Co-op Bank Wins Appeal Against 20% Tax Deposit Requirement

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Case Name: 

The Aranattukara Oriental Service Co-operative Bank Ltd. vs Commissioner of Income Tax (Appeals) and Anr. (High Court of Kerala)

WP(C).No.10227 of 2020(C)

Date: 25th May 2020

Key Takeaways:

1. The High Court reaffirmed that co-operative banks are not required to deposit 20% of the disputed tax amount to file an appeal.

2. Previous judgments, including a Full Bench decision, have an "enuring effect" on all authorities, meaning they should be followed without needing a specific court order in each case.

3. The court emphasized that tax authorities must respect and adhere to High Court directions when considering appeals or stay applications.

Issue:

Does the Income Tax Department have the right to demand a 20% deposit of the disputed tax amount as a precondition for entertaining an appeal from a co-operative bank?

Facts:

1. The petitioner is a primary Co-operative Agricultural Credit Society registered under the Kerala Co-operative Societies Act. 

2. The Income Tax Officer (2nd respondent) issued a notice under Section 156 (of Income Tax Act, 1961) for the assessment year 2017-18. 

3. The petitioner filed an appeal and a stay application with the Commissioner of Income Tax (Appeals) (1st respondent). 

4. Neither the appeal nor the stay petition was considered by the respondents. 

5. Fearing coercive action, the petitioner approached the High Court with this writ petition. 

Arguments:

Petitioner's Argument:

- The petitioner relied on a Division Bench judgment of the High Court (Writ Appeal No.1536/19 dated 1.7.2019) which negated the requirement of a 20% deposit for considering the appeal. 

Respondent's Argument:

- The Income Tax Department argued that the order was in line with Section 144 (of Income Tax Act, 1961) and a Circular dated 31.7.2017, which mandates appellate authorities to ask for a 20% deposit for entertaining appeals. 

Key Legal Precedents:

1. Writ Appeal No.1536/19 dated 1.7.2019 arising out of judgment dated 31.5.2019 in W.P.(C)12843/19. 

2. Full Bench decision in ITA No.97/16 and connected cases, decided on 19.3.2019, titled as Mavilayi Service Co-operative Bank Ltd. Vs. Commissioner of Income Tax 2019 (2) KHC 287. 

Judgement:

1. The court agreed with the petitioner's argument, finding it consistent with previous judgments.

2. The court emphasized that assessing officers and appellate authorities must respect High Court directions when exercising power under section 226 (of Income Tax Act, 1961). 

3. The court clarified that the 20% payment requirement can be dispensed with even without a specific High Court order in each case.

4. The court directed the 1st respondent (Commissioner of Income Tax Appeals) to decide on the appeal without requiring the 20% deposit. 

FAQs:

Q1: Does this judgment apply to all co-operative banks in Kerala?

A1: While the judgment directly applies to the petitioner, it reaffirms previous decisions that have a wider application to co-operative banks in Kerala.

Q2: Can the Income Tax Department still demand a 20% deposit in other cases?

A2: The judgment suggests that the Income Tax Department should not demand a 20% deposit from co-operative banks for filing appeals, based on the precedents set by the Full Bench and Division Bench decisions.

Q3: What should a co-operative bank do if faced with a demand for a 20% deposit?

A3: They can cite this judgment and the precedents mentioned (particularly the Full Bench decision in the Mavilayi Service Co-operative Bank Ltd. case) when filing their appeal or stay application.

Q4: Does this judgment completely eliminate the possibility of any deposit requirement for appeals?

A4: The judgment specifically addresses the 20% deposit requirement. It doesn't rule out the possibility of other conditions or smaller deposits, but emphasizes that authorities should follow High Court directions.

Q5: What's the significance of the "enuring effect" mentioned in the judgment?

A5: It means that the principles established in the Full Bench and Division Bench decisions should be applied by all relevant authorities without needing a separate High Court order in each individual case.

1. Petitioner is a primary Co-operative Agricultural Credit Society registered under the Kerala Co-operative Societies Act. Petitioner is an assesee on the file of the 2nd respondent. While so, the 2nd respondent issued a notice under Section 156 (of Income Tax Act, 1961) pertaining to the assessment year 2017-18.

2. Aggrieved by the assessment order petitioner preferred appeal before the 1st respondent along with a stay application. It is submitted that neither the appeal nor stay petition has been considered by the respondents. Apprehending coercive action, petitioner has approached this Court by filing this writ petition. In this regard he relied upon the judgment of the Division Bench of this Court in writ appeal No.1536/19 dated 1.7.2019 arising out of judgment dated 31.5.2019 W.P.(C)12843/19. The Division Bench after noticing the decision of the Full Bench of this Court in ITA No.97/16 and connected cases, decided on 19.3.2019 titled as Mavilayi Service Co-operative Bank Ltd. Vs. Commissioner of Income Tax 2019 (2) KHC 287, wherein for considering the appeal the demand of 20% as a condition precedent has been negated.

4. Issue notice before admission. Sri.Jose Joseph accepts notice on behalf of the income tax authorities. He submits that the order is in consonance with the provisions of Section 144 (of Income Tax Act, 1961) and the Circular dated 31.7.2017 mandating the appellate authorities to ask for deposit 20% of the amount for the purpose of entertaining the adjudication of the appeal.

5. Having heard learned Counsel for the parties and appraised the paper book, I am of the view that the argument of the petitioner is in consonance with findings rendered in the judgment referred to above and reiterated by the Division Bench. The assessing officer or the appellate authority while exercising the power of appeal or stay of the assessment proceedings under section 226 of the Income Act 1961 are enjoined obligation to give regard and respect to the directions of the Hon'ble High Court. In other words, it would not be necessary that the payment of 20% can be dispensed with only if there is an order of the high court. The judgment of the Full Bench followed by the Division Bench has an enuring effect on all the authorities. There will be a direction to the 1st respondent to decide the

APPENDIX

PETITIONER'S/S EXHIBITS:

EXHIBIT P1 TRUE COPY OF THE ASSESSMENT ORDER DATED 19.12.2019 ALONG WITH COMPUTATION SHEET.

EXHIBIT P2 TRUE COPY OF DEMAND NOTICE DATED 19.12.2019.

EXHIBIT P3 TRUE COPY OF THE APPEAL DATED 16.1.2020.

EXHIBIT P4 TRUE COPY OF THE STAY PETITION DATED 18.03.2020.

EXHIBIT P5 TRUE COPY OF THE JUDGMENT DATED 1.07.2019 IN W.A.1536 OF 2019.