High Court Of Allahabad
Farrukhabad Gramin Bank vs. Income Tax Officer
Section 147, 148
Asst. Year 1995-96 to 1997-98
R.K. Agrawal & Prakash Krishna, JJ.
Civil Misc. Writ Petn. No. 132 of 2002
23rd November, 2004
Counsel Appeared : Shakeel Ahmad, for the Petitioner : A.N. Mahajan, for the Respondent
JUDGMENT
Prakash Krishna, J. :
Challenging the validity of three notices issued under s. 148 of the IT Act for the asst. yrs. 199596, 1996-97 and 1997-98, the present writ petition has been filed.
2. The petitioner is a regional rural bank and is an incorporated body established on 29th March, 1976 under the provisions of s. 3(1) of the Regional Rural Bank Act, 1976. The shareholding of the petitioner are as follows : It was established mainly with a view to provide basic banking facility in the remote rural areas and to mobilize savings from rural masses. In the course of banking business, the petitioner made investment with the nationalized bank and financial institutions, etc., to earn income. The petitioner for the asst. yrs. 1995-96 to 1997-98 filed its IT return. The assessments were completed and the disclosed income in the returns were accepted by the IT Department. The assessing authority while passing the assessment order under s. 143(1) of the IT Act, 1961 (hereinafter referred to as the Act), granted exemption from tax on the income accrued from the investment. Presumably, it was treated as income attributable to the banking business under s. 80P of the Act.
The controversy arose subsequently when IT Department issued reassessment notices for all these three assessment years to reopen the assessment orders passed under s. 143(1)(a) of the Act and to reassess the income of the petitioner. The reasons given by the assessing authority namely, ITO, Ward-I, Farrukhabad is that the Supreme Court in the case of M.P. Co-operative Bank Limited vs. Addl. CIT (1996) 134 CTR (SC) 92 : (1996) 218 ITR 438 (SC), has held that only the income earned from banking business is exempt under s. 80P and the other income is chargeable to tax under the Act. Fortified with the aforesaid judgment of Supreme Court, the ITO formed reasons to believe that the investment income has escaped assessment for all these three years by reason of excess allowance of deduction under s. 80P of the Act. Challenging the validity of all these notices in the light of the reasons to believe, as recorded by the assessing authority, the present writ petition has been filed. Heard Sri Shakeel Ahmad, learned counsel for the petitioner and Sri A.N. Mahajan, learned standing counsel for the Revenue.
The petitioner submitted that reassessment notices in question are wholly arbitrary and without jurisdiction. The reasons recorded by the assessing authority to reopen the assessment legally do not give jurisdiction to him to issue reassessment notice as the apex Court in its subsequent judgment has reversed its earlier judgment, on which notices were issued. He placed reliance upon CIT vs. Karnataka State Coop. Apex Bank (2001) 169 CTR (SC) 486 : JT 2001 (7) SC 42. In contra, the learned counsel for the Department submitted that the day on which reassessment notices were issued, the assessing authority had validly exercised its jurisdiction to reopen the assessment, as the judgment of Supreme Court delivered in the case of M.P. Cooperative Bank Limited (supra) was holding the field. Subsequent overruling of the said judgment will not, in any way, affect the validity of reassessment notices. Apex Court in the case of CIT vs. Karnataka State Co-op. Apex Bank (supra) has held that any income derived by the assessee from the fund and placed with the State Bank of India or the Reserve Bank of India to enable it to carry on its banking business, is exempt by reason of s. 80P (2)(a)(i) of the Act. It has been held that placement of such fund being imperative for the purposes of carrying on banking business; the income derived therefrom shall be the income from the assessee’s business. There is nothing in the phraseology of that provision which makes it applicable only to the income derived from the circulating capital. The apex Court in the aforesaid judgment has subsequently overruled its earlier judgment given in the case of M.P. Co-operative Bank Ltd. (supra) with the observation that it does not set down the correct law and the law is as it has been put by it in the case of CIT vs. Karnataka State Co-op. Bank (supra). This legal position was not disputed by the learned standing counsel for the Revenue.
If that is so, the position which emerges from the above discussion, is that very foundation of the notices under s. 148 of the Act has totally disappeared. It is not open to the Department to contend that only banking business is exempt under s. 80P of the Act and the investment income is not exempt. Faced with this situation, learned counsel for the respondent submitted that the day on which notices under s. 148 of the Act were issued, the assessing authority validly assumed jurisdiction to initiate reassessment proceeding in view of the then prevailing law, as interpreted by Supreme Court in the case of M.P. Co-operative Bank Ltd. (supra) and the initiation of proceeding was valid. Elaborating the argument, it was submitted that no case for interference under Art. 226 of the Constitution of India, by this Court, has been made out, notwithstanding the fact that the earlier judgment of Supreme Court has been overruled by it. He has relied upon the following decisions : (1) Poonjabhai Vanmalidas & Sons vs. CIT (1974) 95 ITR 251 (Guj)(FB) (2) CIT vs. Maneklal Harilal Spinning & Manufacturing Co. Ltd. (1977) 106 ITR 24 (Guj) (3) CIT vs. Ahmedabad Manufacturing & Calico Printing Co. 1976 CTR (Guj) 214 : (1977) 106 ITR 159 (Guj) (4) Chandi Ram vs. ITO (1996) 131 CTR (Raj) 256 : (1997) 225 ITR 611 (Raj) in which it has been held that once notice has been issued under s. 147/148, the subsequent development would not invalidate the said notice as there may be other item of income which can be brought to tax under reassessment proceeding. However, a Division Bench of this Court in Ram Singh & Sons vs. State of U.P. & Ors. 1980 UPTC 1128 in a case arising out under s. 21 of U.P. Trade Tax Act, which relates to the assessment of escaped assessment, has held that where the very basis of the notice issued under s. 21 consequent upon overruling of the decision by apex Court has disappeared, the proceeding in pursuance of reassessment notice, cannot go. We are in respectful agreement with the view taken by this Court, which is otherwise binding on us.
10. Even otherwise, this argument overlooks the well-established principles of law that the interpretation put by a Court on an enactment is operative from the date of the commencement of the Act. To put it differently, the interpretation of law operates retrospectively, the interpretation given by a Court, holds field not from the date of pronouncement of judgment but with effect from the date of enforcement of the concerned provision. Explaining the law, the Supreme Court in the famous case of Golakh Nath vs. State of Punjab AIR 1967 SC 1643 para 44A, has observed as follows : “44A. There are two doctrines familiar to American Jurisprudence, one is described as Blackstonian theory and the other as “prospective overruling”, which may have some relevance to the present enquiry. Blackstone in his Commentaries, 69 (15th Edn. 1809) stated the common law rule that the duty of the Court was “not to pronounce a new rule but to maintain and expound the old one”. It means, the Judge does not make law but only discovers or finds the true law. The law has always been the same. If a subsequent decision changes the earlier one, the latter decision does make law but only discovers the correct principle of law. The result of this view is that it is necessarily retrospective in operation.”
11. The Supreme Court in the case of Ganga Sugar Corporation vs. State of U.P. AIR 1980 SC 286 (Constitution Bench) has held that the law laid down by it is binding under Art. 141 of the Constitution of India not only between the litigants, but law is declaratory in the nation.
12. Sri A.N. Mahajan, learned standing counsel has placed reliance upon the judgment of Supreme Court in the case of G.K.N. Driveshafts (India) Ltd. vs. ITO (2003) 179 CTR (SC) 11 : (2003) 259 ITR 19 (SC), and appealed to us not to entertain the present writ petition. The said case was decided on its own facts. The High Court refused to examine the validity of the notices issued under s. 148 of the Act as it took a view that all objections in its reply to the notice can be raised by the petitioner before the assessing authority in the course of reassessment proceeding. The writ petition was dismissed as premature. Supreme Court, in appeal, confirmed the order of High Court with the observation that when notices under s. 148 of the Act has been issued, the proper course of action for the noticee is to file return and if he so desires, to ask reasons for issuing notices. On receipt of reasons, the noticee is entitled to file objection to the issuance of notice and the assessing authority is bound to dispose of the same by passing a speaking order. In that view of the matter, the apex Court dismissed the appeal. In the case in hand, the assessing authority has furnished reasons and the petitioner has also filed return. The reasons furnished by the assessing authority do not on their face value hold good for reopening the concluded assessment in view of the subsequent pronouncement by Supreme Court. The said pronouncement shall be deemed to be operative by fiction of law on the date of assumption of jurisdiction by the assessing authority and the day on which he formed belief that the income has escaped assessment. No useful purpose is going to be served by relegating the petitioner to contest the proceedings before the Departmental authorities. On undisputed facts, the proceedings under s. 147 of the Act under law cannot be sustained.
13. No other point was pressed. In view of the above discussion, we are of the opinion that reassessment notices under s. 148 of the Act for the assessment years involved in the present writ petition are totally without jurisdiction and they are hereby quashed.
14. In the result, writ petition succeeds and is allowed. The reassessment notices issued under s. 148 of the Act, filed as Annex.-2, all dt. 30th Dec., 1999 for the asst. yrs. 1995-96, 1996-97 and 1997-98 are hereby quashed. However, there shall be no order as to costs.
[Citation : 273 ITR 113]
