Income Tax Appellate Tribunal - Delhi
J.C.I.T., Spl. Range-14 vs National Agriculture Co-Operative ... on 28 June, 2004
Equivalent citations: [2005]92ITD35(DELHI), (2005)94TTJ(DELHI)475
ORDER
B.R. Jain, Accountant Member
1. Through this misc. petition Under Section 254(2) of the Act, the revenue states as under:-
"Vide orders No. 4648 to 6656/D/96 dated 31.8.98 the ld. Members of ITAT, D-Bench, New Delhi, have decided that the assessee, M/s NAFED, is entitled to deduction Under Section 80(P)(2)(a)(iii). The assessee, which is a cooperative society, is an apex body having several cooperative societies as its members. Its income, inter alia, included the income from marketing of the produce of its members. The assessee claims that its income was eligible for deduction Under Section 80(P)(2)(a)(ii). The claim of the assessee was endorsed by the Hon'ble Delhi Cooperative Apex Marketing Society Ltd. v. CIT (Addl.) 201 ITR 338, the Hon'ble Supreme Court took a divergent view and held that the "agricultural produce of its members as appearing in Section 81(1)(c) meant that the agricultural produce produced by its members". As the assessee was marketing the produce of its members, which was not necessarily produced by them, the deduction allowed to NAFED was withdrawn by resorting to the provisions of Section 147/148 from AYs 1989-90 to 1994-95.
However, in their latest decision in the case of Kerala State Apex Cooperative Federation Ltd. v. CIT, 231 ITR 814, the Hon'ble Supreme Court reversed its own decision and held that the society engaged in the marketing of agricultural produce of its members would mean not only such societies which deal with the produce raised by its members who are individual or societies and which are members there of who may have purchased such goods from the agriculturists.
Based on the latest decision of Supreme Court, the ITAT has concluded that the assessee was entitled for deduction Under Section 80(P)(2)(a)(iii). However, the decision of Supreme Court has become redundant as a result of amendment to Section 80P vide Income Tax (Second Amendment) Act, 1998, which has amended the provisions of Section 80P(2) with retrospective effect from 1.4.1968 (copy enclosed). The amended provisions read as under:-
"(iii) the marketing of agricultural produce grown by its members, or"
As mentioned above, NAFED was marketing the produce of its members who are nor necessarily growing the agricultural produce of their own. The decision given by the ITAT would, therefore, require modification in terms of provisions of Section 254(2) of I.T. Act."
2. The revenue's case stated before us is that the assessee is a premier Cooperative society of the country and all other societies are its members. It markers their produce. It claimed deduction of its income Under Section 80P from marketing of such produce. The AO denied the said deduction on the pretext that the respondent's income is derived from the marketing of product of its members which is purchased by them and is not one grown by them. While coming to such conclusion AO relied on the decision of the apex Court in the case of Assam Cooperative Apex Society Ltd. v. CIT (Addl.) 201 ITR 338 (SC). The CIT(A) also confirmed the disallowance. However in the meanwhile in December, 1998 and larger Bench of the Supreme Court in the case of Kerala State Co-Operative Marketing Federation Ltd. v. CIT 231 814 (SC) over ruled its earlier decision and held that respondent is entitled to the said deduction as the phrase "produce of its members" does not mean 'produced by its members' but means 'produce belonging to' members. The ITAT following the later decision allowed the appeal of the respondent. As a sequel to this decision Section 80(2)(iii) was amended by the Income-tax Act (second Amendment) Bill, 1998 and the said Bill was passed and became an Act as Income-tax (second Amendment) Act, 1998. The clause (iii) was worded earlier as under:-
(iii) the marketing of the agricultural produce of its members.
3. By the aforesaid amendment the changed clause read as under:-
(iii) the marketing of agricultural produce grown by its members.
4. It is pertinent to note that the said amendment was made affective retrospectively w.e.f. 1.4.1968.
5. As a sequel to the retrospective amendment to Section 80P the department has moved this present miscellaneous application pleading for rectification of the order of this Bench.
6. Such rectification has been vehemently opposed by the learned counsel of the respondent raising the under mentioned pleas:-
I) Placing reliance on the Supreme Court judgment in National Agri. Co-op. Mkg. Federation v. UOI 260 ITR 548 (SC) the learned counsel pointed out that the Hon'ble Supreme Court therein has held that -
a) The amendment is a new law. It is not modifying the previously existing law.
b) This law does not apply to completed assessments.
Therefore the new law cannot be applied for the assessment years in question which have been completed. The new law does not over rule the law laid down by the Supreme Court in Kerala State Apex Cooperative Federation Ltd., (Supra). There is no mistake apparent from record and consequently provisions of Section 254(2) are not attracted.
II) No rectification can be done on the bases of the new law, as held by the Supreme Court in J.M. Bhatia v. J.M. Shah, 156 ITR 474, 478 (SC).
III) The Appellate Tribunal has restored certain grounds to the file of the assessing officer but by adjudicating them, he has lost jurisdiction over the case.
IV) For applying the new law foundational facts have to be determined which are not on record and as such a theoretical rectification cannot be done. In the absence of the foundational facts it cannot be held that there is any mistake apparent from record.
V) The Tribunal does not have the power of review CIT v. K. L. Bhatia 182 ITR 361 (Del.).
VI) Reliance was placed on the judgment of the Supreme Court in the case of CIT v. G.M. Mittal 263 ITR 254 (SC) that new law cannot make earlier order as erroneous, which was passed following the correct law prevailing at the time when the order was factually passed.
VII) The view held by the assessing officer is highly debatable and no rectification can be done.
8. We have heard the arguments of both the sides and have very patiently gone through spate of judgments cited by the learned counsel for the respondent vis-avis written note placed on record. We are however not inclined to agree with the learned counsel for the assessee because the retrospective amendment made in a statute by the act of legislation, shall by fiction deemed to be in force as in National Agri. Co-op. Mkt. Federation, supra, the apex court did not lay down that -
a) the amendment was a new law. It is not modifying the previous law.
b) the amendment does not apply to completed assessment.
9. The Court, however, upheld the validity of the retrospective amendment by stating that it was only the continuation of the law as it stood from 1968. It was only for a brief period the law got unsettled by the Apex Court by its decision of Kerala State Apex Co-operative case in the year 1998. That position of law never came into being as the same was amended retrospectively before the close of the financial year in which this decision was rendered. The relevant extract of the judgment in National Agricultural Co-op. Marketing Supra given at page 540 in para b, c, d, e, f & g is reproduced as under:-
To recapitulate the legislative background of the particular statutory provision in question before us-the first authoritative interpretation of Section 80P(2)(a)(iii) was made in 1994 in Assam Cooperative's case (1993) 201 ITR 338 (SC), when it held that the word "of" must be construed as "produced by". Therefore, the law as it stood from 1968 was, by this decision, required to be read in precisely this manner and presumably assessments of apex societies were commenced and concluded on this basis. The situation continued till 1998 till this court reversed-Assam Cooperative (1993) 201 ITR 338 (SC) in Kerala State Co-operative Marketing Federation Ltd.'s case (1998) 231 ITR 814 (SC). Before the assessment year was over, by the 1998 amendment the word "of" was substituted with "grown by". In real terms, therefore, there was hardly any retrospectivity, but a continuation of the status quo ante. The degree and extent of the unforeseen and unforeseeable financial burden was, in the circumstances, minimal and cannot be said to be unreasonable or unconstitutional.
9. The only restriction the Supreme Court in the aforesaid judgment put on the amendment was that the amending law did not seek to touch on the period of limitation. Where assessment have become time barred before the new law came into effect, the AO cannot commence the proceedings on the basis of the new law. However, in the present application for rectification, the question of re-opening by limitation is not under our consideration.
10. Before us, the learned counsel has vehemently argued that the order of the Tribunal was passed on the basis of the law prevailing on that day. The same cannot be undone by a subsequent legislation. It cannot be held to be a mistake apparent from record. On this we have already expressed our view that the retrospective amendment shall by fiction deemed to be in force at the time from which it is made effective. The Apex Court in the case of M.V.K. VENKATCHELLAM V. BONBAY DYEING MFT. C. 34 ITR 143 (SC) has stated as under:-
"It is in the light of this position that the extent of the Income-tax Officer's power Under Section 35 to rectify mistakes apparent from the record must be determined; and, in doing so, the scope and effect of the expression " mistake apparent from the record" has to be ascertained. At the time when the Income-tax Officer applied his mind to the question of rectifying the alleged mistake, there can be no doubt that he had to read the principal Act as containing the inserted proviso as from April 1, 1952. If that be the true position then the order which he made giving credit to the respondent for Rs. 50,603- 15-0 is plainly and obviously inconsistent with a specific and clear provision of the statute and that must inevitable be treated as a mistake of law apparent from the record. If a mistake of fact apparent from the record of the assessment order can be rectified Under Section 35, we see no reason why a mistake of law which is glaring and obvious cannot be similarly rectified. Prima facie it may appear somewhat strange that an order which was good and valid when it was made should be treated as patently invalid and wrong by virtue of the retrospective operation of the Amendment Act. But such a result is necessarily involved in the legal fiction about the retrospective operation of the Amendment Act. If, as a result of the said fiction, we must read the subsequently inserted proviso as forming part of Section 18A(5) of the principal Act as from April 1, 1952, the conclusion is inescapable that the order in question is inconsistent with the provisions of the said proviso and must be deemed to suffer from a mistake apparent from the record. That is why we think that the Income-tax Officer was justified in the present case in exercising his power Under Section 35 and rectifying the said mistake."
11. Respondent's counsel placing reliance of the decision of the apex Court in the case of J.M. Bhatia v. J.M. Shah 156 ITR 474 (SC) has argued that no rectification can be done on the basis of new law. While going through this judgment, we find that the Court has held differently. The relevant extract in this judgment is reproduced as under:-
"It is clear that the ground which was argued before the High Court and which seemed to find favour with it was that the question whether the Amending Act applied to assessments which were already completed was a highly debatable question and, therefore, it was not a case of an error apparent on the face of the record which entitled the Appellate Assistant Commissioner to rectify his predecessor's order but the question thus raised would, in our view, arise only if it is really a case of completed assessment in the literal sense of the word. It may be pointed out that this very aspect of the matter was pressed into service in Bombay Dyeing's case (1958) 34 ITR 143 (SC) and this court while negativing the contention has taken the view that the assessment order that had been initially passed in that case (which was Under Section 18A(5) of the Indian Income-tax Act, 1922) would not be said to have become final in the literal sense of the word and in that behalf this court pointed out that irrespective of the question whether any appeal Under Section 35 of the Act, and, therefore, could not be said to have become final or complete and, as such, the contention, raised would not be of much assistance to the assessee."
12. Immediately thereafter in the written submissions filed and for which leave was also granted, the learned counsel has placed reliance on the judgment of the Bombay High Court in the case of J.M. Shah v. J.M. Bhatia 94 ITR 519 (Bom) for the proposition that whether the amending act applied to the completed assessment is a debatable question. We do no understand the rationale of the learned counsel of placing reliance on this decision as the same already stood reversed by the apex Court and reported in 156 ITR 474 (SC).
13. Respondent's counsel while relying on the decision of Delhi High Court in the case of CIT v. K.L. Bhatia 182 ITR 361 (Del.) has contended that the Tribunal has got no powers to review. Admittedly, there is no dispute on such a principle. However needless to say that misc. application of the department is for rectifying mistake apparent from record and not for review of the order dated 31st Aug., 1998. Neither we are engaged in the exercise of review. The only debate in this misc. application is whether due to retrospective amendment in Section 80P of the Act, there existed any mistake apparent from record in the order of the Tribunal. Such a question has been answered in affirmative by the Supreme Court in Bombay Dyeing case Supra and reiterated in J.M. Bhatia's case. Therefore this contention of the respondent also is without any merit.
14. Respondent has also raised a plea that foundational facts are not on record and therefore the amended law cannot be applied. We do not agree with this plea. The only dispute in this case is whether the income earned by the respondent from marketing the produce of its members even though they are not grown by them is wholly exempt. There was never a dispute on the contention that the income arising from produce grown by members is exempt. The dispute was only with respect to exemption of that part of the income which arose from marketing the produce of its members not grown by them. In Assam Cooperative's case the Supreme Court took the view that income of marketing of produce of its members not grown by them is not exempt. The scope of Section 80P was widened by the apex Court by rendering the judgment in Kerala State Co-operative's case where the Court held that the only requirement of the section is that produce must belong to members and there is no requirement that it should also be grown by them. Tribunal allowed appellant's appeal in view of the later decision of the apex Court. Not if the foundational facts were not available how the respondent sought relief by applying the decision of Kerala State Co- operative's case and to which part of its income the said decision was applied. In case the assessee's plea is accepted, then one can conveniently argue that respondent's appeal had been allowed erroneously in 1998 but the same is beyond the scope of our duty nor we are engaged in that exercise at present. This plea of the respondent however is a defeating plea.
15.The learned counsel has further relied on the decision of the Apex Court in the case of CIT v. G.M. Mittal 263 ITR 254 (SC) contending that past events could not be undone by the subsequent decisions. In this case AO accepted assessee's appeal and held that the power subsidy received by assessee is a revenue receipt. The jurisdictional High Court in CIT v. Dusad Industries 162 ITR 784 (MP) has also taken the same view. On 25 March, 1991 the ld. CIT invoking his power Under Section 263 set aside the assessments. The Tribunal reversed the order the Commissioner on the ground that reason has been assigned by the ld. CIT as to why order of the AO is prejudicial and erroneous. Secondly jurisdictional High Court had also laid down the same law. Therefore there could not be any error in the order of assessment. The High Court upheld the stand of the ITAT when taken by the Tribunal. The Apex Court also affirmed the decision of the High Court and dismissed the plea of the revenue that the action of ld. CIT cannot be upheld even on the plea that the apex Court subsequently in Sahney Steel and Press Works Ltd. v. CIT 228 ITR 253 (SC) reversed the decision of the jurisdictional High Court in the case of Dusad Industries. It is partinent to note that Sahney steel's case was rendered on 19.9.97 whereas order Under Section 263 was passed on 25.3.91. The order of ld. CIT was set aside by the Tribunal on the ground that no reasons has been assigned by the Ld. CIT for holding the assessment order erroneous and prejudicial to interests of the revenue. Neither department has challenged Dusad case. As the satisfaction of ld. CIT was not based on any material his action stood set aside. The Apex Court decision was not before the ld. CIT when he exercised his powers Under Section 263. Consequently the setting and context of that case is materially different from the case under consideration in the present application. Therefore this argument also does not advance the case of the respondent.
16. The learned counsel in the end pleads that by the two different decisions of Apex Court reported in 201 ITR 338 (SC) and 231 ITD 834 (SC) the issue had become debatable and consequently it is not a mistake apparent from record and as such no rectification is possible. He strengthened his argument by citing the decisions of the Calcutta High Court as under:-
A) Jiyajee Rao Cotton Mills Ltd. v. ITO 130 ITR 710 (Cal).
B) Netai Chadra Rarhi & Co. & Ors. v. ISTC 263 ITR 186 (SC).
17. This argument of the ld. counsel decorated with four citations is found to be out of context. Suffice to say that the very premise of this miscellaneous application is the retrospective amendment in statute and not the pronouncement of the Apex court. Therefore to state that two views of the Supreme Court were in existence will not make the issue debatable under such enactment. There is a marked difference between the retrospective legislation and a Supreme Court pronouncement. A retrospective legislation deems a mistake apparent from record whereas if a dispute exists on an issue, then a subsequent pronouncement of the Apex Court does not obliterate the existence of that dispute. This distinction has been provided at page 731 of the decision of the Hon'ble Calcutta High Court in Jiyajeerao case supra cited by the learned counsel before us. Relevant extract is reproduced as under:-
"We are, however, unable to accept the contention of Mr. Pal that the principle of retrospective legislation is applicable to the decisions of the Supreme Court declaring the law or interpreting a provision in a statute. The law is laid down or a provision in a statute is interpreted by the Supreme Court only when there is a debate or doubt on the interpretation of any provision of a statute requiring interpretation by the Supreme Court or when there is a conflict of judicial opinion on a provision of a statute between the different High Courts of India which is required to be resolved and settled by the Supreme Court. The law laid down by the Supreme Court, in our opinion, cannot be said to have retrospective operation in the sense that although a debate or doubt or a conflict of judicial opinion is resolved and settled by the Supreme Court, yet still that does not obliterate the existence of such debate or doubt or conflict that existed prior to the decision of the Supreme Court setting at rest such debate or doubt or conflict."
18. Having considered the issue at length the irrestible conclusion is that when the law is amended with retrospective effect, the fiction is that all must proceed on the basis of law at the relevant time when the law was amended subsequently. That being so, the legal fiction is apparently capable of being carried forward to hold that when the earlier order of the Tribunal was passed on 31st August, 1998, it was passed in contravention of the amended law, which by fiction is deemed to be in force at that time. This clearly is an error apparent on the face of record. It is, therefore, our bounden duty to correct such a mistake and uphold the decision of the assessing officer for denying deduction of profit from marketing of agricultural produce of its members which is not grown by them as per provisions of Section 80P(2)(iii) of the Act and the order dated 31st August, 1998 of the Tribunal stands modified accordingly.
19. In the result, miscellaneous application of revenue stands allowed.