Income Tax Appellate Tribunal - Ahmedabad
Income-Tax Officer vs Shri Gopal Gram Seva Sahakari Mandli ... on 7 March, 1991
Equivalent citations: [1991]37ITD476(AHD)
ORDER
M.A.A. Khan, Judicial Member
1. In this case, the assessee, a co-operative society earning income from business, interest and dividend, returned its income for A.Y. 1982-83 at Nil claiming exemption of its income from tax under a notification issued under the provisions of IT Act, 1922 (1922 Act) on the ground that it was an old society formed in the year 1948. The ITO, however, held that the society formed in 1948 had ceased to exist on its division into five societies including the assessee, in the year 1968. He further held that in view of the specific provisions of Section 80P in the IT Act, 1961 (the Act) granting certain exemptions/deduction to co-operative societies in the computation of their taxable incomes, the notification relied upon had ceased to be in force. He accordingly computed assessee's income for the two years granting certain exemptions/deductions under Section 80P of the Act.
2. In appeals, the CIT(A) took the view that in view of the increase in work load and with the consent of its members the society formed in 1948 had floated four other societies village wise retaining the character of parent body to itself and the new registrations to the assessee-society and the four floated societies in the year 1968 did not affect assessee's identity and basic character as that of the society formed in 1948. He further held that the notification gave a right of exemption of its income from tax to the assessee-society and that right was not taken away by any act of Parliament. He accordingly directed the ITO to grant exemptions to the assessee-society under the notification. Hence these appeals by revenue.
3. Mr. D.D. Goel, the learned D.R., urged that the division of the society formed in 1948 into five societies, including the assessee-society, resulted in dissolution 6f the original society and the assessee-society came into existence as a new society in 1968. He further submitted that in view of the provisions of Section 80P the notification did not continue to be in force.
4. Mr. L.L. Shukla, the learned counsel for the assessee, on the other hand, submitted that it was simply a case of partial transfer of its assets and liabilities by the Society of 1948 to the other four societies in 1968 which did not affect the identity and original character of the society formed in 1948. He further submitted that the assessee had throughout been given the benefit of the notification in the past and is accordingly entitled to get the same benefit as the notification remained to be in force.
5. After giving our due consideration to the arguments advanced and on study of the material on our record and the law applicable thereto, we find force in Mr. Goel's arguments. Since it is the accepted position that the true and correct facts relating to the very character of the assessee-society - whether it is the old society formed in 1948 or a new one formed in 1968 - has never been examined in the past and has arisen for the first time, it is necessary to find out the relevant facts.
6. In the year 1948 a co-operative society under the name of Dhasa (Sorath) Multi-purpose Co-operative Society Ltd. (Old society) was formed by certain residents of a territory falling within the territorial jurisdiction of the earstwhile United State of Saurashtra. This society was registered under Section 10 of the Bombay Co-operative Societies Act, 1925 (Bombay Societies Act) by the Registrar, United State of Saurashtra on 26-10-1948. This society changed its name to Gopalgram Vividh Karyakari Sehkari Mandli Ltd. w.e.f. 30-4-1954 and opened its membership to the residents of the village Gopalgram and within five miles around that village. Later on the name of the old society was again changed on 18-4-1956 to Gopalgram Juth Krishi Vikas Vividh Karyakari Sehkari Mandli Ltd.
7. The United State of Saurashtra merged with the State of Gujarat on latter's formation on 1-5-1960. The Bombay societies Act was repealed by Gujarat Cooperative Societies Act, 1961 (the Gujarat Societies Act). By virtue of the saving provision contained in Section 169 of the Gujarat Societies Act the old society, with its changed name, was deemed to be a society registered under the provisions of that Act under Section 6(4) r.w. Section 2(19).
8. In the year 1968 the old society decided to divide itself into five societies. A draft scheme was accordingly prepared and submitted for approval of the Registrar, Cooperative Societies, Amreli (Registrar) as required by Rule 9 of the Gujarat Cooperative Societies Rules, 1965 (the Rules). The Registrar accorded his pre-sanction to the proposal on 30-4-1968. By adopting a resolution in its special meeting held on 26-9-1968, the old society divided itself into five societies. The Registrar passed his order under Section 17 of the Gujarat Societies Act granting registration to all the five societies on 27-9-1968. The relevant part of his order runs as under:-
The sanction to division has been accorded to the following 5 Co-operative Societies by Registering them as per the Resolution No. 62 dated 19-9-1969 by Distt. Panchayat as per the powers allotted by Section 9 and its such sections by production and Co-operative Society of Gujarat State Co-operative Laws.
The assets and liabilities as per Annexure 2 has been divided between the five divided and constructed Seva Sahkari Mandli Ltd.; And the members will be the Resident of each village. The sanction has been accorded.
Shri Gopalgram Juth Krushi Vishiyak Vividh Sarkari Sahkari Mandli Ltd. Gopalgram, Ta Dhari, Distt. Amreli (Greater Bombay State), Registered at 14/228 dated 26-10-1948 of Section 10 of the Co-operative Laws of. 1925, has been cancelled as per Section 18 of Gujarat Co-operative Laws.
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Sr. Registration
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No. Name of the Mandli No. Date Villages covered
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1. Shri Gopalgram Sahkari S-8787 27-9-68 (1) Gopalgram Mandli Ltd. (Assessee- (2) Bhatth Society)
2. Shri Padaggadh Seva Sahkari Mandli Ltd. S-8788 27-9-68 (1) Padargadh (2) Bhayavadar
3. Shri Davida Seva Sahkari Mandli Ltd. S-8789 27-9-68 Dahida
4. Manavav Sahkari Mandli Ltd. S-8790 27-9-68 Manavav
5. Dholarva Seva Sahkari Mandli Ltd. S-8791 27-9-68 Dholarva
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The registration of the Bye Laws Co-operative Societies has been done by Section 9(i)(a) of the Gujarat Rajya Co-operative Societies Law. All the Co-operative Societies have to accept the Resolutions, and the conditions of sanctions as accepted on General meeting of the society of Jilla Panchayat Amreli dated 16-8-68.(Sic)
9. The facts, as found above, establish that before and up to the order of the Registrar passed under Section 17 on 27-9-1968 the old society had retained its identity and original character despite the changes of its name in 1954 and 1956 and coming into force of the Gujarat Societies Acton 1-5-1962. The question arises whether the order passed by the Registrar on 27-9-1968 sanctioning division of the old society into five societies, as mentioned in his order, and granting registrations to all of them resulted into dissolution of the old society, for all practical purposes and bringing into existence, inter alia, a new society in the form of the society, which is the assessee in these appeals. In other words, whether the order of the Registrar is an order sanctioning division of the old society or an order approving partial transfer of the assets and liabilities of the old society to four other societies and the registration does not disturb the identity and character of the old society.
10. The term 'transfer' means making over. It involves 'from' and 'to'. It may or may not affect 'ownership' but only 'possession' depending upon its mode. Accordingly it may or may not result in extinction of one's rights in and title to the property transferred and simultaneous creation of right and title in the other. It pre-supposes the existence of identities of both, the transferor and the transferee.
11. 'Division' pre-supposes two or more than two persons having joint or common rights in the property. It commences on one individual identity of the whole ends in loss of that identity. The shares of joint or co-owners may be defined or definite but none of them can claim ownership to possession or user of any specific or particular part, even proportionate to his share, to the exclusion of the other(s). Division not only brings in a change in the ownership, user and possession of the property, but also in the status of the persons concerned. It results in extinction of the rights of the persons concerned in the property as one unit i.e. as a whole and creates individual rights in the divided units or parts. It does not involve 'from' and 'to' in the sense 'transfer' does. Rights in whole are reduced to rights in parts. On division the identity of the institution as of whole is extinguished and individual identities of the divided parts is created. In the case of 'division' the transferors and transferees have dual capacities. They are givers as well as takers. As transferors they give, as transferees they take, in the same property.
12. Section 17 of the Gujarat Societies Act deals with, inter alia, the cases of transfer and division of a society. Before being effected they involve almost the same procedure. The society has to prepare a draft scheme for transfer or division, get it passed by two third of its voting majority present in a special general meeting, seek pre-sanction of the proposal from the Registrar and on being accorded pre-sanction to the proposal the society has to repeat the same procedures after notice to all concerned. The distinction between the two, however, lies in their results and consequences.
13. Section 17(3) excludes the application of the Transfer of the Property Act, 1882 and the Indian Registration Act, 1908 in the case of, inter alia, division but not in the case of transfer. The reason is obvious division of the society results in loss or extinction of the status and identity of the society divided with simultaneous creation of independent and separate identities and status of the societies coming into existence on such division, out of the society divided. No transfer of property is involved in the process. Transfer of assets and liabilities of the divided society to the new societies is in fact division of the assets and liabilities of the divided society amongst the new societies. This point stands clarified on a study of the provisions contained in Sections 18 and 20 reproduced below:
Sec. 18 - Cancellation of registration of amalgamated, divided or converted societies :
Where two or more societies have been amalgamated or a society has been divided, or converted, the registration of such societies or society, as the case may be, shall be cancelled on the date of registration of the new society or societies so formed.
Section 20 - Cancellation of Registration :
(1) The Registrar shall make an order cancelling the registration of a society if it transfers the whole of its assets and liabilities to another society, or amalgamates with another society, or divides itself into two or more societies, or if its affairs are wound up or it has not commenced business within a reasonable time of its registration or has ceased to function.
(2) An order made under Sub-section (1) shall be published in the Official Gazette.
(3) The society shall, from the date of such order of cancellation, be deemed to be dissolved and shall cease to exist as a corporate body.
It may be noted that the division of a society is to necessarily result in its dissolution with the cancellation of registration to it. That is not so in the case of transfer of the society. It is also worth mentioning that dissolution is to ensue in case of transfer also but of the whole of the society and not a part thereof. Obviously the transfer of whole of the society is to affect the very existence of the society as a whole, whereas a partial transfer is simply to affect its assets and liabilities without affecting the existence of the society.
14. In the instant case the various resolutions adopted by the old society from time to time and the order passed by the Registrar cancelling registration to the same under Section 18 clearly state that it was a case of division of the old society into five societies. As a result of such division, the deemed registration of the old society under Section 6(4) got cancelled under Section 18 and the old society stood dissolved under Section 20(3) of the Gujarat Societies Act. The grant of new registration under Section 9(1) to the assessee-society on 27-9-68 resulted in bringing into existence altogether a society different from that formed and registered on 26-10-48 and deemed to be registered under Section 6(4) of the Gujarat Societies Act.
15. Registration of a society under the provisions of Gujarat Societies Act is not simply a formality and a routine affair. Procedure prescribed in the Gujarat Societies Act and the Rules framed thereunder has to be necessarily followed. In the case of new registration application in Form A as prescribed by Rule 9 of the Rules has to be submitted to the Registrar under Section 8. The Registrar has to satisfy himself of the fulfilment of the conditions as laid down for grant of registration under Section 9. In the case of registrations to the societies coming into existence as a result of division of an existing society, procedure laid down in Rule 9 read with Section 17(1) has to be followed. Resolution passed by two-third majority of the members present and voting in the special general meeting of the society have to be adopted to seek pre-sanction of the Registrar to the draft scheme of division of society. Approval of the draft proposal has to be notified and objections thereto invited. The Registrar has to satisfy himself about such notification of draft proposal and objections thereto under Section 17(2) before sanctioning division of the society which is to result in cancellation of the registration to it under Section 18 and dissolution thereof under Section 20(3) of the Gujarat Societies Act. The approach of the CIT (A) and the argument of Mr. Shukla on the point are thus not valid in law.
16. And now the effect of the disputed notification. In the view we have taken of the status, character and identity of the assessee-society as a new society coming into existence in 1968 and, therefore, subject to the provisions of the Act the controversy over the disputed notification becomes, in effect, academic only. However, to set the record straight and to remove the confusion over the number, date and effect of the disputed notification we would like to state the relevant facts.
17. In exercise of the powers under Section 60A of 1922 Act the Central Government had made the Part B States (Taxation Concessions) Order, 1950 vide No. SRO 998 dated 2-12-1960 [19 ITR (St.) 1 (Concession Order).] This notification was published in Gazette of India, Extraordinary dated 2-12-1960. Paragraph 15 of this concession order exempted from tax the incomes/wealth of certain members of the families of Ex-Rulers of Part B States. This concession order conferred no exemption, or reduction in rates of tax to the incomes of the co-operative societies, 1922 Act also did not confer such benefits to co-operative societies. With a view to confer such benefits upon the co-operative societies, to give boost to the cooperative movement in the country, the Central Government amended this Concession Order by Part B States (Taxation Concessions) Amendment Order, 1951 by Notification No. SRO 1800 dated 14-11-51 [20 ITR (St.) 52] which ran as under:
Part 'B' States (Taxation Concession) Order, 1950 - Amendment. Notification No. SRO 1800 dated the 14th November, 1951.
In exercise of the powers conferred by Section 60A of the Indian Income-tax Act, 1922 (XI of 1922), the Central Government hereby directs that the following amendment shall be made in the Part 'B' States (Taxation Concession) Order, 1950, namely :-
After Clause (iii) of paragraph 15 of the said order, the following clause shall be added, namely :-
(iv) the profits of any Co-operative Society registered under any Act in force in a Part 'B' State, or dividends or other payments received by members of any such society out of such profits.
For this purpose, the profits of a Co-operative Society shall not be deemed to include any income, profits or gains from :
(1) investments in (a) securities of the nature referred to in Section 8 of the Indian Income-tax Act, or (b) property of the nature referred to in Section 9 of that Act, (2) dividends, or (3) the other sources referred to in Section 12 of the Indian Income-tax Act.
18. It may be noted that the Concession Order, as amended by SRO No. 1800 dated 14-11-1951 did not totally exempt the incomes of co-operative societies. The nature and extent of incomes exempted from tax or entitled to reduction in rates thereof were clearly mentioned in the Amendment.
19. The Concession Order, as subsequently amended by Notification No. SRO 1800 dated 14-11-1951 as stated above, was made under the provisions of 1922 Act, and was applicable to such co-operative societies which were registered under any Act in force in Part 'B' States. Part B State of Saurashtra stood merged with State of Gujarat with effect from 1-5-1960 and consequently the Gujarat Societies Act which was broadly modelled on the basis of the provisions of Maharashtra Cooperative Societies Act, 1960, replaced Bombay Societies Act under which the assessee was registered. The 1922 Act was repealed by Section 297(1) of the Income-tax Act, 1961 which came into force on 1-4-1962. Sub-section (2) of Section 297, however, carved out certain saving clauses and Clause (1) thereof, which is relevant for our purpose, provided as under:
297(1) ** ** ** (2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (11 of 1922) (hereinafter referred to as the repealed Act),-
** ** ** (1) any notification issued under Sub-section (1) of Section 60 or Section 60A of the repealed Act and in force immediately before the commencement of this Act, shall to the extent to which provision has not been made under this Act, continue in force.
[Emphasis supplied]
20. The Act had made specific provisions in Section 80P with regard to the deductions allowable in the computation of the incomes of the co-operative societies. Notification issued under Sections 60 or 60A of 1922 Act and in force immediately before the commencement of the Act, to the extent of provisions made in Section 80P of the Act, therefore, stood repealed and ceased to have any force. However, in respect of such notification as were issued under Sections 60 or 60 A of 1922 Act and were in force immediately before the commencement of the Act in respect of which no provisions were made in the Act continued in force subject to the power of rescission or amendment of such notifications to the Central Government.
21. It is true that the Concession Order as amended by Notification No. SRO 1800 dated 14-11-1951 does not appear to have been rescinded by the Central Government in exercise of its powers under proviso to Section 297(2)(1) but the extent of the applicability thereof shall have necessarily to be judged in the light of the mandate contained in the main Clause (1) of Sub-section (2) of Section 297. In doing that neither the facts that the Part 'B' State of United State of Saurashtra stood merged with Stale of Gujarat with effect from 1-5-1960, the Bombay Co-operative Societies Act was repealed by Gujarat Societies Act with effect from 1-5-1962 and the assessee-society lost its character of a society deemed to be registered under the provisions of the Gujarat Societies Act on its division, cancellation of registration and dissolution on 27-9-1968 can be lost sight of nor the fact that the Act has made specific provisions in Section 80P for deductions allowable to co-operative societies - a subject covered by the Concession Order as amended by Notification No. SRO 1800 dated 14-11-1951. Keeping all these facts in mind we are clearly of the opinion that co-operative societies registered under the Gujarat Co-operative Societies Act after coming into force of the Income-tax Act, 1961 would not be entitled to the exemption of their incomes from tax under the Concession Order, as amended by Notification No. SRO 1800 dated 14-11-1951 in view of the provisions of Section 80P read with Section 297(2)(1) of the Act. We express no opinion over the cases of those societies which were deemed to be registered under the Gujarat Societies Act and continued to be so at the commencement of Income-tax Act, 1961 and up to the time of advancing their claim for exemption under the said Concession Order, as amended. The assessee-society having been registered on 27-9-1968 under the Gujarat Societies Act after coming into force of the Income-tax Act, 1961 is entitled to the benefit of deduction under Section 80P of the Act but not of the exemption under paragraph 15 of the Concession Order as amended by Notification No. SRO 1800 dated 14-11-1951.
22. Decisions of the Tribunal in assessee's case for earlier years were rendered without examining its character as a co-operative society registered on 27-9-1968. Those, therefore, make no bar to us or are operative as res judicata in arriving at different conclusions, regarding the matter of taxability of assessee's income for the years under consideration.
23. Consequently the order under appeal is set aside on both the points, as mentioned above. However, since the CIT(A) did not examine, consider and decide assessee's claim for deductions under Section 80P of the Act, its case for both the years would go back to him for decision thereon according to law after hearing both sides.
24. The appeals are treated as allowed for statistical purposes.