R. BASKARAN, ACCOUNTANT MEMBER IT APPEAL NOS. 251, 253, 254, 255, 267 & 268 (COCHIN) OF 2012 AND S.A. NOS 58, 59, 60 AND 61 (COCHIN) OF 2012 [ASSESSMENT YEAR 2009-10]
JANUARY 31, 2013
T.M. Sreedharan, R. Krishna Iyer and S. Vedanga R. Prabhu for the Appellant. Smt. Susan George Varghese for the Respondent.
ORDER
N.R.S. Ganesan, Judicial Member – All the six appeals of the independent taxpayers arise out of the independent orders of Commissioner of Income-tax(A) for the assessment year 2009-10. The taxpayers in ITA Nos 251, 253, 254 & 255/Coch/2012 have also filed stay applications in S.A. Nos 60, 58, 59 & 61/Coch/2012 respectively for stay of recovery of the outstanding demand. Since all the appeals involve common issue for consideration, the appeals and the stay applications were heard together and are disposed of by this common order.
2. The common issue arises for consideration in all the appeals is with regard to deduction u/s 80P of the Act.
2.1 Shri R Krishna Iyer, the ld. representative for the taxpayer submitted that the taxpayers have not filed the returns of income u/s 139(1) of the Act. According to the ld. representative, the income of the co-operative society was exempt u/s 80P of the Act, therefore, the taxpayers were under the bona fide belief that the returns need not be filed. Notice was also issued u/s 142(1) of the Act calling for the return of income. However, the taxpayers could not file the return of income within the time limit prescribed u/s 142(1) of the Act. The ld. representative further submitted that subsequently, the taxpayers have filed the return of income belatedly. The assessing officer ignored the returns filed by the taxpayers and rejected the claim of the taxpayers for deduction u/s 80P of the Act by referring to section 80A(5) of the Act. The assessing officer computed the taxable income u/s 144 of the Act. Referring to provisions of section 80A(5), the ld. representative submitted that section 80A(5) does not say that the return of income has to be filed within the due date for claiming deduction u/s 80P of the Act. What the section says is that the taxpayer has to make a claim in the return of income. In this case, according to the ld. representative, though belatedly, the taxpayers have filed the return of income before completion of the assessment proceedings. Therefore, the claim made in the returns of income which were filed belatedly, has to be considered by the assessing officer at the time of completion of the assessment. Referring to the provisions of section 142(2C), the ld. representative submitted that Proviso to section 142(2C) gives power to the assessing authority to extend the time limit for filing the return upto 180 days. Therefore, according to the ld. representative, the belated returns filed could also be accepted as a return filed in response to notice u/s 142(1) of the Act. According to the ld. representative, when the assessing officer was vested with powers to extend the time limit for filing the return of income, he ought to have extended the time limit in exercise of his powers as provided in Proviso to section 142(2C) of the Act. Referring to the circular issued by the CBDT in circular No.14 dated 11-04-1955, the ld. representative submitted that the department must not take advantage of ignorance of the taxpayer. According to the ld. representative, it is the duty of the assessing officer to assist the taxpayer in every possible and reasonable way, more particularly, while claiming deduction / exemption as provided under the Income-tax Act. This circular of the CBDT made it very clear that the assessing officer ought to have brought to the notice of the taxpayer that he was eligible for exemption u/s 80P of the Act. The assessing officer, according to the ld. representative, has violated the instructions issued by the CBDT.
3. The ld. representative for the taxpayer further submitted that admittedly the taxpayers have filed the return of income before completion of the assessment proceedings. Therefore, the assessing officer is not correct in completing the assessments u/s 144 of the Act. Even if the assessing officer found that the returns filed was beyond the time limit prescribed, still the assessing officer ought to have issued a notice u/s 148 for regularizing the returns which were filed belatedly. According to the ld. representative, invoking the provisions of section 80A(5) of the Act, for the purpose of denying deduction otherwise available to the taxpayers is not justified. The ld. representative further submitted that sub sections (4) & (5) of section 80A were inserted with effect from 01-04-2003. The object of the provision is that the deduction claimed for any assessment year shall not be allowed under any other provisions of the Act and shall in no case exceed the profits and gains of the undertaking or enterprise or eligible business, as the case may be. According to the ld. representative, it is not the case of the assessing officer that the taxpayer has made any claim for deduction under any other provisions of the Act. Therefore, according to the ld. representative, the claim of deduction u/s 80P which was made in the return of income, though filed belatedly, has to be allowed.
4. Referring to the judgment of the Madras High Court in the case of Commissioner of Income-tax v. Geo Industries & Insecticides (I) Pvt Ltd [1998] 234 ITR 541 (Mad), the ld. representative submitted that, in this case the Madras High Court directed the Income-tax Officer to consider the statutory claim even though the taxpayer has not made any such claim in the return of income. He further submitted that the Madras High Court further observed that the taxpayer was not required to pay tax one paise more or one paise less than what is correctly and rightly due.
5. The ld. representative has also placed reliance on various judgments and submitted that the circular issued by the CBDT is binding on the revenue authorities. In this regard, the ld. representative placed reliance on various judgments wherein the circular issued by the CBDT dated 11-04-1955 was followed.
6. We heard, Shri T.M. Sreedharan, the ld. senior counsel also. Shri T.M. Sridharan, the ld. senior counsel appearing for the taxpayers in ITA No.267 & 268/Coch/2012 submitted that the taxpayers are co-operative societies under the Kerala Co-operative Societies’ Act. For the assessment year under consideration, the assessing officer made assessments u/s 144 of the Act by estimating the assessable income at Rs 16,67,400 & Rs.21,92,330 in ITA .Nos 267 & 268/coch/2012, respectively. The taxpayers claimed that the above profit was from business of cooperative society, therefore, they were eligible for exemption u/s 80P of the Act. Referring to the provisions of section 80A(5), the ld. senior counsel submitted that a plain reading of section 80A(5) reveals that failure to make a claim in the return of income would disentitle the taxpayer to get deduction u/s 80P of the Act. As far as the claims of the taxpayers are concerned, no return of income was filed, therefore, the question of failure to make a claim in the return of income does not arise. According to the ld. senior counsel, if the return has been filed and the claim was not made, then the provisions of section 80A(5) would have been attracted. However, when the return was not filed, the question of claiming deduction in the return of income does not arise for consideration. According to the ld. senior counsel, the assessing officer has extended the meaning of section 80A(5) which is applicable to a case where return of income was filed to a case where return of income was not filed. According to the ld. senior counsel, the assessing officer stretched the language of section 80A(5) to a case where return of income was not filed only with an intention to deny the deduction to the taxpayer.
7. Placing reliance on the judgments of the Apex Court in the case of Bajaj Tempo Ltd v. Commissioner of Income-tax 196 ITR 188 (SC) and Commissioner of Income-tax v. Vegetable Products Ltd 88 ITR 192 (SC) and CBDT v. Aditya V Birla 170 ITR 137 (SC), the ld. senior counsel submitted that if the stand of the assessing officer that the filing of a valid return is a condition precedent for claiming deduction u/s 80P as provided in section 80A(5), then, there will be a contradiction between section 80A(5) and sections 10A and 10B of the Act. Referring to provisions of sections 10A and 10B, the ld. senior counsel submitted that Proviso to section 10A(1A) and section 10B(1A) provides for filing of return within the time limit provided u/s 139(1) for claiming deduction u/s 10A and 10B of the Act. Therefore, if the interpretation of the assessing officer was correct, then even the return filed u/s 139(4) or 139(5) will be sufficient to claim deductions u/s 10A and 10B whereas the Proviso to sections 10A and 10B clearly says that the return has to be filed within the time specified u/s 139(1) of the Act. Therefore, the interpretation of the assessing officer resulted in an anomalous situation. According to the ld. senior counsel, the only possible and correct interpretation of section 80A(5) is that there must be a claim in case the return was filed and not that the return should be filed. According to the ld. representative, even though no return was filed, the taxpayer is entitled for deduction under section 80P of the Act. Referring to provisions of section 153 of the Act, the ld. representative submitted that section 153(1) specifies period for filing of the return of income at 21 months. Therefore, a combined reading of section 153(1) and 271(1)(c) of the Act envisages filing of return within this period. Therefore, the contention of the assessing officer that the claim of deduction u/s 80P shall be made in the return of income is not tenable. Referring to the Explanatory Notes to provisions of Finance (No.2) Act of 2009, the ld. senior counsel submitted that while amending Chapter VIA of the Income-tax Act, the legislature intended to prevent abuse of tax incentives. Referring to the copy of the Explanatory Note which was issued in circular No.5 of 2010 dated 03-06-2010 by the CBDT, the ld. senior counsel pointed out that the intention of the legislator is to prevent misuse of the provisions of chapter VIA of the Act. According to the ld. senior counsel, the aggregate deduction under various provisions shall not exceed the profit and gains of the undertaking or the enterprise or the eligible business, as the case may be. The legislature also intended to ensure that no deduction under various provisions referred to in Chapter VIA shall be allowed if deduction has not been claimed in the return. The main object is to prevent the misuse and overlapping of claims. In this case, according to the ld. senior counsel, it is not the case of the revenue that there was overlapping of claim or any misuse of the provision. The return itself was not filed. On a query from the bench as to why the return of income was not filed, the ld. senior counsel very fairly submitted that the taxpayers are co-operative societies and were under the bona fide impression that they were exempted from payment of income-tax.
8. According to the ld. senior counsel since the object of introduction of section 80A(5) was not violated in not filing the returns of income, the taxpayers claim for deduction u/s 80P cannot be disallowed.
9. We heard Shri Vedang R Prabhu, the ld. representative for the taxpayer in ITA Nos 255/Coch/2012 also. Shri Vedang R Prabhu, the ld. representative submitted that the assessing officer passed the order u/s 144 of the Act since the return of income was not filed. According to the ld. representative, the taxpayer has filed the return of income on 07-12-2011. Even though the return filed was beyond the time limit provided u/s 139(1) and 139(4) but was filed before the completion of the assessment. The assessing officer ignored the return of income and completed the assessment as if the return was not filed. The ld. representative submitted that the notice u/s 142(1) was received on 31-03-2011 asking the taxpayer to file the return of income for the assessment year 2009-10. Therefore, it was impossible to comply with the notice u/s 142(1). According to the ld. representative, the notice itself is invalid, therefore, the consequential assessment order passed u/s 144 by the assessing officer also cannot be held to be valid. The ld. representative further submitted that this co-operative society is functioning in the remote village of the state and fulfils the financial needs of the poor and needy people in the villages. Therefore, a sympathetic view needs to be taken to safeguard the rural economy and the rural mass. If the deduction claimed is denied for any reason, the taxpayers’ co-operative societies have to close down its business and consequently the rural people will have no other way but to borrow money from money lenders on payment of higher rate of interest. Therefore, the ld. representative submitted that to protect the poor mass of the rural area sympathy has to be shown and deduction claimed has to be allowed so that the co-operative society may function and serve the needy and poor people of the rural area.
10. On the contrary, Smt. Susan George Varghese, the ld. DR submitted that admittedly all the taxpayers have not filed any return of income even after issue of notice u/s 142(1) of the Act. However, the taxpayers in ITA Nos 251, 253, 254 & 255/Coch/2012 have filed the returns of income in the course of assessment proceedings, but beyond the time limit provided u/s 139(4) of the Act. Other taxpayers have filed returns of income after receipt of pre-assessment notice. Since the returns filed were beyond the time limit provided in section u/s 139(1) and 139(4) as also the time limit specified in the notice issued u/s 142(1) of the Act, the assessing officer treated the returns as invalid and proceeded to frame the assessments as if no returns were filed. Referring to section 80A(5) of the Act, the ld. DR submitted that with effect from 01-04-2003, the legislature made it clear that no deduction shall be allowed under the provisions of Chapter VIA under the heading “C.- Deductions in respect of certain income”, unless a claim was made in the return of income. According to the ld. DR, therefore, it is obligatory on the part of every taxpayer to file the return of income within the time prescribed u/s 139(1) and make a claim in the return itself. In the absence of any valid return and claim made therein, according to the ld. DR, the taxpayers are not entitled for any deduction u/s 80P of the Act. Referring to the argument of the ld. senior counsel that provisions of section 80A(5) are applicable only in respect of taxpayers, who filed the returns of income, the ld. DR submitted that a person, who has filed the return of income cannot be put in a worse position than a person who did not file the return of income. According to the ld. DR, when the legislature has prescribed condition for deduction u/s 80P the same has to be fulfilled for availing the benefit.
11. We have given our thoughtful consideration to the submissions made on either side. The question arises for consideration is when the taxpayers have not filed the returns of income within the time limit provided u/s 139(1) or 139(4) or within the time specified in the notice u/s 142(1) of the Act, whether such taxpayers are entitled for deduction u/s 80P of the Act.
12. To answer the above question, let us first examine whether the cooperative societies are liable to file the return of income under the Income-tax Act or not. This issue needs to be considered since some of the taxpayers under appeal claimed that they were under the bona fide impression that return need not be filed. We have carefully gone through the provisions of section 139 of the Act. Section 139(1) reads as follows:
“139(1) Every person,-
(a) Being a company or a firm; or
(b) Being a person other than a company or a firm, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax,
shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed:
Provided that a person referred to in clause (b) who is not required to furnish a return under this sub-section and residing in such area as may be specified by the Board in this behalf by notification in the Official Gazette, and who during the previous year incurs an expenditure of fifty thousand rupees or more towards consumption of electricity or at any time during the previous year fulfils any one of the following conditions, namely:-
(i) Is in occupation of an immovable property exceeding a specified floor area, whether by way of ownership, tenancy or otherwise, as may be specified by the Board in this behalf; or
(ii) Is the owner or the lessee of a motor vehicle other than a two-wheeled motor vehicle, whether having any detachable side car having extra wheel attached to such two-wheeled motor vehicle or not; or
(iii) Omitted by the Finance Act, 2005 w.e.f. 1.4.2006
(iv) Has incurred expenditure for himself or any other person on travel to any foreign country;
(v) Is the holder of a credit card, not being an “Ãdd-on” card, issued by any bank or institution; or
(vi) Is a member of a club where entrance fee charged is twenty-five thousand rupees or more,
Shall furnish a return, of his income during any previous year ending before the 1st day of April, 2005, on or before the due date in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed:
Provided further that the Central Government may, by notification in the Official Gazette, specify the class or classes of persons to whom the provisions of the first proviso shall not apply:
Provided also that every company or a firm shall furnish on or before the due date the return in respect of its income or loss in every previous year:
Provided also that every person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, whether incorporated or not, or an artificial juridical person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year, without giving effect to the provisions of section 10A or section 10B or section 10BA or Chapter VI-A exceeded the maximum amount which is not chargeable to income-tax, shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed.”
13. In view of the above, unless the Central Government by a notification in the official gazette exempts the co-operative societies from filing the returns, they have to file the return of income. Therefore, it may not be correct to say that the co-operative societies were under the impression that they need not file their returns of income since their income was exempted. A statutory liability of filing the return under the Income-tax cannot be disowned on the ground that they were under a bona fide impression. Furthermore, section 276CC of the Income-tax Act, 1961 makes it a punishable offence in case the return of income which is required to be filed u/s 139(1) or on issuance of a notice u/s 142(1), etc. is not filed. Therefore, it is obvious that the return has to be filed within the time limit prescribed u/s 139(1) or atleast within the time specified in the notice u/s 142(1). If the return was not filed by the taxpayers, then the consequential penal provisions as provided in section 276CC of the Act would follow. We find that the Apex Court in the case of Prakash Nath Khanna & Anr v C.I.T. [2004] 266 ITR 1 (SC) had an occasion to consider the scope and ambit of section 276CC of the Act. After examining various judgments on the subject and the provisions of section 139(1), the Apex Court found that the time limit for filing the return of income is indicated only in sub section (1) of section 139 and not in sub section (4) of section 139. Therefore, even if the return was filed in terms of sub section (4) of section 139, that will not dilute the infraction in not furnishing the return within the time as prescribed under sub section (1) of section 139. The Apex Court further found that accepting the plea of the taxpayer that the return can be filed under sub section (4) of section 139 would mean that a person who has not filed the return within the due time as prescribed under sub section (1) and sub section (2) of section 139 would benefit by filing return of income under sub section (4) of section 139 filed much later. The Apex Court observed, that was not the legislative intent. For convenience, we are reproducing the observations made by the Apex Court at pages 10 & 11 of the ITR:
“One of the significant terms used in section 276CC is in due time”. The time within which the return is to be furnished is indicated only in sub-section (1) of section 139 and not in sub-section (4) of section 139. That being so, even if a return is filed in terms of sub-section (4) of section 139 that would not dilute the infraction in not furnishing the return in due time as prescribed under sub-section (1) of section 139. Otherwise, the use of the expression “in due time” would lose its relevance and it cannot be said that the said expression was used without any purpose. Before substitution of the expression “clause (i) of sub-section (1) of section 142″by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989, the expression used was “sub-section (2) of section 139″. At the relevant point of time the Assessing Officer was empowered to issue a notice requiring furnishing of a return within the time indicated therein. That means the infractions which are covered by section 276CC relate to non-furnishing of return within the time in terms of sub-section (1) or indicated in the notice given under sub-section (2) of section 139. There is no condonation of the said infraction, even if a return is filed in terms of sub-section (4). Accepting such a plea would mean that a person who has not filed a return within the due time as prescribed under sub-section (1) or (2) of section would get benefit by filing the return under section 139(4)much late. This cannot certainly be the legislative intent.”
14. The Apex Court has also considered the scope of interpretation of the statutory provisions. The Apex Court found that when the language employed in the statute is plain and unambiguous, court cannot read anything into the statutory provisions. While interpreting the provisions the court only interprets the law and cannot legislate it. If a provision of law is misused and subjected to the abuse of process of law, it is for the legislature to amend, modify or repeal it, if deemed necessary. In fact, the Apex Court has observed as follows at page 9 of the ITR:
“It is a well settled principle in law that the court cannot read anything into a statutory provision which is plain and unambiguous. A state is an edict of the Legislature. The language employed in a statute is the determinative factor of legislature intent. The first and primary rule of construction is that the intention of the legislation must be found in the words used by the Legislature itself. The question is not what may be supposed and has been intended but what has been said. “Statutes should be construed, not as theorems of Euclid”. Judge Learned Hand said, “but words must be construed with some imagination of the purposes which lie behind them”. (see Lenigh Valley Coal Co. v. Yensavage (218 FR 547). The view was reiterated in Union of India v. Filip Tiago De Gama of Vedem Vasco De Gama, AIR 1990 SC 981 and Padma Sundara Rao v. State of Tamil Nadu [2002] 3 SCC 533; [2002] 255 ITR 147 (SC).
In D.R. Venkatachalam v. Deputy Transport Commissioner [1977] 2 SCC 273 it was observed that courts must avoid the danger of a priori determination of the meaning of a provision based on their own preconceived notions of ideological structure of scheme into which the provision to be interpreted is somewhat fitted. They are not entitled to usurp legislature function under the disguise of interpretation.
While interpreting a provision the court only interprets the law and cannot legislate it. If a provision of law is misused and subjected to the abuse of process of law, it is for the Legislature to amend, modify or repeal it, if deemed necessary. (see Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd [2005] 5 SCC 515; [2000] 101 Comp Cas 284). The legislature causu omissus cannot be supplied by judicial interpretative process.”
15. In view of the above, it is obvious that when the language of the provision is plain and unambiguous, the language employed in the statute is the determinative factor of the legislative intent. As observed by the Apex Court, the legislative intention must be found in the words used by the legislature itself.
16. With the above background, let us now examine the provisions of section 80A(5) of the Act. Section 80A(5) of the Act was introduced by Finance (No.2) Act of 2009 with retrospective effect from 01-04-2003. Section 80A(5) reads as follows:
“80A(5) Where the assessee fails to make a claim in his return of income for any deduction under section 10A or section 10AA or section 10B or section 10BA or under any provision of this Chapter under the head “C.-Deductions in respect of certain incomes”, no deduction shall be allowed to him thereunder.”
This section 80A(5) was introduced by Finance Act, 2009 along with sub section (4) of section 80A. While introducing the section, the intention of the legislature was to avoid multiple deductions in respect of the same profit. In order to avoid multiple deductions in respect of the same profit, the legislature has imposed three conditions for claiming deduction u/s 10A or section 10AA or section 10B or section 10BA or under any provisions of Chapter VIA under the head “C.-Deductions in respect of certain incomes”. The three conditions are as follows:
(i) If a deduction in respect of any amount was allowed under section 10A, 10AA or 10B or 10BA or under provisions of Chapter VIA under the head “C.-Deductions in respect of certain incomes” in any assessment year, then the same deduction in respect of the same profit & gains shall not be allowed under any other provisions of the Act for such assessment year;
(ii) The aggregate deduction under various provisions shall not exceed the profit and gains of the undertaking or unit or enterprise or the business profit, as the case may be; and
(iii) There shall be a claim made in the return of income.
17. The legislature, in their wisdom thought it fit that implementation of these three conditions would prevent misuse and to avoid multiple claim of deduction u/ss 10A, 10AA, 10B or 10BA or under any provisions of Chapter VIA under the head “C.-Deductions in respect of certain incomes”. Condition No.(iii) is also manifest in provisions of section 80A(5) of the Act. Therefore, a plain reading of the language of section 80A(4) and 80A(5) makes it clear the purpose and intent of the legislature. It does not require any further interpretation.
18. The question now arises for consideration is whether filing of return of income and making a claim therein in respect of deduction u/s 80P is mandatory or discretionary?
19. Let us now examine the other provisions of the Income-tax Act, 1961 where such a deduction is provided to appreciate the provisions of section 80A(5) of the Act. By Finance Act, 2005 with effect from 01-04-2006 a proviso was inserted in section 10A(1A) of the Act which reads as follows:
“Provided that no deduction under this section shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under sub-section (1) of section 139.”
A similar proviso was introduced to section 10B(1) of the Act. However, such a proviso was not incorporated in section 10AA and section 10BA of the Act. Subsequently by way of Finance Act, 2009, a comprehensive provision was introduced as section 80A(5) requiring the taxpayer to make a claim in the return of income for the purpose of deductions u/s 10A, 10B, 10AA, 10BA and other provisions of Chapter VIA under “C.-Deductions in respect of certain incomes”. While introducing section 80A(5) the legislature was conscious that for the purpose of claiming deductions u/s 10A and 10B the taxpayer has to file a return of income within the time prescribed u/s 139(1) of the Act. In spite of that in section 80A(5), the time limit provided in section 139(1) was not mentioned. The legislature simply says that the claim for deduction shall be made in the return of income.
20. The next question follows is what is return of income. Whether a return filed beyond the time limit provided u/s 139(1) can be considered to be a return of income. If the return of income filed beyond the time limit provided u/s 139(1) was considered as return of income, then the taxpayer may claim that they have already filed a return of income. The Apex Court had an occasion to examine this issue in the case of Prakash Nath Khanna & Anr (supra). While considering the scope and ambit of section 276CC, the Apex Court while interpreting the words “in due time” which are found in section 276CC observed that the time within which return is to be furnished is indicated only in sub section (1) of section 139 and not in sub section (4) of section 139. That being so, even if a return is filed in terms of sub section (4) of section 139 would not dilute the infraction in not furnishing the return in due time as prescribed in section (1) of section 139. In section 80A(5) the legislature obviously omitted to mention the words “in due time”. What it says is where the taxpayer fails to make a claim in the return of income, no deduction shall be allowed. It does not say that the return of income shall be furnished in due time. Therefore, it is obvious that for the purpose of section 276CC, the return has to be filed in due time, i.e. within the time limit prescribed u/s 139(1). However, for the purpose of claiming deduction u/s 80P, in view of the language employed in section 80A(5) what is required is to make a claim in the return of income. The return may be filed either u/s 139(1) or 139(4) or in pursuance of a notice issued u/s 142(1) or 148 of the Act. In view of the absence of the words “in due time” in section 80A(5), this Tribunal is of the considered opinion that the return filed u/s 139(1) or 139(4) or within the time limit specified in section 142(1) or 148 can also be considered as return of income within the meaning of section 80A(5) of the Act.
21. The next question follows is when there is a failure on the part of the taxpayer to file return of income within the time limit provided u/s 139(1) or 139(4) or within the time specified in the notice u/s 142(1) or 148 but files the return of income belatedly, whether such return could be treated as return of income or not?
22. As we have already discussed, wherever it is necessary for the taxpayer to file the return of income within a specified date, the legislature has made it clear by inserting the words “before the due date specified” or “in due time” or “within the time limit”. In section 80A(5) the legislature expressly omitted to include the words “within the time limit” or “before the due date specified” or “in due time”. Therefore, for the purpose of Chapter VIA, the legislature intended not to make it compulsory the filing of return of income within the specified time or in due time as provided in section 139(1) of the Act. In fact, section 80 r.w.s. 139(3) of the Income-tax Act which provides for carry forward of losses makes the taxpayer to file the return of income within the time within the time allowed u/s 139(1) as the law stood as of now. However, as section 80 stood earlier there was no time limit provided in section 80 for filing the return of income to make a claim for carry forward of losses. The Apex Court, after considering the provisions of section 80 as it stood at the relevant point of time in the case of C.I.T. v Kulu Valley Transport Co P Ltd [1970] 77 ITR 518 (SC) found that the return filed u/s 139(4) before completion of the assessment has to be considered for carry forward of losses. Subsequently, the legislature amended section 80 by Taxation Laws Amendment Act, 1984 with effect from 01-04-1985 and another amendment was made by Direct Tax Laws amendment Act, 1987 with effect from 01-04-1989. As the law stands for now, no loss which has not been determined in pursuance of a return filed within the time provided u/s 139(1) shall be carried forward and set off but before amendment of section 80 by Taxation Laws Amendment Act, 1984 with effect from 01-04-1985 there was no requirement for filing the return of income within the time limit provided u/s 139(1) of the Act. This issue has been examined by the Kerala High Court in the case of C.I.T. v. R Chandran [1991] 191 ITR 328 (Ker). After considering the judgment of the Apex Court in Kulu Valley Transport Co P Ltd (supra), the Kerala High Court found that in view of the law stood for the assessment year 1976-77 the taxpayer was entitled to carry forward loss. After referring to Direct Taxes (Amendment) Act, 1987, the Kerala High Court observed that as the section stands at present, no loss which has not been determined in pursuance of a return filed in accordance with the provisions of section 139(3) of the Act shall be carried forward and set off is to be permitted. Therefore, it is obvious that the legislature made it mandatory for filing the return of income within the due date prescribed in section 139(1) as far as carry forward of loss u/s 80 is concerned. While introducing section 80A(5) the legislature well aware that not only for carry forward of losses but also for deductions u/s 10A, 10B the taxpayer has to file the return of income within the time limit prescribed u/s 139(1) of the Act. In spite of that the legislature omitted to mention the words “within due time” in section 80A(5) of the Act. Therefore, this Tribunal is of the considered opinion that the return of income filed within the time limit provided in section 139(1) or 139(4) or time specified in the notice u/s 142(1) or 148 can be considered as return of income. However, the belated return filed beyond the time limit provided u/s 139(1) or 139(4) or time specified in notice u/s 142(1) or 148 of the Act cannot be considered as return of income for deduction u/s 80P of the Act.
23. The next question follows for consideration is when the taxpayer has not filed any return of income either u/s 139(1) or u/s 139(4) or in pursuance of notice issued u/s 142 or 148 whether the taxpayer is entitled for deduction u/s 80P of the Act. The contention of the taxpayers, more particularly, the ld. senior counsel, Shri T.M. Sreedharan is that law requires to make a claim when the return was filed. When the return was not filed, the taxpayer cannot be expected to make a claim. Therefore, when the return was not filed, irrespective of the fact that the taxpayer has not made any claim, the deduction has to be allowed. This submission of the ld. senior counsel is very attractive. However, this Tribunal do not find any substance. Section 139(1) of the Act, as we discussed earlier, make it mandatory for every taxpayer whose total income exceeds the maximum amount which is not chargeable to income-tax before grant of deductions u/s 10A, 10B and deduction under Chapter VIA of the Act to file the return of income. In the case before us, admittedly, all the taxpayers’ income exceeded the maximum amount which is not chargeable to income-tax before grant of deduction under Chapter VIA of the Act. Therefore, it is not only mandatory but also statutory requirement that all the taxpayers have to file the return of income before the due date prescribed u/s 139(1) of the Act. If there was any failure on the part of the taxpayer to furnish the return of income, the legislature has made it a punishable offence u/s 276CC of the Act. Therefore, it is obvious that it is mandatory to file the return of income as required u/s 139(1) of the Act if the total income exceeds the maximum amount which is not chargeable to income-tax before grant of deductions u/s 10A, 10B and under Chapter VIA of the Act. When it is mandatory for the taxpayer to file the return of income, the taxpayer cannot claim that they are entitled for the benefit available under the Act when the return itself was not filed. Under section 80A(5), the legislature made it mandatory that the claim under Chapter VIA under the heading “C.- Deductions in respect of certain income” has to be made in the return. If the contention of the ld. senior counsel is accepted, then the person, who files the return of income and fails to make a claim of deduction in the return of income either by ignorance or otherwise may not get the benefit, but a person who has not filed the return of income may be in a better position to claim the benefit. This Tribunal is of the considered opinion that this is not the intention of the legislature at all. The persons, who complied with the provisions of the Income-tax Act by filing the return, however, failed to make a claim in the return either by ignorance or otherwise cannot be put in a worse position than a person who has not filed return as required u/s 139 of the Income-tax Act. The intention of the legislature in enacting section 80A(4) and 80A(5) is to avoid multiple deduction in respect of the same profit. The legislature prescribed three conditions in sections 80A(4) and 80A(5) which are as follows:
(i) If a deduction in respect of any amount was allowed under section 10A, 10AA or 10B or 10BA or under provisions of Chapter VIA under the head “C.-Deductions in respect of certain incomes” in any assessment year, then the same deduction in respect of the same profit & gains shall not be allowed under any other provisions of the Act for such assessment year;
(ii) The aggregate deduction under various provisions shall not exceed the profit and gains of the undertaking or unit or enterprise or the business profit, as the case may be; and
(iii) There shall be a claim made in the return of income.
24. The legislature in their wisdom thought that the above three conditions would avoid multiple deductions in respect of same profit. One of the conditions prescribed by legislature in section 80A(5) is to make a claim in the return of income. Therefore, accepting the plea of the learned senior counsel would mean that a person who has not filed a return would get benefit, but a person who filed the return but failed to make a claim either by ignorance or otherwise may not get the benefit at all. This Tribunal is of the considered opinion that this cannot certainly be the legislative intent.
25. Moreover, economic measures are implemented on trial and error basis. The legislature, in their wisdom resolved to grant deduction in respect of income of the co-operative societies. To regulate / streamline the deduction, the legislature enacted sections 80A(4) and 80A(5) and one of the conditions is to make a claim in the return of income. Section 80P is admittedly a beneficial provision. It is settled principles of law that in order to avail benefits under the beneficial provision, the conditions provided by the legislature has to be complied with. Therefore, this Tribunal is of the considered opinion that in view of the mandatory provisions contained in section 139(1) r.w.s. 80A(5) of the Act it is mandatory for every cooperative society for claiming deduction u/s 80P to file the return of income and to make a claim of deduction u/s 80P of the Act in the return itself. In view of the above discussion, if the return was not filed either u/s 139(1) or 139(4) or in pursuance of notice issued u/s 142(1) or u/s 148, the taxpayer is not entitled for any deduction under section 80P of the Act.
26. The next contention of the taxpayer is that when the return was filed before completion of the assessment proceedings, the assessing officer ought to have issued notice u/s 148 of the Act for regularizing the returns. We have carefully gone through the provisions of section 147 & 148 of the Act. Section 148 enables the assessing officer to serve a notice on the tax payer to furnish a return of income. Section 147 provides for condition for assessment of the income which escaped assessment. As per the provisions of section 147, when the assessing officer has a reason to believe that any income chargeable to tax has escaped assessment for any assessment year, then subject to provisions of sections 147 to 153 he may assess or reassess the income which escaped assessment. The question arises for consideration is at what point of time the income would be considered to be escaped assessment. To consider any income chargeable to tax as escaped assessment, the assessment proceedings shall have to come to an end either by order u/s 143(3) or otherwise by operation of law. In the case before us, admittedly, the taxpayer has not filed any return of income within the time limit specified u/s 139(1) or 139(4) of the Act. Moreover, no return was filed in compliance to the notice issued u/s 142(1) of the Act either. The contention of the taxpayer is that the return was filed belatedly but before completion of the assessment proceedings. In the case before us, admittedly, the notice u/s 142(1) was issued and the assessing officer directed the taxpayer to file the return of income. Since the return was not filed, the assessing officer proceeded further to assess the income u/s 144 of the Act. Therefore, when the so-called return said to be filed by the taxpayers, the assessment proceedings were already pending. When the assessment proceedings are admittedly pending on the date of filing of belated return no one could say that any income chargeable to tax has escaped assessment. Unless and until, the assessment proceedings initiated by the assessing officer by issuing notice u/s 142(1) culminated either by an assessment order or otherwise by operation of law, we may not be able to say that any part of income chargeable to tax has escaped assessment. Therefore, the assessing officer had no jurisdiction at all to issue notice u/s 148 for assessing the income of the taxpayer. In other words, no income could be said to be escaped assessment at that point of time. Therefore, the contention of the ld. representative for the taxpayer that notice ought to have been issued u/s 148 for regularizing the returns filed u/s 139(4) has no merit at all.
27. Furthermore, a bare reading of section 147, clearly shows that, the assessing officer has to believe that the income chargeable to tax has escaped assessment. Section 148(2) makes it mandatory to record reason for such belief. Therefore, the jurisdiction to issue notice u/s 147 is the belief of the assessing officer with regard to escapement of income from assessment. Therefore, the taxpayer cannot compel the assessing officer to issue notice u/s 148 for regularization of the return filed belatedly. The Apex Court in the case of CIT v. Sun Engineering Works P Ltd [1992] 198 ITR 297, 320 (SC) examined the scope of sections 147 and 148 and found that proceedings u/s 147 are for the benefit of the revenue. In view of the above, this Tribunal finds no merit in the contention of the taxpayer.
28. The taxpayers in ITA Nos.251, 253 & 254/Coch/2012 claim to have filed the returns on 07-12-2011; in ITA No. 255/coch/2012 on 30-09-2011. The taxpayers in ITA Nos.267 & 268/Coch/2012 have not filed the returns. The assessment year under consideration is 2009-10. One year from the end of the relevant assessment year expires on 31-03-2011. Admittedly, all the returns were filed beyond 31-03-2011. Therefore, the returns said to be filed by the taxpayer cannot be treated as returns filed u/s 139(4) of the Act. Therefore, the assessing officer has rightly disallowed the claim of the taxpayers u/s 80P of the Act.
29. The next contention of the ld. taxpayers is that all these taxpayers being a co-operative societies functioning in the remote villages in the state of Kerala. Therefore, the ld. representative for the taxpayers prayed that a sympathetic view may be taken. We are conscious that sympathy is essential for justice. We are also conscious that sympathy cannot replace or substitute the provisions of the Act. Therefore, even though we have sympathy with the taxpayers, in view of the specific and mandatory provisions of section 139 r.w.s. 80A(5) of the Act, this Tribunal do not find any merit in the claim of the taxpayer.
30. The next issue arises for consideration in ITA Nos.251, 253 & 254 & 255/Coch/2012 is disallowance u/s 40a(ia) of the Act.
31. Shri Krishna Iyer, the ld. representative for the taxpayers submitted that the taxpayers being agricultural co-operative societies, the provisions of section 194A are not applicable. Referring to section 194A(3)(viia), the ld. representative submitted that the payment of interest in respect of deposit with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank are exempt from deduction u/s 194A of the Act. According to the ld. representative, the taxpayers are not banks and they are only cooperative primary agricultural societies. However, the assessing officer treated the taxpayers as co-operative banks. According to the ld. representative, the taxpayers were registered as primary agricultural credit society by the Registrar of Co-operative Societies. Referring to the certificates said to be issued to the Joint Registrar of Co-operative Societies, copy of which are available at page 82 of the paper book, the ld. representative submitted that the taxpayer societies were registered under the Kerala Co-operative Societies Act, 1969 and classified as primary agricultural credit societies. Once the taxpayers are registered and classified as primary agricultural credit societies by the State Government, the assessing officer may not be justified in saying that the taxpayers are banks and not co-operative societies.
32. On the contrary, the ld. DR submitted that the taxpayers have paid interest on various deposits during the year under consideration. The taxpayers have paid interest to the non members also. Under Section 194A(3)(viia) the interest paid by the co-operative societies to its member alone is exempt from provisions of section 194A of the Act. The ld. DR further submitted that the nomenclature of the taxpayer is co-operative bank. The word “bank” can be used only by an institution which is engaged itself in banking activities. Referring to section 80P(4) of the Act, the ld. DR submitted that co-operative bank and primary agricultural credit society shall have the meanings as described in the Banking Regulations Act. Since the taxpayer societies are neither primary credit societies nor primary agricultural credit societies, according to the ld. DR, the provisions of section 194A(3)(viia) are not applicable. Therefore, the taxpayers have to deduct tax as required u/s 194A of the Act.
33. We have considered the rival submissions on either side and also perused the material available on record. The main contention of the taxpayers is that the taxpayer was registered as co-operative societies under the Kerala Co-operative Societies’ Act and classified as primary agricultural co-operative societies. We find that this issue was considered by the Kerala High Court in the case of Moolamattom Electricity Board Employees’ Co-operative Bank Ltd, In Re & Ors [1999]238 ITR 630 (Ker). The Kerala High Court, after considering the provisions of section 194A of the Income-tax Act found that for the purpose of understanding the cooperative society, the meaning that is given in section 2(19) of the Income-tax Act has to be considered and not otherwise. The co-operative societies are not controlled and governed by RBI and they are registered under the provisions of the State Co-operative Societies Act. Therefore, the Kerala High Court found that the co-operative societies are exempt from provisions of section 194A of the Act. A similar view was taken by the Kerala High Court in the case of Income-tax Officer & Anr v. Thodupuzha Urban Co-operative Bank Ltd & Anr [2003] 264 ITR 236 (Ker). In this case before us also, admittedly, the taxpayers are registered under the Kerala State Co-operative Societies’ Act and no approval was obtained from the RBI for carrying out the banking activities. Therefore, for all practical purposes, the taxpayers have to be treated as primary agricultural cooperative societies within the meaning of section 2(19) of the Income-tax Act. In view of the above, as found by the jurisdictional High Court, the taxpayers are exempt from deduction of tax at source u/s 194A of the Act. Accordingly, we are unable to uphold the orders of lower authorities. Hence, the orders of lower authorities are set aside and the addition u/s 40(a)(ia) is deleted.
34. The next ground of appeal in ITA Nos. 251, 253, 254 & 255/Coch/2012 is with regard to disallowance of contribution made by the taxpayer to the pension fund and gratuity fund. The assessing officer disallowed the claim of the taxpayer on the ground that the funds were not approved one; therefore, the taxpayers are not eligible for exemption u/s 36(1)(iv) of the Act.
35. Shri Krishna Iyer, the ld. representative for the taxpayer submitted that the taxpayer has paid contribution to the group gratuity fund to LIC of India. The Commissioner of Income-tax(A) disallowed the claim of the taxpayer on the ground that no evidence was produced. According to the ld. representative, the taxpayer has filed additional evidence before the Commissioner of Income-tax (A) to support the payment of group contribution to LIC of India. According to the ld. representative, the additional evidence ought to have been accepted by the Commissioner of Income-tax(A) and allowed the claim. In the case of Mavilayi Service Co-operative Bank Ltd in ITA No.255/Coch/2012, the ld. representative for the taxpayer submitted that the contribution was made to the pension fund established by the State Government in exercise of its powers u/s 80A of the State Co-operative Societies’ Act. Therefore, according to the ld. representative, the approval of the Commissioner is not required when the funds were established by the State Government. According to the ld. representative, the funds established by the State Government under its own pension scheme have to be treated on par with General Provident Fund of Government of India. Therefore, the approval of the Commissioner is not required.
36. On the contrary, the ld. DR submitted that unless and until the pension fund was approved by the Chief Commissioner or Commissioner, the taxpayers are not entitled for deduction u/s 36(1)(iv) of the Act. Since admittedly, the pension fund is not approved, the taxpayers are not eligible for deduction u/s 36(1)(iv) of the Act. Referring to the argument of the ld. representative for the taxpayer, Shri Krishna Iyer in the case of The Cherukunnu Service Co-operative Bank Ltd, the ld. DR submitted that the evidence for payment of group gratuity fund was produced only before the Commissioner of Income-tax(A) and not before the assessing officer. Therefore, the Commissioner of Income-tax(A) has rightly rejected the additional evidence. Moreover, the contribution was not towards the gratuity fund for the exclusive benefit of the employees under an irrevocable trust. Therefore, the Commissioner of Income-tax(A) has rightly rejected the claim of the taxpayer.
37. We have considered the rival submissions on either side and also perused the material available on record. Section 2(38) of the Income-tax Act defines “recognized provided fund. As per this provision, a provident fund which was recognized by the Chief Commissioner or Commissioner as per the rules contained in Part A of the Fourth Schedule to the Income-tax Act is considered to be a recognized provident fund. The second part of section 2(38) clearly states that when a provident fund established under a scheme framed under the Employees’ Provident Funds Act, 1952, then that fund also has to be treated as recognized provident fund. We find that the Madras High Court in the case of C.I.T. v. Kattabomman Transport Corporation Ltd [2004] 268 ITR 507 (Mad) had an occasion to consider this issue elaborately. The Madras High Court found that the contribution made to the provident fund maintained by the taxpayer which was not recognized by the Commissioner either under the Income-tax Act or under the Employees Provident Fund Act cannot be considered to be a recognized provident fund. After considering the provisions of section 2(38) of the Act, the Madras High Court found that only a scheme framed under the Employees’ Provident Fund Act which is deemed to be an approved provident fund for the purpose of Income-tax Act even though such fund has not received express approval of the Commissioner of Income-tax has to be treated as recognized provident fund. The Madras High Court further found that the contributions made to the provident fund maintained by the government in respect of government employees, who are on deputation to the State Government Corporation, such a payment has to be allowed u/s 37 of the I.T. Act being part of the business expenditure of the taxpayer. In this case also, the contribution was made towards the provident fund. Under section 2(38) of the Income-tax Act funds established by the taxpayer has to be approved by the Commissioner or Chief Commissioner as per the rules framed in Part A of the Fourth Schedule to the Income-tax Act. A fund established under the scheme of employees’ Provident Fund Act can also be considered as provident fund.
38. In the case of Cherukunnu Service Co-operative Bank Ltd, the contribution was made to LIC group Gratuity Scheme. The Commissioner of Income-tax(A) confirmed the disallowance on the ground that evidence for payment was not produced before assessing officer. However, it was not examined whether such scheme was framed under the scheme of Employees Provident fund Act or not. In the case of Mavilayi Service Cooperative Bank Ltd, the contribution was made to the fund established by the State Government in exercise of executive powers u/s 80A of the Kerala Co-operative Societies’ Act. When the contributions are made to group gratuity fund established by the LIC of India and the funds established by the State government and if it could not be considered as recognized fund within the meaning of section 2(38) of the Act, such payment has to be allowed u/s 37(1) of the Act since it relates to the business expenditure as found by the Madras High Court in the case of Kattabomman Transport Corporation Ltd (supra). Therefore, the orders of lower authorities are set aside and the issue is remitted back to the file of the assessing officer. The assessing officer shall examine the scheme of the funds established by the LIC group gratuity fund and the funds established by the State Government in exercise of its executive powers u/s 80A of the Kerala Co-operative Societies’ Act and thereafter decide the issue in accordance with law after giving reasonable opportunity of hearing to the taxpayer.
39. The next ground of appeal in I.T.As 251, 253 & 254/Coch/2012 is with regard to bad debt u/s 36(1)(viia) of the Act.
40. We heard the ld. representative for the taxpayer and the ld. DR. We have also carefully gone through the provisions of section 36(1)(viia) of the Act. Section 36(1)(viia) provides for deduction of bad and doubtful debt made by a scheduled bank or a non scheduled bank or a co-operative bank other than primary agricultural credit society or primary co-operative agricultural rural development bank not exceeding 7 ½% of the total income computed before making deduction under chapter VIA of the Act. In this case, the specific claim of the taxpayers is that they are not bank but they are primary agricultural credit society. Therefore, obviously, the provisions of section 36(1)(viia) are not applicable to the taxpayers. In fact, while considering the claim of TDS u/s 194A in the earlier part of this order, this Tribunal found that the taxpayers are not banks, but primary agricultural co-operative societies, therefore, the provisions of section 194A are not applicable to the taxpayers. The assessing officer has already allowed part of the provision for bad and doubtful debts. Therefore, this Tribunal is of the considered opinion that the taxpayers cannot have any grievance. Accordingly, the orders of the lower authorities are confirmed.
41. Since all the appeals are disposed of, stay applications are also dismissed as infructuous.
42. In the result, the appeals in ITA Nos. 251, 253, 254 & 255/Coch/2012 are partly allowed and the appeals in ITA Nos. 267 & 268/Coch/2012 are dismissed and the stay applications in S.A. Nos 58 to 61/Coch/2012 arising out of ITA Nos. 251, 253, 254 & 255/Coch/2012 are dismissed.
