Punjab-Haryana High Court
Commissioner Of Income-Tax vs Haryana State Co-Operative Land ... on 11 February, 2002
Equivalent citations: [2002]254ITR107(P&H)
Author: N.K. Sud
Bench: N.K. Sud
JUDGMENT N.K. Sud, J.
1. The assessee is a co-operative society engaged in the business of advancing credit to its members for development of agriculture and farming in the State of Haryana. It filed its return of income for the assessment year 1989-90 on May 12, 1989, declaring nil income as it had claimed a deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961 (for short "the Act"), in respect of its entire business income. The return was processed under Section 143(1)(a) of the Act on August 31, 1989, in which an adjustment to the tune of Rs. 11,98,354 was made by observing that interest received from the employees on the loans advanced to them and miscellaneous income of Rs. 43,431 did not qualify for deduction under Section 80P(2)(a)(i) of the Act.
2. The assessee filed an application under Section 154 of the Act claiming that the adjustment of Rs. 11,98,354 had been wrongly made, but the same was rejected by the Assessing Officer vide order dated March 30, 1990. He observed that the deduction admissible under Section 80P(2)(a)(i) of the Act was in respect of the income of a co-operative society carrying on the business of banking or providing credit facilities to its members. He was of the view that as per the bye-laws of the assessee the activity of earning interest on loans from its staff members could not be said to be business of banking or providing credit facilities to its members and, therefore, income from the same was not eligible for deduction under Section 80P(2)(a)(i) of the Act.
3. The assessee preferred an appeal before the Commissioner of Income-tax (Appeals), Chandigarh, which was accepted on the ground that since the assessee was engaged in the business of providing credit facilities to its members for the development of agriculture and farming in the State of Haryana, its entire income was exempt under Section 80P(2)(a)(i) of the Act. He further held that even the miscellaneous income being incidental to the carrying on of the business of banking of the assessee was eligible for the aforesaid deduction. For this purpose, the Commissioner of Income-tax (Appeals) referred to the appellate order of the earlier year whereby disallowance of deduction on the same grounds had been deleted.
4. Aggrieved by the order of the Commissioner of Income-tax (Appeals), the Revenue filed an appeal before the Income-tax Appellate Tribunal (for short "the Tribunal"), which was dismissed vide order dated July 15, 1998. The Tribunal observed that the Assessing Officer had allowed exemption in respect of interest from all others except from the staff members. The Tribunal was of the view that even the interest earned from the employees had arisen from the business of banking as no distinction could be made between giving of loans to the staff members and advancing loans to the borrowers. Thus, relying on the observations of the Supreme Court in Madhya Pradesh Co-operative Bank Ltd. v. Addl. CIT [1996] 218 ITR 438, it held that the income from interest on loans advanced to the staff members was eligible for deduction under Section 80P(2)(a)(i) of the Act. The Tribunal also upheld the assessee's claim for deduction under the said provision in respect of the miscellaneous income on the ground that the same was incidental to the carrying on of the business of banking by the assessee.
5. The Revenue moved an application under Section 256(1) of the Act requiring the Tribunal to refer the following question of law for determination by this court :
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in deleting addition of Rs. 11,98,534 by holding that the said income of interest earned by the society on loans advanced to its employees is also covered for exemption under the provisions of Section 80P(2)(a)(i) of the Income-tax Act, 1961 ?"
6. The Tribunal rejected the same vide order dated January 4, 1999, on the ground that no referable question of law arose out of the order of the Tribunal as the finding of the Tribunal was based on the decision of the apex court in Madhya Pradesh Co-operative Bank Ltd.'s case [1996] 218 ITR 438. It was further observed that the finding about the miscellaneous income being incidental to the carrying on of the business of banking was a question of fact.
7. The Revenue has now filed this petition under Section 256(2) of the Act seeking a direction to the Tribunal to state the case and refer the question of law proposed by it for the opinion of this court.
8. We have heard Mr. R. P. Sawhney, senior advocate, for the petitioner.
9. It is an admitted position that disallowance of the deduction claimed under Section 80P(2)(a)(i) of the Act has been made by way of an adjustment under Section 143(1)(a) or the Act. It is also an admitted position that no disallowance out of deduction claimed against such income had been made in the past and, if made, was deleted in appeal. Thus, under such circumstances, the deduction claimed by the assessee under Section 80P(2)(a)(i) of the Act could not possibly be said to be prima facie inadmissible warranting disallowance by way of adjustment under Section 143(1)(a) of the Act. It is by now a well settled proposition of law that under the first proviso to Section 143(1)(a) of the Act, the Assessing Officer can make an adjustment in income by disallowing deduction claimed in the return if it is prima facie admissible on the basis of information available in such return or accounts or documents accompanying the return. Reference in this behalf can be usefully made to the judgment of the Bombay High Court in Khatau Junkar Ltd. v. K. S. Pathania [1992] 196 ITR 55. In this case, the Bombay High Court analysed the change in position regarding summary assessment brought about by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989. It was noticed that under the new provision only an intimation had to be sent by the Income-tax Officer as set out in Section 143(1)(a) of the Act. Since there was no assessment, the right of the assessee to object to a summary assessment had also been deleted. Referring to clause (iii) of the proviso to Section 143(1)(a), it was held that a deduction could only be disallowed by way of an adjustment if it was prima facie inadmissible on the basis of the information available in the return, accounts or documents. In the final analysis, the court held as under (page 73) :
"It is also pointed out by the petitioners that it is only under Section 143(1)(a) that there is a provision for refund being granted to the assessee, if it is found that the amount paid by the assessee by way of tax and interest is in excess of what is due. Even under Section 143(2), there is no provision for refund of any excess tax or interest paid. It is, therefore, necessary that the Income-tax Officer determines the tax and interest due or refund payable on the basis of the return at the intimation stage and grants it. Refunds cannot be withheld by disallowing deductions not disallowable on the basis of the return. Moreover, there is a provision for levy of additional tax under Section 143(1A). In case the intimation shows that certain claims of the assessee have been disallowed and more tax or interest is liable to be paid by the assessee, additional tax of 20% can be levied as per that section. Even if the assessee succeeds in a regular assessment thereafter, there is no provision for refund. If, therefore, the power of the Income-tax Officer, at the stage of intimation, to disallow claims in the manner claimed by the respondents is accepted, the consequences for the assessee would be grave. We have no reason to hold that such was the intention of the Legislature, either from the language of Section 143(1)(a) or even from the objects and reasons for the amendment in question, which would indicate the circumstances giving rise to the amendment.
On the other hand, if Section 143(1)(a) is interpreted as it should be, there is no prejudice to the Department. Because, in every case where the Revenue desires to have evidence in support of any claim, a notice can always be issued under Section 143(2), a regular assessment made and the excess amount due recovered. Interpreting Section 143(1)(a) in the manner suggested by the Revenue would cause serious prejudice to the assessee who may be deprived of deductions which may be legitimately due to him without any notice, without any hearing and without any chance being given to him of producing evidence in support of the claim, however legitimate it may be. It would also entail for the assessee a denial of a right of refund, if any, under Section 143(1)(a) and would further entail additional tax under Section 143(1A). There is no warrant for such an interpretation which is contrary to the express terms of Section 143(1)(a)."
10. In the light of the aforesaid legal position, could a credit entry of interest received from the employees in the profit and loss account of the assessee-society which is engaged in the business of advancing credits to its members lead to a prima facie inference that it does not pertain to its banking business ? The answer, in our considered view, is in the negative. The matter needs to be enquired into and determined on the basis of the evidence. Further even if such an activity were to be held to be non-banking, it would have to be determined as to whether it has resulted in income or loss which would then need to be quantified to see the extent of deduction claimed under Section 80P(2)(a)(i) of the Act. Without such quantification, it could not be said whether the total deduction claimed by the assessee under Section 80P(2)(a)(i) of the Act also included deduction in respect of such a non-banking activity. In these circumstances, we are of the considered view that the disallowance made in the present case under Section 143(1)(a) of the Act was itself uncalled for. Once that is the position, the question sought to be referred for our consideration is merely of academic interest as whatever be the result on the merits, the disallowance made under Section 143(1)(a) of the Act cannot be sustained,
11. There is another angle also. It has been found as a fact by the Tribunal that the assessee-bank had borrowed money at interest rates up to 11 per cent., and had advanced loans to its staff members at a concessional rate. It is, therefore, evident that in the activity of advancing loans to the staff members, the interest paid on the money borrowed for this purpose would have to be set off against the interest-charged from the staff members. The net result in this activity would be loss. Thus, in the absence of any income from this activity, no deduction under Section 80P(2)(a)(i) could have been claimed. In view of this also, the question sought to be referred to us is merely of academic interest.
12. In view of the above, we hold that no referable question of law arises from the order of the Tribunal. The petition is, accordingly, dismissed.