Income Tax Appellate Tribunal - Pune
Maharashtra Arogya Mandal vs Income Tax Officer on 14 February, 2008
ORDER
Pramod Kumar, A.M.
1. These four appeals pertain to the same assessee were heard together and Involve a common legal issue on materially identical set of facts. As a matter of convenience, therefore, all the four appeals are being disposed of by way of this consolidated order:
2. The grievance raised by the assessee in all these four appeals is as follows:
On the facts and in law,--
1. The learned CIT(A) erred in confirming that the appellant trust had violated the provisions of Section 13(1)(d) because it had made deposits with Dr. Dada Gujar Co-operative Patsanstha Ltd. and as a consequence, it was not entitled to exemption under Section 11 of the Act.
2. The learned CIT(A) erred in holding that the deposits with Dr. Dada Gujar Co-operative Patsanstha Ltd were not covered under Section 11(5)(iii) and hence, the assessee trust had violated the provisions of Section 13(1)(d).
3. The learned CIT(A) failed to appreciate that
(a) The investment of funds in Patsanstha was not in violation of the provisions of Section 11(5) and Section 13(1)(d)
(b) The Patsanstha was a co-operative society engaged in the business of banking and thus, the investments were in accordance with the provisions of Section 11(5) and hence, there was no violation of Section 13(1)(d).
The short issue we are thus required to adjudicate is whether or not the deposits made by the assessee with Dr. Dada Gujar Co-operative Patsanstha Ltd. were covered by Section 11(5)(iii) of the IT Act, or not. It is so for the reason that in case we are to hold that these deposits were indeed covered by the provisions of Section 11(5)(iii), as learned representative agreed, it will follow that the provisions of Section 13(1)(d) were indeed complied with.
3. We may take note of some brief facts of the case. The assessee is a charitable trust registered under Section 12A of the IT Act, 1961. The assessee runs educational institutions, hostels, hospitals at various places in Pune. In the course of proceedings before the AO, it was noticed that the assessee had made investments in the form of fixed deposits with Dr. Dada Gujar Cooperative Patsanstha Ltd. The AO was of the view that these investments were in violation of provisions of Section 13(1)(d) since a deposit in a Patsanstha (credit society) cannot be said to be a mode specified under Section 11(5) of the Act. The assessee was thus called upon to show cause why, in view of assessee's investing money with the said Patsanstha (credit society), the income of the assessee trust not be brought to tax and it be held that the assessee has violated the provisions of Section 13(1)(d) of the Act. The assessee relied upon the judgment of Hon'ble Madras High Court in the case of SBI Staff Co-operative Society Ltd. v. ITO (1998) 144 CTR (Mad) 240 : (1998) 234 ITR 104 (Mad) to justify that Patsanstha (credit institution) is a co-operative society engaged in the business of banking and, therefore, the investment in the said Patsanstha (credit society) is covered by the provision of Section 11(5)(iii) of the Act. The AO brushed aside this contention and observed that "with due respect to the judgment of the Hon'ble Madras High Court, it may be mentioned that Patsanstha, where such investment is made by the trust, is not a co-operative society engaged in the business of banking since it is not governed by the provisions of Banking Regulation Act". A reference was made to the provisions of Banking Regulation Act. The AO concluded that the investment in the credit co-operative society is in violation of provisions of Section 13(1)(d) of the Act and, therefore, the assessee is not entitled to exemption under section. Accordingly, the income of the assessee was brought to tax by declining the exemption under Section 11 of the Act. Aggrieved by the action so taken by the AO, the assessee carried the matter in appeal before the CIT(A), but without any success. The CIT(A) reiterated the conclusions drawn by the AO. He approved the reasoning of the AO and added that Patsanstha which is the subject matter of the dispute does not find place under Section 11(5)(iii) of the Act. He also added that the legislature has used the expression 'cooperative society engaged in carrying on business of banking' in the company of the expression 'schedule bank'. According to the CIT(A) "this means that the co-operative society conducting the business of banking should be something similar to the scheduled bank if not exactly the same". He also added that 'co-operative bank' operated by co-operative society fits in the proper groove as it is something similar to the scheduled bank, but the same logic cannot be applied for 'Patsanstha'. In the opinion of the CIT(A) "a Patsanstha can at best be a credit society created for the benefit of its members, but taking and giving credit does not mean that the same is conducting banking business". The CIT(A) observed that the expression 'business of banking' is not defined in the IT Act and, therefore, it would be appropriate to fall back on the Banking Regulation Act to examine whether or not the Patsanstha i.e. credit society is not doing banking business. A reference was then made to the provisions of Section 80P(2)(a)(i) of the Act in support of the contention that carrying on the business of banking and providing credit facilities to its members are two different expressions with different connotations. The CIT(A) thus held that investment in Patsanstha (credit society) cannot be covered by the scope of Section 11(5)(iii) of the Act and, therefore, the AO was justified in invoking the provisions of Section 13(1)(d) to deny exemption claimed by the assessee. The action of the AO was thus confirmed and in fact fortified by the CIT(A). Not satisfied with the decision of the CIT(A) as well, the assessee is in further appeal before us.
4. We have heard the rival submissions, perused the material on record and duly considered the factual matrix of the case as also the applicable legal position.
5. Section 11(5) provides that forms and modes of investing or depositing the money referred to in Clause (b) of Sub-section (2) will be inter alia "deposit in any account with a scheduled bank or a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank)". By way of an Explanation it is provided that a scheduled bank will mean, apart from SBI and its subsidiaries etc., any other bank being a bank included in the Second Schedule to the RBI Act, 1934. The question as we have noted earlier to be adjudicated by us is whether a credit co-operative society (Patsanstha) is covered by the expression "co-operative society engaged in carrying on the business of banking" appearing in Section 11(5)(iii). The learned Counsel Shri Pathak's primary stand before us is that the issue is squarely covered by the decision of Hon'ble Madras High Court in the case of SBI Staff Co-operative Society Ltd. v. ITO (supra). The question before the Hon'ble High Court in the said case was whether or not a credit co-operative society engaged in the business of lending money to its members or accepting deposits or raising loans from financial institutions or banking institutions and advancing the same to its members can be said to be engaged in the business of banking or not. No doubt this question raised in the context of application of the Interest-tax Act, 1974 but what is material is that their Lordships had to adjudicate on the issue whether the co-operative society engaged in the business of accepting deposits from and lending money to its members can be said to be a co-operative society engaged in the business of banking or not. In this case the contention of the co-operative society was that it is not a banking institution and that provisions of Banking Regulation Act are not applicable to the co-operative society and, therefore, it cannot be taken as a credit institution on which the provisions of Interest-tax Act apply. Their lordships, on these facts noted that "it is true that with respect to cooperative societies, the provisions of Banking Regulation Act, 1949. have not been made applicable and they are not banks" but their Lordships added that the second limb of the section (i.e. co-operative society engaged in the business of banking) has to be given its meaning which would definitely mean that a co-operative society engaged in carrying on the business of banking falls within the definition of a credit institution." Their Lordships added that the terms contained in the definition section with respect to cooperative society has to be given full contextual meaning and it has got special significance and meaning. Their Lordships then emphatically stated that "a co-operative which undertakes the business of banking such as lending money to its members or accepting deposits or raising loans from financial or banking institutions and advancing the same to its members, is definitely engaged in the business of banking". In our considered view although these observations were made in the context of Interest-tax Act, since the expression which fell for consideration by their Lordships was exactly the same as used in the relevant provisions of IT Act before us, the decision of Hon'ble Madras High Court will be equally applicable in the present case. Once the Hon'ble High Court comes to a conclusion that a credit society engaged in the business of receiving monies from and lending monies to its members is to be treated as a co-operative society engaged in the business of banking, it cannot be open to us to decline the exemption under Section 11 on the ground that investments/deposits made by the assessee in a credit society engaged in the business of accepting deposits from and giving loans to its members are not covered by the scope of Section 11(5)(iii). The fact that is it a non-jurisdictional High Court does not make much difference because as held by the Hon'ble jurisdictional High Court in the case of CIT v. Smt. Godavaridevi Saraf even non-jurisdictional High Court's decision is binding on us in the absence of contrary decision by the jurisdictional High Court. The hierarchical system of Courts that we have in our country requires us to loyally follow the decisions of the higher tiers. In our considered view, the fact that this decision was taken in the context of Interest-tax Act does not alter the situation because what was considered and decided by their lordships, i.e. connotations of expression 'co-operative society engaged in the business of banking' and it is this expression which finds place in Section 11(5)(iii) as well.
6. Learned CIT(A) has raised an objection that since the expression 'cooperative society' finds place along with the expression 'a scheduled bank', the meaning of 'co-operative society engaged in the business of banking' must stand restricted to only such co-operative societies as are somewhat similar to banks, if not banks. We see no substance in this objection. In the case of SBI Employees Credit Cooperative Society (supra), it was note-worthy that in the relevant definition clause i.e. definition of "credit institution" under Section 2(5A), the expression 'co-operative society engaged in carrying on the business of banking' appeared along with the expression 'a banking company to which the Banking Regulation Act, 1949 applies. Yet their Lordships came to the conclusion that a credit society dealing with members only can be said to be in the business of banking. These two expressions are two distinct limbs of the definition and must be given meaning accordingly. The common thread, if at all be necessary, between the two expressions is the business of banking, which, in the esteemed opinion of the Hon'ble Madras High Court, includes business of giving loans to members only. Learned CIT(A) should have yielded to the higher wisdom of the higher tiers in the judicial system.
7. The learned Departmental Representative has also urged us to consider the intent of the legislature by taking into account a fact that it is only when public funds of the institutions, eligible to exemption under Section 11, are invested and deposited with the Government institutions or scheduled banks or such other safe investment places that the tax exemption is available, it is submitted that these credit societies are managed by few individuals and arc not actually meant for public good, the management is unfettered by the adequate supervisory control of the governmental machinery such as applicable for scheduled banks etc. The parking of funds in such credit cooperative societies could land public funds in jeopardy and put them at avoidable risk. The interpretation sought to be canvassed by the assessee is, therefore, said to be contrary to the legislative intent and we are urged to give due regard to the legislative intent and interpret the law in harmony with the same. According to the learned Departmental Representative, in accordance with the clear intent of the legislature, the institutions parking their funds in such credit societies should not be allowed to have benefit of tax exemption under Section 11. We are not impressed by this plea either. As are the famous words of Rowlett, J, "in a taxing Act one has to look at merely what is clearly said, There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used". Casus omissus, which broadly refers to the principle that a matter which has not been provided in the statute but should have been there, cannot be supplied by us as. to do so will be clearly beyond the call and scope of our duty which is only to interpret the law as it exists. As for the learned Departmental Representative's frequent references to the intent of legislative, a similar plea of the representative (assessee's representative in that case) was noted by a Co-ordinate Bench of this Tribunal in the case of Tata Tea Ltd. v. Jt. CIT as follows:
...has also relied upon the judgment of Hon'ble Supreme Court in the case of M. Pentiah v. Muddalla Veeramalappa which has taken note of, with approval, Lord Justice Denning's following' observations in the case of Seaford Court Estates Ltd. v. Asher (1949) 2 All ER 155 at p. 164:
...when a defect appears, a Judge cannot simply fold his hands and blame the draftsmanship. He must set out to work on the constructive task of finding the intention of Parliament and then he must supplement the written word so as to give "force and life" to the intent of legislature.... A Judge should ask himself the question how, if the makers of the Act had themselves come across this ruck in the texture of it they would have straightened it out? He must do as they would have done. A Judge must not alter the material of which the Act is woven, but he can and should iron out the creases'.
8. The Co-ordinate Bench then disposed of the said plea by observing as follows:
9. As for the Lord Denning's observations in the Seaford Court Estates Ltd. (supra), which have been heavily relied upon by the learned Counsel, we wish to make some observations. The House of Lords itself, in a later judgment in the matter of Magor & St. Meflons Rural District v. Newport Corporation (1951) 2 All ER 839, did not approve the proposition advanced by Lord Denning. It is interesting to note the articulate expressions of Lord Simonds, supporting the majority view and at p. 841 of All ER Vol. 2 (1951), unequivocally and categorically rejecting Lord Denning's theory on the relevance of intent of legislature:
My Lords, the criticism which I venture to make of the judgment of learned Lord Justice (Denning L.J.) is not directed at the connection he has reached. It is after all a trite saying that on questions of construe;,"' different minds may come to different conclusions.... But it is on the approach of Lord Justice to which is a question of construction and nothing else. I think it desirable to make some comment, for, at a time when so large a proportion of the cases that are brought before the Courts depend on the construction of modern statutes, it would not be right for this House of pass unnoticed the propositions that the learned Lord Justice lays down for the guidance of himself and presumably others....
...The part which is played in judicial interpretation of a statute by reference to the circumstances of its passing is too well-known to need restatement. The duty of the Court is to interpret the words that the legislature has used. Those words may be ambiguous, but even if they are, power and duty of the Court to venture outside them on a voyage of discovery are strictly limited; see, for instance, Assam Railway & Trading Co. Ltd. v. IRCs and particularly the observations of Lord Wright (1935) AC 458....
...What the legislature has not written the Court must write, and fill in the gaps. This proposition, which restates in a new form the view expressed by the Lord Justice in the earlier case of Seaford Court Estates Ltd. v. Asher (to which Lord Justice himself refers) cannot be supported.
...it appears to me to be naked usurpation of legislative function in the thin guise of interpretation and it is less justifiable when it is guesswork with what material the legislature would, if it had to discover the gap, have filled it in. If a gap is disclosed, the remedy lies in an Amending Act....
Lord Denning's aggressive definition of the power of the Courts, so far as question of casus omissus is concerned, was severely criticized by Lord Simonds and other law Lords in the above case. Lord Morton observed that 'These heroics are out of place" and pointed of Lord Tucker "Your Lordships would be acting in a legislative rather than judicial capacity of the view put forward by Denning L.J. were to prevail" (at p. 850). As observed in Cross Statutory Interpretation (second Edn., at p. 45), the current tendency among English Judges would appear to incline away from the Denning approach. These views are also echoed by Hon'ble Supreme Court of India from time to time. In the case of State of Kerala v. Methai Verghese , Hon'ble Supreme Court has taken a view that the Court cannot reframe the legislation for the very good reason that it has no power to legislate. In Jumma Masjid v. Kodiamaniandra , Hon'ble Supreme Court referred to, with approval, Lord Loreburn's observation, 'We are not entitled to read words into an Act of Parliament unless clear reasons for it is to be found within the four corners of the Act itself.' Vickers Sons & Maxim Ltd. v. Evans (1910) AC 444 (HL), at p. 445. Lord Simonds rejection of Denning's approach was cited, with approval, by Hon'ble Supreme Court in the case of Punjab Land & Development Corporation v. Presiding Officer .
9. We agree with the views, so stated by the Co-ordinate Bench. We thus decline to be drawn into the controversy about the intent of legislature which is not any way expressly set out anywhere. When plain words support the case of the assessee, we cannot decline him the relief on the ground that the relief, if given, will be contrary to the legislative intendment as perceived by the learned Departmental Representative.
10. As we part with the matter, we may mention that one of the pleas taken by learned Counsel for the assessee was that as soon as the assessee learned about controversy on application of Section 11(5)(iii) on the deposits with Patsanstha (credit Co-operative society), the assessee withdrew the monies from the same and deposited the monies with the institutions on which there were no doubts or controversies regarding eligibility under Section 11(5). It is contended that in the light of Hon'ble Delhi High Court's judgment on the identical set of facts, the exemption under Section 11 cannot be declined in such a situation.
11. However we see no need to deal with this aspect of the matter for the reasons that we have already held that deposits with Patsanstha (credit Co-operative society) are eligible investments under Section 11(5)(iii) of the Act. This aspect of the matter is thus academic in the present situation.
12. In the result, all the four appeals are allowed in the manner as indicated above.