Poonjar Service Co-Operative Bank Ltd. Vs ITO (Kerala High Court)
In Poonjar Service Co-Operative Bank Ltd. vs ITO, the Kerala High Court addressed the validity of an income tax assessment order for the assessment year 2018–19. The petitioner, a Primary Agricultural Credit Society (PACS), had challenged the assessment on the grounds that the Assessing Officer ignored the binding precedent set by the Supreme Court in Mavilayi Service Co-operative Bank Ltd. vs CIT. In that judgment, the Supreme Court clarified the interpretation of Section 80P(2) and (4) of the Income Tax Act, affirming that a PACS registered under the relevant co-operative statute is entitled to deductions under Section 80P, and that tax authorities are not permitted to question the statutory classification or deny benefits merely due to the presence of the word “Bank” in the society’s name. However, in the impugned assessment, the officer concluded that the petitioner did not qualify as a PACS and denied the deduction.
The learned Single Judge had earlier dismissed the writ petition on the ground that the petitioner had an alternative remedy through statutory appeal. On appeal, however, the Division Bench of the High Court held that ignoring a binding judgment of the Supreme Court constituted a legal error that could not be corrected merely through appellate remedies. The Bench emphasized that tax authorities are obligated to apply Supreme Court rulings, particularly in long-standing, contentious matters. As the assessment order was found to be inconsistent with the apex court’s settled position, it was quashed. The court directed the Assessing Officer to redo the assessment in accordance with law, after giving the assessee an opportunity to be heard, and complete the reassessment within three months. The court clarified that it had not expressed any opinion on the merits, which were left open for fresh consideration.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
The petitioner in W.P.(C).No.8878/2020 is the appellant before us, aggrieved by the judgment dated 30.4.2021 of the learned Single Judge that dismissed the writ petition. The brief facts necessary for disposal of the Writ Appeal are as follows:
Faced with an order of assessment for the year 2018-19 under the Income Tax Act [hereinafter referred to as the ‘IT Act’], the petitioner, who is stated to be a Primary Agricultural Credit Society, impugned the assessment order inter alia on the ground that, while completing the assessment, the Assessing Officer had completely ignored the directions issued by the Supreme Court in Mavilayi Service Co-operative Bank Ltd. and others v. Commissioner of Income Tax, Calicut and another – [2021 (1) KLT 485] that reversed a judgment of a Full Bench of this Court and outlined the manner in which the provisions of Section 80P (2) and (4) of the IT Act had to be interpreted while completing assessments of Primary Agricultural Credit Societies under the IT Act. In the writ petition, it was the case of the petitioner Society that the Assessing Authority had, in the impugned assessment order, despite referring to particular portions of the judgment of the Supreme Court referred above, proceeded to act directly in contravention thereto inter alia by finding that the petitioner’s claim for deduction under Section 80P of the IT Act could not be acceded to, since, the name of the petitioner Society had the word “Bank” included in it, and had further opined, based on the activities carried on by the petitioner Society, that it had ceased to have the characteristics of a Primary Agricultural Credit Society, which was a necessary pre-condition for claiming deduction under Section 80P. The learned counsel for the appellant would point out that the said findings of the Assessing Authority are against the judgment of the Supreme Court referred above, insofar as the Court has clearly held in the said judgment that, it is not for the Income Tax Authority to go behind the classification accorded to the Society under the Statute concerned, and further, that the mere mention of the word “Bank” in its name would not, without more, deprive a Primary Agricultural Credit Society of the benefit of deduction under Section 80P of the IT Act.
2. We note from the judgment of the learned Single Judge impugned before us that, although counsel for the petitioner had canvassed the aforesaid points before the learned Single Judge, the learned Single Judge dismissed the writ petition on the ground that the petitioner had an effective alternate remedy by way of an appeal before the First Appellate Authority under the IT Act. Indeed, it is also the case of the learned Standing counsel for the Income Tax Department that we should not disturb this finding of the learned Single Judge as the same is perfectly legal and cannot be faulted, in law. He also submits that the judgment of the Supreme Court in Mavilayi (Supra) was not available with the Assessing Officer and that he had referred to it only from the reply given by the assessee.
3. While, under normal circumstances, we would not have interfered with the said judgment of the learned Single Judge, inasmuch as this Court would ordinarily be loath to interfere with assessment orders unless they are vitiated by an error of jurisdiction or have been passed violating the rules of natural justice, we find that this is a case where the Assessing Authority has not applied the law as laid down by the Supreme Court on an issue that has been the subject matter of litigation for a considerable period of time. The reversal by the Supreme Court was itself of a judgment rendered by a Full Bench of this Court, which, in turn, had taken note of conflicting views expressed by Division Benches of this Court. When the law is finally settled by the Supreme Court in a contentious issue such as the one presented in the instant case, the said law has necessarily to be applied by the Assessing Authorities under the IT Act who are bound by it. It cannot be the stand of the Department that an assessee, who is aggrieved by an assessment order passed ignoring the binding judgment of the Supreme Court, has nevertheless an alternate remedy by way of an appeal before the First Appellate Authority under the Statute. An erroneous assessment occasioned by ignoring a binding judgment of the Supreme Court cannot be trivialized as an order against which an appellate remedy lies that would provide justice to an assessee.
4. We, therefore, set aside the judgment of the learned Single Judge, and also quash Ext.P11 assessment order in relation to the writ petitioner/assessee, and direct the 1st respondent Assessing Authority to re-do the assessment of the appellant Society for the assessment year 2018-19 under the IT Act afresh, after issuing notice to the appellant assessee and after hearing the assessee in the matter. We make it clear that we have not expressed any opinion on the merits of the matter and that all contentions on merits are left open to the assessee to canvass before the Assessing Authority at the time of hearing. The Assessing Authority shall endeavour to complete the assessment as directed, taking note of the judgment of the Supreme Court in Mavilayi (Supra) within an outer time limit of three months from the date of receipt of a copy of this judgment.
With the above direction, the Writ Appeal is disposed.
