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CS Professional · Advanced Direct Tax Laws and Practice · Computation of Total Income, Tax Liability and Filing of Returns of various Entities excluding Companies

A co-operative society opted under section 204 in tax year 1 and met all conditions, but in tax year 3 it failed to fulfil one of the conditions in section 204(1) (Table, column B). What is the consequence?

The option becomes invalid for tax year 3 and all later years, and the ordinary provisions of the Act apply as if it had not been exercised for those years. It does not revive and does not operate retrospectively on earlier years.

  1. AThe option becomes invalid for tax year 3 and all subsequent tax years, and the other provisions of the Act apply as if it had not been exercisedCorrect
  2. BThe option becomes invalid only for tax year 3 and revives automatically from tax year 4 if conditions are met
  3. CThe option stays valid but the society pays an additional 30% on its total income for tax year 3
  4. DThe option becomes invalid retrospectively from tax year 1 and tax is recomputed for all years

Explanation

Section 204(2)(d) says that on failure to fulfil the conditions in any tax year, the option becomes invalid for that tax year and subsequent tax years, and the other provisions apply as if the option had not been exercised for those years. It is not retrospective to earlier years and does not revive. No surcharge-style penalty is prescribed there.

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