The Daivadnya Sahakara Bank Niyamit., Belgaum V. Asst. Commissioner of Income Tax, Circle-1., Belgaum

CO 31/PAN/2014

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0255 (ITAT-PANAJI)
• Duration Of Justice: 6 month(s) 5 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 06-01-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 01-07-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NISHANT K
• Assessee Lawyers: KRISHNAMURTHY S RAIKAR
• Keywords: Gift; Non-deduction of tax; Reasonable cause; Bad and doubtful debts
• Section: 143(3); 145; 27; 15

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P. K. BABNSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO. 327 /PNJ/2013 (ASST. YEAR : 200 9 - 1 0 ) ACIT, CIRCLE - 1, BELGAUM. VS. THE DAIVADNYA SAHAKARA BANK NIYAMIT, BELGAUM. PAN NO. AAAD O 0328 D (APPELLANT) (RESPONDENT) ITA NO. 329/PNJ/2013 AND C.O.N O . 31/PNJ/2014 (ASST. YEAR : 200 9 - 1 0) THE DAIVADNYA SAHAKARA BANK NIYAMIT, NO. 1169, SARAF GALLI, SHAHAPUR , BELGAUM. VS. JCIT, RANGE - 1, BELGAUM. PAN NO. AAADO 0328 D (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI KRISHNAMURTHY S. RAIKAR DEPARTMENT BY : SHRI NISHANT K - D.R. DATE OF HEARING : 1 8 / 12 /2014 . DATE OF PRONOUNCEMENT : 06 / 0 1 /201 5 . O R D E R 2 PER D.T. GARASIA , J .M THESE TWO APPEALS FILED BY THE DEPARTMENT AS WELL AS THE ASSESSEE AND THE CROSS OBJECTION FILED BY THE ASSESSEE AGAINST THE COMMON ORDER OF LD. CIT (A), BELGAUM DATED 0 5 /0 9 /201 3 FOR THE A.Y. 2009 - 10 . THE ABOVE APPEALS PERTAIN TO ONE ASSESSEE , THEREFORE, THESE ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE FOLLOWING GROUNDS ARE RAISED BY THE DEPARTMENT IN I.T.A.NO. 327/PNJ/2013 : 1. THE CIT(A) ERRED IN LAW AND ON FACTS, IN DELETING THE ADDITION OF RS. 31,87,638/ - ON ACCOUNT OF ACCR U ED INTEREST ON LOANS WHICH ARE CLASSIFIED AS NON - PERFORMING ASSETS RELYING ON THE KARNATAKA HIGH COURT DECISION IN CANFIN HOME LTD. (2011) 5 TAXCORP (DT) 49593, IGNORING THE PROVISIONS OF SEC . 43D OF THE I.T. ACT , 1961. 2. ON THE FACTS AND IN LAW THE CIT(A) ERRED IN HOLDING THAT INCOME ACCRUED TO THE ASSESSEE CANNOT BE TAKEN AS INCOME IN THE YEAR IGNORING THE AMENDED PROVISIONS OF SEC 43D OF THE I.T. ACT, 1961, WHICH PROVIDES CERTAIN BENEFIT TO THE CERTAIN CLASS OF ASSESS EES BUT DO NOT PROVIDE SUCH BENEFIT TO THE ASSESSEE BANK AND AS SUCH, THE PROVIS I ONS OF SEC 43D AMENDED W.E.F. 1.4.2000 OVERRULED THE COURT DECISIONS/ CIRCULARS. THE GROUNDS RAISED I N I.T.A.NO. 329/PNJ/2013 ARE AS FOLLOWS: - A) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), BELGAUM HAS ERRED IN CONFIRMING THE DISAL L OWANCES MADE U)S 40(1)(IA) WHEN THE FACTS OF THE CASE DOES NOT WARRANT SUCH ADDITIONS. B) BOTH THE APPE L L ATE AUTH ORITY AS WELL AS ASSESSING AUTHORITY HAVE ERRED IN FACTS OF TH E CASE THAT THE ASSESSEE IS A CO - OPER A TIVE SOCIETY AND HAS PAID INTEREST TO ITS MEMBERS 3 WHICH IS RIGHTLY COVERED BY THE PROVISIONS OF SECTION 194A(3)(V) OF THE INCOME TAX ACT, 1961 . C) THE ASSESSING AUTHORITY AS WELL AS THE APPELLATE AUTHORITY BOTH HAVE E RRED IN FACTS TO NOTE THAT THE ASSESSE E IS A FIRST CCOPEART4E SOCIETY AND THEN IT IS A CO - OPE R A TIVE BANK. AS SUCH THE INTEREST PAID TO ITS MEMBERS IS RIGHTLY EL I GIBLE FOR DEDUCTION. THE DEDUCTION CLAIMED IS QUITE CORRECT AND IS IN ACCORDANCE WITH THE LAW. AS SUCH THE ADDITION MADE IS ILLEGAL AND REQUIRED TO BE DELETED. D) THE JUDICIAL PRONOUNCEMENTS RELIED BY THE ASSESSING AUTHORITY AND THE APPELLATE AUTHORITY WERE NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE, AS SUCH THE ORDER BAS E D ON SUC H JUDICIAL PRONOUNCEMENT IS BAD IN LAW AND REQUIRED TO BE SET ASIDE AS ILLEGAL ORDER. E) THE ASSESSING AUTHORITY AS WELL AS A PPELL A TE AUTHORITY TIRES TO MAKE A DI STIN C TION BETWEEN THE CO - OPERATIVE SOCIETY AND A COOPER A TIVE BANK. BUT THE LA W DOES NOT DISTI NG U ISH CO - OPERATIVE SOCIETY AND THE CO - OPERATIVE BANK. THE LEARNED AUTHORITY HAVE FAILED TO UNDERSTAND THAT THE CO - OPER ATIVE BANK IS FIRST A CO - OPERATIVE SOCIETY AND THEN IT IS A CA - OPERATIVE BANK. THIS HAS BEEN DECIDED BY THE HON, TRIBUNAL IN CASE OF ACIT VS . VISHAKHAPATTAN CO - OPERATIVE BANK LTD ON 2 9 . 11 .2O1 1 . AS S UCH THE DISTIN CTION MADE IS FUTILE ONE. F) THE INTEREST AMOUNTING TO RS. 53,00,668/ - HAS BEEN PAID TO MEMBERS OF THE SOCIETY BANK. THE MEMBERS OF THE SOCIETY ARE THE OWNERS OF THE SOCIETY. THE OW NERS HAVE CONTRIBUTED THE CAPITAL IN FORM OF DEPOSIT. AND THEREFORE FOR THEIR OWN AMOUNT THEY THEMSELVES CANNOT BE LIABLE FOR TDS. IT IS CLEAR THAT THE INTEREST HAS BEEN PAID ON CAPITAL BY THE PARTNERS AND THE SAME IS NOT SUBJECT OF TDS SIMILARLY THE CAPIT AL CONTRIB U TION BY THE MEMBERS BY WAY OF DEPOSIT IS NOT LIABLE FOR TDS. THEREFORE THERE IS WRO NG APPLICATION OF LAW AND HENCE, NEED CORRECTIONS.. G) THE RELIANCE HAS BEEN PLACED ON AM BOARD CIRCULAR REGARDING THE ORDINARY MEMBERS AND NOMINAL MEMBERS AND THE CIRCULAR HAS MADE THE DIS TIN CTION BETWEEN THE MEMBER AND NOMINA L MEMBER AND THE BOMBAY HIGH COURT HAS STRUCK DOWN THIS DEFINITION AND THEREFORE THE CIRCULAR HAS BEEN WITHDRAWN . HERE ON THE CASE OF HAND THERE IS NO DISPUTE REGARDING THE MEMBER OR NOM INAL MEMBER . THE DISPUTE I S REGARDING THE PAYMENT OF INTEREST TO MEMBERS. AS THE 4 INTEREST HAS BEEN PAID TO MEMBERS AND THE SAME IS RIGH T LY ELIG IB LE FOR EXEMPTION FROM DEDUCTION OF TA X AT SOURCE. AS SUCH THE [EARNED CIT HAS MADE WRONG APPLICATION OF L AW AS SUCH THE SAME BE DELETED. H) THE LEARNED ASSESSING AUTHORITY HAS ACCEPTED THE VIEW OF THE ASSESSEE IN THE SUBSEQUENT ASSESSMENT YEAR AND HAS ALLOWED THE INTEREST PAID TO MEMBERS. AND HAS NOT APPLIED THE PROVISIONS OF SECTION 40(A) (I A) OF THE INCOME TAX ACT, 1961. THEREFORE THE VIEW OF THE ASSESSING AUTHORITY ITSELF IS CONTRADICTORY AND IN DUAL MIND. THEREFORE THE CLAIM OF THE ASSESSE E BE ALLOWED. I) THE ASSESSEE CRAVES TO ADD, TO ALTER, TO AMEND, TO DEL ETE OR MODIFY ANY OF THE GROUNDS OF APPEAL AT THE TIME OF HEARING OF THE APPEAL. IN C.O.NO. 31/PNJ/2013, THE FOLLOWING GROUNDS HAVE BEEN RAISED: 1. THE ADDITIONS DELETED BY THE CIT(A) , BELGAUM AMOUNTING TO RS. 31,87,638/ - IS ACCORDING TO LAW AND THEREFORE THE SAME BE ALLOWED. 2. THE ORDER PASSED BY THE CIT(A), BELGAUM ON ALLOWING INTEREST ON NPA IS ACCORDING TO AND ON THE BASIS OF HON. HIGH COURT OF KARNATAKA IN CANFIN HOMES LTD. (2011) 5 TAX CORP (DT) 49593 AND HENCE, THE SAME BE ALLOWED. 3. THE ASSESSEE CRAVES TO ADD, TO ALTER, TO AMEND, TO DELETE OR MODIFY ANY OF THE GROUNDS AT THE TIME OF HEARING OF THE APPEAL. I.T.A.NO. 327/PNJ/2013 3. SHOR T FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CO - OPERATIVE BANK CARRYING ON THE BUSINESS OF BANKING . IT HAS OBTAINED NECESSARY LICENSE FROM THE RESERVE BANK OF INDIA FOR CARRYING ON ITS BANKING OPERATIONS AS A CO - OPERATIVE BANK. FOR THE YEAR UNDER CONSIDERATION , THE ASSESSEE HAS FILED THE RETURN OF INCOME ON 29/09/2009 DECLARING 5 TOTAL INCOME OF RS. 67,05,940/ - . RETURN WAS PROCESSED U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE 'ACT', FOR SHORT) . ON PERUSAL OF P & L A/C AND THE BALANCE SHEET OF THE ASSESSEE, IT WAS OBSERVED THAT THE ASSESSEE WAS FOLLOWING HYBRID SYSTEM OR MIXED SYSTEM OF ACCOUNTING TO COMPUTE ITS NET INCOME FROM THE BANKING BUSINESS . THE AUDIT REPORT IN FORM 3CD AT COLUMN 11(A) IT HAS BEEN MENTIONED AS MERCANTILE SYST EM. THE ASSESSEE WAS ASKED TO CLARIFY WHETHER THE ASSESSEE - BANK IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING OR NOT? THE ASSESSEE SUBMITTED THAT THEY ARE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING READ WITH THE INSTITUTE OF CHARTERED ACCOUNTANT NORMS (IRAC) , WHICH NORMS AS PRESCRIBED BY THE RESERVE BANK OF INDIA TO THE BANKING COMPANY. AS PER THE PROVISIONS OF SEC . 43D OF THE ACT, INTEREST ON ASSETS CLASSIFIED AS BAD AND DOUBTFUL DEBTS IS TO BE ACCOUNTED AS PER RBI GUIDELINES. AS PER SEC. 43D OF THE ACT , A COOPERATIVE BANK IF IT IS SCHEDULE D BANK, THE INTEREST IN RELATION TO BAD AND DOUBTFUL DEBTS IS TAXAB L E IN THE PREVIOUS YEAR IN WH I CH IT IS CREDITED TO P & L A/C OR ON RECEIPT OF INTEREST WH ICHEVER IS EARLIER. THIS IS APPLICABLE TO ASSETS CATEGORIZED AS BAD AND DOUBTFUL DEBTS AS PER RBI GUIDELINES. THE INTEREST IS TO BE RECOGNIZED WHEN THERE IS RIGHT TO RECEIVE. BUT IN RESPECT OF NPA ACCOUNTS THE SAME IS NOT GUARANTEED AS THE DEBT ITSELF IS DOUBTFUL. IF INTER EST ON SUCH ACCOUNT IS TAXED IT 6 WILL BE AGAINST THE SPIRIT OF LAW. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE PROVISIONS OF KARNATAKA CO - OPERATIVE SOCIETIES ACT AS WELL AS THE CIRCULARS ISSUED BY THE RESERVE BANK OF INDIA FOR RECOGNITION OF INTEREST INCOME, STIPULATE THAT A COOPERATIVE BANK HAS TO ACCOUNT FOR THE INTEREST INCOME ON LOANS ON CASH BASIS. SINCE THE ASSESSEE BEING A COOPERATIVE BANK IS NOT AN EXCEPTION TO THIS. AS PER THE PROVISIONS OF SEC 145(1) OF THE ACT, THE ASSESSEE CAN FOLLOW EITHER CASH SYSTEM OR MERCANTILE SYSTEM OF ACCOUNT ONLY, BUT NOT A MIXED SYSTEM OF ACCOUNTING. IN THE INSTANT CASE, THE 3CD RE P ORT, THE ASSESSEE IS FOLLOWING THE HYBR I D/MIXED SYSTEM OF ACCOUNTING IN VIOLATION OF THE PRESCRIBED ACCOUNTING STANDARDS, WHICH MAY NOT GIVE TRUE AND CORRECT INCOME OF THE ASSESSEE. THE ASSESSING OFFICER HAS VERIFIED THE NPA ACCOUNT INTEREST RECEIVABLE ON VARIOUS TYPES OF LOANS AS ON 11/11/2011 WHICH ARE AS UNDER: - PREVIOUS YEAR BALANCE INTEREST RECEIVABLE 2008 - 09 TOTAL BALANCE INTEREST RECEIVED 2009 - 10 2010 - 11 2011 - 12 TOTAL 28,44,043 31,87,638 60,31,681 9,15,318 7,94,219 2,72,571 19,82,108 THE ASSESSEE HAD NOT CREDITED THE INTEREST RECEIVABLE ON VARIOUS LOANS, THEREFORE THE ASSESSING OFFICER HA S HELD THAT THE INTEREST RECEIVABLE IS INCOME OF THE ASSESSEE AND HE MADE THE ADDITION. 7 4 . MATTER WAS CARRIED TO THE CIT(A) AND CIT(A) HAS DELETED THE ADDITION BY OBSERVING AS UNDER: - 5.2.7 HONBLE SUPREME COURT (3 MEMBERS) IN THE CASE OF UCO BANK V. CIT (1999) 237 ITR 889 HAS HELD THAT INTEREST ACCRUED ON STICKY ADVANCES WHICH WAS NOT BR O UGH T IN PROFIT AND LOSS ACCOUNT BUT TAKEN TO SEPARATE SUSPENSE ACCOUNT SHOULD BE ADDED AS INCOME ONLY WHEN ACTUALLY RECEIVED. THIS JUDGMENT OF THE APEX COURT IN ITS ESSENCE LAYS DOWN LAW ON THE ISSUE UNLESS EXPRESSLY OVERRULED EITHER BY ITSELF OR BY A LEGISLATIVE AMENDMENT WHICH HAS NOT COME TILL DATE. 5.2.8 X X X 5.2.9 THUS, IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN T HE CASE OF JCIT V. M/S. CANFIN HOMES LTD. (2011) 5 TAX CORP (DT) 49593 , IT IS OBSERVED THAT THE FACTS OF THE APPELLANT BANK ARE SIMILAR TO THE FACTS OF THE CASE BEFORE THE HONBLE HIGH COURT OF KARNATAKA WHEREIN IT HAS BEEN HELD THAT THE CONTENTION OF THE REVENUE TH A T IN RESPECT OF NON - PERFORMING ASSETS EVEN THOUGH IT DOES NOT YIELD ANY INCOME AS THE ASSESSEE HAS ADOPTED A MERCANTILE SYSTEM OF ACCOUNTING, HE HAS TO PAY TAX ON THE REVENUE WHICH HAS ACCRUED NOTIONALLY IS WITHOUT ANY BASIS. 5.2.10. IN VIEW OF THE ABOVE DISCUSSION AND RESPECTFULLY FOLLOWING THE JUDGMENTS OF THE APEX COURT IN THE UCO BANK V CIT ( SUPRA ) JUDGMENTS OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CAFIN (SUPRA) AND THE DECISIONS OF ITAT, BANGALORE BENCH C BANGALORE IN THE CASE OF I TO WARD - 2, SHIVAMOGGA V. SHIV SAHAKARI BANK NIYAMITHA (SUPRA) AND PANAJI BENCH IN THE CASE OF THE KHAN A PUR CO - OP. BANK LTD. V. ITO ITA NO. 141/PNJ/2011, I HOLD THAT THE ADDITION MADE BY THE ASSESSING OFFICER OF RS. 31,87,638/ - CANNOT BE SUSTAINED IN LAW. ACCORDINGLY, THE ADDITION OF RS. 31,87,638/ - ON ACCOUNT OF INTEREST RECEIVABLE ON NPA MADE BY THE ASSESSING OFFICER IS DELE TED. THE DEPARTMENT IS IN APPEAL AGAINST THE DECISION OF CIT(A) . 5. THE LEARNED DR SUBMITTED BEFORE US THAT THE ASSESSEE HAS NOT ACCOUNTED THE INTEREST ACCRUED ON THE LOANS WHICH ARE CLARIFIE D AS NON 8 PERFORMING ASSETS BY IGNORING THE PROVISIONS OF SEC. 43D OF THE ACT AND R EL IED UPON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT . SEC 43D WHICH IS AMENDED ON 01/04/2002 HAS PROVIDED THIS BENEFIT OF NOT ACCOUNTED THE INTEREST ON NON PERFORMING ASSETS OR DOUBTFUL DEBT IS IN THE ACT ITSELF. THE COOPERATIVE BANK DOES NOT FALL UNDER THE CATEGORY OF SEC 43D OF THE ACT. THE COMMISSIONER HAS NOT VERIFIED WHETHER THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING OR HYBRID SYSTEM OF ACCOUNTING. ON 01/04 /1989, THERE IS AN AMENDMENT IN SEC 145 OF THE ACT. FROM 01/04/1989, THE ASSESSEE EITHER CAN FOLLOW CASH SYSTEM OF ACCOUNTING OR MERCANTILE SYSTEM OF ACCOUNTING AND THE ASSESSEE DID NOT FOLLOW HYBRID SYSTEM OR MIXED SYSTEM OF ACCOUNTING TO COMPUTE ITS NET INCOME FROM THE BANKING BUSINESS. LEARNED DR SUBMITTED THAT THE CIT(A) HAS NOT VERIFIED WHETHER THE A SSESSEE - BANK HAS RECEIVED THE INTEREST OR THE ASSESSEE - BANK HAS ACCRUED THE INTEREST ON NON - PERFORMING ASSETS , WHICH IS NOT CLARIFIED AND THE ASSESSING OFFICER HAS ALSO NOT VERIFIED. THEREFORE, THE DECISION OF HONBLE KARNATAKA HIGH COURT IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. THE JURISDICTIONAL HIGH COURT IN THE CASE OF JCIT V. M/S. CAFIN HOMES LTD. (2011) 5 TAX CORP (DT) 4959 3 HAS HELD THAT IF THE ASSESSEE IS ADOPTED MERCANTILE SYSTEM OF ACCOUNTING AND IN HIS ACCOUNTS HE SHOWS A PARTICULAR INCOME AS ACCRUING , WHETHER THAT AMOUNT IS REALLY 9 ACCRUED OR NOT , IS LIABLE TO BRING THE SAID INCOME TO TAX. MERELY BECAUSE THE SAID AMOUNT ACCRUED WAS NOT REALIZED IMMEDIATELY CANNOT BE A GROUND TO AVOID PAYMENT OF TAX. BUT, IF IN HIS ACCOUNT IT IS CLEARLY STATED THOUGH A PARTICULAR INCOME IS DUE TO HIM BUT IT IS NOT POSSIBLE TO RECOVER THE SAME THEN IT CANNOT SAID TO HAVE BEEN ACCRUED AND THE SAID AMOUNT CANNOT BE BROUGH T TO TAX. THE ASSESSING OFFICER AS WELL AS CIT(A) HAS NOT VERIFIED THIS FACT FROM THE ACCOUNTS OF THE ASSESSEE AND SIMPLY FOLLOWED THE DECISION OF KARNATAKA HIGH COURT. THEREFORE, MATTER MAY BE RESTORED TO THE ASSESSING OFFICER TO DECIDE THE ISSUE AS PER THE DECISION OF UCO BANK V. CIT (1999) 237 ITR 889 . 6. ONE REPRESENTATIVE APPEARED ON BEHALF OF THE ASSESSEE AND GIVEN APPLICATION FOR ADJOURNMENT. EARLIER ALSO, VARIOUS ADJOURNMENTS WERE GRANTED . TODAY, THE ASSESSEE HAD NO REASON FOR NON - APPEARANCE BEFORE THIS TRIBUNAL AND IT HAD GIVEN AN APPLICATION FOR ADJOURNMENT. WE ARE OF THE VIEW THAT THE ASSESSEE HAD NO REASONABLE CAUSE FOR REMAINING ABSENT BEFORE THE TRIBUNAL . T HEREFORE , WE HAVE DECIDED THE MATTER AFTER GOING THROUGH THE RECORD OF THE CASE . 7. HAVING HEARD LEARNED DR AND MR. KRISHNAMURTHY S. RAIKAR , WHO PRESENT BEFORE THIS TRIBUNAL ON BE HALF OF THE ASSESSEE AND HAVE GONE 10 THROUGH THE ORDER OF CIT(A) . THE LEARNED CIT(A) HAS RELIED UPON THE DECISION IN THE CASE OF KARNAVATI COOPERATIVE BANK VS. DCIT (2012) 14 ITR (TRIB.) 175 . THE COMMISSIONER HELD THAT THE PROVISIONS OF SECTION 43D ARE APPLICABLE TO THE COOPERATIVE BANK. WE ARE OF THE VIEW THAT THERE IS AN AMENDMENT IN SEC. 43D OF THE ACT W.E.F. 01/04/2012 AND FROM 01/04/2012, THIS SECTION SPECIFIED THE INSTITUTION TO WHICH THE SEC. 43D IS NOT APPLICABLE AND SEC . 43D I S APPLICABLE TO NATIONAL HOUSING BANK , PUBLIC FINANCIAL INSTITUTION OR A SCHEDULED BANK OR A STATE FINANCIAL CORPORATION OR A STATE INDUSTRIAL INVESTMENT CORPORATION. THE ASS ESSEE IS A COOPERATIVE BANK AND IS NOT A SCHEDULE D BANK, THEREFORE SEC. 43D IS NOT APPLICABLE. WE FIND THAT FROM THE DEFINITION OF SCHEDULED BANK AS PER SEC. 36 (1)(VIIA) OF THE ACT, COOPERATIVE BANK HAS BEEN OMITTED BY THE FINANCE ACT, 2007 W.E.F. 01/04/2007 . THEREFORE , WE ARE OF THE VIEW THAT CIT(A) IS NOT JUSTIFIED IN HOLDING THAT SEC. 43D IS APPLICABLE TO THE ASSESSEE - BANK. IN RESPECT OF THE ASSESSEE , INTEREST ACCRUED ON NON - PERFORMING ASSETS WHICH WE CAN VERIFY FROM THE ASSESSMENT ORDER THAT THE ASSESSEE HAS SUBMITTED THE DETAILS OF NPA ACCOUNT, INTEREST RECEIVABLE ON VARIOUS TYPES OF LOANS VIDE HIS SUBMISSION DATED 11/11/2011 WHEREIN THE ASSESSEE HAS NOT CREDITED THE INTEREST RECEIVABLE OF RS. 31,87,638/ - TO THE P & L ACCOUNT. WE RELY U PON THE DECISION OF THE JURISDICTIONAL HIGH COURT - 11 KARNATAKA HIGH COURT IN CANFINS (2011) 5 TAX (DT) 49593 AND THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF UCO BANK V S. CIT (1999) 237 ITR 889 . W E ARE OF THE VIEW THAT THE ASSESSING OFFICER HAS TO ASCERTAIN WHETHER THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT FROM 01/04/1989 OR NOT? FROM 01/04/1989, AS PER SEC. 145 OF THE ACT , ASSESSEE HAS TO FOLLOW EITHER MERCANTILE SYSTEM OF ACCOUNTING OR CASH SYSTEM. IN THE ABOVE DECISION OF KARNATAKA HIGH COURT WHEREIN THE HONBLE HIGH COURT HAS HELD THAT IF THE ASSESSEE ADOPT S MERCANTILE SYSTEM OF ACCOUNTING AND HIS ACCOUNT S HE SHOW S A PARTICULAR INCOME AS ACCRU ING, WHETHER TH AT AMOUNT IS REALLY ACCRUED OR NOT IS LIABLE TO BRING THE SAID INCOME TO TAX . HIS ACCOUNTS SHOULD REFLECT TRUE AND CORRECT STATEMENT O F AFFAIRS. MERELY BECAUSE THE SAID AMOUNT , ACCR U ED WAS N OT REALIZED IMMEDIATELY CANNOT BE A GROUND TO AVOID PAYMENT OF TAX , BUT IF IN HIS ACCOUNT IT IS CLEARLY STATED THOUGH A PARTICULAR INCOME IS DUE TO HIM BUT IT IS NOT POSSIBLE TO RECOVER THE SAME, THEN IT CANNOT SAID TO HAVE BEEN ACCR U ED AND THE SAID AMOUNT CANNOT BE BR O UGHT TO TAX. THEREFORE , WE REVERSE THE FINDING OF CIT(A) AND RESTORE THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO VERIFY WHETHER THE ASSESSEE HAS FOLLOWED THE MERCANTILE SYSTEM OF ACCOUNTING OR NOT? SECONDLY, IF THIS AMOUNT IS ACCRUED TO THE ASSESSEE, BUT IT IS NOT POSSIBLE T O RECOVER THE SAME THEN IT CANNOT BE SAID TO HAVE BEEN ACCRUED AND THE SAID AMOUNT 12 CANNOT BE BROUGHT TO TAX. THE ASSESSING OFFICER SHOULD VERIFY FROM THE P & L A/C AND DECIDE THE MATTER AS PER LAW AFTER GIVING OPPORTUNITY OF HEARING TO THE ASSESSEE. 8. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. I.T.A.NO. 329/PNJ/2013 9 . ALL THE GROUNDS RELAT ING TO WHETHER THE ASSESSEE IS A COOPERATIVE SOCIETY AND HAS PAID INTEREST TO ITS MEMBERS WHICH IS RIGHTLY COVERED UNDER THE PROVISIONS OF SEC. 194(3)(V) OF THE ACT. 10 . SHORT FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COOPERATIVE BANK CARRYING ON BUSINESS OF BANKING. THE ASSESSEE HAS FILED THE RETURN OF INCOME . THE ASSESSING OFFICER MADE THE ASSESSMENT ORDER U/S. 14 3(3) OF THE ACT AND DIS A LL O WED INTEREST ON TERM DEPOSIT IN EXCESS OF RS. 10,000/ - U/S. 40(A)(IA) OF THE ACT . 11 . MATTER WAS CARRIED TO THE CIT(A) AND CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE BY OBSERVING AS U N DER: - 5 . 1 . 3 IT SAN UNDISPUTED FACT THAT THE APPELLANT HAS PAID INTEREST ON TERM DEPOSITS TO THE TU N E OF RS. 53,00,668/ - TO DEPOSITORS WITHOUT DEDUCTING TAX AT SOURCE. THE APPELLANT HAS CONTENDED THAT THE PROV I S I ONS OF TOS ARE 13 NOT ATTRACTED IN V I EW OF CLAUSE - (V) OF SUB SECTION (3) OF SECTION 194A AS THE INTEREST P AYMENTS TO THE EXTENT OF RS. 53,00,668/ - HAVE BEEN MADE TO THE. MEMBERS OF THE BANK IN THIS REGARD, THE AD HAS INTERPRETED THE WORD CO OPERATIVE SOCIETY AS EMPLOYED IN SEC 194A(3)(V) TO MEAN CO - OPERATIVE SOCIETY OTHER THAN CO - OPERATIVE BANK AS DECIDED BY THE ITAT, PUNE BE NC H, IN BHAGANI NIVEDI TA SAHAKARI BANK LTD V. MIT 87 I TD 569 WHEREIN, THE HONB L E TAT HAS HELD THAT THE TERM CO - OPERATIVE SOCIETY MENTIONED IN SECTION 194A(3)(V) TO BE INTERPRETED AS C O - OPERATIVE SOCIETY OTHER THAN COOPERATIVE BANK. THUS, THE AO DISALLOWED THE ENTIRE INTEREST PAYMENTS EXCEEDING RS.10,000/ - MADE TO THE MEMBERS AND NON - MEMBERS BY THE AP P ELLANT BANK FOR THE REASONS MENTIONED ABOVE. 5.1.4 ON GOING THROUGH THE PROVISIONS OF SECTION 194A(3), IT IS SEE N THAT THE ASSESSING OFFICER IS JUSTIFIED IN DISALLOWING THE INTEREST PAYMENTS ABOVE THE THRESHOLD LIMIT OF RS.10,000 PAID TO THE DEPOSITORS AS THE APPELLANT BANK HAD, FAILED TO DEDUCT TAX AT SOURCE TH E REBY RENDE R ING ITSELF LIABLE FOR DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE IT. ACT, 1961. THE SUBMISS IONS OF THE APPELLANT ARE NOT AC CEPTABLE IN VIEW OF THE DECISION OF HONBL E PUNE ITAT IN THE CASE OF BHAGANI NIVEDITA SAHAKARI BANK LTD CITED SUPRA WHEREIN, IT IS CLEARLY HELD THAT SEC TION 194A(3)(V II A)(B) MAKES NO DISTINCTION BETWEEN MEMBERS AND NON - MEMBERS OF CO OPERA TIVE BANK FOR PURPOSE OF DEDUCTION OF TAX AT SOURCE ON INTEREST ON TIME DEPOSITS ID/CREDITED AND THEREFORE, CO - OPERATIVE BANK WOULD BE LIABLE TO DEDUCT LAX AT SOURCE UN DER SECTION 194A(1) ON INTEREST ON TIME DEPOSITS PAID/CREDIT TO ITS DEPOSITORS IF SUCH INTEREST AMOUNT EXCEEDED THE L IMIT PRESCRI BED IN PROVISO TO SECTION 194A(3)(II). FURTHER, THE HONBLE KERALA HIGH COURT IN THE CASE OF MOOLAMATTO M E L ECT RI CITY BOARD EMPL OYEES CO - OP BANK LTD 238 ITR 630 H A S MADE A CLEAR DISTINCTION BETWEEN PRIMARY CREDIT SOCIETY AND A CO - OH SOCIETY ENGAGED IN BANKING BUSINESS, THUS, SECTION 194A DEALS WITH CO - OP SOCIETIES ENGAGED IN THE BUSINESS OF BANKING, CO - OPERATIVE SOCIETIES ENGAGED I N PROVIDING CREDIT FACILITIES TO THE ME M BERS, ETC. AS HAS B E EN RIGHTLY HELD BY THE ASSESSING OFFICER THAT THE MOMENT THE AMOUNT PAID/CREDITED T O ANY DEPOSITOR DURING THE YEAR EXCEEDS RS.10 , 000 THE PROVISIONS OF SECTION 1944(1) SHALL APPLY AND THE CO - OPERATIVE SOCIETY ENGAGED IN THE BANKI N G BUSINESS S HA L L HAVE TO DEDUCT TAX ON SUCH PAYMENTS, FROM THE FACTS OF THE CASE, IT IS SEEN THAT THE ASSESSING OFFICER CATEGORICALLY BROUGHT OUT THE MATERIAL ON RECORD TO PROVE THAT THE APPELLANT BANK IS COVERED B / THE PROVISIONS OF SUB - CLAUSE (B) OF CLAUSE (I) OF SEC 194A( 3) AS WELL AS THE PROVISIONS OF CLAUSE (VIIA) OF SEC.194A(3) WHICH ARE SPECIFIC IN NATURE AND 14 THE APPELLANT CANNOT PUT FORTH ITS CL AIM UNDER SECTION 194(3)(V) WHICH ARE GENERAL IN NATURE. A S THE APPELLANT IS CO - OPERATIVE SOCIETY ENGAGED H THE BUSINESS OF BANKIN G , IT IS C OVERED UNDER THESE SPECIFIC CLAUSES AND AS HAS BEEN HELD BY THE HONBLE * IT AT, PUNE BENCH, PUNE IN SHAGANI NIVEDITA SAHAKARI BANK LTD V. ACIT (2003) 87 ITO 569 THAT THE TERM CO - O P SOCIETY IN SUB - CL AUSE ( V) TO BE INTERPRETED A CO - OP SOCIETY OTHER THAN COOPERATIVE BANK, THE APPELLA N T IS L IAB L E FOR TDS PROVISIONS UNDER SECTI O N 194K 5.1.5 THE APPELL ANTS ARGUMENT THAT CLAUSE(V) TO SEC.194A(3) MAY BE TAKEN AS APPLYING TO MEMBERS AND OTHER CLAUSES TO THE SAID SECTION MAY HE TAKEN TO APPLY TO NON MEMBERS IS WITHOUT ANY BASIS IN AS MUCH AS CLAUSES (I) AND (VI I A) APPLY TO BOTH THE MEMBERS AS WELL AS NON MEMBERS, WHERE EVER THE LEGISLATURE INTENDS TO APPLY A PARTICULAR PROVISIO N TO MEMBER OR TO A FL MEMBER, IT HAS DONE SO EXPRESSLY. 5.1.6 NOW COM ING TO THE CIRCULAR NO.9 OF 2002 ISSUED BY THE CBDT RELIED UPON BY THE ANT, THE BOARD VIDE SAID CIRCU LAR HAD SOUGHT TO I NTERPRET THE DEFIN ITI ON OF WORD MEMBER CLA RIFYING THAT THE WORD MEMBER DOES NOT INCLUDE WORD NOMINAL MEMBER IT WAS HELD BY THE BOMBAY HIGH COURT IN THE CASE OF JA L GAON DISTRICT CENTRAL CO - OP BANK LTD & ANR V. UNION OF IND I A 265 ITR 423 (6AM), THAT THE BOARD HAS NO POWER TO INTERPRET THE PROVISIONS OF LAW BY WAY OF CIRCULAR THE ISSUE AT HAND OF THE BOMBAY HIGH COURT WAS THE DEFINITI O N OF THE WORD ME M BER AS APPEARI NG IN CLAUSE ( V) OF SECTION 194(3) A N D THE PO W ERS OF THE CENTRAL BOARD OF DIRECT TAXES TO ISSUE CIRCULARS U/S 119 WHICH WOULD OVERRIDE OR DETRACT FROM THE PROVISIO NS OF THE INCOME TAX ACT. THE CIRCULAR NO . 9 OF 2002 DATED 11 - 09 - 2002 ISSUE D BY TH E CBDT HAS BEEN QUASHED AND SET ASIDE BY THE HONBLE HIGH COURT. THEREFORE, THE CIRCULAR NO.9 OF 2002 DATED 11 - 09 - 2002 ISSUED BY THE CBOT DOES NOT HELP THE CASE OF THE APPELL ANT THE APPELLANTS RELIANCE ON THE SAID CIRCULAR IS FOUND TO BE ILL FOUNDED, 517 IN ORDER TO UNDERSTAND THE LEGISLATIVE INTENT IN THIS REGARD, IT IS NECESSARY TO REFER TO THE EXPLANATORY NOTES TO FINANCE (NO 2 ) ACT, 1991 GIVEN IN THE CIRCUL AR NO 621 DATED 1 - 12 1991 WHICH AMONG OTHERS, PROVIDES THAT WITH A VIEW TO IMPROVING TAX COMPLIANCE, SEC 194A OF THE ACT HAS BEEN AMENDED TO SECURE DEDUCTION OF TAX AT SOURCE FROM INTEREST ON TIME DEPOSITS WITH THE AFORESAID BANKING COMPANIES AND CO - OPERATIVE SOCIETIES ENGAGED IN CARRYING ON THE BUSINESS OF BANKING. THIS CIR C ULAR OF THE CBDT EXPLAINS IN NO UNCERTAIN TERMS THAT THE INTENTION OF THE LEGISLATURE N AMENDMENT OF SECTION 1944, INTER A L IA WAS 15 TO SECURE DEDUCTION OF TAX AT SOURCE FROM INTEREST ON TIME DEPOSITS WIT H THE BANKING COMPANIES AND CO - OP ERATIVE SOCIETIES 2NGAGED IN CARRYING ON THE BUSIN ESS OF BANKING. THE APPELLANT BEING A CO - OPERATI V E SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING S LIABLE TO MAKE TDS U/S 194A . 5.1.8 IN VIEW OF THE ABOVE DISCU SSION AND TAKING INTO CONSIDERATION THE VARIOUS REASONS EN BY THE ASSESSING OFFICER, THE DISALLOWANCE MADE UNDER SECTION 40(A)(IA} AMOUNTING TO RS. 53,00, 668/ - IS CONFIRMED. THE NEXT GROU NDS OF APPEAL RELATE TO THE ADDI TION OF RS 31 , 87,638/ - ON ACCOUNT INT EREST RECEIVABLE NPAS NOT CREDITED TO P & I ACCOUNT AS PER THE METHOD OF ACCOUNTING FOLLOWED, BY THE, APPELLANT BANK. THE ASSESSING O FFICER NO TI CED THAT THE A PPELLANT BANK IS FOLLOWING HYBRID SYSTEM OR MIXED SYSTEM OF ACCOUNTING TO COMPUTE I TS NET INCOME FROM THE BANKING BUSINESS. THE APPELLANT BANK IS MAINLY FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI N G BUT INTEREST ON AD V ANCES IS R ECOGNIZED AS INCOME O RECEIPT BASIS AS PER SOCIETIES ACT AND AS PER GUIDELINES ISSUED BY THE RBI. 1 2 . THE ASSESSEE DID NOT REMAIN PRESENT AND THE LEARNED DR HAS SUBMITTED BEFORE U S THAT THIS TRIBUNAL HAS TAKEN A CONSISTENT VIEW THAT AS PER SEC. 194 A, IF THE COOPERATIVE BANK MAY PAID INTEREST ON TERM DEPOSIT WHICH IS IN EXCESS OF RS. 10,000/ - , THE TDS IS APPLICABLE TO THE COOPERATIVE BANK. LEARNED DR RELIED UPON THE TRIBUNALS DECISION IN THE CASE OF ACIT VS. THE BELGAUM DISTRICT CENTRAL COOPERATIVE BANK LTD. , BELGAUM IN I.T.A.NO. 324/PNJ/2013 DATED 14/11/2014 . 13 . THE REPRESENTATIVE OF THE BANK DID NOT SUBMIT ANYTHING. 14 . HAVING HEARD LEARNED DR AND LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ISSUE IN CONTROVERSY IS 16 COVERED BY THE DECISION OF THIS TRIBUNAL IN THE CASE OF ACIT VS. THE BELGAUM DISTRICT CENTRAL COOPERATIVE BANK LTD., BELGAUM IN I.T.A.NO. 324/PNJ/2013 DATED 14/11/2014 WHEREIN THIS TRIBUNAL HAS TAKEN A DECISION THAT THE ASSESSEE COOPERATIVE BANK IS LIABLE FOR TDS U/S. 194 OF THE ACT. THE TRIBUNAL HAS HELD AS UNDER: - 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD OF THE CASE. THE SHORT QUESTION BEFORE US FOR ADJUDICATION, WHETHER OR NOT, THE ASSESSEE CO - OPERATIVE BANK ENGAGED IN THE BANKING BUSINESS IS LIABLE FOR TDS OR NOT. WE FIND THAT THE ASSESSEES CASE FALLS UNDER THE AMBIT OF SUB - CLAUSE (B) OF CLAUSE (I) OF SUB - SECTION(3) OF SECTION 194A AND, HENCE, TDS PROVISIONS ARE ATTRACTED. AS PER THE SAID PROVISIONS OF SUB - CLAUSE (B) OF CLAUSE (I) OF SECTION 194A(3) OF THE INCOME TAX ACT, 1961, ANY CO - OPERATIVE SOCIETY WHICH IS ENGAGED IN THE BUSINESS OF BANKING SHALL HAVE TO DEDUCT TAX ON INTEREST PAID OR PAYABLE TO ANY PERSON ON TIME DEPOSITS, IF THE AMOUNTS OF SAID INTEREST EXCEEDS RS.10,000/ - . THE STATUS OF THE ASSESSEE IS CO - OPERATIVE BANK VIS - A - VIS OTHER C O - OPERATIVE SOCIETIES. THIS HAS BECOME IMPORTANT DUE TO THE FACT THAT THE ASSESSEE HAD CLAIMED TO BE AN ORDINARY CO - OPERATIVE SOCIETY WITHIN THE MEANING OF CLAUSE (V) OF SECTION 194A(3) OF THE ACT. THE CO - OPERATIVE SOCIETY INCLUDES DIFFERENT TYPES OF CO - OPERATIVE SOCIETY IN DIFFERENT TYPE OF ACTIVITIES. WHEREVER, THE REFERENCE IS MADE TO ANY CO - OPERATIVE SOCIETY, THE INCOME TAX ACT, 1961 HAS CLEARLY DISTINGUISHED AND SPECIFIED THE TYPE OF CO - OPERATIVE SOCIETY BASED ON THE TYPE OF ACTIVITY CARRIED OUT. S UCH A DISTINCTION WAS REQUIRED AS THE LEGISLATION INTENDS TO EXTEND DIFFERENT BENEFITS TO DIFFERENT TYPES OF CO - OPERATIVE SOCIETIES THROUGH THE INCOME TAX ACT. THE ASSESSEE CLAIMED THE BENEFIT OF SECTIONS 36(1)(VIIA), 269 SS AND 269T ON THE GROUND THAT IT IS A CO - OPERATIVE BANK BUT FOR AVAILING EXEMPTION FROM TDS UNDER SECTION 194A, IT IS CLAIMING ITSELF AS AN ORDINARY CO - OPERATIVE SOCIETY WITHIN THE MEANING OF SECTION 194A(3)(V) OF THE ACT. WE FIND THAT THIS DISTINGUISHES THE CO - OPERATIVE SOCIETY AND T HE COOPERATIVE SOCIETY CARRYING ON BUSINESS OF BANKING. THE HONBLE KERALA HIGH COURT IN THE CASE OF MOOLAMATOM ELECTRICITY BOARD EMPLOYEES CO - OPERATIVE BANK LTD., 238 ITR 630 HAS DISTINGUISHED THIS. WE ALSO RELY UPON THE DECISION OF HONBLE JURISDICTION AL KARANATAKA HIGH COURT IN THE CASE OF CIT VS. YESHWANTHPUR CREDIT CO - OPERATIVE SOCIETY LIMITED IN INCOME TAX APPEAL NO.2372012, 17 WHEREIN, THE HONBLE HIGH COURT HAS INTERPRETED THE CO - OPERATIVE BANK BY OBSERVING AS UNDER: NATURE CO - OPERATIVE SOCIETY RE GISTERED UNDER BANKING REGULATION ACT, 1949 CO - OPERATIVE SOCIETY REGISTERED UNDER KARNATAKA CO - OPERATIVE SOCIETY ACT, 1959 REGISTRATION UNDER THE BANKING REGULATION ACT, 1949 AND CO - OPERATIVE SOCIETIES ACT, 1959 CO - OPERATIVE SOCIETIES ACT, 1959 NATURE OF BUSINESS 1. AS DEFINED IN SECTION 6 OF BANKING. REGULATION ACT. 2. CAN OPEN, SAVINGS BANK ACCOUNT, CURRENT ACCOUNT, OVERDRAFT ACCOUNT, CASH CREDIT ACCOUNT, ISSUE LETTER OF CREDIT, DISCOUNTING BILLS.. OF EXCHANGE, ISSUE CHEQUES, DEMAND DRAFTS (DD), PAY O RDERS, GIFT CHEQUES, LOCKERS, BANK GUARANTEES ETC. 3. CO - OPERATIVE BANKS CAN ACT AS CLEARING AGENT FOR CHEQUES, DDS, PAY - ORDERS AND OTHER FORMS. 4. BANKS ARE BOUND TO FOLLOW THE RULES, REGULATIONS AND DIRECTIONS ISSUED BY RESERVE BANK OF INDIA (RBI) 1. AS PER THE BYE LAWS OF THE COOPERATIVE SOCIETY. 2. SOCIETY CANNOT OPEN SAVINGS BANK ACCOUNT, CURRENT ACCOUNT, ISSUE LETTER OF CREDIT, DISCOUNTING BILLS OF EXCHANGE, ISSUE CHEQUE , DEMAND DRAFTS, PAY ORDERS, GIFT C HEQUES,LOCKERS, BANK GUARANTEES ETC. 3. SOCIETY CANNOT ACT CLEARING AGENT, FOR CHEQUES, DDS, PAY ORDERS AND OTHER FORMS. 4. SOCIETY ARE BOUND BY RULES AND REGULATIONS AS SPECIFIED BY IN THE CO - OPERATIVE SOCIETIES ACT. FILING OF RETURNS CO - OPERATIVE BANKS. HAVE TO SUBMIT ANNUAL RETURN TO RBI EVERY YEAR SOCIETY HAS TO SUBMIT THE ANNUAL RETURN TO REGISTRAR OF SOCIETIES. INSPECTION RBI HAS THE POWER TO INSPECT ACCOUNTS AND OVER ALL FUNCTIONING OF THE BANK REGISTRAR HAS THE POWER TO INSPECT ACCOUNTS AND OVER ALL FUNCTIONING OF THE BANK. PART V OF THE PART V PART V OF THE BANKING REGULATION ACT IS APPLICABLE TO CO - OPERATIVE BANK PART V OF THE BANKING REGULATION ACT IS NOT APPLICABLE TO CO - OPERATIVE BANKS. USE OF WORDS THE WORD BANK BANKER, BANKING CAN BE USED BY A CO - OPERATIVE BANK. THE WORD B ANK BANKER, BANKING CANNOT BE USED BY A CO - OPERATIVE SOCIETY 18 10. WE FIND ALSO SUPPORT FROM THE DECISION OF HONBLE HIGH COURT, WHEREIN, IT HAS BEEN HELD AS UNDER: IF A CO - OPERATIVE BANK IS EXCLUSIVELY CARRYING BANKING BUSINESS, THEN THE INCOME DERIVED FROM THE SAID BUSINESS CANNOT BE DEDUCTED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. THE SAID INCOME IS LIABLE FOR TAX. A CO - OPERATIVE BANK AS DEFINED UNDER THE BANKING REGULATION ACT INCLUDES THE PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMAR Y CO - OPERATIVE AGRICULTURAL RURAL DEVELOPMENT BANK. THE LEGISLATURE DID NOT WANT TO DENY THE SAID BENEFIT TO A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. THEY DID NOT WANT TO EXTEND THE SAID BENEFI T TO A CO - OPERATIVE BANK WHICH IS EXCLUSIVELY CARRYING ON BANKING BUSINESS I.E., THE PURPORT OF THE AMENDMENT. IF THE ASSESSEE IS NOT A CO - OPERATIVE BANK CARRYING ON EXCLUSIVELY BANKING BUSINESS AND IF IT DOES NOT POSSESS A LICENSE FROM THE RESERVE BANK OF INDIA TO CARRY ON BUSINESS, THEN IT IS NOT A CO - OPERATIVE BANK. IT IS A CO - OPERATIVE SOCIETY WHICH ALSO CARRIES ON THE BUSINESS OF LENDING MONEY TO ITS MEMBERS WHICH IS COVERED UNDER SECTION 80P(2)(A)(I) I.E., CARRYING ON THE BUSINESS OF BANKING FOR PROVI DING CREDIT FACILITATES TO ITS MEMBERS. THE OBJECT OF THE AFORESAID AMENDMENT IS NOT TO EXCLUDE THE BENEFIT EXTENDED UNDER SECTION 80P(I) TO THE SOCIETY. 11. IN THE ABOVE JUDGEMENT, HONBLE HIGH COURT HAS HELD THAT THE CO - OPERATIVE BANK AND CO - OPERATIVE SOCIETY IS DIFFERENT ENTITY AND THEY ARE ON DIFFERENT FOOTING. WE ALSO RELY UPON THE CLARIFICATION MADE BY CBDT IN THIS REGARD, WHICH READS AS UNDER: NO. 133/06/2007 - TPL GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF RESERVES CENTRAL BOARD OF DIRE CT TAXES NEW DELHI, THE 9TH MAY, 2007 19 TO, SHRI. 0. P. GUPTA, SECRETARY, THE DELHI CO - OP. URBAN T& C SOCIETY LTD., 31/64, BHIKAM SINGH COLONY, VISHWAS NAGAR, DELHI - 110032 SIR, SUBJECT: CLARIFICATION REGARDING ADMISSIBILITY OF DEDUCTION UNDER SEC. 80P OF INCOME - TAX ACT, 1961 1. PLEASE REFER TO YOUR LETTER NO. DCUS/30688/2007, DATED 28.3.2007 ADDRESSED TO CHAIRMAN, CENTRAL BOARD OF DIRECT TAXES ON THE ABOVE CITED SUBJECT. 2. IN THIS REGARD, I HAVE BEEN DIRECTED TO STATE THAT SUB - SECTION(4) OF SECTION 80P PROVIDES THAT DEDUCTION UNDER THE SAID SECTION SHALL NOT BE AVAILABLE TO ANY CO - OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY COOPERATIVE AG RICULTURAL AND RURAL DEVELOPMENT BANK. FOR THE PURPOSES OF THE SAID SUB - SECTION, COOPERATIVE BANK SHALL HAVE THE MEANING ASSIGNED TO IT IN FART V OF THE BANKING REGULATION ACT, 1949. 3. IN PART V OF THE BANKING REGULATION ACT, CO - OPERATIVE BANK MEANS A STATE CO - OPERATIVE BANK, A CENTRAL CO - OPERATIVE BANK AND A PRIMARY CO - OPERATIVE BANK AND A PRIMARY CO - OPERATIVE BANK. 4. THUS, IF THE DELHI CO - OP. URBAN T&C SOCIETY LTD., DOES NOT FALL WITHIN THE MEANING OF CO - OPERATIVE BANK AS DEFINED IN PAN V OF TH E BANKING REGULATION ACT, 1949, SUB - SECTION (4) OF SECTION 801 WILL NOT APPLY IN ITS CASE. 5. THESE ISSUES WITH THE APPROVAL OF CHAIRMAN, CENTRAL BOARD OF DIRECT TAXES. YOURS SINCERELY, SD/ - (SOBHAN KOT) UNDER SECRETARY TO THE GOVT OF INDIA 20 12. FROM THE JUDGEMENTS OF HONBLE JURISDICTIONAL KARNATAKA HIGH COURT IN THE CASE OF YESHWANTHPUR CREDIT CO - OPERATIVE SOCIETY LIMITED (SUPRA) AND HONBLE KERALA HIGH COURT IN THE CASE OF MOOLAMATOM ELECTRICITY BOARD EMPLOYEES CO - OPERATIVE BANK LTD (SUPRA), WE ARE OF THE VIEW THAT THE CO - OPERATIVE SOCIETY AND CO - OPERATIVE SOCIETY CARRYING ON BUSINESS OF BANKING ARE ON DIFFERENT FOOTING. THE AO HAS ALSO REFERRED THE EXPLANATORY NOTES TO FINANCE (NO.2) ACT, 1991 GIVEN IN THE CIRCULAR NO.621 DATED 19.12.1991 WHICH AMONG OTHERS, PROVIDES THAT WITH A VIEW TO IMPROVING TAX COMPLIANCE, SECTION 194A OF THE ACT HAS BEEN AMENDED TO SECURE DEDUCTION OF TAX AT SOURCE FROM INTEREST ON TIME DEPOSITS WITH THE AFORESAID BANKING COMPA NIES AND CO - OPERATIVE SOCIETIES ENGAGED IN C ARRYING ON THE BUSINESS OF BANKING. SINCE THE ASSESSEE BANK IS COVERED BY THE PROVISIONS OF SAID CLAUSE (B) OF CLAUSE (I) OF SECTION 194A(3) AS WELL AS PROVISIONS OF CLAUSE (A) OF SAID SECTION, WHICH ARE SPECIFIC IN NATURE, WE HOLD THAT THE ASSESSEE IS N OT ENTITLED FOR BENEFIT BY ARGUING THAT SECTION 194A(3) IS SPECIFIC IN NATURE. WE FIND THAT WHEREVER THERE IS SPECIFIC PROVISION, IT OVERRIDE THE GENERAL PROVISION. FOR THIS PROPOSITION, WE RELY UPON THE DECISION OF THE JURISDICTIONAL KARNATAKA HIGH COURT IN THE CASE OF M.L.VASUDEVA MURTHY AND SONS AND OTHERS VS. JOINT COMMISSIONER OF AGRICULTURAL INCOME TAX, 198 ITR 426(KAR). THE HONBLE SUPREME COURT IN THE CASE OF SOUTH INDIAN CORPN. (P) LTD. VS. SECRETARY, BOARD OF REVENUE AIR 1964 SC 207 HAS HELD THA T A SPECIAL PROVISION SHOULD BE GIVEN TO THE EXTENT OF ITS SCOPE LEAVING THE GENERAL PROVISION TO CONTROL CASES WHERE THE SPECIAL PROVISION DOES NOT APPLY THEREFORE, WE ARE OF THE VIEW THAT IN THIS CASE, ASSESSEES CASE IS COVERED BY THE PROVISIONS OF C LAUSE (I) AND (VA) WHICH ARE THE GENERAL PROVISIONS OF 21 CLAUSE (V) OF SECTION 194A(3) OF THE ACT. WE REPRODUCE THE SECTION FOR THE SAKE OF CONVENIENCE, WHICH READS AS UNDER: SECTION : 194A.: INTEREST OTHER THAN INTEREST ON SECURITIES (1) ANY PERSON, NOT BEING AN INDIVIDUAL OR A HINDU PAYING TO A RESIDENT ANY INCOME BY WAY OF INTEREST SECURITIES, SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME TAX THEREON AT THE RATES IN FORCE (2).... (3) THE PROVISIONS OF SUB - SECTION(1) SHALL NOT APPLY - WHERE THE AMOUNT OF SUCH INCOME OR, AS THE CASE MAY BE, THE AGGREGATE OF THE AMOUNT OF SUCH INCOME CREDITED OR PAID OR LIKELY TO BE CREDITED OR PAID DURING THE FINANCIAL YEAR BY THE PERSON REFERRED TO I SUBSECTION (1) TO THE ACCOUNT OF OR TO, THE PAYEE, DOES NOT EXCEED (A) TEN THOUSAND RUPEES, WHERE THE PAYER IS A BANKING COMPANY I WHICH THE BANKING REGULATION ACT, 1949 (10 OF 1949) APPLIES (INCLUDING ANY BANK OR BANKING INSTITUTION, REFERRED TO IN SECTION 51 OF THAT 4CR); (B) TEN THOUSAND RUPEES, WHERE THE PAYER IS A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING; (C,) TEN THOUSAND RUPEES, ON ANY DEPOSIT WITH POST OFFICE UNDER ANY SCHEME FRAMED BY THE CENTRAL GOVERNMENT AND NOT(FLED BY IT IN THIS BEHALF AND (D) FIVE THOUSAND RUPEES IN ANY OTHER CASE: (II)T O (IV) ........ ( TO SUCH INCOME CREDITED OR PAID BY A CO - OPERATIVE SOCIETY TO A MEMB ER THEREOF OR TO ANY OTHER CO - OPERATIVE SOCIETY; (VI,) & (VII,).......... (VIIA) TO SUCH INCOME CREDITED OR PAID IN RESPECT OF 22 (A) DEPOSITS WITH A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CREDIT SOCIETY OR A CO - OPERATIVE LAND MORTGAGE BANK OR A CO OPERATIVE LAND DEVELOPMENT BANK; (B} DEPOSITS (OTHER THAN TIME DEPOSITS MADE ON OR AFTER THE 1ST DAY OF JULY, 1995) WITH A CO - OPERATIVE SOCIETY, OTHER THAN A CO - OPERATIVE SOCIETY OR BANK REFERRED TO IN SUB - CLAUSE (A), ENGAGED IN CARRYING ON THE BUSINESS OF BANKING; 13. WE FIND THAT SIMILAR ISSUE HAS BEEN DEALT WITH IN DETAIL IN THE CASE OF SARASWATI CO - OPERATIVE BANK LTD (SUPRA), WHEREIN, IT HAS BEEN HELD AS UNDER: LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE THE HONBLE HIGH COURT HAS INTERPRETED THE DIFFERENCE BETWEEN CO - OPERATIVE BANK AND CO - OPERATIVE SOCIETY. THE CO - OPERATIVE BANK AND CO - OPERATIVE SOCIETY IS ALSO INTERPRETED IN THE CASE OF BHAGANI NIVEDITA SAHAKARI BANK LTD. VS. ACIT (2003) 87 ITD 5 67 WHERE IN IT IS HELD THAT CO - OPERATIVE SOCIE TY MENTIONED IN SECTION 194A(3)(V) SHOULD BE INTERPRETED AS CO - OPERATIVE SOCIETY OTHER THAN CO - OPERATIVE BANK. WE FIND THAT THE ITAT PUNE BENCH HAS INTERPRETED THE WORD CO - OPERATIVE AND CO - OPERATIVE SOCIETY AND FURTHER THE HONBLE KERALA HIGH COURT IN TH E CASE OF MOOLAMATTOM ELECTRICITY BOARD EMPLOYEES CO - OPERATIVE BANK LTD. 630 HAS MADE A CLEAR DISTINCTION BETWEEN PRIMARY CREDIT SOCIETY AND A CO - OPERATIVE SOCIETY ENGAGED IN BANKING BUSINESS. SECTION 194A DEALT WITH CO - OPERATIVE SOCIETY ENGAGED IN BUSINES S AS BANKING. WE FIND THAT THE ASSESSEE BANK IS COVERED BY THE PROVISIONS OF SUB - CLAUSE (B) OF CLAUSE (I) OF SEC.194A(3) AS WELL AS THE PROVISIONS OF CLAUSE (VIIA) OF SECTION 194(3)A WHICH ARE SPECIFIC IN NATURE AND 194(3)(V) WHICH ARE GENERAL IN NATURE. WE FIND THAT THE HONBLE KERALA HIGH COURT IN THE CASE OF ITO& ORS. VS. THODUPUZHA URBAN CO - OPERATIVE BANK AND OTHERS HAVE FILED THE WRIT BEFORE THE HONBLE KERALA HIGH COURT, WHEREIN THE HONBLE HIGH COURT HAS HELD AS UNDER: THE INCOME TAX DEPARTMENT HAS COME UP WITH THIS APPEAL AGAINST THE JUDGMENT IN O.P. NO. 17082/1997.(THODUPUZHA URBAN CO - OPERATIVE BANK LTD., IN [1999]238 ITR630(KER). THAT PETITION WAS FILED BY FIVE CO - OPERATIVE SOCIETIES, WHEN THEY WERE FACED WITH A NOTI CE FROM THE APPELLANT TO DEDUCT THE INCOME - TAX OUT OF THE INTEREST PAID BY THEM ON TIME DEPOSITS, IN RESPECT OF EVERY PAYMENT EXCEEDING RS. 10,000, AT THE RELEVANT POINT OF TIME. THE LEARNED SINGLE JUDGE AS PER THE IMPUGNED 23 JUDGMENT, QUASHED THE NOTICES HO LDING THAT GOING BY THE PROVISIONS CONTAINED IN SECTION 194A(3)(VIIA)(A) OF THE INCOME TAX ACT, FOR SHORT THE ACT ,THE WRIT PETITIONERS WERE NOT LIABLE TO DEDUCT INCOME - TAX AT SOURCE IN RESPECT OF THE INTEREST SO PAID, AS SUB - SECTION (3) EXEMPTS THEM FRO M THE COVERAGE OF SUB - SECTION (1) OF SECTION 194A OF THE ACT. AGGRIEVED BY THE JUDGMENT, THIS APPEAL IS FILED ONLY AGAINST THE 4TH PETITIONER IN O.P. NO. 17082/1997 (SEE[199]238 ITR 630), NAMELY, THE THODUPUZHA URBAN CO - OPERATIVE BANK LTD. NO. 394, THODUPUZHA, IDUKKI DISTRICT, REPRESENTED BY THE SECRETARY. SUB - SECT ION 3 OF SECTION 194A OF THE ACT MAKES IT CLEAR THAT 'THE PROVISIONS OF SUB - SECTION (1) SHALL NOT APPLY' IN RESPECT OF SEVERAL SITUATIONS MENTIONED UNDER THAT CLAUSE. ADMITTEDLY, SUB - SECTION (1) OF SECTION 194A CAST THE LIABILITY ON ALL THOSE INSTITUTIONS OTHER THAN INDIVIDUALS AND HINDU UNDIVIDED FAMILY TO DEDUCT INCOME - TAX AT SOURCE, WHEN SUCH INSTITUTIONS PAY INTEREST ON DEPOSITS EXCEEDING THE PRESCRIBED LIMIT. SUB - SECTION (3)(VIIA) READS AS FOLLOWS : SUB - SECTION 3 OF SECTION 194A OF THE ACT MAKES IT C LEAR THAT 'THE PROVISIONS OF SUB - SECTION (1) SHALL NOT APPLY' IN RESPECT OF SEVERAL SITUATIONS MENTIONED UNDER THAT CLAUSE. ADMITTEDLY, SUB - SECTION (1) OF SECTION 194A CAST THE LIABILITY ON ALL THOSE INSTITUTIONS OTHER THAN INDIVIDUALS AND HINDU UNDIVIDED FAMILY TO DEDUCT INCOME - TAX AT SOURCE, WHEN SUCH INSTITUTIONS PAY INTEREST ON DEPOSITS EXCEEDING THE PRESCRIBED LIMIT. SUB - SECTION (3)(VIIA) READS AS FOLLOWS : '(3) THE PROVISIONS OF SUB - SECTION (1) SHALL NOT APPLY (VIIA) TO SUCH INCOME CREDITED OR PAID IN RESPECT OF (A) DEPOSITS WITH A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CREDIT SOCIETY OR A CO - OPERATIVE LAND MORTGAGE BANK OR A CO - OPERATIVE LAND DEVELOPMENT BANK; (B) DEPOSITS (OTHER THAN TIME DEPOSITS MADE ON OR AFTER THE 1ST DAY OF JULY, 1 995) WITH A CO - OPERATIVE SOCIETY, OTHER THAN A CO - OPERATIVE SOCIETY OR BANK REFERRED TO IN SUB - CLAUSE (A), ENGAGED IN CARRYING ON THE BUSINESS OF BANKING;' THE RESULT WILL BE THAT INTEREST PAID ON TIME DEPOSITS BY A CO - OPERATIVE SOCIETY, OTHER THAN A CO - OPERATIVE SOCIETY OR BANK REFERRED TO IN SUB - CLAUSE (A), ENGAGED IN CARRYING ON THE BUSINESS OF BANKING WILL BE COVERED BY SUB - SECTION (1), AND THEREFORE, WILL BE LIABLE TO DEDUCT INCOME - TAX. THE APPELLANT DOES NOT HAVE A CASE BEFORE US THAT THE 4TH PET ITIONER, THE FIRST RESPONDENT HEREIN, DOES NOT COME WITHIN ANY OF THE TYPES OF CO - 24 OPERATIVE SOCIETIES MADE MENTION OF IN SUB - CLAUSE (A) OF CLAUSE (VIIA) OF SUB - SECTION (3) OF SECTION 194A OF THE ACT. THEREFORE, IRRESPECTIVE OF WHETHER IT IS A TIME DEPOSIT OR ANY OTHER TYPE OF DEPOSIT, THE 4TH PETITIONER, FIRST RESPONDENT WILL NOT BE LIABLE TO DEDUCT INCOME - TAX, AS SUCH SOCIETY IS UNDER SUB - SECTION (3) TAKEN OUT OF THE PURVIEW OF SECTION 194A(1) OF THE ACT. THEREFORE, THE WRIT APPEAL FAILS, DISMISSED. W.A. NO. 2270 OF 1998: A READING OF THE IMPUGNED JUDGMENT DISCLOSES THAT THE WRIT PETITIONER, THE FIRST RESPONDENT, WAS CONCEDE TO BE AN AGRICULTURAL CO - OPERATIVE SOCIETY. CONSEQUENTLY, IT COMES WITHIN THE PURVIEW OF CLAUSE (VIIA)(A) OF SUB - SECTION (3) OF SEC TION 194A OF THE INCOME - TAX ACT, 1961. NATURALLY, THE FIRST RESPONDENT - SOCIETY WILL NOT BE LIABLE IN TERMS OF SUB - SECTION (1) OF SECTION 194A. THE WRIT APPEAL FAILS, DISMISSED. FROM THIS ABOVE WE ARE OF THE VIEW THAT THE HONBLE HIGH COURT HAS INTERPRET ED SECTION 194(V) AND 194(VA) OF SECTION 194A(3). NOW COMING TO CIRCULAR NO. 9/2002, ISSUED BY THE CBDT, WHICH IS RELIED UPON THE ASSESSEE. THE SAID CIRCULAR SOUGHT TO INTERPRET THE DEFINITION OF MEMBER CLARIFIED THAT THE MEMBER DOES NOT INCLUDE THE NOMINAL MEMBER. IT WAS HELD BY THE BOMBAY HIGH COURT IN THE CASE OF JALGAON DISTRICT CENTRAL CO - OPERATIVE BANK LTD. & ANORS. VS. UNION OF INDIA 265 ITR 423, THAT THE BOARD HAS NO POWER TO INTERPRET THE PROVISIONS OF LAW BY WAY OF CIRCULAR. THE ISSUE IN H AND OF HONBLE BOMBAY HIGH COURT WAS THE DEFINITION OF WORD MEMBER AS APPEARING IN CLAUSE - (V)OF SECTION 194A(3) AND POWER OF CENTRAL BOARD OF DIRECT TAX TO ISSUE CIRCULAR U/S 119 WHICH WOULD OVERRIDE OR DETRACT FROM THE PROVISIONS OF INCOME TAX ACT. THE CIRCULAR NO.9/2002 DATED 11.9.2002 ISSUED BY CBDT HAS BEEN QUASHED AND SET ASIDE BY HONBLE BOMBAY HIGH COURT. THEREFORE, CIRCULAR NO.9/2002 DATED 11.09.2002 ISSUED BY CBDT DOES NOT HELP TO THE CASE OF THE ASSESSEE. THE ASSESSEE RELIED UPON THE SAID CIRCU LAR IS ILL FOUNDED. THE QUESTION BEFORE THE HONBLE BOMBAY HIGH COURT WAS NOT WHETHER A CO - OPERATIVE BANK NOT ENTITLE TO DEDUCTION OF TAX ON INTEREST PAID ON THE DEPOSITS WITH IT. TO UNDERSTAND THE LEGISLATIVE AMENDMENT IN THIS REGARD QUERY WHEREIN IN TH E BUDGETS SPEECH OF FINANCE MINISTER AND HIS OBJECT FOR SUGGESTING TDS TO SUCH DEPOSIT IN FOLLOWING WORDS TO ENABLE THE GOVERNMENT TO IDENTIFY INCOME EARNERS, MOST OF WHOM WOULD NOT OTHERWISE DECLARE THEIR INCOME OR WOULD NOT DECLARE THEIR FULL INCOME, I PROPOSE TO EXTEND THE SCHEME OF TAX DEDUCTION AT SOURCE TO COVER NEW AREAS OF PAYMENTS IN 25 THE NATURE OF COMMISSIONS, INTEREST PAID BY BANKS ON TIME DEPOSITS AND WITHDRAWALS FROM THE NATIONAL SAVINGS SCHEME. TO MINIMISE THE INCONVENIENCE FOR SMALL DEPOS ITORS, TAX WILL BE DEDUCTED AT SOURCE ONLY IN RESPECT OF PAYMENTS IN EXCESS OF RS.2500 PER YEAR. THOSE RECEIVING PAYMENTS IN EXCESS OF THE LIMIT BUT NOT HAVING TAXABLE INCOME WILL HAVE THE FACILITY OF COLLECTING PAYMENT WITH NO TAX DEDUCTION BY FILING A D ECLARATION IN THE PRESCRIBED MANNER. SUCH PROVISION RELATES TO TDS INTRODUCED BY FINANCE ACT. 1991. INVITED CONSIDERATION CRITICISM FROM TAXPAYERS, BANKERS ABOVE INCONVENIENCE AND DIFFICULTY IN IMPLEMENTATION OF THIS PROVISIONS. THE FINANCE MINISTER IN HIS BUDGET SPEECH IN 1992 EXPRESSED THAT THE SYSTEM OF TAX DEDUCTION AT SOURCE IS A USEFUL TOOL AND ONE OF THE WELL RECOGNISED METHODS OF ENFORCING TAX COMPLIANCE IN MANY COUNTRIES. HOWEVER, A HARASSED FINANCE MINISTE R HAS TO BE SENSITIVE TO THE OPINIONS OF HONOURABLE MEMBERS OF PARLIAMENT EVEN WHEN THEY DIFFER FROM HIS OWN CONVICTIONS. HE ACCORDINGLY WITHDRAWN THE PROVISION RELATING TO DEDUCTION AT SOURCE IN RESPECT OF INTEREST ON TERM DEPOSIT WITH THE BANK AND COMM ISSION W.E.F., JUNE 1992 . ACCORDINGLY, FINANCE ACT 1992 SUBSTITUTED A NEW CLAUSE (VII) W.E.F., 1 ST JUNE, 1992, SUB - SECTION 3 OF SECTION 194A FOR CLAUSE (VII) AND SOMEONE AS EARLIER INTRODUCED BY FINANCE NO.2 ACT W.E.F., 1 ST OCTOBER, 1991. THIS AMENDME NT WAS MADE TO RESTORE THE POSITION AS WAS BEFORE 1 ST OCTOBER, 1991 IN RELATION TO DEDUCT TAX AT SOURCE IN THE CASE OF INCOME CREDITED OR PAID IN RESPECT OF DEPOSIT WITH A BANK COMPANY TO WHICH BANKING REGULATION ACT 1940 APPLIES OR WITH A CO - OPERATIVE S OCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING, INCLUDING CO - OPERATIVE LAND MORTGAGE BANK OR CO - OPERATIVE LAND DEVELOPMENT BANK THIS WAS BROUGHT INTO W.E.F., 1.4.1992. FINANCE ACT 1995 W.E.F., 1 ST JULY 1995 AGAIN WITHDRAWN THE EXEMPTION FOR IN TEREST ON TIME DEPOSIT PAYABLE BY BANK. THE AMENDMENT SECTION 194A NOW PROVIDES FOR DEDUCTION OF TAX AT SOURCE AT THE RATE IN FORCE FROM PAYMENT FOR INTEREST EXCEEDING RS.10,000/ - IN A FINANCIAL YEAR ON TIME DEPOSITS MADE ON OR AFTER 1 ST JULY,1995 WITH A BANKING COMPANY OR WITH A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON BUSINESS OF BANKING. THE AFORESAID LIMIT OF RS.10,000/ - SHALL BE COMPUTED WITH REFERENCE TO THE INCOME CREDITED OR PAID BY BRANCH OF BANKING COMPANY OR CO - OPERATIVE SOCIETY AS THE CA SE MAY BE. THE INTEREST ON TIME DEPOSIT MADE WITH A PRIMARY AGRICULTURAL SOCIETY OR A CREDIT SOCIETY OR A CO - OPERATIVE LAND MORTGAGE BANK OR A CO - OPERATIVE LAND DEVELOPMENT BANK WILL NOT BE 26 SUBJECT TO REQUIREMENT OF DEDUCTION OF TAX AT SOURCE. REFERENCE I N THIS CONNECTION MAY BE MADE TO CIRCULAR NO. 715 DATED 18 TH AUGUST, 1995 AND EXPLANATORY CIRCULAR NO. 717 DATED 14 TH AUGUST, 1995. THE FINANCE ACT 2001 BY AMENDMENT IN PROVISION TO SUB - SECTION (3) OF SECTION 194 HAS OMITTED THE PROVISION THEREIN PROVIDI NG THE SPECIFIC LIMIT OF RS.10,000/ - IN RESPECT OF TIME DEPOSIT MADE WITH BANKING COMPANY WITH RESERVATION THAT OVERALL LIMIT OF RS. 5,000/ - PROVIDED IN MAIN PORTION OF SUB - SECTION 3 WOULD APPLY TO SUCH DEPOSIT W.E.F. 19 TH JUNE, 2001. FROM THIS ABOVE INTE NTION OF LEGISLATURE WE ARE OF THE VIEW THAT IT IS CLEAR THAT ASSESSEE COMPANY A CO - OPERATIVE SOCIETY CARRYING ON A BUSINESS OF BANKING IS LIABLE TO MAKE TDS U/S. 194A. LEARNED AR HAS RELIED UPON THE DECISION OF INCOME TAX TRIBUNAL, BANGALORE BENCH IN THE CASE OF BAGALKOT DISTRICT CENTRAL CO - OP. BANK VS. JOINT COMMISSIONER OF INCOME TAX, IN ITA NO.1572/BANG/2013, WHEREIN THE TRIBUNAL HAS INTERPRETED THE SECTION 194A(3)(V) WHICH GRANTS AN EXEMPTION FROM TDS TO SUCH INCOME CREDITED OR PAID BY THE CO - OPER ATIVE SOCIETY. THEY HAVE INTERPRETED THE WORD MEMBER MENTIONED IN SECTION 194A(3)(V) OF THE ACT. THE TRIBUNAL HAS ALSO RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT AND THE CIRCULAR ISSUED BY CBDT AND THEY RELIED UPON CIRCULAR ISSUED BY CBDT FO LLOWING THE JUDGEMENT OF JALGAON DISTRICT CENTRAL CO - OPERATIVE BANK LTD. & ANORS. VS. UNION OF INDIA, THEY WERE OF THE OPINION THAT THE CO - OPERATIVE BANK ARE NOT SUBJECT TO TDS UNDER 194A. WE DO NOT AGREE WITH THE FINDING OF ITAT, TRIBUNAL AS HONBLE KER ALA HIGH COURT HAS OCCASIONED TO INTERPRET SECTION194A(3)(V) AND 194A(3)(VA) OF THE ACT. THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF ITO & ORS. VS. THODUPUZHA URBAN CO - OPERATIVE BANK, WHEREIN THEY HAVE CLEARLY DEFINED AND INTERPRETED THE SE CTION IT APPEARS THAT THE BANK DID NOT CONSIDER THE PROVISION OF SECTION 194A(VIIA). THEREFORE, WHEN THERE IS A SPECIFIC PROVISION, GENERAL PROVISION CANNOT BE APPLIED IN THE CASE OF THE ASSESSEE OTHERWISE THE PROVISION OF SECTION 194A (VIIA) WILL BECOME REDUNDANT. THE SECTION CANNOT BE READ IN THIS MANNER. FOR THE SAKE OF CLARITY, WE HAVE ANALYSE THE SECTION 194A(3)(V) AND (VIIA) WHICH READ AS UNDER: (3) THE PROVISIONS OF SUB - SECTION (1) SHALL NOT APPLY - (I) 5 WHERE THE AMOUNT OF SUCH INCOME OR, AS THE CASE MAY BE, THE AGGREGATE OF THE AMOUNTS OF SUCH INCOME CREDITED OR PAID OR LIKELY TO BE CREDITED OR PAID DURING THE FINANCIAL YEAR BY THE PERSON REFERRED TO IN 27 SUB - SECTION (1) TO THE ACCOUNT OF, OR TO, THE PAYEE, DOES NOT EXCEED 6 TEN THOUSAND RUPEES................. (V) TO SUCH INCOME CREDITED OR PAID BY A CO - OPERATIVE SOCIETY 5 TO A MEMBER THEREOF OR] TO A NY OTHER CO - OPERATIVE SOCIETY; (VIIA) TO SUCH INCOME CREDITED OR PAID IN RESPECT OF, - (A) DEPOSIT WITH A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CREDIT SOCIETY OR A CO - OPERATIVE LAND MORTGAGE BANK OR A CO - OPERATIVE LAND DEVELOPMENT BANK; (B) DEP OSITS (OTHER THAN TIME DEPOSITS MADE ON OR AFTER THE 1 ST DAY OF JULY, 1995) WITH A CO - OPERATIVE SOCIETY, OTHER THAN A CO - OPERATIVE SOCIETY OR BANK REFERRED TO IN SUB - CLAUSE (A), ENGAGED IN CARRYING ON THE BUSINESS OF BANKING THE TDS ON TIME DEPOSITS IS D EALT IN CLAUSES (VII) & (VIIA) OF 194A (3) WHICH ARE EXTRACTED BELOW: (3) THE PROVISIONS OF SUB - SECTION (1) SHALL NOT APPLY (VII) : TO SUCH INCOME CREDITED OR PAID IN RESPECT OF DEPOSITS (OTHER THAN TIME DEPOSITS MADE ON OR AFTER THE 1ST DAY OF JULY, 1 995) WITH A BANKING COMPANY TO WHICH THE BANKING REGULATION ACT, 1949 (10 OF 1949) APPLIES (INCLUDING ANY BANK OR BANKING INSTITUTION REFERRED TO IN SECTION 51 OF THAT ACT); (VIIA) : TO SUCH INCOME CREDITED OR PAID IN RESPECT OF, (A) DEPOSITS WITH A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CREDIT SOCIETY OR A CO - OPERATIVE LAND MORTGAGE BANK OR A CO - OPERATIVE LAND DEVELOPMENT BANK; (B) DEPOSITS (OTHER THAN TIME DEPOSITS MADE ON OR AFTER THE 1ST DAY OF JULY, 1995) WITH A C O - OPERATIVE SOCIETY, OTHER THAN A CO - OPERATIVE SOCIETY OR BANK REFERRED TO IN SUB - CLAUSE (A), ENGAGED IN CARRYING ON THE BUSINESS OF BANKING *EMPHASIZED+ FROM A PLAIN READING OF ABOVE CLAUSES, IT IS CLEAR THAT WHILE CLAUSE (VII) DEALS WITH INTEREST PAY MENT BY A BANKING COMPANY THE CLAUSE (VIIA) DEALS WITH INTEREST PAYMENT BY A CERTAIN CATEGORY COOPERATIVE SOCIETIES INCLUDING A COOPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING. IT IS ALSO CLEAR THAT, AS REGARDS A CO - OPERATIVE SOCIETY ENG AGED IN CARRYING ON THE BUSINESS OF BANKING, THERE IS NO EXEMPTION FOR THE 28 INTEREST PAYMENTS IN RESPECT OF TIME DEPOSITS MADE ON OR AFTER 01 - 07 - 1995. FURTHER,194A(3)(I) LAYS DOWN MONETARY LIMITS UP TO WHICH IS THERE IS NO REQUIREMENT OF TDS. THE SAID MONE TARY LIMITS ARE DIFFERENT FOR DIFFERENT CATEGORY OF PAYERS. THE SAID CLAUSE IS REPRODUCED BELOW FOR THE SAKE OF CLARITY: 194A(3) THE PROVISIONS OF SUB - SECTION (1) SHALL NOT APPLY (I) WHERE THE AMOUNT OF SUCH INCOME OR, AS THE CASE MAY BE, THE AGGREGATE OF THE AMOUNTS OF SUCH INCOME CREDITED OR PAID OR LIKELY TO BE CREDITED OR PAID DURING THE FINANCIAL YEAR BY THE PERSON REFERRED TO IN SUB - SECTION (1) TO THE ACCOUNT OF, OR TO, THE PAYEE, [DOES NOT EXCEED (A) TEN THOUSAND RUPEES, WHERE THE PAYER IS A BANKING COMPANY TO WHICH THE BANKING REGULATION ACT, 1949 (10 OF 1949) APPLIES (INCLUDING ANY BANK OR BANKING INSTITUTION, REFERRED TO IN SECTION 51 OF THAT ACT); (B) TEN THOUSAND RUPEES, WHERE THE PAYER IS A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON T HE BUSINESS OF BANKING [EMPHASIZED] (C) TEN THOUSAND RUPEES, ON ANY DEPOSIT WITH POST OFFICE UNDER ANY SCHEME FRAMED BY THE CENTRAL GOVERNMENT AND NOTIFIED BY IT IN THIS BEHALF; AND (D) FIVE THOUSAND RUPEES IN ANY OTHER CASE]:] FROM THE ABOVE IT IS CLEAR THAT, IN CASE OF A PAYER WHICH IS A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING, THE MONETARY LIMIT PRESCRIBED IS RS 10000/ - . ONCE THE INTEREST PAYMENT EXCEEDS THAT AMOUNT THE TDS IS TO BE MADE. NEITHER IN CLAUSE (VII A) NOR IN CLAUSE (I) THERE IS ANYTHING TO RESTRICT THEIR APPLICABILITY ONLY TO NON - MEMBERS AND THEREFORE THEY APPLY TO ALL DEPOSITORS. GOING BY THE ABOVE UNDERSTANDING, THE CO - OP BANK IS REQUIRED U/S 194A(1) TO MAKE TDS FROM THE INTEREST PAID TO ALL DEPOS ITORS. HOWEVER CO - OP BANK HOLDS THE VIEW THAT CLAUSE (VIIA) APPLIES ONLY TO NON - MEMBERS AND NOT TO THE MEMBERS. HOWEVER, ON PERUSAL OF CLAUSE (VIIA), NOTHING IN IT TO RESTRICT ITS APPLICATION ONLY TO NON - MEMBERS. THE STAND TAKEN BY CO - OP BANK IS THAT THE INTEREST PAID TO MEMBERS IS EXEMPTED IN CLAUSE(V). THE APPELLANT IS PLACING RELIANCE ON CIRCULAR NO 9 OF 2002 IN ITS SUPPORT. IN THIS SCENARIO, THE MOOT QUESTION FOR CONSIDERATION IS: 29 WHETHER, IN RESPECT OF INTEREST PAID ON TIME DEPOSITS BY A CO - OP BANK , THE CLAUSE(V) WHICH DEALS WITH COOPERATIVE SOCIETIES WILL APPLY OR THE CLAUSE (VIIA) WHICH MENTIONS SPECIFICALLY A CO - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING FINDS APPLICATION? 2. LEGISLATIVE HISTORY OF TDS ON INTEREST: A. THE FINANCE A CT 1968, INSERTED CLAUSE (V) IN 194A(3) TO EXEMPT INTEREST PAID BY ON CO - OP SOCIETY TO ANOTHER CO - OP SOCIETY FROM TDS PURVIEW. B. THE FINANCE ACT 1970, INSERTED CLAUSE (VII) IN SECTION 194A(3) WHICH FOR THE FIRST TIME, CREATED A NEW TYPE OF CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING, AS DISTINCT FROM THE COOPERATIVE SOCIETY AS ENVISAGED IN CLAUSE (V). BY THIS AMENDMENT, A SPECIFIC SPECIE CALLED A COOPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING WAS CARVED OU T OF THE GENUS COOPERATIVE SOCIETY MENTIONED IN CLAUSE (V). THE SCOPE OF THE ABOVE AMENDMENT IS EXPLAINED IN CIRCULAR NO 42 DATED 20 - 06 - 1970, WHOSE RELEVANT PORTION IS EXTRACTED BELOW: I AM DIRECTED TO INVITE A REFERENCE TO THE BOARDS CIRCULAR NO. 22 /68 - IT(B) [F.NO. 12/23/68 - IT(B)], DATED 28 - 3/13 - 5 - 1968, AND TO SAY THAT THE FINANCE ACT OF 1970, HAS MADE AN IMPORTANT CHANGE IN SECTION 194A BY INSERTING A NEW CLAUSE (VII) IN SUB - SECTION (3) OF THAT SECTION. AS PER THIS CLAUSE, THE PROVISIONS OF SECTION 194A ARE NOT APPLICABLE TO INCOME BY WAY OF INTEREST CREDITED OR PAID IN RESPECT OF DEPOSITS WITH A BANKING COMPANY TO WHICH THE BANKING REGULATION ACT, 1949 APPLIES (INCLUDING ANY BANK OR BANKING INSTITUTION REFERRED TO IN SECTION 51 OF THAT ACT), OR WIT H A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING (INCLUDING A CO - OPERATIVE LAND MORTGAGE BANK OR A CO - OPERATIVE LAND DEVELOPMENT BANK). ALL SUCH BANKING INSTITUTIONS ARE, THEREFORE, NO LONGER REQUIRED TO DEDUCT TAX FROM INTEREST PAID OR CREDITED TO THE ACCOUNTS OF A RESIDENT DEPOSITOR. (EMPHASIZED) FROM THE ABOVE CIRCULAR IT IS VERY CLEAR THAT, BY VIRTUE CLAUSE(VII), A CO - OP BANK IS EXEMPTED FROM MAKING TDS. C. THE FINANCE ACT 1971, WHICH INSERTED THE WORDS (TO A MEMBER THEREOF OR) IN CLAUSE (V) AND THE SAID AMENDMENT WAS DIRECTED ONLY AT THE 30 GENERAL CO - OPERATIVE SOCIETY AND NOT AT THE SPECIFIC GENE I.E COOPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING. D. THE STAND OF APPELLANT IS THAT, EVEN AFTER INSERTION OF SP ECIFIC CLAUSE(VII), THE GENERAL CLAUSE(V) WILL CONTINUE TO APPLY TO THE COOPERATIVE BANKS. IF THAT STAND IS ACCEPTED, THE COOPERATIVE BANKS WERE REQUIRED TO DEDUCT TAX FROM INTEREST PAID TO DEPOSITORS WHO ARE NOT ITS MEMBERS, RENDERING CLAUSE (VII) REDUNDA NT. E. THE BY FINANCE ACT 1991, FOR THE FIRST TIME INTRODUCED TDS ON TIME DEPOSITS BY SUBSTITUTING ABOVE MENTIONED CLAUSE (VII) WITH TWO SEPARATE CLAUSES (VII) & (VIIA). WHILE CLAUSE (VII) APPLIED TO BANKING COMPANIES, CLAUSE (VIIA) APPLIED TO SPECIALLY CREATED CATEGORY OF COOPERATIVE SOCIETIES. THIS REAFFIRMS THE DECISION OF LEGISLATURE TO APPLY A SPECIFIC CLAUSE TO THE SPECIFIC GENRE COOPERATIVE SOCIETIES, WHICH WERE EAR LIER CARVED OUT OF THE GENUS AS ENVISAGED IN GENERAL CLAUSE(V). THE EFFECT OF ABOVE AMENDMENT WAS EXPLAINED BY THE CBDT IN CIRCULAR NO 617 DATED 22 - 11 - 1991 WHERE IN IT IS CLARIFIED THAT: THE EFFECT OF THE AFORESAID CHANGE IS THAT INCOME - TAX SHALL NOW BE DEDUCTIBLE AT SOURCE FROM THE INTEREST INCOME ON THE DEPOSITS WITH. (I) A BANKING COMPANY, OR CII) A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING, OTHER THAN A CO - OPERATIVE LAND MORTGAGE BANK, A CO - OPERATIVE LAND DEVELOPMENT BANK, PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CREDIT SOCIETY (EMPHASIZED) THE ABOVE CIRCULAR CLEARLY STATES THAT, IT WAS ONLY BY INTRODUCTION OF CLAUSE (VIIA), A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING WAS BROUGHT UNDER THE PURVIEW OF TDS ON TIME DEPOSITS. THE TDS ON TIME DEPOSITS WAS WITHDRAWN VERY NEXT YEAR BY WAY OF SUBSTITUTING ABOVE MENTIONED CLAUSES (VII) & (VIIA) WITH A COMBINED CLAUSE (VII) AND STATUS QUO ANTE WAS RESTORED. F. THE FINANCE ACT 1995 INSERTED CLAUSES (VII) & (VII A) WHICH LAY DOWN THAT, THE EXEMPTION AS ENVISAGED IN 194A(3) IS NOT AVAILABLE IN RESPECT OF TIME DEPOSITS MADE ON OR AFTER 01 - 07 - 1995 WITH A BANKING COMPANY AND A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING. THIS POSITION OF LAW HAS BEEN EXP LAINED IN THE EXPLANATORY NOTES TO FINANCE ACT 1995, CONTAINED IN CBDT CIRCULAR NO. 717 DATED 14 - 8 - 1995 AS UNDER. 31 PARA 46.2: THE (FINANCE )ACT AMENDS SECTION 194A OF THE INCOME - TAX ACT RELATING TO DEDUCTION OF INCOME - TAX AT SOURCE FROM INTEREST OTHER THAN INTEREST ON SECURITIES IN THE CASE OF RESIDENTS. THE AMENDMENT PROVIDES FOR DEDUCTION OF INCOME - TAX AT SOURCE AT THE RATE IN FORCE FROM PAYMENT OF INTEREST EXCEEDING TEN THOUSAND RUPEES IN A FINANCIAL YEAR ON TIME DEPOSITS MADE ON OR AFTER 1ST OF JULY, 19 95 WITH A BANKING COMPANY OR WITH A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING. (EMPHASIZED) THE ABOVE EXPLANATORY NOTE LEAVES NO DOUBT, WHATSOEVER, ABOUT THE APPLICABILITY OF CLAUSE (VIIA) TO A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING. 3.PRINCIPLE OF GENERALIA SPECIALIBUS NON DEROGANT THE HONBLE JURISDICTION HIGH COURT IN M.L.VASUDEVA MURTHY & SONS VS. JT. COMMISSIONER OF AG IT 65 TAXMAN 185(KAR) HAS OBSERVED THAT A SPECIALPROVISION NORMALLY EXCLUDES THE OPE RATION OF A GENERAL PROVISION . THE HONBLE SUPREME COURT IN THE, CASE OF SOUTH INDIAN CORPN. (P) LTD. VS. SECRETARY, BOARD OF REVENUE AIR 1964 SC 207 HAS HELD THAT A SPECIAL PROVISION SHOULD BE GIVEN TO THE EXTENT OF ITS SCOPE LEAVING THE GENERAL PRO VISION TO CONTROL CASES WHERE THE SPECIAL PROVISION DOES NOT APPLY THEREFORE, IN TERMS CLAUSE (V) WHICH IS GENERAL IN NATURE WILL NOT APPLY TO THE CO - OP BANK. THE PROVISIONS OF SECTION 194A (1)(VIIA) IS CLEARLY APPLICABLE AND THEREFORE THE ASSESSEE HAS TO DEDUCT T.D.S. ON INCOME CREDITED OR PAID IN RESPECT OF DEPOSITS EXCEPT WHICH FALLS UNDER THAT PROVISIONS. WE THEREFORE, DISMISS THE APPEAL OF THE ASSE SSEE. 14. IN CONSISTENT WITH OUR DECISION, WE DISMISS THE ASSESSEES FIRST ISSUE BY UPHOLDING THE DECISIONS OF THE REVENUE AUTHORITIES. 15 . BY RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER, WE DI S MISS THE APPEAL OF THE ASSESSEE . 32 16 . IN THE RESULT, APPEAL OF THE DEPARTMENT IS ALLOWED FOR STATISTICAL PURPOSE AND THE APPEAL AND C.O. OF THE ASSESSEE ARE DISMISSED. ( ORDER PRONOUNCED IN OPEN COURT ON 6 TH JANUARY , 201 5 ). SD/ - SD/ - (P.K. BANSAL) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 6 TH JANUARY , 201 5 . VR/ - COPY TO: 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE LD. CIT 4 . THE CIT(A) 5 . THE D.R 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., PANAJI