1 IN HIGH COURT OF JUDICATURE AT MADRAS DATED: 28.10.2014 CORAM HON'BLE MR.JUSTICE T.S.SIVAGNANAM W.P.Nos.26083 to 26087 of 2014 Vellore District Government Employees Co-operative Society, Rep. by its Secretary, Having Office at 49, Bharathiar Salai, Fort Round, Vellore-632 001. ... Petitioner in all Writ Petitions -vs- 1. Assistant Commissioner of Income Tax, Circle-I, Vellore, Vellore District-632 001. 2. Commissioner of Income Tax (Appeals)-III, 121, Nungambakkam High Road, Chennai-600 034. 3. Commissioner of Income Tax-VIII 6th Floor, Kannamai Buildings, 611, Anna Salai, Chennai-600 006. ... Respondents in all Writ Petitions Common Prayer: Writ petitions are filed under Article 226 of Constitution of India for issuance of Writ of Certiorarified Mandamus, calling for records of 1st respondent culminating order of demand made on 29.01.2014 served on petitioner on 21.03.2014 with reference to Assessment years 2007-2008, 2008-2009, 2009-2010, 2 2010-2011 and 2011-2012, quash same and consequently direct 2nd respondent to consider appeal filed by petitioner on 26.03.2014 under provisions of Income Tax Act. For Petitioner : Ms.G.Thilakavathi For Respondents : Mr.Pramod Kumar Chopra & Mr.P.Rajkumar Jhabakh ***** COMMONORDER By consent of learned counsel on either side, these writ petitions are taken up for final disposal at stage of admission itself. 2. Heard Ms.G.Thilakavathi, learned counsel appearing for petitioner and Mr.Pramod Kumar Chopra along with Mr.P.Rajkumar Jhabakh, learned counsel for respondents. 3. petitioner is Co-operative Society, registered under provisions of Tamil Nadu Co-operative Societies Act, 1983 (in short Act ) and it derives income from carrying on business of Banking or providing credit facilities to its members, who are employees of State Government. Society has also been subjected 3 to Co-operative Audit as contemplated under Act. petitioner is assessed to tax on files of Assistant Commissioner of Income-Tax, Circle-I / 1st respondent. 4. issue involved in these writ petitions relates to five assessment years from 2007-2008 to 2011-2012. Since scope of these writ petitions is narrow, it may not be necessary to go into factual details of each and every assessment order and pattern of orders of assessment for 5 years are also identical. 5. assessments were completed under Section 143(3) r/w Section 147 of Income Tax Act, disallowing claim of deduction under Section 80P(2)(a)(i) of Income Tax Act, on ground that Co-operative Society provides credit facility to its members and petitioner's Society is carrying on business of banking and hence, not eligible for deduction under Section 80P(4) of Income Tax Act. Aggrieved by disallowance, petitioner Society preferred appeals before Commissioner of Income Tax (Appeals)-III, Chennai on 26.03.2014 and same is pending. In said appeal, petitioner, in 4 support of its contention that credit co-operative society is different from co-operative Bank and is eligible for deduction under Section 80P(2)(a)(i) of Income Tax Act, 1961, placed reliance on decision of Gujarat High Court in case of CIT vs. Jafari Momin Vikas Co- operative Credit Society Ltd., (Guj), reported in (2014) 362 ITR 331 (Guj). 6. In meanwhile, petitioner also filed stay petition before Commissioner of Income Tax VIII, Chennai / 3rd respondent for stay of collection of demand on 05.09.2014, on ground that appeal has been filed against disallowance made in assessment orders. It was also stated in said application that inspite of petitioner's representation before Assessing Officer for stay of demand of collection of tax based on Gujarat High Court's judgment and also CBDT instruction No.1914 dated 02.12.1993, same were not taken into consideration by said Officer. In CBDT instruction No.1914 dated 02.12.1993, it has been clearly mentioned that Assessing Officer could consider stay of demand for collection of tax in following cases: 5 i) Dispute has arisen due to interpretation of law by AO and during pendency of first appeal; ii) if demand in dispute relate to issues, which have been decided in favour of assessee by appellate authority. 7. However, Commissioner of Income Tax VIII / 3rd respondent herein, vide order dated 18.09.2014, observed that stay of demand cannot be granted unless there is case of financial stringency and also filing of appeal before CIT (A) cannot be valid ground for deferring recovery proceedings, which order was followed by proceedings of Joint Commissioner of Income Tax, Vellore Range, Vellore dated 11.09.2014, wherein petitioner was directed to pay entire demand immediately stating that mere filing of appeal is not excuse for non payment of tax dues and if appeal is decided in favour of petitioner, department would not hold refund due to them as result of order giving effect to appellate order and same would be granted to petitioner with interest as per provisions of Income Tax Act, 1961. 6 8. petitioner contended that vide Finance Act, 2006 with effect from 01.04.2007, benefit of deduction available to certain co- operative banks were withdrawn by insertion of new sub-section(4) to provide that provisions of this section will not apply in relation to any co-operative bank other than primary agricultural credit society or primary co-operative agricultural and rural development bank. petitioner relied upon circular issued by Central Board of Direct Taxes (CBDT) under Circular No.6 of 2010 dated 20.09.2010, wherein it was stated that Section 80P was amended by Finance Act, 2006 with effect from 01.04.2007 introducing Sub-section (4), which lays down specifically that provisions of Section 80P will not apply to any co- operative bank other than primary agricultural credit society or Primary Co-operative Agricultural and Rural Development Bank. Accordingly, deduction under Section 80P was no more available to any Regional Rural Bank from assessment year 2007-2008 onwards. It was contended that expressions co-operative bank , primary agricultural credit society have been taken as per definition given in Part V of Banking Regulation Act, 1949 (10 of 1949) and primary co- operative agricultural and rural development bank have also been 7 defined in Act to bring clarity. petitioner placed reliance on decision of Gujarat High Court in case of CIT vs. Jafari Momin Vikas Co-operative Credit Society Ltd., (Guj), reported in (2014) 362 ITR 331 (Guj). petitioner pointed out that during course of assessment, petitioner has submitted that it is co-operative credit society, providing credit facilities to its members and not Bank under Banking Regulation Act. It does not have license to act as Bank and object of society is to help its members only and hence deduction under Section 80P(2)(a)(i) cannot be denied. By relying upon Section 5(b) of Banking Regulation Act, it was contended that petitioner Society is not Bank and they do not hold license as required under Section 22 of Banking Regulation Act. Therefore, it was reiterated that object of Society is to help its members on housing needs and hence, Section 80P(4) will not be applicable in case of petitioner. 9. petitioner placed reliance on clarification issued by CBDT, while granting stay of demand and reliance was also placed on Clause C to guidelines, more particularly Sub-Clauses (a) to (c). By placing reliance on above said clarification, it was submitted that 8 High Court of Gujarat in case of CIT vs. Jafari Momin Vikas Co- operative Credit Society Ltd., (supra) has held that Section 80P(4) applies only to co-operative bank and not to co-operative credit societies and submitted that said decision fully supports case of petitioner and therefore, petitioner would fall within Clause (c) of CBDT notification and thus, requested for grant of stay. Further, it was submitted that Section 2(14)(viia) of Act only applies to co- operative societies, carrying on business of banking and it does not apply to present case, since petitioner is not carrying on business of banking, as it does not hold mandatory license from RBI to carry business of banking. It was also submitted that merits of petitioner's case was not properly considered at time, when stay petition was rejected. It was further stated that if petitioner is called upon to pay entire demand, it would cripple their financial position and all members will be put irreparable hardship and therefore, requested for grant of stay. 10. It is to be noted that petitioner in stay petition has specifically raised that decision of Hon'ble Gujarat High Court is 9 fully in their favour. Therefore, they have raised issue to establish prima facie case. That apart, specific case of petitioner is that they are not doing banking activities and they do not fall within definition of banking as defined under Section 5(b) of Banking Regulation Act, nor do they possess license under Section 22 of said Act, which is mandatory requirement. As per clarification issued by CBDT dated 01.12.2009, detailed instructions have been given as to how and under what circumstances, stay of demand could be granted. In fact, guidelines for staying demand have been specifically stated as under: C. Guidelines for Staying Demand (i) demand will be stayed only if there are valid reasons for doing so. Mere filing appeal against assessment order will not be sufficient reason to stay recovery of demand. few illustrative situations where stay could be granted are:- (a) if demand in dispute relates to issues that have been decided in assessee's favour by appellate authority or Court earlier; or (b) if demand in dispute has arisen because Assessing Officer had adopted interpretation of law in respect of which there exist conflicting decisions of one or more High Courts (not of High Court under whose jurisdiction Assessing Officer is working); or 10 (c) if High Court having jurisdiction has adopted contrary interpretation but Department has not accepted that judgment. 11. Undoubtedly, guidelines are binding upon Officer, while considering application for grant of stay. case on hand clearly falls within Clause-C (i) (c) of above guidelines. That apart, three cardinal principles to be adopted for grant of interim order are that; i) prima facie case; ii) balance of convenience; iii) irreparable loss or hardship. 11 (i). When petitioner has placed reliance on decision of Hon'ble Gujarat High Court, that can very well be considered. Since said decision has not been considered, petitioner has duly established prima facie case. 11 (ii) next aspect to be considered is whether balance of convenience is in favour of petitioner Society. If decision of Hon'ble Gujarat High Court is said to be applicable to case of petitioner, then obviously balance of convenience is in their favour. Further contention is that petitioner Society is not doing banking 11 business and therefore, they do not fall within definition of banking as defined under Section 5(b) of Banking Regulation Act, nor do they possess license for carrying on business. It is also good ground to consider balance of convenience in their favour. 11(iii). next aspect for consideration is as to whether pending appeal, if demand is to be enforced, would it cause irreparable hardship to petitioner. At this stage, we have to note that petitioner is Co-operative Society registered under provisions of Tamil Nadu Co-operative Societies Act. bye-laws of Society have been produced before this Court, which clearly shows that Society has to work and function for benefit of its members. Unlike any other private organization, Society operates on strict parameters in accordance with provisions of Tamil Nadu Co- operative Societies Act, 1983 and Tamil Nadu Co-operative Societies Rules, 1988. Therefore, if entire tax levied is directed to be remitted, it would undoubtedly cause severe financial hardship and it would also cripple their entire activities. Ultimately, members of Society would be put to irreparable hardship. 12. In such circumstances, this Court is of view that 12 petitioner has made out case for grant of interim stay till appeal is heard, disposed of by Commissioner of Income Tax (Appeals). However, it is open to both parties to request Commissioner of Income Tax (Appeals) for early hearing of appeal. 13. In result, all these writ petitions are allowed and impugned orders are set aside. There shall be order of interim stay of collection of tax from petitioner in respect of five assessment years till disposal of appeal by Commissioner of Income Tax (Appeals). No costs. Consequently, connected miscellaneous petitions are closed. 28.10.2014 Index: Yes / No Internet: Yes / No ar 13 To 1. Assistant Commissioner of Income Tax, Circle-I, Vellore, Vellore District-632 001. 2. Commissioner of Income Tax (Appeals)-III, 121, Nungambakkam High Road, Chennai-600 034. 3. Commissioner of Income Tax-VIII 6th Floor, Kannamai Buildings, 611, Anna Salai, Chennai-600 006. 14 T.S.SIVAGNANAM,J. ar W.P.Nos.26083 to 26087 of 2014 28.10.2014 Vellore District Government Employees Co-operative Society v. Assistant Commissioner of Income tax, Circle-I, Vellore, Commissioner of Income tax (Appeals)-III, Commissioner of Income tax-VIII, Chennai