1. INTRODUCTION
The Finance Act 2017 has introduced an amendment to section 80AC of the Income Tax Act 1961(for short 'Act') with effect from 01-04-2018 ie assessment year 2018-19. The effect of the amendment is that if you wish to claim a deduction under Chapter VIA under the heading 'C-Deductions in respect of certain incomes' for eg claim for deduction u/s 80P then you should file the return of Income on or before the due date specified u/s 139(1) of the Income Tax Act. I have taken the claim for deduction u/s 80P ( falling under Chapter VIA under the heading 'C- Deductions in respect of certain incomes' ) as a representative of the various claims for deductions under the said heading. There is already in existence a provision u/s 80A(5) wherein it is specified that without the claim u/s 80P made in the return filed no deduction can be allowed by ITO. Many of the cooperative societies are not aware of this drastic change that has taken place in the law. Let us discuss.
2. LAW BEFORE 01-04-2018:
For the purpose of our discussion on the subject it is necessary to consider the law before 01-04-2018 and the legal position on or after 01-04-2018. The discussion assumes importance since many of the court decisions rendered on the basis of the legal provisions prior to 01-04-2018 may not have relevance or application in view of the change in the legal provisions brought about by Finance Act 2017 mentioned in Para 1 above. The CBDT has issued circulars on the basis of the interpretation of the law prior to 01-04-2018 and thus the said circulars have also lost its relevance either fully or partially. The law prior to 01-04-2018 can be found in section 80A(5) and the said provision shall be taken up first for discussion.
3. SECTION 80A(5):
Section 80A(5)-reads like this:
Where the assessee fails to make a claim in his return of income for any deduction under section 10A or section 10AA or section 10B or section 10BA or under any provision of this Chapter under the heading "C.-Deductions in respect of certain incomes", no deduction shall be allowed to him thereunder.
Section 80P falls under the heading "C.- Deductions in respect of certain incomes" hence applicable to cooperative societies claiming deduction under that section. Thus the true impact of the provision needs to be understood.
On a very close analysis of the section it become crystal clear that the section operates only in a situation where a return has been filed and there is no claim for deduction u/s 80P. In other words filing of return of income without a claim u/s 80P is a condition precedent for application of this provision. Hence it will not affect a case where no return at all has been filed. For eg suppose you have filed a return but due to ignorance or otherwise you have not claimed deduction u/s 80P though you are clearly entitled to the said deduction. What is the remedy? You can only request the ITO in writing by way of a letter or orally to allow the deduction. This request will be usually rejected by ITO by quoting section 80A (5). He would say that you failed to make a claim for 80P deduction in the return and hence the provisions of section 80A (5) applies squarely upon you.
4. KERALA HIGH COURT ON 80A(5):
There are 2 Kerala high court decisions which are relevant for our study. The first one is KuthuparambaKalluchethutozhilali case ITA no 273 of 2015 dt 20-06-2018 reported in [2018] 95 taxmann.com 299 (Kerala)/[2018] 257 Taxman 151 (Kerala). The Hon High court in this case held that when no return is filed at all then deduction u/s 80P cannot be granted. The relevant extract from the judgement is given below.
'Only when a return is filed claiming deduction under Section 80P, the AO will be enabled to first consider the question of eligibility of the assessee and then consider the allowability of deduction from the total income'. Thus,whether right or wrong , the Hon court clearly held that if no return is filed, deduction u/s 80P cannot be granted in view of the provisions under section 80A (5).
In Chirakkal service cooperative bank v CIT the issues before the court were whether deduction u/s 80P can be granted if the claim is made only through belated returns or returns filed beyond time or filed in response to notices u/s 142 and 148. The court made the following observations.
'When an assessment is subjected to first appeal or further appeals under the IT Act or all questions germane for concluding the assessment would be relevant and claims which may result in modification of the returns already filed could also be entertained, particularly when it relates to claims for exemptions. This is so because the finality of assessment would not be achieved in all such cases, until the termination of all such appellate remedies. Under such circumstances, the Tribunal was not justified in denying exemption under section 80P of the IT Act on the mere ground of belated filing of return by the assessee concerned. A return filed by the assessee beyond the period stipulated under section 139(1) or 139(4) or under section 142(1) or section 148 can also be accepted and acted upon provided further proceedings in relation to such assessments are pending in the statutory hierarchy of adjudication in terms of the provisions of the IT Act. In all such situations, it cannot be treated that a return filed at any stage of such proceedings could be treated as non est in law and invalid for the purpose of deciding exemption under section 80P of the IT Act.'
The Hon'ble court held went on to hold further that if no return is filed the ITO cannot grant deduction u/s 80P and the relevant part of the judgement is reproduced below:
'Section 80A(5) provides that where the assessee fails to make a claim in his return of income for any deduction, inter alia, under any provision of Chapter VIA under the heading "C.-Deductions in respect of certain incomes", no deduction shall be allowed to him thereunder. Therefore, in case where no return has been filed for a particular assessment year, no deductions shall be allowed. This embargo in section 80A(5) would apply, though section 80P is not included in section 80AC.'
Thus in the above 2 cases the Hon Kerala High court clearly held that no deduction shall be allowed unless return is filed.
5. CBDT CIRCULAR:
Attention is invited to the binding Circular No: 14(XL-35) of 1955 whereby the instruction is to give necessary relief to the assessee if he failed due to ignorance or otherwise to make eligible claims. This circular of 1955 is obviously issued even prior to the enactment of Income Tax Act 1961 but nonetheless applicable to the present law as well and can be relied on to make claims u/s 80P which was omitted to be claimed while filing the return or even when no return has been filed. The author is of the view that being a beneficial circular the same can be enforced and compel the ITO to grant the deduction.
6. SUPREME COURT IN GOETZE CASE:
The Hon Supreme court had an occasion to consider claims made by an assesse before the ITO which he failed to claim in his return. The time for filing the revised return was also over and in fact there was no revised return in goetze case reported in 284 ITR 323(SC). The assesse filed a letter to ITO claiming the deduction which was rejected. The Commissioner(Appeals) allowed but the Tribunal held that assesse is not eligible. The matter came before Supreme Court and held that such a claim cannot be entertained. But the Supreme Court made it clear that its decision applies only to the power of the ITO to entertain claims which were not in the return and its decision shall not be applicable to the powers of the appellate authorities like the Tribunal to entertain claims made for the first time before them. The court obviously was referring to the its own decision in National Thermal power company Ltd V CIT (1998) 229 ITR 389 (SC) wherein the apex court held that the appellate authorities have power to entertain legal grounds which were not raised before the lower authorities like the ITO.
Thus it is clear that prior to 01-04-2018 there was some scope for making claims u/s 80P in view of the above discussion though the Hon Kerala High court emphatically held that if no return is filed no deduction can be granted u/s 80P. The author, however, pleads with due respect to the Hon court that the above 2 decisions require reconsideration since many of the relevant points were not brought to the notice of the Hon court.
7. SECTION 80AC: A WHOLESALE CHANGE IN LAW
The author is of the view that section 80AC was inserted to get over the views of the Supreme court in Goetze's case mentioned above in Para 6 on the power of the appellate authorities to grant deductions even if not claimed in the return. Thus a new section 80AC was inserted in the Income-tax law with effect from 01-04-2006 that certain specified statutory deductions shall not be allowed to an assessee who fails to furnish a return of his income on or before the due date specified in sub-section (1) of section 139 leading to the conclusion that to make any claim subsequently it is desirable that the assessee must have filed a return in the first instance by the original due date u/s 139(1). But fortunately, section 80P was not mentioned in section 80AC.
But now from 01-04-2018 the above section 80AC was amended to include deductions under section 80P also.
Section 80AC with effect from 01-04-2018 reads as follows:
Where in computing the total income of an assessee of any previous year relevant to the assessment year commencing on or after -
(i) the 1st day of April, 2006 but before the 1st day of April, 2018, any deduction is admissible under section 80-IA or section 80-IAB or section 80-IB or section 80-IC or section 80-ID or section 80-IE;
(ii) the 1st day of April, 2018, any deduction is admissible under any provision of this Chapter under the heading 'C.- Deductions in respect of certain incomes',no such deduction shall be allowed to him unless he furnishes a return of his income for such assessment year on or before the due date specified under sub-section (1) of section 139.
8. ANALYSIS OF SECTION 80AC:
Now let us analyse the provisions of section 80AC. It is clear that the provisions of clause (ii) are applicable from assessment year 2018-19 onwards and hence the first return affected by the amended provision is the return related to the financial year 2017-18 relevant to the assessment year 2018-19. Assuming that the accounts of the cooperative society requires audit u/s 44AB of the Act ( ie its turnover or gross receipts is more than Rs 2 crores) the due date is 30-09-2018 extended to 31-10-2019. In case the accounts do not require audit u/s 44AB then the due date is 31st July 2018 extended to 31-08-2019.
Thus the society which failed to file the return before the due dates mentioned above cannot claim benefit of deduction u/s 80P. Please note that section specifically mentions sub section (1) of 139. Therefore even if the society files the return belatedly after the due dates mentioned above it cannot claim the benefit subsequently even by filing a revised return u/s 139(4). It would have been possible to claim 80P deduction even on the basis of belated return u/s 139(4) or revised return u/s 139(5) if the language used in section 80AC was ON OR BEFORE THE DUE DATE U/S 139 without mention of sub-section (1).But the law makers appears to be very strict that only a return filed on or before the due dates u/s 139(1) shall be considered for claims u/s 80P. In view of this specific language used under the Act, it is to be concluded that the lawmakers envisage filing of return on time ie on or before 31-08-2019/31-10/2019 as the case may be as a condition precedent for the claim of deduction u/s 80P for the assessment year 2019-20 relevant to the accounting year 2018-19.
9. CONCLUSION:
On the basis of the total change in law it is advisable that all the cooperative societies claiming deduction under chapter VIA should compulsorily file returns of Income before 31-10-2019. Those entities whose due date is 31-08-2019 has already missed the bus and lost the opportunity. The court decisions and the CBDT circulars cannot override the law made by the parliament effective from 01-04-2018 and hence societies cannot rely on them anymore. There may be some hope for relief from the courts based on the 1955 circular of CBDT and the decision of the Supreme court in Goetze case but it appears to be very risky. Therefore the author would advise all the entities to file the return immediately before 31-10-2019 without going for risky adventurous legal battle.
The author can also be reached at daschettoor@gmail.com
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