The Kerala High Court ruled that the Circulars issued by the Government Department circulars do not have priority over the decisions of the Supreme Court and High Courts.
Consequently, the High Court refused to entrain the Circular issued by the Central Board of Direct Taxes that explains that for the purpose of Section 80P(4) of the Act, a co-operative bank shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949.
The Court, further upheld that Supreme Court judgment in the case of Mavilayi Service Co-operative the Bank Limited v. Commissioner of Income Tax: 2019 (2) KHC 287: 2019 (2) KLT 597 over the Circular issued. In the relevant case, the Supreme Court has ruled that the Assessing Officer has to conduct an inquiry into the factual situation as to the activities of the assessee society and arrive at a conclusion whether the claim for deduction under Section 80P (4) of the Income Tax Act can be allowed or not.
The Court held that clarificatory circulars issued by Government departments are for guiding the officers. “Such circulars or instructions do bind the department and its officers. But they do not bind the Court in the interpretation of statutory provisions. Circulars issued by a Government department cannot have any primacy over the decision of the jurisdictional High Court”.
The Court further clarified that “when the Supreme Court or the High Court has declared the law on the question arising for consideration, it will not be open to a party to contend that the circular should be given effect to and not the view expressed in the decision of the Supreme Court or the High Court”.
The judgment was rendered in a joint hearing of various appeals filed by Kuthannur Service Co-Operative Bank Limited, Peringottukurussi Service Co-Operative Bank Ltd. and two petitions filed Vadakkenchery Service Co-Op Bank Ltd., against The Income Tax Officer And four other. In the appeal, the appellants argued that the Tribunal has not considered the effect of the Circular issued by the department on the matter.
The petitions were heard by a division bench comprising of Justice C.K.Abdul Rehim and Justice R. Narayana Pisharadi.