1 IN HIGH COURT OF KARNATAKA, BENGALURU R DATED THIS 16TH DAY OF JANUARY, 2020 BEFORE HON'BLE MR. JUSTICE KRISHNA S.DIXIT WRIT PETITION NO. 48414 OF 2018 (T-IT) C/W WRIT PETITION NO. 14381 OF 2019 (T-IT) IN W.P. NO. 48414/2018: BETWEEN: M/S SWABHIMANI SOUHARDA CREDIT CO OPERATIVE LTD BEING REGISTERED CO OPERATIVE REGISTERED UNDER KARNATAKA SOUHARDA SAHAKARI ACT 1997, HAVING ITS REGISERED OFFICE AT NO.125, DIAGONAL ROAD, V.V.PURAM, BANGALORE-560004 AND REPRESENTED BY ITS CEO VINAYAK M SHENOY, PAN: AAFAS 0181 E PETITIONER (BY SRI. MALLA REDDY B V, ADVOCATE) AND: 1. GOVERNMENT OF INDIA MINISTRY OF FINANCE, DEPARTMENT OF REVNUE, CENTRAL BOARD OF DIRECT TAXES (CBDT) INCOME TAX DEPARTMENT, ROOM NO.7008, AAYAKAR BHAVAN, VAISHALI GHAZIABAD, UP, PIN-201009 REPRESENTED BY ITS DIRECTOR /PRINCIPAL SECRETARY 2. STATE OF KARNATAKA REPRESENTED BY ITS PRINCIPAL SECRETARY, DEPARTMENT OF CO OPERATION, M.S.BUILDING, DR.AMBEDKAR ROAD, BANGALORE-560001 2 3. PRINCIPAL COMMISSIONER OF INCOME TAX C R BUILDING, NO.1 QUEENS ROAD, BENGALURU-560001 4. INCOME TAX OFFICER (ITO)WARD-5(2)(3) 3RD FLOOR, ROOM NO.307, BMTC BUILDING, COMMERCIAL COMPLEX, 80 FT.ROAD, KORAMANGALA, BANGALORE-560095. RESPONDENTS (BY SRI. JEEVAN J NEERALGI, ADVOCATE FOR R1, R3 & R4; SRI. T K VEDAMURTHY, AGA FOR R2) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF CONSTITUTION OF INDIA PRAYING TO QUASH NOTICE AND REASONING GIVEN BY R-4 FOR ISSUING NOTICE UNDER SECTION 148 OF INCOME TAX ACT 1961, DATED 30.03.2018 VIDE ANNX-D IN FAVOUR OF M/S SWABHIMANI SOUHARDA CREDIT CO- OPERATIVE LTD., BY R-4. IN W.P. NO. 14381/2019: BETWEEN: KARNATAKA STATE SOUHARDA FEDERAL CO-OPERATIVE LIMITED BEING REGISTERED CO-OPERATIVE REGISTERED UNDER KARNATAKA SOUHARDA SAHAKARI ACT 1997, HAVING ITS REGISTERED OFFICE AT NIRMANA BHAVANA, DR RAJKUMAR ROAD, 1ST BLOCK, RAJAJINAGAR, BENGALURU-560010. AND REPTD BY ITS MANAGING DIRECTOR. PETITIONER (BY SRI. MALLA REDDY B V, ADVOCATE) AND: 1. GOVERNMENT OF INDIA MINISTRY OF FINANCE, DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES (CBDT) INCOME TAX DEPARTMENT, NORTH BLOCK, GATE NO.2, NEW DELHI-110001 REPTD BY ITS DIRECTOR /PRINCIPAL SECRETARLY. 3 2. STATE OF KARNATAKA REPTD BY ITS PRINCIPAL SECRETARY, DEPARTMENT OF CO OPERATION, M S BUILDING, DR AMBEDKAR ROAD, BANGALORE-560 001. 3. PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX C R BUILDING NO.1, QUEENS ROAD, BENGALURU-560001. RESPONDENTS (BY SRI. C I SANMATHI, ADVOCATE FOR R1 & R3; SRI. T K VEDAMURTHY, AGA FOR R2) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF CONSTITUTION OF INDIA PRAYING TO DECALRE THAT KARNATAKA SOUHARDA SAHAKARI ACT 1997 (KARNATAKA ACT NO.17 OF 2000) FALLS WITHIN MEANING OF WORDS ANY OTHER LAW FOR TIME BEING IN FORCE IN ANY STATE FOR REGISTRATION OF CO-OPERATIVE SOCIETIES FOUND IN SECTION 2(19) OF INCOME TAX ACT 1961 (ACT 43 OF 1961). AND ETC., THESE PETITIONS HAVING BEEN HEARD AND RESERVED FOR ORDER, THIS DAY, COURT PRONOUNCED FOLLOWING: ORDER Petitioner in W.P.No.48414/2018 is Credit Cooperative, registered under Karnataka Souharda Sahakari Act, 1997 (hereafter 1997 Act ); petitioner in W.P.No.14381/2019 is registered as State Federal Cooperative, as provided under Section 33 of said Act; they have knocked at doors of writ court in substance for prayer that they are entitled to seek deduction in respect of their income in terms of scheme envisaged under section 80P of Income Tax Act, 1961 (hereafter 1961 Act ), on premises that they too are 4 Cooperative Society, on par with those registered under provisions of Karnataka Co-operative Societies Act, 1959. 2. After service of notice, Respondent Nos.1 & 3 are represented by their Senior Panel Counsel and State is represented by learned AGA. 3. Regardless of unsatisfactory pleadings of petitioners, their learned counsel submits that there have been two legislations relating to Cooperative Societies in State of Karnataka viz., Karnataka Co-operative Societies Act, 1959 & Karnataka Souharda Sahakari Act, 1997; entities registered under 1997 Act also answer definition of cooperative society enacted in sec. 2(19) of Income Tax Act 1961 and therefore, they are entitled to seek benefit of sec.80P thereof; learned Panel Counsel for Revenue per contra contends that definition u/s 2(19) mentions of only co- operative society and not Souharda Co-operative; in guise of judicial interpretation, scope of definition cannot be widened than what is prescribed by Parliament; stand in variance with this will have far reaching implications on Exchequer. 5 4. In light of rival submissions half heartedly made at Bar, following question of law arises for consideration: Whether entity registered under Karnataka Souharda Sahakari Act, 1997 fits into definition of co-operative society as enacted by sec. 2(19) of Income Tax Act, 1961 for purpose of Section 80P thereof? 5. Having heard learned counsel for parties and having perused petition papers, this Court is of considered opinion that answer to above question needs to be in affirmative for following reasons: (a) sec.80P of 1961 Act provides for deduction in respect of income of Co-operative Societies is obvious going by its very text; sub-section (1) of said section reads as under: 80P. (1) Where, in case of assessee being co-operative society, gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to provisions of this section, sums specified in sub-section (2) in computing total income of assessee. other provisions of this section being not of much relevance to question being treated, are not reproduced, although they too have been looked into. 6 Sec. 2(19) which finds place in Dictionary Clause of 1961 Act reads as under: co-operative society means co-operative society registered under Co-operative Societies Act, 1912 (2 of 1912), or under any other law for time being in force in any State for registration of co-operative societies; provisions of sec.80P are enacted by Parliament for promoting co-operative movement in Country in tune with what Father of Nation Mahatma Gandhi preached to countrymen; this Section needs to be liberally construed to effectuate legislative object of encouraging & promoting growth of co-operative movement vide Kanga & Palkhivala s Law and Practice of Income Tax, 10th Edition, LexixNexis at page 1656; it is more so because right to form co-operative society itself is made Fundamental Right, now enshrining in Article 19(1)(i) by virtue of 97th Amendment to Constitution of India w.e.f. 15.10.2013; (b) object of enacting sec.80P of 1961 Act may be defeated if restrictive meaning is assigned to definition of co-operative society as given u/s.2(19) inasmuch as invokability of provisions of sec.80P is dependent upon entity seeking benefit thereunder being co-operative society; going by text and context 7 of these provisions, one can safely conclude that all entities that are registered under enactments relating to co-operative societies, regardless of their varying nomenclatures need to be treated as co-operative societies; this view accords with purposive construction of sec.80P r/w sec.2(19) of 1961 Act; (c) in State of Karnataka, there have been two statutes enacted by State Legislature that relate to registration & regulation of co-operative societies viz., Karnataka Co-operative Societies Act, 1959 ie., Karnataka Act No.11 of 1959 and Karnataka Souharda Sahakari Act,1997 ie., Karnataka Act No.17 of 2000; both these Acts are enacted pursuant to Article 246(3) r/w Entry 32, List-II of Schedule VII of Constitution of India; there is no other Entry to which this Act is relatable; Legislative Entries being only fields of legislation need to be very broadly interpreted, is settled position of constitutional jurisprudence vide UJAGAR PRINTS, ETC. vs. UNION OF INDIA, AIR 1989 SC 516; Chapter X of 1997 Act containing sec.67 enacts important co-operative principles that animate and brood through almost all provisions of this Act; 8 (d) Karnataka Souharda Sahakari Bill, 1997 has following as Statement of Objects & Reasons: 1. recognition, encouragement and voluntary formation of co-operatives based on self help, mutual aid, wholly owned, managed and controlled by members as accountable, competitive, self-reliant and economic enterprises guided by co-operative principles specified therein; 2. removing all kinds of restrictions that have come to clog free-functioning of co- operatives and controls and interference by Government except registration and cancellation; 3. promotion of subsidiary organization, partnership between co-operatives and also collaboration between co-operatives and other institutions; 4. registration of co-operatives, union co- operatives and Federal Co-operative in furtherence of objectives specified above; 5. Conversion of co-operative societies registered under Karnataka Co-operative Societies Act, 1959 as co-operative under proposed legislation. Hence Bill. (e) preamble to 1959 Act reads as under: Whereas it is expedient (to promote voluntary formation, autonomous functioning, democratic control and professional management of co- operative societies) in State of Karnataka; Be it enacted by Karnataka State Legislature in Tenth Year of Republic of India as follows- 9 Similarly, preamble to 1997 Act reads as follows: Whereas it is expedient to provide for recognition, encouragement and voluntary formation of co-operatives based on self-help, mutual aid, wholly owned, managed and controlled by members as accountable, competitive, self-reliant and economic enterprises guided by co-operative principles and for matters connected therewith; Be it enacted by Karnataka State Legislature in Forty-eighth Year of Republic of India as follows- . perusal of these two preambles and various provisions of these two Acts leads one to irresistible conclusion that both these Acts are cognate statutes that deal with co- operative societies, regardless of some difference in their nomenclature and functionality, subject matter being same; (e) word co-operative is defined by sec.2(d-2) of 1959 Act as under: 2(d-2): Co-operative means Co-operative registerd under Karnataka Souharda Sahakari Act, 1997 (Karnataka Act 17 of 2000), and includes Union Co-operative and Federal Co-operative Similarly, word co-operative is defined by Sec. 2(e) of 1997 Act as follows: 2(e): Co-operative means co-operative including co-operative bank doing business of banking registered or deemed to be registered under Section 5 and which has 10 words Souharda Sahakari in its name (and for purposes of Banking Regulation Act, 1949 (Central Act 10 of 1949), Reserve Bank of India Act, 1934 (Central Act 2 of 1934), Deposit Insurance and Credit Guarantee Corporation Act, 1961 (Central Act 47 of 1961) and National Bank for Agriculture and Rural Development Act, 1981 (Central Act 67 of 1981), it shall be deemed to be Co-operative Society . close examination of these two definitions shows that they have abundant proximity with each other in terms of content and contours; it hardly needs to be stated that in both these definitions word co-operative is employed not as adjective but as noun; definition of other relative concepts in dictionary clauses of these Acts strengthens this view; this apart, sec.7 of 1997 Act provides that entity registered as co-operative shall be body corporate, notwithstanding conspicuous absence of word society as postfix; sec.9 of 1959 Act makes entity once registered u/s.8 thereof body corporate; both entities have perpetual succession by operation of law; thus on registration be it under 1959 Act or 1997 Act, legal personality is donned by them, so that inter alia they can own and possess property; (f) employment of word Sahakari in very title of 1997 Act is also not sans any significance; 11 Sahakaar in Sanskrit is equivalent of sahakaara in Kannada which means co-operation ; as already mentioned above both 1959 Act and 1997 Act employ this terminology; 1997 Act is woven with principles of co-operation; sec.4 of this Act bars registration of entity unless its main objects are to serve interest of members in area of co-operation and its bye-laws provide for economic and social betterment of its members through self-help & mutual aid in accordance with co- operative principles; this apart, even sub-section (2) of sec.4 is heavily loaded with co-operative substance. In above circumstances, these writ petitions succeed; declaration is made to effect that entities registered under Karnataka Souharda Sahakari Act, 1997 fit into definition of co-operative society as enacted in sec.2(19) of Income Tax Act, 1961 and therefore subject to all just exceptions, petitioners are entitled to stake their claim for benefit of sec.80P of said Act; Writ of Certiorari issues quashing impugned notice dated 30.03.2018 at Annexure-D in W.P.No.48414/2018; other legal consequences accordingly do follow. 12 It is needless to mention that other provisions of sec. 80P of 1961 Act and their effect on claim of petitioner-like-societies have been left to be addressed by concerned authorities. No costs. Sd/- JUDGE Snb Swabhimani Souharda Credit Co Operative Ltd. v. Government of India Ministry of Finance, Ghaziabad/State of Karnataka, Bangalore/Principal CIT, Bengaluru/Income-tax Officer (ITO)Ward-5(2)(3), Bangalore