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Petitioner: ASSAM CO-OPERATIVE APEX BANK LTD. VS Respondent: COMMISSIONER OF INCOME-TAX, ASSAM
1980 P T D 426
1980 P T D 426
[Gauhati (India)]
Before M. C. Pathak, C. J. and D. Pathak, J
ASSAM CO‑OPERATIVE APEX BANK LTD.
versus
COMMISSIONER OF INCOME‑TAX, ASSAM
Income‑tax Reference No. 33 of 1974, decided on 18th August, 1976.
Income-tax Act (XI of 1922)--
‑‑ S. 33(1)-‑Appeal to Tribunal Commissioner not preferring any appeal against order of Appellate Assistant Commissioner nor filling any cross‑objection in an appeal by assessee‑Held: Tribunal in such case, w exercise of appellate power cannot pass an order enhancing tax liability of assessee‑Department also cannot be allowed to agitate matters not subject‑matter of appeal before Tribunal‑Tribunal cannot, by remand order, direct Appellate Assistant Commissioner to do something which would go adversely to assessee by way of enhancing tax liability‑Indian Income‑tax Act, 1961, Ss. 80‑P (2) & 254.
Assam Co‑operative Apex Bank Ltd. v. C. 1. T. (1978) 112 1 T R 87 (Gau.); Balasubba Setty. (Pathikonda) v. C. I. T. (1967) 65 1 T R 252 (Mys,); C. I. T. v. Chenniappa Mudaliar (S.) (1969) 74 1 T R 41 (S C); Hukumchand Mills Ltd, v. C. I. T. (1967) 63 I T R 232 (S C); Motor Union Insurance Co Ltd, v. C. I. T. (1945) 13 I T R 272 (Bom.); Puranmal Radhakishan & Co. v. C. I. T. (1957) 31 I T R 294 (Bom.) and Rawaswamy Iyengar (V.) v. C. I. T . (1960) 40 I T R 377 (Mad.) ref.
K. Roy and Sarma for the Assessee.
G. K. Talukdar and D. K. Talukdar for the Commissioner.
JUDGMENT
M. C. PAATHAK, C. J. -‑The following question of law has been referred by the Income‑tax Appellate Tribunal, Gauhati Bench (hereinafter referred to as "the Tribunal"), under section 256(1) of the Income‑tax Act, 1961 (hereinafter referred to as "the Act")
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in setting aside the consolidated order dated March 1970, of the Appellate Assistant Commissioner of Income‑tax, Shillong Range, Shillong relating to the assessments for the assessment years 1967‑68, 1968‑69 and 1969‑70, with a direction to give a finding on the point as to what amount out of the securities is the stock‑in trade, or circulating capital of the assessee, the Assam Co‑operative Apex Ban". Ltd. and which amount is the capital investment of the assessee bank?
The facts of the case are briefly stated below. The relevant assessment years are 1967‑68, 1968‑69 and 1969‑70.
The assessee, Assam Co‑operative Apex Bank Ltd., is a bank registered under the Assam Co‑operative Societies Act, carrying on banking or allied business. During the assessment proceeding for the assessment year 1967‑68, it was submitted on behalf of the assessee before the Income-tax Officer that the assessee's sole income including interest on securities was in the natures of business income and therefore, it was totally exempt under section 80‑P (2)(a)(i) of the Act. The Income‑tax Officer found from the records that the assessee was assessed only on interest on securities during the earlier years holding the opinion that the securities were not trading assets of the assessee, and, therefore, the income in question was riot business income.
Against orders of the Income‑tax Officer in the preceding years, the assessee filed revision petitions under section 264 of the Act, before the Commissioner of Income‑tax who disposed of the petitions of the assessee on April 19, 1969, confirming the orders of the Income‑tax Officer.
The assessee thereafter moved the High Court in Civil Rules Nos. 799 to 809 of 1969 (Assam Co‑operative Apex Bank Ltd. v. Commissioner of Income-tax (1978) 112 I T R 87 (Gau.). against the orders of the Commissioner passed on the revision petitions. The said Civil Rules were pending for decision at the relevant time. The income‑tax Officer took the view that unless the Commissioner's said orders acres set aside by the High Court, the Commissioner's orders stand and on that basis the Income‑tax Officer held that the income derived by the assessee as interest on securities were to be treated as taxable income under section 18 of the Act. The Income‑tax Officer assessed the total income of the assessee at Rs. 18,54,132. The Income‑tax Officer in the assessment order for the assessment year 1967‑68 has observed that the assessee; being a co-operative society, its income is exempt except Rs. 3,61,503 which is the interest on securities.
For the assessment year 1968.69, on the same grounds the Income‑tax Officer assessed the taxable income of the assessee at Rs. 4,38,427 as interest on securities. On similar grounds for the assessment year 1969‑70, the Income-tax Officer assessed the taxable income of the assessee at Rs. 545,372 as interest on securities.
The preferred appeals before the Appellate Assistant Commissioner against the assessment orders of the Income‑tax Officer relating to the aforesaid three assessment years. By his consolidated order dated March 31, 1970, the Appellate Assistant Commissioner rejected the three appeals and confirmed the assessment orders passed by the Income‑tax Officer. From the order of the Appellate Assistant Commissioner it is found that the only point raised before him was whether the income derived by the assessee from certain Government securities were assessable to tax or not. The Appellate Assistant Commissioner has observed that such income from Government securities amounted to Rs. 3,61,503 for the assessment year 1967‑68, Rs. 4,38,427 for the assessment year 1968‑69 and Rs. 5,45,372 for the assessment year 1969‑70.
The assessee thereafter filed three appeals before the Tribunal from the said consolidated order of the Appellate Assistant Commissioner, the appeals being numbered as 1. T. A. Nos. 2092 (Gau), 2093 (Gau) and 2094 (Gau) of 1970‑71. The ground taken in these appeals is that the interest from the Government securities is business income of the assessee, and, therefore, it as exempt from taxation under section 80‑P (2) (a) (i) of the Act.
The Tribunal by its consolidated order dated August 29, 1973, passed in the three Appea1s set aside the consolidated order dated March 31. 1970, passed by the Appellate Commissioner relating to the assessment years 1967‑68, 1968‑69 and 1969‑70 and remanded the three appeals to the Appellate Assistant Commissioner for disposal in accordance with law and in the light of the directions given in the Tribunal's judgment after giving opportunity to both the parties of being heard. In its order the Tribunal has held that the investment in securities under section 24(2‑A) of the Banking Regulation Act, 1949, is an investment in securities for the purpose of banking business, that the investment in shares cannot be said to be easily realisable amounts and, therefore, they cannot be held to be stock‑in‑trade and that the amount of the reserve fund which is invested in securities may he said to be sterilised and blocked and it cannot be withdrawn at the will of the assessee bank and, therefore, not easily realisable securities. Th. Tribunal has further observed that the circumstances that the borrowing from the State Bank of India have been increasing and thus the borrowings are invested in securities instead of recovering the amounts of securities which show that all the amounts invested in securities cannot be said to be stock -in‑trade or the circulating capital of the assessee. That the Income‑tax Officer and the Appellate Assistant Commissioner have only held that the investment in securities cannot be said to be stock‑in‑trade of the assessee bank, but they have not given a decision on these lines. Under the circum stances, the Tribunal finds, the Appellate Assistant Commissioner is required to give a finding as to which amount out of the investment in securities is the stock‑in‑trade or circulating capital of the assessee and which of the amounts can be treated as capital investment of the assessee. The Tribunal has further observed that the assessee argued the case before the Income‑tax Officer and the Appellate Assistant Commissioner on the understanding that all the investments have to be taken as stock‑in‑trade or circulating capital of the assessee. As it was not possible for the Tribunal to decide this question of fact without the findings given by the Income‑tax Officer or the Appellate Assistant Commissioner, the Tribunal thought it proper to remand the appeals to the Appellate Assistant Commissioner after setting aside the order of the Appellate Assistant Commissioner.
On the above facts the aforesaid question of law has been referred.
We have heard Mr. Kalyan Ray, the learned counsel for the petitioner assessee, and Mr. G. K. Talukdar, the learned standing counsel for the department, at length. We have also gone through the statement of the case as well as the elaborate order of the Tribunal.
As observed hereinabove in the relevant assessment years 1967‑68, 1968‑69 and 1969‑70, the assessee, the Assam Co‑operative Apex Bank Ltd., is a co operative society which comes within the definition as given in section 2(19) of the Act. That being so, the deduction as mentioned in section 80‑P of the Act may be available to the assessee if, of course, the requirements of that section are fulfilled in the case of the assessee.
The relevant portion of section 80‑P of the Act reads as follows
"80‑P. Deduction in respect of income of co‑operative societies.‑‑(1) Where in the case of an assessee being a co‑operative society, the gross total income includes any income referred to in subsection (2), there shall be deducted, in accordance with and subject to the provi sions of this section, the sums specified in subsection (2), in computing the total income of the assessee.
(2) The sums referred to in subsection (1) shall be the following, namely
(a) in the case of a co‑operative society engaged in
(i) carrying on in business of banking car providing credit facilities to its members, or..
the whole of the amount of profits and gains of business attributable to any one or more of such activities." .
In the assessment order passed by the Income‑tax Officer for the assessment year 1967‑68 (vide Annexure "A" at page 22 of the paper book) it has been observed as follows: -
"In response to notice under section 143(3) Shri B. K. Sen, Additional Secretary, appears and states that the bank's sole income including interest on securities is in the nature of business income and this is totally exempt under section 80‑P (2) (a) (i) of the Income‑tax Act, 1961. It is found from the records that the assessee has been assessed only on interests on securities in earlier years holding the opinion that the securities were not a trading asset of the bank and that income; therefore, was not business income. Against the I. T. O's orders the assessee had filed revision petitions under section 264 of the I. T. Act, 1961, before the Commissioner of Income‑tax, Assam, etc. The Commissioner of Income‑tax has disposed of the petition of 19‑4‑1969 confirming the action of the I. T. O. Shri B. K. Sen states that not having been satisfied with the decision of the C. I. T. they filed writ petitions before the Hon'ble High Court, Gauhati, and the same are pending for decision. Unless there is any otherwise decision of the Hon'ble High Court, Gauhati, the earlier decision of the Deptt. still stands for the assessment in question. Hence, the income derived by the bank as interest on securities will have to be treated as taxable income under section 1S of the I. T. Act. The books of accounts produced are examined and the case is discussed. Total income is computed as below:
Rs.
Net profit as per a/c. 17,81,874
Addl. Income‑tax Rs. 64,127
Surcharge Rs. 9,200
74,327 . 18,56,201 Less: Interest on Treasury savings a/c. 2,069
. Total income Rs. 18,54,132
Being a co‑operative society, income is exempt except Rs. 3,61,503 being the interest on securities. Give tax credit of Rs. 74,327 deducted at source."
Thus, from the assessment order of the Income‑tax Officer for the assessment year 1967‑68, it is found that in the opinion of the Income‑tax Officer, as in the earlier years, interest on securities was taxable as it was not business income.
Secondly, it is found from the order of the Income‑tax Officer that the particular assessee approached the Commissioner of Income‑tax in revision sander section 264 of the Act against the assessment of tax on interest on securities for the earlier years and the Commissioner rejected the revision petitions and upheld the order of the Income‑tax Officer for the earlier years, alert though the assessee had moved the High Court: against the orders of the Commissioner of Income‑tax passed on the revisions petition and up till then the cases before the High Court were not disposed of, the orders of the Commissioner of Income-tax stood valid and the Income‑tax Officer accordingly followed the orders of the Commissioner of Income-tax and assessed tax on interest on securities for the relevant assessment year.
Thirdly, from the order of the Income‑tax Officer it is very clear that the assessee being a co‑operative society, its other incomes are exempt except Rs. 3,61,503 which was the interest on securities and that amount wins only taxed for that assessment year.
Similarly, for the assessment year 1968‑69, on the reasoning given in the assessment order for the assessment year 1967‑68, the Income‑tax Officer assessed to tax the interest on securities and the total taxable income of the assessment year 1968‑69 was assessed at Rs. 4,38,427.
Similarly, for the assessment year 1969‑70, the Income‑tax Officer, relying on the reasonings given in his assessment order for the assessment year 1967‑68, brought the interest on securities to tax arid the taxable income was assessed at Rs. 5,45,372 for the assessment year 1969‑70.
It is, therefore very much clear that the assessee was affected by the assessment orders of the Income tax Officer for the three relevant assessment years relating to the tax on interest on sec: rides only.
Thereafter, the assessee preferred three appeals before the Appellate Assistant Commissioner of Income‑tax with respect to the three assessment orders and these appeals were numbered as Appeals Nos. 167‑K & J, 168‑K & J and 169‑K & J of 1969‑70. By a consolidated order dated March 31, 1970, the Appellate Assistant Commissioner dismissed all the three appeals and confirmed the assessments for all three appeals and confirmed the assessment for all three assessment years as made by the Income‑tax Officer.
In his order, the Appellate Assistant Commissioner has in his turn also relied on the decision of the Commissioner of Income‑tax in this respect and he has observed as follows: ‑
"It is settled law that an appellant claiming an exemption under a provision of law must prove that its case is covered by any particular provision. The onus in this case was, therefore, clearly on the bank to prove that the securities in question were held as trading assets. Not having done that and having relied upon purely legal proposition which is clearly untenable, I do not see how can the appellant claim any exemption under section 81. The learned Commissioner of Income‑tax in his order under section 264 has given adequate reasons for holding that the securities were not a part or the stock‑in‑trade. The Income‑tax Officer 'ha; followed the Commissioner of Income‑tax's decision. It was clear therefore, that it was the appellant's duty to point out the facts which would negative the findings of fact by the Commissioner of Income‑tax. This, as mentioned, has not been done"
Thereafter discussing certain matters, the Appellate Assistant Commissioner has observed as follows:
"I am, therefore, satisfied that on the facts of the case; the appellant has not proved that the securities in question were held as stock‑in‑trade and trading assets."
Thus, it is quite clear that what was upheld by the Appellate Assistant Commissioner is the Income‑tax Officer's order determining taxable income for the assessment year 1967‑68 at Its. 3,61,503, for the assessment year 1968-69 at Rs. 4,38,427 and for the assessment year 1969‑70 at Rs. 5,45,372 and all these incomes were the interest on securities.
Against the appellate order of the Appellate Assistant Commissioner the assessee preferred three appeals before the Tribunal, which were numbered as I. T. A. Nos. 2092 (Gau), 2093 (Gua) and 2094 (Gau) of 1970‑71, and by a consolidated order dated August 29, 1973, the Tribunal set aside the order of the Appellate Assistant Commissioner and remanded the appeals as aforesaid.
It may be observed here that against the order of the Appellate Assistant Commissioner, the Commissioner of Income‑tax did not file any appeal nor any cross‑objection. That being the position, the Tribunal's order must confine to the order of the Appellate Assistant Commissioner against which the assessee had come on appeal before it.
The question of law referred for decision raises two points, namely, (i) whether the Tribunal was justified in setting aside the consolidated order of the Appellate Assistant Commissioner of income‑tax relating to the assessment years 1967‑68, 1968‑69 and 1969‑70, and (ii) whether after setting aside the Appellate Assistant Commissioner's order the Tribunal was justified in remanding the appeals to the Appellate Assistant Commissioner to give a finding on the points as to who: amount of the securities is the stock‑in‑trade or circulating capital of the assessee‑bank and which amount is the capital in vestment of the assessee‑Bank.
That Income‑tax Officer brought the interest on securities to tax bolding that it was not the business income of the assessee. In repelling the contentions of the assessee the Income‑tax Officer relied on the decision of the Commissioner of Income‑tax passed on the revision petitions for earlier years. Similarly, the Appellate Assistant Commissioner also relied on the decision 1f the Commissioner of Income‑tax on this point, Commissioner of Income tax's orders for the earlier years were challenged by the assessee in Civil Rules Nos. 799 to 809 of 1969, Assam Co‑operative Apex Bank Ltd. v. Commissioner of Income‑tax (1978) 112 I T R 87 (Gau.), and these Civil Rules were disposed of by the High Court on September 25, 1973.
In its judgment in Civil Rules Nos. 794 to 809 of 1969, this Court has observed as follows ((1978) 112 I T R 87 (Gau.)]‑
The petitioner's case, in brief, is that the securities in question are trading assets and part of its circulating capital arid accordingly any interest received on deposits of swab securities would be trading income arid as such exempt from taxation under the aforesaid provision.
The Commissioner in his order under section 264 of the Act, how ever, held that the petitioner was not entitled to any exemption tinder section 81 of the Act on the ground that the petitioner was not a dealer in securities . .
The test that was applied by the Commissioner was that unless t1ic petitioner was a dealer in securities, it would not get the benefit of section 81 of the Act, The Commissioner also had held that in no circumstances could income from investment on securities be regarded as income from business for any purposes of the Act . . . . . .
From the decisions cited above, it would clearly emerge that it is not neces sary that the petitioner need have been primarily or exclusively a deal: in securities, to order to qualify for the exemption under section 81 of the Act. All that is necessary for the petitioner to show is that the interest was received from Government securities, which had been invested by the co‑operative bank as its trading assets, in other words, that the securities represented the funds of the petitioner, which were part of its circulating capital . . . . . .
In the instant case, the petitioner had invested part of its funds under bye‑law 4(h) of its rules. This reads as under:
'To buy and jell, for legitimate investment of the surplus funds, securities of the Government of India or the Government of Assam, or other securities specified in clauses (a), (b), (c) kind (d) of section 20 of the Indian Trusts Act and to act as agents of co‑operative societies for the purchase and sale of shares and securities.'
The petitioner's contention before the Commissioner as well as before this Court has been that the securities are the trading assets of the bank and that they held the said securities as part of its banking business as provided and permitted under the aforesaid bye‑law 4(h) . . . . .
However, the Commissioner came to a clear finding what the interest on securities could be held to have been related to the society's banking business. Nevertheless, he found that since the petitioner was not dealing in securities and since the profit and loss was not disclosed in a. statement as such dealer in securities, the petitioner was not entitled to the benefit under the aforesaid section of the Act.
In our opinion, the Commissioner's finding that only a dealer in securities is entitled to the benefit under section 81 and that a co‑operative society, which has invested its available funds in securities and has received some interest thereon, is not entitled to any exemption in regard to such interest under the section, is clearly wrong. We are also of the opinion that toe Commissioner's finding that 'in no circumstances can the investment and securities be regarded as income from business, is also clearly wrong in view of the decisions cited above .........
The learned standing counsel submitted that all these factors including bye‑laws (4)(h) and 4(d) were taken into consideration by the Commis sioner before he came to his finding that the investments did not represent the petitioner's trading assets. We, however, cannot subscribe to his submission in view of the fact that the Commissioner did come to a clear finding that the interest on securities was relatable to the society's banking business. We also find that the Commissioner's entire approach to the matter was of the basis whether the petitioner was a dealer in securities or not ..On the contrary, we find that the Commissioner accepted the contention of the petitioner that the securities represented his trading assets, but nevertheless he found that since the petitioner was not a dealer in securities, it was not entitled to the exemptions under section 81 of the Act."
Having thus observed, inter alia, this Court ordered as follows [See (1978) 112 I T R 87, at page 99];
"In the result, the demand notice issued by the Income‑tax Officer, A Ward, Shillong, on the petitioner in respect of each of the eleven assessment years concerned, which is impugned in these petitions, is set aside, as prayed for by the learned counsel for the petitioner, who, it may be stated, does not seek any other relief."
Going through the decision of this Court in Civil Rules No&. 799 to 809 of 1969 Assam Co‑operative Apex Bank Ltd. v. Commissioner of Income‑tax, we find that the Commissioner's order in which the Income‑tax Officer relied in making the assessments in question and also on the basis of which the Appellate Assistant Commissioner rejected the appeals preferred by the assessee and upheld the assessment orders of the Income‑tax Officer, has been set aside by the High Court, and, therefore, it does not exist.
That being the position, the very basis of assessment, that is, the Commissioner's order, to tax the interest on securities of the particular assessee for the relevant assessment years, as made by the Income.‑tax Officer, is for all practical purposes removed. So also the basis of the appellate order of the Appellate Assistant Commissioner, by which the assessment orders of the Income‑tax Officer were upheld, has been, in fact removed.
It may be mentioned here that original section 81 of the Act has subsequently been amended as section 80‑P of the Act.
In paragraph 3 of the Tribunal's order it has been observed as follows:
"The Appellate Assistant Commissioner has pointed out that the assessee is a co‑operative society carrying on business of banking. From the Order of the Appellate Assistant Commissioner, it is also evident that the only pout at issue before him was whether the income derived by the assessee from certain Government securities are assessable to tax or not. He has also clearly pointed out that such income amounted to Rs. 3,61,503, for the assessment year 1967‑68, Rs. 4,38,427 for the a38essment year 1968‑69 and Rs. 5,45,382, for the assessment year 1969‑70."
Thus, it is quite clear from the order of the Tribunal itself that the aforesaid three amounts of income related to income derived by the assessee from certain Government securities, or in other words, interest on Government securities. These three amounts of income also were under consideration before the Income‑tax Officer, as it is quite clear from the assessment orders for the relevant…
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