Virudhunagar Central District Co-Operative Bank, Virudhunagar V. ITO, Virudhunagar

ITA 2055/CHNY/2014

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 4024 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SB
• Assessment Year: 2012-2013
• Appeal Filed On: 04-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAILENDRA MAMIDIPCIT
• Assessee Lawyers: C MARUTHAPPAN
• Keywords: Gift; Retrospective amendment; Question of law; Non-deduction of tax
• Section: 2(14); 56; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI SPECIAL BENCH C : CHENNAI [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER, SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./I.T.A. NOS.2055 & 2056/CHNY/2014 / ASSESSMENT YEARS :2012-13 & 2013-2014. THE VIRUDHUNAGAR DISTRICT CENTRAL CO-OPERATIVE BANK LTD, 104/1, MADURAI ROAD, VIRUDHUNAGAR 626 001. [PAN AAAAU 0147N] VS. THE INCOME TAX OFFICER, TDS WARD, VIRUDHUNGAR. ( / APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI. C. MARUTHAPPAN, C.A. /RESPONDENT BY : SHRI. SAILENDRA MAMIDI, PCIT. /DATE OF HEARING : 08-10-2018 /DATE OF PRONOUNCEMENT : 09-10-2018 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER HONBLE PRESIDENT HAS CONSTITUTED THIS SPECIAL BE NCH FOR DECIDING ON THE FOLLOWING ISSUE, ARISING OUT OF THE IMPUGNED APPEALS FILED BY THE ASSESSEE AGAINST AN ORDER DATED 30.06. 2014 OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-1, MADURAI. ITA NOS.2055 & 2056/2014. :- 2 -: WHETHER A CO-OPERATIVE SOCIETY, CARRYING ON BANKIN G BUSINESS WITH APPROVAL OF THE RESERVE BANK OF INDIA , IS LIABLE TO DEDUCT TAX UNDER SECTION 194A, ON INTERES T PAID TO ITS MEMBERS. . 2. ASSESSEE IS A CO-OPERATIVE SOCIETY CARRYING ON THE BUSINESS OF BANKING. ON INTEREST PAID TO ITS MEMBERS, ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE. ASSESSEE HAD CLAIMED THAT IT WAS SA VED BY CLAUSES (V) OF SUB SECTION(3) TO SECTION 194A OF THE INCOME TAX A CT, 1961 (IN SHORT THE ACT). THIS CLAIM WAS NOT ALLOWED BY THE LOW ER AUTHORITIES, GIVING RISE TO A DEMAND OF F1,81,15,612/- FOR ASSESSMENT Y EAR 2012-13 AND F2,39,57,192/- FOR ASSESSMENT YEAR 2013-2014 U/S.20 1 AND 201(1A) OF THE ACT. LD. ASSESSING OFFICER AND LD. COMMISSIONE R OF INCOME TAX (APPEALS) TOOK A VIEW THAT TAX SHOULD BE DEDUCTED AT SOURCE ON INTEREST PAYMENT MADE BY CO-OPERATIVE SOCIETIES ENGAGED IN THE BUSINESS OF BANKING TO ITS MEMBERS, ONCE THE AMOUN T EXCEEDED RUPEES TEN THOUSAND. FOR TAKING THIS VIEW, RELIANCE WAS PL ACED ON SECTIONS 194A(3)(I) (B) AND 194A(3) (VIIA) OF THE ACT. THO UGH THE ASSESSEE RELIED ON A DECISION OF BANGALORE BENCH OF THE TRIB UNAL IN THE CASE OF THE BAGALKOT DISTRICT CO-OPERATIVE BANK VS. JCIT, (2014 ) TAX CORP (LJ) 3362, LOWER AUTHORITIES CHOSE TO FOLLOW THE DECISION OF PANAJI BENCH OF THE TRIBUNAL IN THE CASE OF THE BAILHOGAL URBAN CO- OPERATIVE BANK LTD. VS. JCIT (ITA NO.85/PN/2013). REFERENCE TO THIS SPE CIAL BENCH CAME ABOUT DUE TO THE CLEAVAGE OF OPINIONS BETWEEN BANG ALORE BENCH AND ITA NOS.2055 & 2056/2014. :- 3 -: PANAJI BENCH. EVEN THE CHENNAI BENCH IN THE CASE O F THE COIMBATORE DISTRICT CENTRAL CO-OPERATIVE BANK LTD VS. ITO, (IT A 2445 TO 2451/MDS/2014, DATED 30.04.2015) HAD TAKEN A VIEW THAT CO-OPERATIVE SOCIETIES WHICH WERE ENGAGED IN THE BUSINESS OF BAN KING WERE LIABLE TO DEDUCT TAX AT SOURCE ON INTEREST ON PAID TO ITS MEM BERS ON TIME DEPOSITS, ONCE THE INTEREST AMOUNT EXCEEDED F10,00 0/-. IT IS TO BE NOTED THAT CO-ORDINATE BENCH WHILE TAKING THIS VIEW HAD CONSIDERED SECTION 194A(3) (VIIA) (B) OF THE ACT AND ALSO VARI OUS JUDGMENTS AND ORDERS OF DIFFERENT AUTHORITIES RELATABLE TO THE SA ID ISSUE. 3. NOW BEFORE US, LD. AUTHORISED REPRESENTATIVE SUBMIT TED THAT THE QUESTION WHETHER A CO-OPERATIVE SOCIETY CARRYIN G ON THE BUSINESS OF BANKING WITH THE APPROVAL OF THE RESERVE BANK OF INDIA, WAS LIABLE TO DEDUCT TAX AT SOURCE U/S.194A OF THE ACT STOOD ANSW ERED BY HONBLE JURISDICTIONAL HIGH COURT THROUGH ITS JUDGMENT IN THE CASE OF THE COIMBATORE DISTRICT CENTRAL CO-OPERATIVE BANK LTD V S. ITO, (2016) 382 ITR 266. AS PER THE LD. AUTHORISED REPRESENTATIVE, THE SUBS TANTIAL QUESTION OF LAW WHICH WAS DECIDED BY THE HONBLE JU RISDICTIONAL HIGH COURT WAS THE VERY SAME. THUS, ACCORDING TO HIM, M ATTER STOOD COVERED IN FAVOUR OF THE ASSESSEE. ITA NOS.2055 & 2056/2014. :- 4 -: 4. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUBMIT TED THAT THE QUESTION WHETHER TAX HAD TO BE DEDUCTED AT SOUR CE BY THE ASSESSEE WHICH WAS A CO-OPERATIVE BANK ON INTEREST PAYMENT I N EXCESS OF F10,000/- WAS DECIDED IN FAVOUR OF THE REVENUE BY T HE PANAJI BENCH OF THE TRIBUNAL IN THE CASE OF SARASWAT CO-OPERATIVE BANK LTD VS. ITO (2015) 54 TAXMANN.COM 297 . AS PER THE LD. DEPARTMENTAL REPRESENTATIVE, CLAUSE (VIIA) OF SECTION 194A(3) AN D NOT CLAUSE (V) APPLIED TO CO-OPERATIVE BANKS. LD. DEPARTMENTAL RE PRESENTATIVE SOUGHT TO MAKE A FINE DISTINCTION WITH THE ISSUES CONSID ERED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF THE COIMBA TORE DISTRICT CENTRAL CO-OPERATIVE BANK LTD (SUPRA). ACCORDING TO HIM, H ONBLE JURISDICTIONAL HIGH COURT HAD NOT CONSIDERED THE EFFECT OF SUB CL AUSES (A) AND (D) INTRODUCED IN SUB SECTION CLAUSE (VIIA) BY FINANCE ACT, 1995. AS PER THE LD. DEPARTMENTAL REPRESENTATIVE , THE EFFECT OF THE SE CLAUSES WAS DULY CONSIDERED BY THE PANAJI BENCH OF THE TRIBUNAL, IN THE CASE OF SARASWAT CO-OPERATIVE BANK LTD (SUPRA) WHILE HOLDING IN FAVOUR OF THE REVENUE. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. WHAT WE FIND IS THAT THE QUESTION REFERRED BY THE SPECIAL BENCH REP RODUCED BY US AT PARA 1 ABOVE IS VERY SAME AS THE QUESTION OF LAW, ANSWERED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF THE COIMBATORE DISTRICT ITA NOS.2055 & 2056/2014. :- 5 -: CENTRAL CO-OPERATIVE BANK LTD (SUPRA) . PARA 2 OF THE JUDGMENT IS REPRODUCED HEREUNDER:- 2. THE ASSESSEE HAS COME UP WITH THE ABOVE APPEALS, RAISING THE FOLLOWING SUBSTANTIAL QUESTION OF LAW : 'WHETHER A CO-OPERATIVE SOCIETY, CARRYING ON BANKIN G BUSINESS WITH THE APPROVAL OF THE RESERVE BANK OF INDIA, IS LIABLE TO DEDUCT TAX UNDER SECTION 194A O F THE INCOME-TAX ACT, 1961 ON THE INTEREST PAID TO ITS MEMBERS ?' IN ADDITION TO THE ABOVE, HONBLE JURISDICTIONAL HI GH COURT HAD FRAMED ONE MORE SUBSTANTIAL QUESTION OF LAW, WHICH READ AS UNDER:- 'WHETHER THERE IS ANY DISTINCTION BETWEEN A CO- OPERATIVE BANK AND A CO-OPERATIVE SOCIETY CARRYING ON BANKING BUSINESS AND IF SO, UNDER WHICH CATEGORY THE APPELLANT WOULD FALL? WHAT WAS HELD BY THEIR LORDSHIPS AT PARA 6 TO 65 IS REPRODUCED HEREUNDER:- 6. IN ORDER TO EXAMINE THE SUBSTANTIAL QUESTIONS OF LAW THAT HAVE ARISEN FOR OUR CONSIDERATION, IT MAY BE N ECESSARY TO TAKE NOTE OF THE RELEVANT STATUTORY PROVISIONS A T FIRST. 7. SUB-SECTION (1) OF SECTION 194A MAKES IT OBLIGAT ORY FOR ANY PERSON (EXCEPT INDIVIDUALS AND HINDU UNDIVIDED FAMILY MEMBERS) WHO IS RESPONSIBLE FOR PAYING ANY INCOME B Y WAY OF INTEREST (OTHER THAN INCOME BY WAY OF INTERE ST ON SECURITIES) TO A RESIDENT, TO DEDUCT INCOME-TAX THE REON AT THE RATES IN FORCE. SUCH DEDUCTION SHOULD BE MADE A T THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE ITA NOS.2055 & 2056/2014. :- 6 -: OR AT THE TIME OF PAYMENT IN CASH OR BY THE ISSUE O F CHEQUE OR DRAFT OR BY ANY OTHER MODE. 8. THE PROVISO TO SUB-SECTION (1) OF SECTION 194A M AKES IT OBLIGATORY FOR EVEN INDIVIDUALS AND HINDU UNDIVIDED FAMILY MEMBERS TO DEDUCT TAX AT SOURCE, IF THE CONTINGENCI ES STATED IN THE PROVISO ARISE. SINCE WE ARE NOT CONCE RNED IN THIS BATCH WITH SUCH CONTINGENCIES, WE DO NOT DEAL WITH THE PROVISO. 9. HAVING INDICATED IN SUB-SECTION (1), PERSONS WHO ARE RESPONSIBLE TO DEDUCT TAX AT SOURCE, THE CIRCUMSTAN CES UNDER WHICH TAX IS TO BE DEDUCTED AT SOURCE AND THE TAXABLE EVENTS IN SUB-SECTION (1), THE PROVISIONS O F SECTION 194A PROCEED TO LIST OUT THE EXCLUSIONS OR EXCEPTIO NS UNDER SUB-SECTION (3). SUB-SECTION (3) CONTAINS ABOUT ELE VEN CLAUSES, UNDER WHICH THE ITEMS THAT ARE EXCLUDED FR OM THE APPLICATION OF SUB-SECTION (1) ARE LISTED. IN SIMPL E TERMS, SUCH EXCLUSIONS UNDER SUB-SECTION (3) OF SECTION 19 4A COULD BE UNDERSTOOD AS FOLLOWS : EXCLUSIONS UNDER CLAUSE (I) OF SUB-SECTION (3) : 10 (I) WHERE THE AMOUNT OF INCOME CREDITED OR PAID OR LIKELY TO BE CRE DITED OR PAID DURING THE FINANCIAL YEAR, BY A BANKING COMPANY TO WHICH THE BANKING REGULATION ACT, 1949 APPLIES, DOES NOT EXCE ED RS. 10,000, NO LIA BILITY UNDER SUB-SECTION (1) ARISES. (II) WHERE THE AMOUNT OF SUCH INCOME CREDITED OR PA ID OR LIKELY TO BE CREDITED OR PAID DURING THE FINANCIAL YEAR, BY A CO-OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BAN KING DOES NOT EXCEED RS. 10,000, THERE IS NO LIABILITY. (III) WHERE THE AMOUNT OF INCOME CREDITED OR PAID O R LIKELY TO BE CRE DITED OR PAID DURING THE FINANCIAL YEAR, ON A DEPOSIT WITH THE POST OFFICE UNDER ANY SCHEME FRAME D BY THE CENTRAL GOVERNMENT AND NOTIFIED IN THIS BEHALF EXCEEDS RS. 10,000, THERE IS NO LIABILITY UNDER SUB-SECTION (1). (IV) WHERE THE AMOUNT CREDITED OR PAID OR LIKELY TO BE CREDITED OR PAID DURING A FINANCIAL YEAR DOES NOT E XCEED RS. 5,000, IRRESPECTIVE OF WHO PAYS IT, OR TO WHOM IT IS PAID, NO LIABILITY ARISES. EXCLUSIONS TO THE EXCLUSIONS UNDER CLAUSE (I) OF SU B-SECTION (3) : ITA NOS.2055 & 2056/2014. :- 7 -: 11. TO THE EXCLUSIONS PROVIDED UNDER SUB-CLAUSES (A ) TO (D) OF CLAUSE (I) OF SUB-SECTION (3), CERTAIN RESTR ICTIONS ARE IMPOSED BY TWO PROVISOS. THE FIRST PROVISO WAS INSE RTED BY THE FINANCE (NO. 2) ACT, 1996 WITH EFFECT FROM OCTO BER 1, 1996 AND THE SECOND PROVISO WAS INSERTED WITH EFFEC T FROM JUNE 1, 2015. BY THE FIRST PROVISO, TIME DEPOSITS ( I) EITHER WITH A BANKING COMPANY TO WHICH THE BANKING REGULAT ION ACT, 1949 APPLIES ; (II) OR TO A CO- OPERATIVE SOCI ETY ENGAGED IN THE BUSINESS OF BANKING ; (III) OR TO DE POSITS WITH A PUBLIC COMPANY WHICH IS FORMED AND REGISTERE D IN INDIA WITH THE MAIN OBJECT OF CARRYING ON THE BUSIN ESS OF PROVIDING LONG-TERM FINANCE, FOR CONSTRUCTION OR PU RCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES AND WHI CH IS ELIGIBLE FOR DEDUCTION UNDER SECTION 36 ARE TO BE C OMPUTED WITH REFERENCE TO THE INCOME CREDITED OR PAID BY A BRANCH OF A BANKING COMPANY OR A CO-OPERATIVE SOCIETY OR A PUBLIC COMPANY. 12. BY THE SECOND PROVISO, THE TIME DEPOSITS MADE W ITH A BANKING COMPANY OR WITH A CO-OPERATIVE SOCIETY OR DEPOSITS WITH A PUBLIC COMPANY COVERED BY THE FIRST PROVISO ARE DIRECTED TO BE COMPUTED WITH REFERENCE TO THE INCOME CREDITED OR PAID BY ALL BRANCHES IN FAVOUR O F THE ASSESSEE, IF SUCH BANKING COMPANY OR CO-OPERATIVE S OCIETY OR THE PUBLIC COMPANY HAD ADOPTED CORE BANKING SOLU TIONS. EXCLUSIONS UNDER CLAUSE (III) OF SUB-SECTION (3) : 13. THE LIABILITY TO DEDUCT TAX AT SOURCE IMPOSED U NDER SUB-SECTION (1) WILL NOT APPLY TO THE INCOMES CREDI TED OR PAID (I) TO A BANKING COMPANY TO WHICH THE BANKING REGULATION ACT, 1949 APPLIES ; (II) TO A CO-OPERATI VE SOCIETY ENGAGED IN THE BUSINESS OF BANKING INCLUDING A CO- OPERATIVE LAND MORTGAGE BANK ; (III) TO A FINANCIAL CORPORATION ESTABLISHED BY OR UNDER A STATE OR CENT RAL ACT ; (IV) TO THE LIFE INSURANCE CORPORATION ; (V) TO T HE UNIT TRUST OF INDIA ; (VI) TO ANY COMPANY OR CO-OPERATIV E SOCIETY CARRYING ON THE BUSINESS OF INSURANCE ; (VI I) TO SUCH OTHER INSTITUTION WHICH THE CENTRAL GOVERNMENT MAY BY NOTIFICATION INDICATE. EXCLUSIONS UNDER CLAUSES (IV) AND (VI) : 14. THE LIABILITY TO DEDUCT TAX AT SOURCE WILL NOT ARISE IN RESPECT OF AN INCOME CREDITED OR PAID BY A FIRM TO A PARTNER. IT WILL ALSO NOT APPLY TO SUCH INCOME CRED ITED OR ITA NOS.2055 & 2056/2014. :- 8 -: PAID IN RESPECT OF DEPOSITS UNDER ANY SCHEME FRAMED BY THE CENTRAL GOVERNMENT AND NOTIFIED IN THIS BEHALF. EXCLUSIONS UNDER CLAUSES (V), (VII) AND (VIIA) : 15. THE OBLIGATION IMPOSED UNDER SUB-SECTION (1) WI LL ALSO NOT ARISE IN RESPECT OF THE FOLLOWING : (I) INCOME CREDITED OR PAID BY A CO-OPERATIVE SOCIE TY OTHER THAN A CO- OPERATIVE BANK TO A MEMBER THEREOF OR TO SUCH INCOME CREDITED OR PAID BY A CO-OPERATIVE SOCIETY T O ANY OTHER CO-OPERATIVE SOCIETY ; (II) TO THE INCOME CREDITED OR PAID IN RESPECT OF D EPOSITS OTHER THAN TIME DEPOSITS WITH A BANKING COMPANY TO WHICH THE BANKING REGULATION ACT, 1949 APPLIES ; (III) TO THE INCOME CREDITED OR PAID IN RESPECT OF DEPOSITS WITH A PRI MARY AGRICULTURAL CREDIT SOCIETY OR A PR IMARY CREDIT SOCIETY OR A CO-OPERATIVE LAND MORTGAGE BANK OR A CO-OPERATIVE LAND DEVELOPMENT BANK ; (IV) TO THE INCOME CREDITED OR PAID IN RESPECT OF D EPOSITS OTHER THAN TIME DEPOSITS WITH A CO-OPERATIVE SOCIET Y OTHER THAN A CO-OPERATIVE SOCIETY OR BANK, NAMELY, PRIMAR Y AGRICULTURAL CREDIT SOCIETY, PRIMARY CREDIT SOCIETY , CO- OPERATIVE LAND MORTGAGE BANK AND CO-OPERATIVE LAND DEVELOPMENT BANK ENGAGED IN CARRYING ON THE BUSINES S OF BANKING. 16. THERE ARE ALSO EXCLUSIONS UNDER CLAUSES (VIII), (IX), (X) AND (XI), WITH WHICH WE ARE NOT FORTUNATELY CONCERN ED IN THIS BATCH. BUT BEFORE PARTING WITH SECTION 194A, W E SHOULD TAKE NOTE OF TWO IMPORTANT THINGS, NAMELY, (A) THAT THE EXPRESSION 'TIME DEPOSITS' IS DEFINED IN EXPLANATIO N 1 TO MEAN DEPOSITS INCLUDING RECURRING DEPOSITS REPAYABL E ON THE EXPIRY OF FIXED PERIODS ; AND (B) THAT THE EXPR ESSION 'CO-OPERATIVE BANK' IS DEFINED IN THE EXPLANATION U NDER CLAUSE (V) TO HAVE THE SAME MEANING AS ASSIGNED TO IT IN PART V OF THE BANKING REGULATION ACT, 1949. THESE T WO EXPRESSIONS ASSUME SIGNIFICANCE, IN THE LIGHT OF TH E QUESTIONS THAT HAVE ARISEN FOR CONSIDERATION AND HE NCE WE HAVE TAKEN NOTE OF THE SAME. 17. FOR THE PURPOSE OF EASY REFERENCE, WE EXTRACT H EREIN BELOW SUB-SECTION (3) OF SECTION 194A IN ENTIRETY. '(3) THE PROVISIONS OF SUB-SECTION (1) SHALL NOT AP PLY ITA NOS.2055 & 2056/2014. :- 9 -: (I) WHERE THE AMOUNT OF SUCH INCOME OR, AS THE CASE MAY BE, THE AGGREGATE OF THE AMOUNTS OF SUCH INCOME CRE DITED OR PAID OR LIKELY TO BE CREDITED OR PAID DURING THE FINANCIAL YEAR BY THE PERSON REFERRED TO IN SUB-SECTION (1) T O THE ACCOUNT OF, OR TO, THE PAYEE, DOES NOT EXCEED (A) TEN THOUSAND RUPEES, WHERE THE PAYER IS A BANKI NG COMPANY TO WHICH THE BANKING REGULATION ACT, 1949 ( 10 OF 1949) APPLIES (INCLUDING ANY BANK OR BANKING INSTIT UTION, REFERRED TO IN SECTION 51 OF THAT ACT) ; (B) TEN THOUSAND RUPEES, WHERE THE PAYER IS A CO-OP ERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANK ING ; (C) TEN THOUSAND RUPEES, ON ANY DEPOSIT WITH POST O FFICE UNDER ANY SCHEME FRAMED BY THE CENTRAL GOVERNMENT A ND NOTIFIED BY IT IN THIS BEHALF ; AND (D) FIVE THOUSAND RUPEES IN ANY OTHER CASE : PROVIDED THAT IN RESPECT OF THE INCOME CREDITED OR PAID IN RESPECT OF (A) TIME DEPOSITS WITH A BANKING COMPANY TO WHICH T HE BANKING REGULATION ACT, 1949 (10 OF 1949) APPLIES (INCLUDING ANY BANK OR BANKING INSTITUTION REFERRED TO IN SECTION 51 OF THAT ACT) ; OR (B) TIME DEPOSITS WITH A CO-OPERATIVE SOCIETY ENGAG ED IN CARRYING ON THE BUSINESS OF BANKING ; (C) DEPOSITS WITH A PUBLIC COMPANY WHICH IS FORMED AND REGIS TERED IN INDIA WITH THE MAIN OBJECT OF CARRYI NG ON THE BUSINESS OF PRO VIDING LONG-TERM FINANCE FOR CONSTR UCTION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSE S AND WHICH IS ELIGIBLE FOR DEDUCTION UNDER CLAUSE (VIII) OF SUB- SECTION (1) OF SECTION 36, THE AFORESAID AMOUNT SHA LL BE COMPUTED WITH REFERENCE TO THE INCOME CREDITED OR P AID BY ITA NOS.2055 & 2056/2014. :- 10 -: A BRANCH OF THE BANKING COMPANY OR THE CO-OPERATIVE SOCIETY OR THE PUBLIC COMPANY, AS THE CASE MAY BE : PROVIDED FURTHER THAT THE AMOUNT REFERRED TO IN THE FIRST PROVISO SHALL BE COMPUTED WITH REFERENCE TO THE INC OME CREDITED OR PAID BY THE BANKING COMPANY OR THE CO- OPERATIVE SOCIETY OR THE PUBLIC COM PANY, AS THE CA SE MAY BE, WHERE SUCH BANKING COMPANY OR THE CO- OPERATIVE SOCIETY OR THE PUBLIC COMPANY HAS ADOPTED CORE BANK ING SOLUTIONS ; . . . (III) TO SUCH INCOME CREDITED OR PAID TO (A) ANY BANKING COMPANY TO WHICH THE BANKING REGULA TION ACT, 1949 (10 OF 1949), APPLIES, OR ANY CO-OPERATIV E SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING (INCLUDING A CO - OPERATIVE LAND MORTGAGE BANK), OR (B) ANY FINANCIAL CORPORATION ESTABLISHED BY OR UND ER A CENTRAL, STATE OR PROVINCIAL ACT, OR (C) THE LIFE INSURANCE CORPORATION OF INDIA ESTABLI SHED UNDER THE LIFE INSURANCE CORPORATION ACT, 1956 (31 OF 1956), OR (D) THE UNIT TRUST OF INDIA ESTABLISHED UNDER THE U NIT TRUST OF INDIA ACT, 1963 (52 OF 1963), OR (E) ANY COMPANY OR CO-OPERATIVE SOCIETY CARRYING ON THE BUSI NESS OF INSURANCE, OR (F) SUCH OTHER INSTITUTION, ASSOCIATION OR BODY OR CLASS OF INSTI TUTIONS, ASSOCIATIONS OR BODIES WHICH THE CEN TRAL GOVERNMENT MAY, FOR REASONS TO BE RECORDED IN WRITI NG, NOTIFY IN THIS BEHALF IN THE OFFI CIAL GAZETTE ; (IV) TO SUCH INCOME CREDITED OR PAID BY A FIRM TO A PARTNER OF THE FIRM ; ITA NOS.2055 & 2056/2014. :- 11 -: (V) TO SUCH INCOME CREDITED OR PAID BY A CO-OPERATI VE SOCIETY (OTHER THAN A CO-OPERATIVE BANK) TO A MEMBE R THEREOF OR TO SUCH INCOME CREDITED OR PAID BY A CO- OPERATIVE SOCIETY TO ANY OTHER CO- OPERATIVE SOCIET Y ; EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, 'CO- OPERATIVE BANK' SHALL HAVE THE SAME MEANING AS ASSI GNED TO IT IN PART V OF THE BANK ING REGULATION ACT, 194 9 (10 OF 1949) ; (VI) TO SUCH INCOME CREDITED OR PAID IN RESPECT OF DEPOSITS UNDER ANY SCHEME FRAMED BY THE CENTRAL GOVERNMENT A ND NOTIFIED BY IT IN THIS BEHALF IN THE OFFICIAL GAZET TE ; (VII) TO SUCH INCOME CREDITED OR PAID IN RESPECT OF DEPOSITS (OTHER THAN TIME DEPOSITS MADE ON OR AFTER THE 1ST DAY OF JULY, 1995) WITH A BANKING COMPANY TO WHICH THE BAN KING REGULATION ACT, 1949 (10 OF 1949, APPLIES (INCLUDIN G ANY BANK OR BANKING INSTITUTION REFERRED TO IN SECTION 51 OF THAT ACT) ; (VIIA) TO SUCH INCOME CREDITED OR PAID IN RESPECT O F, (A) DEPOSITS WITH A PRIMARY AGRICULTURAL CREDIT SOC IETY OR A PRI MARY CREDIT SOCIETY OR A CO-OPERATIVE LAND MORT GAGE BANK OR A CO- OPERATIVE LAND DEVELOPMENT BANK ; (B) DEPOSITS (OTHER THAN TIME DEPOSITS MADE ON OR A FTER THE 1ST DAY OF JULY, 1995) WITH A CO-OPERATIVE SOCI ETY, OTHER THAN A CO-OPER ATIVE SOCIETY OR BANK REFERRED TO IN SUB-CLAUSE (A), ENGAGED IN CARRYING ON THE BUSINESS OF BANKING ; (VIII) TO SUCH INCOME CREDITED OR PAID BY THE CENTR AL GOVERNMENT UNDER ANY PROVISION OF THIS ACT OR THE I NDIAN INCOME-TAX ACT, 1922 (11 OF 1922), OR THE ESTATE DU TY ACT, 1953 (34 OF 1953), OR THE WEALTH-TAX ACT, 1957 (27 OF 1957), OR THE GIFT-TAX ACT, 1958 (18 OF 1958), OR T HE SUPER PROFITS TAX ACT, 1963 (14 OF 1963), OR THE COMPANIE S ITA NOS.2055 & 2056/2014. :- 12 -: (PROFITS) SURTAX ACT, 1964 (7 OF 1964), OR THE INTE REST-TAX ACT, 1974 (45 OF 1974) ; (IX) TO SUCH INCOME CREDITED BY WAY OF INTEREST ON THE COMPEN SATION AMOUNT AWARDED BY THE MOTOR ACCIDENTS CLAIMS TRIBUNAL ; (IXA) TO SUCH INCOME PAID BY WAY OF INTEREST ON THE COMPENSATION AMOUNT AWARDED BY THE MOTOR ACCIDENTS CLAIMS TRIBUNAL WHERE THE AMOUNT OF SUCH INCOME OR, AS THE CASE MAY BE, THE AGGREGATE OF THE AMOUNTS OF SU CH INCOME PAID DURING THE FINANCIAL YEAR DOES NOT EXCE ED FIFTY THOUSAND RUPEES ; (X) TO SUCH INCOME WHICH IS PAID OR PAYABLE BY AN INFRASTRUCTURE CAPITAL COMPANY OR INFRASTRUCTURE CA PITAL FUND OR A PUBLIC SECTOR COM PANY OR SCHEDULED BANK IN RELATION TO A ZERO COUPON BOND ISSUED ON OR AFTER T HE 1ST DAY OF JUNE, 2005 BY SUCH COMPANY OR FUND OR PUBLIC SECTOR COMPANY OR SCHEDULED BANK ; (XI) TO ANY INCOME BY WAY OF INTEREST REFERRED TO I N CLAUSE (23FC) OF SECTION 10. EXPLANATION 1.FOR THE PURPOSES OF CLAUSES (I), (VI I) AND (VIIA), 'TIME DEPOSITS' MEANS DEPOSITS (INCLUDING R ECURRING DEPOSITS) REPAY ABLE ON THE EXPIRY OF FIXED PERIODS .' 18. WHAT IS IMPORTANT FOR OUR DISCUSSION IS TO FOCU S ON CERTAIN EXPRESSIONS USED IN THE VARIOUS CLAUSES AND SUB- CLAUSES OF SUB-SECTION (3) OF SECTION 194A. THE EXPRESSIONS THAT REQUIRE OUR ATTENTION ARE (A) CO-O PERATIVE SOCIETY ; (B) CO-OPERATIVE BANK ; (C) CO-OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING ; (D ) PRIMARY AGRICULTURAL CREDIT SOCIETY ; (E) PRIMARY C REDIT SOCIETY ; (F) CO-OPERATIVE LAND MORTGAGE BANK ; AND (G) CO- OPERATIVE LAND DEVELOPMENT BANK. 19. AS WE HAVE STATED EARLIER, THE EXPRESSION 'CO-O PERATIVE BANK' IS DEFINED IN THE EXPLANATION UNDER CLAUSE (V ) OF SUB-SECTION (3) TO HAVE THE SAME MEANING AS ASSIGNE D TO IT IN PART V OF THE BANKING REGULATION ACT, 1949. B UT THE EXPLANATION MAKES IT CLEAR THAT IT IS APPLICABLE ON LY FOR THE ITA NOS.2055 & 2056/2014. :- 13 -: PURPOSE OF THAT CLAUSE, VIZ., CLAUSE (V). THEREFORE , WE DO NOT KNOW WHETHER THE MEANING ASSIGNED TO THE EXPRES SION 'CO-OPERATIVE BANK' IN PART V OF THE BANKING REGULA TION ACT, 1949 COULD BE BORROWED FOR THE PURPOSE OF UNDERSTANDING THE MEANING OF THE SAME EXPRESSION FO UND IN THE CLAUSES OTHER THAN CLAUSE (V) OF SUB-SECTION (3). 20. SECTION 2(19) OF THE INCOME-TAX ACT DEFINES A ' CO- OPERATIVE SOCIETY' TO MEAN A CO-OPERATIVE SOCIETY REGISTERED UNDER THE CO-OPERATIVE SOCIETIES ACT, 19 12 OR UNDER ANY OTHER LAW FOR THE TIME BEING IN FORCE IN ANY STATE FOR THE REGISTRATION OF CO-OPERATIVE SOCIETIE S. THE EXPRESSION 'CO-OPERATIVE BANK' IS NOT DEFINED IN TH E INCOME-TAX ACT, 1961. 21. IN SO FAR AS THE STATE OF TAMIL NADU IS CONCERN ED, THERE ARE AT LEAST TWO ENACTMENTS THAT GOVERN THE FUNCTIONING OF CO-OPERATIVE SOCIETIES. THE CO- OPER ATIVE SOCIETIES WHICH FUNCTION ONLY WITHIN THE GEOGRAPHIC AL LIMITS OF THE STATE OF TAMIL NADU ARE REGISTERED UNDER THE TAMIL NADU CO-OPERATIVE SOCIETIES ACT, 1983. BUT IF THERE IS A CO- OPERATIVE SOCIETY WHICH IS FEDERAL IN NATURE OR WHI CH IS NATIONAL IN CHARACTER, IT IS CALLED A MULTI-STATE C O-OPERATIVE SOCIETY AND THE SAME IS REGISTERED UNDER THE CENTRA L ENACTMENT, VIZ., MULTI-STATE CO-OPERATIVE SOCIETIES ACT, 2002. 22. SINCE THE EXPRESSION 'CO-OPERATIVE SOCIETY' IS DEFINED IN SECTION 2(19) OF THE INCOME-TAX ACT, 1961, IT IS NEITHER NECESSARY NOR WARRANTING FOR US TO GO TO THE DEFINI TION OF THE SAME EXPRESSION EITHER IN THE TAMIL NADU CO-OPE RATIVE SOCIETIES ACT, 1983 OR IN THE MULTI-STATE CO-OPERAT IVE SOCIETIES ACT, 2002. ON THE CONTRARY, WE MAY HAVE T O REFER TO THESE ENACTMENTS TO SEE WHAT A CO-OPERATIVE BANK IS, IN VIEW OF THE LIMITATION IMPOSED IN THE EXPLANATION U NDER CLAUSE (V) OF SUB-SECTION (3) OF SECTION 194A. 23. OUR TALE OF WOES IS COMPOUNDED BY THE FACT THAT EVEN THE TAMIL NADU CO-OPERATIVE SOCIETIES ACT DOES NOT DEFINE THE EXPRESSION 'CO-OPERATIVE BANK'. THE TAMIL NADU CO- OPERATIVE SOCIETIES ACT, 1983, UNDER WHICH THE APPELLANT/ASSESSEE HAS BEEN INCORPORATED DEFINES TH E FOLLOWING EXPRESSIONS : (A) AGRICULTURAL PRODUCERS MARKETING SOCIETY ; (B) AGRICULTURAL SERVICES CO-OPERATIVE SOCIETY ; ITA NOS.2055 & 2056/2014. :- 14 -: (C) APEX SOCIETY ; (D) CENTRAL SOCIETY ; (E) CONSUMER SOCIETY ; (F) CO-OPERATIVE UNION ; (G) CREDIT SOCIETY ; (H) FINANCING BANK ; (I) MILK PRODUCERS SOCIETY ; (J) OIL-SEEDS GROWERS SOCIETY ; (K) PRIMARY SOCIETY ; (L) REGISTERED SOCIETY ; (M) SELF RELYING SOCIETY ; (N) SCHEDULED CO-OPERATIVE SOCIETY ; PAGE NO : 0276 (O) SOCIETY WITH LIMITED LIABILITY ; (P) SOCIETY WITH UN-LIMITED LIABILITY ; AND (Q) WEAVER'S SOCIETY. 24. IF FOR A MOMENT, WE GET BACK TO THE PROVISIONS OF THE INCOME-TAX ACT, 1961, WE WOULD FIND THAT SECTION 19 4A DEALS WITH THE FOLLOWING TYPES OF CO- OPERATIVE INS TITUTIONS : (A) CO-OPERATIVE SOCIETY ; (B) CO-OPERATIVE BANK ; (C) CO-OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANK ING ; (D) PRIMARY AGRICULTURAL CREDIT SOCIETY ; (E) PRIMARY CREDIT SOCIETY ; (F) CO-OPERATIVE LAND MORTGAGE BANK ; AND ITA NOS.2055 & 2056/2014. :- 15 -: (G) CO-OPERATIVE LAND DEVELOPMENT BANK. 25. BUT THE EXPRESSION 'CO-OPERATIVE BANK' IS DEFIN ED IN THE MULTI-STATE CO- OPERATIVE SOCIETIES ACT, 2002, UNDER CLAUSE (F) OF SECTION 3 TO MEAN A MULTI- STATE CO-O PERATIVE SOCIETY WHICH UNDERTAKES BANKING BUSINESS. THE EXPRESSION 'CO-OPERATIVE SOCIETY' IS DEFINED IN SEC TION 3(H) OF THE MULTI-STATE CO-OPERATIVE SOCIETIES ACT, 2002 , TO MEAN A SOCIETY REGISTERED OR DEEMED TO BE REGISTERE D UNDER ANY LAW RELATING TO CO-OPERATIVE SOCIETIES FO R THE TIME BEING IN FORCE IN ANY STATE. 26. WHILE THE DISTINCTION SOUGHT TO BE MADE IN CLAU SE (VIIA) OF SUB-SECTION (3) OF SECTION 194A BETWEEN (I) A PR IMARY AGRICULTURAL CREDIT SOCIETY, A PRIMARY CREDIT SOCIE TY, A CO- OPERATIVE LAND MORTGAGE BANK AND A CO-OPERATIVE LAN D DEVELOPMENT BANK AND (II) OTHER TYPES OF CO-OPERATI VE SOCIETIES IS UNDERSTANDABLE, THE DISTINCTION SOUGHT TO BE MADE IN THE VARIOUS CLAUSES OF SUB-SECTION (3) BETW EEN A CO-OPERATIVE BANK ON THE ONE HAND AND A CO- OPERATI VE SOCIETY CARRYING ON THE BUSINESS OF BANKING ON THE OTHER HAND, IS NOT CLEARLY DECIPHERABLE FROM THE SCHEME O F SECTION 194A. EVEN IF WE TAKE EXTERNAL AID TO CONST RUCTION, BY BORROWING FROM THE PROVISIONS OF THE TAMIL NADU CO- OPERATIVE SOCIETIES ACT, 1983, AND THE MULTI-STATE CO- OPERATIVE SOCIETIES ACT, 2002, NO SUCH DISTINCTION BETWEEN A CO-OPERATIVE BANK AND A CO-OPERATIVE SOCIETY CARR YING ON THE BUSINESS OF BANKING COULD BE MADE OUT. 27. SINCE THE TAMIL NADU CO-OPERATIVE SOCIETIES ACT DOES NOT DEFINE A CO- OPERATIVE BANK, THOUGH IT DEFINES THE EXPRESSION 'CREDIT SOCIETY' AND 'FINANCING BANK', A CO- OPERATIVE SOCIETY CARRYING ON THE BUSINESS OF BANKI NG REGISTERED IN TERMS OF THE TAMIL NADU ACT COULD FAL L NATURALLY ONLY UNDER ANY OF THESE CATEGORIES, NAMEL Y, CREDIT SOCIETY OR FINANCING BANK.THEREFORE IT IS NE CESSARY TO TAKE NOTE OF THE DEFINITION OF THE EXPRESSIONS 'CRE DIT SOCIETY' AND 'FINANCING BANK'. THE EXPRESSION 'CRED IT SOCIETY' IS DEFINED IN SECTION 2(13) OF THE TAMIL N ADU CO- OPERATIVE SOCIETIES ACT, 1983, AS FOLLOWS : ''CREDIT SOCIETY' MEANS A REGISTERED SOCIETY WHICH HAS AS ITS PRIN CIPAL OBJECT THE RAISING OF FUNDS TO BE LE NT TO ITS MEMBERS FOR THE PUR POSES OF AGRICULTURE, ANIMAL HUSBANDRY, PISCICULTURE (INCLUDING FISH CATCHING), APICULTURE, SERICULTURE, PETTY TRADE, COTTAGE AND S MALL SCALE INDUSTRIES INCLUDING FARM BASED INDUSTRIES, PURCHAS E OF ITA NOS.2055 & 2056/2014. :- 16 -: IMPLEMENTS OR RAW MATERIALS, CONSTRUCTION, PURCHASE OR REPAIR OF DWELLING HOUSES, DISCHARGE OF PRIOR DEBTS , MEETING CEREMONIAL OR EDUCATION EXPENSES, PURCHASE OF DOMESTIC AND OTHER REQUIREMENTS OR FOR SUCH OTHER P UR POSES AS THE GOVERNMENT MAY, BY NOTIFICATION SPECIF Y IN THIS BEHALF.' 28. THE EXPRESSION 'FINANCING BANK' IS DEFINED IN S ECTION 2(14) OF THE TAMIL NADU CO-OPERATIVE SOCIETIES ACT, 1983, AS FOLLOWS : ''FINANCING BANK' MEANS A REGISTERED SOCIETY WHICH HAS AS ITS PRIN CIPAL OBJECTS THE LENDING OF MONEY TO OTHE R REGISTERED SOCIETIES.' 29. A CAREFUL LOOK AT THE ABOVE DEFINITIONS WOULD S HOW THAT THERE IS A VERY THIN LINE OF DEMARCATION BETWEEN TH E TWO. A CREDIT SOCIETY IS ONE WHICH HAS AS ITS PRINCIPAL OB JECT THE RAISING OF FUNDS TO BE LENT TO ITS MEMBERS FOR THE PURPOSES INDICATED IN THE DEFINITION. A FINANCING BANK IS ON E WHICH HAS AS ITS PRINCIPAL OBJECT THE LENDING OF MONEY TO OTHER REGISTERED SOCIETIES. 30. WHAT DISTINGUISHES A CREDIT SOCIETY FROM A FINA NCING BANK AS COULD BE SEEN FROM THE DEFINITIONS OF THESE EXPRESSIONS IS THAT THE DISTINCTION LIES IN THE PUR POSE FOR WHICH THE MONEY IS LENT BY THEM. THE DISTINCTION DO ES NOT LIE IN THE MANNER IN WHICH THEY INVITE OR ACCEPT DE POSITS. WHAT IS IMPORTANT FOR THE PURPOSE OF SECTION 194A I S THE ACCEPTANCE OF DEPOSITS AND THE PAYMENT OF INTEREST TO THE DEPOSITORS. THEREFORE, FOR THE PURPOSE OF SECTION 1 94A, A CREDIT SOCIETY UNDER THE TAMIL NADU CO-OPERATIVE SO CIETIES ACT AND THE FINANCING BANK UNDER THE SAME ACT STAND ON THE SAME FOOTING. THEY CAN BE TREATED DIFFERENTLY O NLY IN TERMS OF THE EXPRESS PROVISIONS SUCH AS THE ONE FOU ND IN SUB-CLAUSE (A) OF CLAUSE (VIIA) OF SUB-SECTION (3). OTHERWISE THE EXPRESSION 'CO-OPERATIVE BANK' WHICH IS NEITHER DEFINED IN THE INCOME-TAX ACT NOR IN THE TA MIL NADU SOCIETIES REGISTRATION ACT, 1975, WOULD NATURA LLY COVER A CREDIT SOCIETY AS WELL AS A FINANCING BANK AT LEAST INSOFAR AS THE TAMIL NADU ACT IS CONCERNED. 31. INTERESTINGLY, THE MULTI-STATE CO-OPERATIVE SOC IETIES ACT, 2002, DOES NOT DEAL WITH THE EXPRESSION 'CREDI T SOCIETY' AT ALL. IT DEALS ONLY WITH TWO EXPRESSIONS , NAMELY, 'CO-OPERATIVE BANK' AND 'CO-OPERATIVE SOCIETY'. ITA NOS.2055 & 2056/2014. :- 17 -: 32. THOUGH THE EXPLANATION UNDER CLAUSE (V) OF SUB- SECTION (3) LIMITS THE MEANING OF THE EXPRESSION 'C O- OPERATIVE BANK' BORROWED FROM PART V OF THE BANKING REGULATION ACT, 1949, TO CLAUSE (V) ALONE, WE WOULD NEVERTHELESS TAKE NOTE OF THE SAID DEFINITION TO SE E IF THE SAME COULD BE OF ANY ASSISTANCE. THE EXPRESSION 'CO - OPERATIVE BANK' IS DEFINED IN SECTION 56(C) OF THE BANKING REGULATION ACT, 1949, TO MEAN A STATE CO-OPERATIVE BANK, A CENTRAL CO-OPERATIVE BANK AND A PRIMARY CO-OPERAT IVE BANK. INTERESTINGLY, SECTION 56 OF THE BANKING REGU LATION ACT, 1949, DEFINES THE FOUR EXPRESSIONS FOUND IN SU B- CLAUSE (A) OF CLAUSE (VIIA) OF SUB-SECTION (3). SEC TION 56 DEFINES THE EXPRESSIONS 'PRIMARY AGRICULTURAL CREDI T SOCIETY', 'PRIMARY CO- OPERATIVE BANK' AND 'PRIMARY CREDIT SOCIETY'. AFTER DEFINING THESE THREE EXPRESSIONS IN GREAT DETAIL UNDER CLAUSES (CCIV), (CCV) AND (CCVI), THE BANKING REGULATION ACT, 1949, ADOPTS THE MEANINGS GIVEN TO CERTAIN OTHER EXPRESSIONS SUCH AS THE CENTRAL CO-OP ERATIVE BANK, PRIMARY RURAL CREDIT SOCIETY AND STATE CO-OPE RATIVE BANK, AS FOUND IN THE NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT ACT, 1981. 33. THEREFORE, IN OUR TRAIL WE WILL NOW HAVE TO GO TO THE NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT ACT, 1981. 34. THE EXPRESSION 'CENTRAL CO-OPERATIVE BANK' IS D EFINED IN SECTION 2(D) OF THE NATIONAL BANK FOR AGRICULTUR E AND RURAL DEVELOPMENT ACT, 1981, TO MEAN THE PRINCIPAL CO- OPERATIVE SOCIETY IN A DISTRICT, THE PRIMARY OBJECT OF WHICH IS TO FINANCE ALL OTHER CO-OPERATIVE SOCIETIES IN T HAT DISTRICT. THEREFORE THE GEOGRAPHICAL LIMITATIONS ARE IMPOSED UPON A CO-OPERATIVE SOCIETY WHICH COMES WITHIN THE MEANING OF THE EXPRESSION 'CENTRAL CO-OPERATIVE BANK' BY VIRTU E OF THE DEFINITION FOUND IN SECTION 2(D) OF THE NATIONAL BA NK FOR AGRICULTURE AND RURAL DEVELOPMENT ACT, 1981, TO WHI CH A REFERENCE AND RELIANCE IS MADE IN SECTION 56(CCVII) OF THE BANKING REGULATION ACT, 1949. 35. SECTION 2(N) OF THE NATIONAL BANK FOR AGRICULTU RE AND RURAL DEVELOPMENT ACT, 1981, DEFINES A PRIMARY RURA L CREDIT SOCIETY ALSO. SINCE WE ARE NOT CONCERNED WIT H SUCH A SOCIETY IN THIS BATCH, WE SHALL SKIP THE SAME. 36. THE EXPRESSION 'STATE LAND DEVELOPMENT BANK', W HICH IS NOT DEFINED EITHER IN THE TAMIL NADU ACT OR IN T HE MULTI- STATE CO-OPERATIVE SOCIETIES ACT OR EVEN IN THE BAN KING ITA NOS.2055 & 2056/2014. :- 18 -: REGULATION ACT, 1949, IS DEFINED IN SECTION 2(V) OF THE NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT ACT, 1981. IN SIMPLE TERMS, A STATE LAND DEVELOPMENT BAN K IS ONE WHICH HAS AS ITS PRINCIPAL OBJECT, THE PROVIDIN G OF LONG- TERM ADVANCES FOR AGRICULTURAL DEVELOPMENT. 37. THE REASON AS TO WHY WE HAVE BEEN COMPELLED TO GO AFTER THESE DEFINITIONS IS THE FACT THAT THE APPELLANT/ASSESSEE HAPPENS TO BE THE DISTRICT CENTR AL CO- OPERATIVE BANK. NO CO-OPERATIVE SOCIETY IS ENTITLED TO USE THE WORD 'BANK', UNLESS IT HAPPENS TO BE A CO-OPERA TIVE BANK. THIS IS MADE CLEAR BY CLAUSE (F) OF SECTION 5 6 OF THE BANKING REGULATION ACT, 1949. AS A MATTER OF FACT, THE ANSWER TO THE QUESTIONS OF LAW RAISED IN THESE APPE ALS COULD BE FOUND IN SECTION 56(F) OF THE BANKING REGU LATION ACT, 1949. BEFORE WE ADVERT TO CLAUSE (F) OF SECTIO N 56, WE SHOULD BRING ON RECORD ONE FACT. 38. SECTION 56 OF THE BANKING REGULATION ACT IS ACT UALLY A COMPLETE CODE IN ITSELF. SECTION 56 MAKES THE PROVI SIONS OF THE BANKING REGULATION ACT, 1949, APPLICABLE TO CO- OPERATIVE SOCIETIES, JUST AS THEY APPLY TO BANKING COMPANIES, SUBJECT TO CERTAIN MODIFICATIONS INDICAT ED IN CLAUSES (A) TO (ZL). BY THE PROVISIONS CONTAINED IN CLAUSES (A) TO (ZL), SECTION 56 INCORPORATES THE AMENDMENTS , THE SUBSTANTIVE PROVISIONS OF THE ACT AS WELL AS THE SC HEDULES THERETO, IN SO FAR AS THEIR APPLICATION TO CO-OPERA TIVE SOCIETIES ARE CONCERNED. ONE OF THE PROVISIONS OF T HE BANKING REGULATION ACT, 1949, RELATES TO THE ENTITL EMENT OR OBLIGATION OF COMPANIES CARRYING ON THE BUSINESS OF BANKING, TO THE USE OF THE WORDS BANK, BANKER, BANK ING OR BANKING COMPANY. THIS IS COVERED BY SECTION 7 OF TH E BANKING REGULATION ACT, 1949. 39. IN SO FAR AS THE APPLICATION OF SECTION 7 OF TH E ACT TO CO-OPERATIVE SOCIETIES IS CONCERNED, CLAUSE (F) OF SECTION 56 PROVIDES THE METHOD AND FORM IN WHICH SECTION 7 WIL L APPLY TO CO-OPERATIVE SOCIETIES. SECTION 56(F) WHICH SUBS TITUTES SECTION 7 OF THE BANKING REGULATION ACT, 1949, FOR THE PURPOSE OF ITS APPLICATION TO CO-OPERATIVE SOCIETIE S, IS EXTRACTED AS FOLLOWS : '(F) FOR SECTION 7, THE FOLLOWING SECTION SHALL BE SUBSTITUTED, NAMELY : '7. USE OF WORDS 'BANK', 'BANKER' OR 'BANKING'.(1) NO ITA NOS.2055 & 2056/2014. :- 19 -: CO- OPERATIVE SOCIETY OTHER THAN A CO-OPERATIVE BAN K SHALL USE AS PART OF ITS NAME OR IN CONNECTION WITH ITS B USINESS ANY OF THE WORDS 'BANK', 'BANKER' OR 'BANKING', AND NO CO-OPERATIVE SOCIETY SHALL CARRY ON THE BUSINESS OF BANKING IN INDIA UNLESS IT USES AS PART OF ITS NAME AT LEAS T ONE OF SUCH WORDS.' (2) NOTHING IN THIS SECTION APPLY TO (A) A PRIMARY CREDIT SOCIETY, OR (B) A CO-OPERATIVE SOCIETY FORMED FOR THE PROTECTIO N OF THE MUTUAL INTEREST OF CO-OPERATIVE BANKS OR CO-OPERATI VE LAND MORTGAGE BANKS, OR (C) ANY CO-OPERATIVE SOCIETY, NOT BEING A PRIMARY C REDIT SOCIETY, FORMED BY THE EMPLOYEES OF (I) A BANKING COMPANY OR THE STATE BANK OF INDIA OR A CORRE SPONDING NEW BANK OR A SUBSIDIARY BANK OF SUC H BANKING COMPANY, STATE BANK OF INDIA OR A CORRESPON DING NEW BANK, OR (II) A CO-OPERATIVE BANK OR A PRIMARY CREDIT SOCIET Y OR A CO- OPER ATIVE LAND MORTGAGE BANK, IN SO FAR AS THE WORD 'BANK', 'BANKER' OR 'BANKING' APPEARS AS PART OF THE NAME OF THE EMPLOYER BANK, OR AS THE CASE MAY BE, OF THE BANK WHOSE SUBSIDIARY THE EMPLOYER B ANK IS.' 40. THEREFORE, SECTION 7 OF THE BANKING REGULATION ACT, 1949, IN ITS APPLICATION TO THE CO-OPERATIVE SOCIET IES, AS PER SECTION 56(F), MAKES IT OBLIGATORY FOR A CO-OPERATI VE SOCIETY CARRYING ON THE BUSINESS OF BANKING IN INDI A, TO USE THE ADJUNCT 'BANK'. INTERESTINGLY, SUB-SECTION (1) OF SECTION 7 OF THE BANKING REGULATION ACT, 1949 (AS AMENDED IN RELATION TO CO-OPERATIVE SOCIETY) COMPRI SES OF TWO PARTS. THE FIRST PART OF SECTION 7(1) STATES TH AT NO CO- OPERATIVE SOCIETY OTHER THAN A CO-OPERATIVE BANK SH ALL USE THE WORD 'BANK' AS PART OF ITS NAME. THE SECOND PAR T OF ITA NOS.2055 & 2056/2014. :- 20 -: SECTION 7(1) STATES THAT NO CO-OPERATIVE SOCIETY SH ALL CARRY ON THE BUSINESS OF BANKING IN INDIA UNLESS IT USES AS PART OF ITS NAME AT LEAST ONE OF THE WORDS, NAMELY, BANK , BANKER OR BANKING. 41. THEREFORE, SECTION 7(1) OF THE BANKING REGULATI ON ACT, 1949, SETTLES AT LEAST ONE ISSUE, NAMELY, THAT IN S O FAR AS THAT ACT IS CONCERNED, THERE IS NO DISTINCTION BETW EEN A CO- OPERATIVE BANK AND A CO-OPERATIVE SOCIETY CARRYING ON THE BUSINESS OF BANKING. IF A CO-OPERATIVE SOCIETY CARR IES ON THE BUSINESS OF BANKING, IT SHOULD NECESSARILY HAVE THE ADJUNCT BANK. ADDITIONALLY, IF A CO-OPERATIVE SOCIE TY DOES NOT CARRY ON THE BUSINESS OF BANKING, IT SHOULD NOT USE THE ADJUNCT BANK. 42. THEREFORE THERE APPEARS TO BE NO DISTINCTION BE TWEEN A CO-OPERATIVE BANK AND A CO-OPERATIVE SOCIETY ENGAGE D IN THE BUSINESS OF BANKING, AT LEAST FOR THE PURPOSE O F THE BANKING REGULATION ACT, 1949. WE HAVE ALREADY SEEN FROM THE PROVISIONS OF THE TAMIL NADU CO-OPERATIVE SOCIE TIES ACT, 1983 THAT THE SAID ACT ALSO DOES NOT DISTINGUI SH BETWEEN A CO-OPERATIVE SOCIETY CARRYING ON THE BANK ING BUSINESS AND A CO-OPERATIVE BANK, THOUGH IT DISTING UISHES BETWEEN A CREDIT SOCIETY AND A FINANCING BANK. THE FACT THAT WE HAVE NO ALTERNATIVE EXCEPT TO LOOK INTO THE PROVISIONS OF THE BANKING REGULATION ACT, 1949, AND THE NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT ACT, 1981, IS ALSO FORTIFIED BY TWO CLAUSES IN SUB-SECTI ON (2) OF THE RESERVE BANK OF INDIA ACT, 1934. IN CLAUSES (H) AND (I) OF SECTION 2, THE RESERVE BANK OF INDIA ACT, 1934 S TATES THAT THE EXPRESSIONS 'AGRICULTURAL OPERATIONS', 'CE NTRAL CO- OPERATIVE BANK', 'CO-OPERATIVE SOCIETY' 'CROPS, 'MA RKETING OF CROPS', 'PISCICULTURE', 'REGIONAL RURAL BANK' AN D 'STATE CO- OPERATIVE BANK' SHALL HAVE THE MEANING ASSIGNED TO THEM BY NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT ACT, 1981, AND THAT THE EXPRESSIONS 'CO - OPERATIVE BANK', 'CO-OPERATIVE CREDIT SOCIETY', 'PRIMARYAGRICULTURAL CREDIT SOCIETY' AND 'PRIMARY C O- OPERATIVE BANK' WOULD HAVE THE SAME MEANING AS ASSIGNED TO THEM IN PART V OF THE BANKING REGULATIO N ACT, 1949. 43. THEREFORE THE CONCLUSION THAT IS IRRESISTIBLE I S THAT NONE OF THESE ENACTMENTS EITHER CENTRAL OR STATE, MAKE A CLEAR DISTINCTION BETWEEN A CO-OPERATIVE SOCIETY ENGAGED IN CARRYING ON BANKING BUSINESS AND A CO-OPERATIVE BAN K ITA NOS.2055 & 2056/2014. :- 21 -: OTHER THAN THOSE CREDIT SOCIETIES AND LAND DEVELOPM ENT OR LAND MORTGAGE BANKS. QUESTIONS RAISED IN THIS BATCH : 44. HAVING CONSIDERED THE VARIOUS STATUTORY PROVISI ONS, IF WE GET BACK TO THE CASE ON HAND, IT IS SEEN THAT WE ARE CALLED UPON TO ANSWER TWO SUBSTANTIAL QUESTIONS OF LAW. WE SHALL TAKE UP THE SECOND ONE FIRST. 45. THE SECOND SUBSTANTIAL QUESTION OF LAW THAT WE HAVE FRAMED FOR CONSIDERATION IS AS TO WHETHER THERE EXI STS A SUBSTANTIAL OR MARKED DIFFERENCE BETWEEN A CO-OPERA TIVE SOCIETY ENGAGED IN CARRYING ON BANKING BUSINESS AND A CO- OPERATIVE BANK AND IF SO, UNDER WHICH CATEGORY THE APPELLANT WOULD FALL. THE ANSWER IS TOO OBVIOUS IN VIEW OF THE FOREGOING DISCUSSION. EXCEPT THE PROVISIONS OF SUB- CLAUSE (B) OF CLAUSE (I), SUB-CLAUSE (A) OF CLAUSE (III) AND SUB-CLAUSES (A) AND (B) OF CLAUSE (VIIA) OF SUB-SEC TION (3) OF SECTION 194A, WE DO NOT FIND ANYWHERE A DICHOTOM Y CREATED BETWEEN A CO-OPERATIVE BANK AND A CO-OPERAT IVE SOCIETY ENGAGED IN CARRYING ON BANKING BUSINESSES. THEREFORE OUR ANSWER TO THE SECOND SUBSTANTIAL QUES TION OF LAW WOULD BE THAT NONE OF THE STATE OR CENTRAL ENAC TMENTS SUCH AS THE TAMIL NADU CO-OPERATIVE SOCIETIES ACT, 1983, THE MULTI-STATE CO-OPERATIVE SOCIETIES ACT, 2002, T HE RESERVE BANK OF INDIA ACT, 1934, THE BANKING REGULA TION ACT, 1949, AND THE NATIONAL BANK FOR AGRICULTURE AN D RURAL DEVELOPMENT ACT, 1981, MAKE ANY DISTINCTION BETWEEN A CO-OPERATIVE SOCIETY ENGAGED IN CARRYING ON BANKING BUSINESS AND A CO-OPERATIVE BANK. 46. SINCE THERE IS A REFERENCE TO THE CO-OPERATIVE SOCIETIES ACT, 1912, IN SECTION 2(19) OF THE ACT, WE HAVE ALS O GONE TO THE CO-OPERATIVE SOCIETIES ACT, 1912. IT WAS A C ENTRAL LEGISLATION OF THE COLONIAL PAST, WHICH ALSO DOES N OT DEFINE A CO-OPERATIVE BANK. IT ONLY DEALS WITH CO-OPERATIV E SOCIETIES REGISTERED UNDER THE ACT. THEREFORE OUR A NSWER TO THE SECOND QUESTION MAY NOT UNDERGO A CHANGE EVEN I F WE MAKE A REFERENCE TO THE CO-OPERATIVE SOCIETIES ACT, 1912, WHICH IN ANY CASE HAS NO APPLICATION TO THE SOCIETI ES REGISTERED IN TERMS OF THE STATE ENACTMENTS. SUBSTANTIAL QUESTION OF LAW NO. 1 : 47. COMING TO THE FIRST SUBSTANTIAL QUESTION THAT A RISES FOR CONSIDERATION, MR. J. NARAYANASAMY, LEARNED SENIOR ITA NOS.2055 & 2056/2014. :- 22 -: STANDING COUNSEL FOR THE DEPARTMENT, SUBMITTED A NO TE TO US INDICATING THE MANNER IN WHICH SECTION 194A UNDE RWENT A CHANGE RIGHT FROM THE FINANCE (NO. 2) ACT OF 1967 , UP TO DATE. THE HISTORY OF THE AMENDMENTS THAT SECTION 19 4A HAD UNDERGONE IN THE PAST NEARLY ABOUT 48 YEARS IND ICATE THAT THE PENDULUM HAS SWUNG FROM ONE EXTREME TO THE OTHER IN SO FAR AS THE CO-OPERATIVE SOCIETIES ARE C ONCERNED, INDICATING THE MIND-SET OF THE LAW MAKERS AT DIFFER ENT POINTS OF TIME. THE CHANGES THAT WERE MADE TO SECTI ON 194A RIGHT FROM APRIL 1, 1967 UP TO JUNE 1, 2015, C OULD BE SUMMARISED, WITHOUT ENLARGING THE SCOPE OF THE DISCUSSION, AS FOLLOWS : (I) UNDER THE FINANCE (NO. 2) ACT OF 1967, SECTION 194A WAS AMENDED WITH RETROSPECTIVE EFFECT FROM APRIL 1, 1967, TO EXCLUDE ANY INCOME CREDITED OR PAID TO A BANKING COMPANY TO WHICH THE BANKING REGULATION ACT, 1949, APPLY, INCLUDING A CO-OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING AS WELL AS CO-OPERATIVE LAND MORTGAGE BANK. IN OTHER WORDS, INCOME-TAX WAS NOT DEDUCTIBLE AT SOURCE IF THE RECIPIENT OF SUCH INCOM E WAS A BANK OR CO-OPERATIVE SOCIETY ENGAGED IN BANKING. (II) UNDER THE FINANCE ACT OF 1968, WHICH CAME INTO EFFECT FROM 1ST APRIL, 1968, CLAUSE (V) WAS INSERTED, SO A S TO EXCLUDE THE INCOME CREDITED OR PAID BY A CO-OPERATI VE SOCIETY TO ANY OTHER CO-OPERATIVE SOCIETY. IN OTHER WORDS, BY THE 1968 AMENDMENT, THE LIABILITY TO DEDUCT TAX AT SOURCE WAS NOT THERE IN RESPECT OF CO-OPERATIVE SOC IETIES, IF THE INCOME REFERRED TO THEREIN HAD BEEN PAID OR CRE DITED TO OTHER CO-OPERATIVE SOCIETIES. THE PAYMENT OF INTERE ST TO MEMBERS WAS NOT COVERED EVEN AT THAT TIME. (III) BY THE NEXT AMENDMENT, WHICH CAME INTO EFFECT FROM APRIL 1, 1970, THE INCOME CREDITED OR PAID IN RESPE CT OF DEPOSITS MADE WITH A CO- OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING INCLUDING A CO- OPERATIVE LAND MORTGAGE BANK OR CO-OPERATIVE LAND DEVELOPMENT BANK WAS EXCLUDED FROM THE LIABILITY TO DEDUCT TAX AT SOURCE. THEREFORE, WE CAN TAKE IT THA T IT WAS ONLY FROM APRIL 1, 1970, THAT THE INCOME CREDITED O R PAID IN RESPECT OF DEPOSITS MADE WITH CO-OPERATIVE SOCIETIE S ENGAGED IN BANKING BUSINESS, BECAME EXEMPT FROM LIA BILITY TO DEDUCT TAX AT SOURCE. (IV) THE REASON PERHAPS AS TO WHY THE BENEFIT WAS S OUGHT TO BE EXTENDED TO THE DEPOSITS MADE IN CO-OPERATIVE ITA NOS.2055 & 2056/2014. :- 23 -: SOCIETIES CARRYING ON THE BUSINESS OF BANKING WAS T HAT THE COLONIAL ACTS, NAMELY, THE CO-OPERATIVE SOCIETIES A CT, 1912, AND THE MULTI-UNIT CO-OPERATIVE SOCIETIES ACT , 1942, WERE DEBATED AFTER INDIA ATTAINED INDEPENDENCE AND A CO- OPERATIVE MOVE MENT WAS ALREADY AT THE DAWN IN THE STATE OF MAHARASHTRA WHERE SUGAR CANE WAS GROWN TO A LARG E EXTENT. (V) FINDING THAT THE BENEFIT GRANTED BY THE 1970 AMENDMENT WAS APPLICABLE ONLY TO THE INCOMES CREDIT ED OR PAID IN RESPECT OF DEPOSITS MADE WITH CO-OPERATIVE SOCIETIES CARRYING ON THE BUSINESS OF BANKING, THE GOVERNMENT CAME UP WITH THE NEXT AMENDMENT WITH EFF ECT FROM APRIL 1, 1971, TO ENLARGE THE SCOPE OF THE BEN EFIT TO MEMBERS OF CO-OPERATIVE SOCI ETIES IRRESPECTIVE OF WHETHER THE SOCIETY CARRIED ON BANKING BUSINESS OR NOT. IN OTHER WORDS, BY THE AMENDMENT THAT CAME WITH EFFECT FROM APRIL 1, 1971, TWO SETS OF EXEMPTIONS WERE GRANTED, ONE W AS IN RESPECT OF INCOME CREDITED OR PAID IN RESPECT OF DE POSITS MADE WITH A CO-OPERATIVE SOCIETY CARRYING ON THE BU SINESS OF BANKING AND THE OTHER WAS THE INCOME CREDITED OR PAID BY A CO-OPERATIVE SOCIETY TO A MEMBER OR TO ANY OTH ER SOCIETY. TO PUT IT DIFFERENTLY, ONE MORE CATEGORY W HICH WAS EXCLUDED FROM THE APPLI CATION OF SECTION 194A WAS INSERTED WITH EFFECT FROM APRIL 1, 1971. (VI) AFTER NEARLY 20 YEARS, THE GOVERNMENT CAME UP WITH AN AMEND MENT WITH EFFECT FROM OCTOBER 1, 1991. BY THIS AMENDMENT INSERTED WITH EFFECT FROM OCTOBER 1, 1991 , SUB-CLAUSES (A) AND (B) WERE INSERTED UNDER THE EXI STING CLAUSE (VII) AFTER SPLITTING (VII) INTO TWO PARTS, NAMELY, (VII) AND (VIIA). (VII) THE RATIONALE FOR THE AMENDMENT WITH EFFECT F ROM OCTOBER 1, 1991 WAS EXPLAINED IN THE CIRCULAR NO. 6 21, DATED DECEMBER 19, 1991*, AS FOLLOWS : 'PROVISION FOR DEDUCTION OF TAX AT SOURCE ON INTERE ST INCOME FROM BANK DEPOSITS, ETC. 55. SECTION 194A OF THE INCOME-TAX ACT PROVIDES THA T THE PROVI SIONS REGARDING DEDUCTION OF INCOME-TAX AT SO URCE SHALL NOT APPLY TO THE INCOME CREDITED OR PAID IN R ESPECT OF DEPOSITS WITH A BANKING COMPANY TO WHICH THE BANKIN G REGULATION ACT, 1949, APPLIES (INCLUD ING ANY BANK OR BANKING INSTITUTION REFERRED TO IN SECTION 51 OF TH AT ACT) OR WITH CO-OPERATIVE SOCIETY ENGAGED IN CARRYING ON TH E ITA NOS.2055 & 2056/2014. :- 24 -: BUSINESS OF BANKING (INCLUDING A CO-OPERATIVE LAND MORTGAGE BANK OR A CO- OPERATIVE LAND DEVELOPMENT B ANK). 55.1. INSTANCES HAVE COME TO NOTICE OF THE UNACCOUN TED INCOMES BEING DEPOSITED IN BANKS IN ONE'S OWN NAME OR BENAMI. INTEREST ON SUCH DEPOSITS IS NOT LIKELY TO BE DECLARED IN INCOME-TAX RETURNS. 55.2. WITH A VIEW TO IMPROVING TAX COMPLIANCE, SECT ION 194A OF THE INCOME-TAX ACT HAS BEEN AMENDED TO SECU RE DEDUCTION OF TAX AT SOURCE FROM INTEREST ON TIME DE POSITS WITH THE AFORESAID BANKING COMPANIES AND CO-OPERATI VE SOCIETIES ENGAGED IN CARRYING ON THE BUSINESS OF BA NKING. HOWEVER, THE REQUIREMENT OF DEDUCTION OF TAX AT SOU RCE WILL NOT APPLY IN THE CASE OF INTEREST ON TIME DEPO SITS WITH A * SEE [1992] 195 ITR (ST.) 154, 196. PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CR EDIT SOCIETY OR A CO- OPERATIVE LAND MORTGAGE BANK OR A CO- OPERATIVE LAND DEVELOPMENT BANK. FURTHER, THERE WIL L BE NO REQUIREMENT OF DEDUCTION OF TAX AT SOURCE IF THE AM OUNT OF INTEREST DOES NOT EXCEED TWO THOUSAND FIVE HUNDRED RUPEES IN A FINANCIAL YEAR. THE 'TERM OF TIME DEPOS ITS' HAS BEEN DEFINED TO MEAN DEPOSITS, EXCLUDING RECURRING DEPOSITS, REPAY ABLE ON THE EXPIRY OF FIXED PERIODS . THUS, INTEREST ON SAVINGS BANK ACCOUNTS AND RECURRING DEP OSIT ACCOUNTS IS NOT SUBJECT TO DEDUCTION OF TAX AT SOUR CE.' 48. THE AMENDMENT INSERTED WITH EFFECT FROM OCTOBER 1, 1991, APPEARS TO HAVE DRAWN A FLAK WITHIN A FEW MON THS. IT APPEARS THAT REPRESENTATIONS POURED IN FROM SEVE RAL QUARTERS, FORCING THE GOVERNMENT TO COME UP WITH YE T ANOTHER AMENDMENT WITH EFFECT FROM JUNE 1, 1992. BY THIS AMENDMENT, THE POSITION THAT PREVAILED PRIOR TO OCT OBER 1, 1991, WAS RESTORED. IN FACT, THE NEXT CIRCULAR BEAR ING NO. 636 DATED AUGUST 31, 1992* EXPLAINED THE RATIONALE FOR THE RESTORATION OF THE POSITION ON THE FOLLOWING LI NES : 'MODIFICATION OF THE PROVISIONS REGARDING DEDUCTION OF TAX AT SOURCE : . . . ITA NOS.2055 & 2056/2014. :- 25 -: 49.1. A LARGE NUMBER OF REPRESENTATIONS HAVE BEEN RECEIVED FROM MEMBERS OF PUBLIC, REPRESENTATIVE BOD IES AND BANKS POINTING OUT VARI OUS DIFFICULTIES WHICH HAD ARISEN ON ACCOUNT OF THE OPERATION OF THESE PROVISI ONS. KEEPING IN VIEW THESE DIFFICULTIES, THE ACT AMENDS, (A) SECTION 194A OF THE INCOME-TAX ACT, TO RESTORE THE POSITION AS OBTAINING BEFORE OCTOBER 1, 1991, IN RE LATION TO DEDUCTION OF INCOME- TAX AT SOURCE IN THE CASE OF I NCOME CREDITED OR PAID IN RESPECT OF DEPOSITS WITH A BANK ING COMPANY TO WHICH THE BANKING REGULATION ACT, 1949, APPLIES (INCLUDING ANY BANK OR BANKING INSTITUTION REFERRED TO IN SECTION 51 OF THAT ACT) OR WITH A CO-OPERATIV E SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING (INC LUDING A CO-OPERATIVE LAND MORTGAGE BANK OR A CO-OPERATIVE LAND DEVELOPMENT BANK), AND (B) SECTION 194H OF THE INCOME-TAX ACT, TO PROVIDE THAT THE DEDUCTION OF INCOME-TAX AT SOURCE FROM INCOME B Y WAY OF COMMIS SION OR BROKERAGE WILL NOT BE REQUIRED TO BE MADE ON OR AFTER 1ST JUNE, 1992.' 49. AFTER ABOUT THREE YEARS, THE NEXT AMENDMENT CAM E UNDER THE FINANCE ACT, 1995. THE OBJECT OF THIS ACT WAS INDICATED TO BE TO BRING ABOUT AN EFFECTIVE METHOD OF WIDENING THE TAX BASE BY ENLARGING THE SCOPE OF DED UCTION OF INCOME-TAX AT SOURCE. BY THIS AMENDMENT, SUB-CLA USES (A) AND (D) OF * SEE [1992] 198 ITR (ST.) 1, 45. CLAUSE (VIIA) WERE REINTRODUCED WITH EFFECT FROM JU LY 1, 1995. THE RATIONALE FOR SUCH AMENDMENT WAS INDICATE D IN CIRCULAR NO. 717, DATED AUGUST 14, 1995* AS FOLLOWS : 'DEDUCTION OF TAX AT SOURCE FROM INTEREST ON TIME D EPOSITS WITH BANKS. 46.1. ON ACCOUNT OF THE PROVISIONS CONTAINED IN CLA USE (VII) OF SUB-SECTION (3) OF SECTION 194A, INCOME CREDITED OR PAID IN RESPECT OF DEPOSITS WITH A BANKING COMPANY TO WH ICH THE BANKING REGULATION ACT, 1949, APPLIES OR WITH A CO- OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINE SS OF ITA NOS.2055 & 2056/2014. :- 26 -: BANKING IS EXEMPT FROM THE REQUIREMENT OF DEDUC TIO N OF INCOME-TAX AT SOURCE. 46.2. THE ACT AMENDS SECTION 194A OF THE INCOME-TAX ACT, RELAT ING TO DEDUCTION OF INCOME-TAX AT SOURCE FROM INTEREST OTHER THAN INTEREST ON SECURITIES IN THE C ASE OF RESIDENTS. THE AMENDMENT PRO VIDES FOR DEDUCTION OF INCOME-TAX AT SOURCE AT THE RATES IN FORCE (AT PRES ENT, 10 PER CENT. IN THE CASE OF RESIDENT NON-CORPORATE PER SONS AND 20 PER CENT. PLUS SURCHARGE THEREON IN THE CASE OF DOMESTIC COM PANIES) FROM PAYMENT OF INTEREST EXCEE DING TEN THOUSAND RUPEES IN A FINANCIAL YEAR ON TIME DEP OSITS MADE ON OR AFTER JULY 1, 1995, WITH A BANKING COMPA NY OR WITH A CO-OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING. THE AFORESAID LIMIT OF TEN THO USAND RUPEES SHALL BE COMPUTED WITH REFERENCE TO THE INCO ME CREDITED OR PAID BY A BRANCH OF THE BANKING COMPANY OR THE CO-OPERATIVE SOCIETY, AS THE CASE MAY BE. THE I NTEREST ON TIME DEPOSITS MADE WITH A PRI MARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CREDIT SOCIETY OR A CO- OPERAT IVE LAND MORTGAGE BANK OR A CO-OPERATIVE LAND DEVELOPMENT BA NK, WILL NOT BE SUBJECT TO THE REQUIREMENT OF DEDUCTION OF INCOME- TAX AT SOURCE. THE EXPRESSION 'TIME DEPOSIT S' IS DEFINED TO MEAN DEPOSITS, EXCLUDING RECURRING DEPOS ITS, REPAYABLE ON THE EXPIRY OF FIXED PERIOD. 46.3 THE AMENDMENT WILL TAKE EFFECT FROM JULY 1, 19 95.' 50. FORTUNATELY, THE NEXT AMENDMENT CAME ONLY AFTER 20 YEARS IN THE FINANCE ACT, 2015, WITH EFFECT FROM JU NE 1, 2015. WE WILL TAKE UP THE CHANGES BROUGHT FORTH BY THE FINANCE ACT, 2015, LATER, SO THAT WE COULD DEAL WIT H THE EFFECT OF THESE AMENDMENTS AND THE CONTENTIONS OF T HE REVENUE ON THE BASIS OF THESE AMENDMENTS. 51. RELYING UPON THE VARIOUS AMENDMENTS THAT WERE INTRODUCED RIGHT FROM 1967 AT LEAST UP TO 1995, IT IS CONTENDED BY THE REVENUE THAT THE ORIGINAL INTENTIO N OF EXCLUDING THE INCOME CREDITED OR PAID FROM THE PURV IEW OF THE LIABILITY TO DEDUCT TAX AT SOURCE, WAS ONLY TO BENEFIT THE INCOME CREDITED OR PAID BY A CO-OPERATIVE SOCIETY T O ANOTHER SOCIETY. THE BENEFIT WAS LATER EXTENDED TO THE DEPOSITS MADE WITH CO-OPERATIVE SOCIETIES ENGAGED I N THE BUSINESS OF BANKING. SUBSEQUENTLY, UPON FINDING THA T UNACCOUNTED MONIES WERE DEPOSITED IN CO-OPERATIVE ITA NOS.2055 & 2056/2014. :- 27 -: SOCIETIES, THE BENEFIT WAS WITHDRAWN. THEREFORE IT IS CONTENDED BY MR. J. NARAYANASAMY, LEARNED SENIOR STANDING COUNSEL THAT ANY INTERPRETATION TO SUB-CLA USES (A) AND (B) OF CLAUSE (VIIA) AND CLAUSE (V) OF SUB-SECT ION (3) OF SECTION 194A SHOULD BE IN TUNE WITH THE LEGISLATIVE INTENT IN INCLUDING CERTAIN THINGS AT TIMES AND EXCLUDING SOM E OF THOSE THINGS AT OTHER POINTS OF TIME AND WHAT IS UL TIMATELY LEFT AT THE CRUCIAL POINT OF TIME WITH REFERENCE TO THE LAW THAT WAS IN FORCE IN THE RELEVANT ASSESSMENT YEAR. 52. WE HAVE NO DIFFICULTY IN ACCEPTING THE SAID SUB MISSION. AS WE HAVE INDICATED EARLIER, SUB-SECTION (1) OF SE CTION 194A IMPOSES AN OBLIGATION UPON EVERY PERSON. EVEN INDIVIDUALS AND HINDU UNDIVIDED FAMILIES ARE COVERE D BY THE PROVISO SUBJECT TO CERTAIN CONDITIONS. THEREFOR E THE EXCLUSIONS FOUND IN SUB-SECTION (3) ARE NATURALLY T O BE CONSTRUED STRICTO SENSU. 53. BUT UNFORTUNATELY, IF A TAXING STATUTE AND AN E XCLUSION CLAUSE CONTAINED IN THE TAXING STATUTE ARE TO BE CO NSTRUED STRICTLY, THE PROVISIONS THEMSELVES SHOULD MAKE IT CLEAR AS TO WHO ARE THE PERSONS WHO ARE TO BE CHARGED OR EXEMPTED AND WHAT ARE THE CIRCUMSTANCES UNDER WHICH THEY ARE CHARGED OR EXCLUDED. THOUGH THE LEGISLATIV E INTENT APPEARS TO BE TO DEAL WITH FOUR DIFFERENT TYPES OF CO- OPERATIVE SOCIETIES, THE CATEGORISATION APPEARS TO HAVE BEEN MADE BY THE VARIOUS SUB-SECTIONS AND CLAUSES O F SECTION 194A WITHOUT DEFINING EACH ONE OF THOSE CATEGORIES. THE FOUR CATEGORIES OF CO-OPERATIVE SOC IETIES SOUGHT TO BE DEALT WITH UNDER SECTION 194A ARE (A) CO- OPERATIVE SOCIETIES ; (B) CO-OPERATIVE SOCIETIES CA RRYING ON THE BUSINESS OF BANKING ; (C) CO-OPERATIVE BANKS ; AND (D) PRIMARY AGRICULTURAL CREDIT SOCIETY, PRIMARY CREDIT SOCIETY, CO-OPERATIVE LAND MORTGAGE BANK AND CO-OPERATIVE LA ND DEVELOPMENT BANK. 54. WHILE THERE IS NO DIFFICULTY IN CLEARLY IDENTIF YING THREE OUT OF THOSE FOUR CATEGORIES, BY AT LEAST TAKING EX TERNAL AID TO CONSTRUCTION, BY REFERRING TO THE ENACTMENTS SUC H AS THE TAMIL NADU CO-OPERATIVE SOCIETIES ACT, 1983, THE BA NKING REGULATION ACT, 1949, THE RESERVE BANK OF INDIA ACT , 1934, AND NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOP MENT ACT, 1981, THERE IS SOME DIFFICULTY IN IDENTIFYING THE CO- OPERATIVE SOCIETIES THAT FALL UNDER THE CATEGORY OF 'CO- OPERATIVE SOCIETIES ENGAGED IN CARRYING ON THE BUSI NESS OF BANKING'. SUCH A CATEGORY IS NOT IDENTIFIED IN ANY OF THESE ENACTMENTS WHICH WE HAVE REFERRED TO ABOVE. THIS ITA NOS.2055 & 2056/2014. :- 28 -: CONFUSION HAS ACTUALLY GIVEN RISE TO DIFFERENT TRIB UNALS AND DIFFERENT COURTS COMING TO DIFFERENT CONCLUSIONS. 55. IN THE BAGALKOT DISTRICT CENTRAL CO-OPERATIVE B ANK V. JOINT CIT IN I. T. A. NO. 1572/BANG/2013 DECIDED ON MAY 30, 2014, THE BANGALORE BENCH OF THE TRIBUNAL CAME TO THE CONCLUSION THAT THE DISTRICT CENTRAL CO-OPERATIVE B ANK IN QUESTION WAS A CO-OPERATIVE SOCIETY CARRYING ON BAN KING BUSINESS AND THAT THEREFORE WHEN IT PAYS INTEREST I NCOME TO A MEMBER, BOTH ON TIME DEPOSITS AND ON DEPOSITS OTHER THAN TIME DEPOSITS, THE SOCIETY NEED NOT DEDUCT TAX AT SOURCE. 56. SIMILAR VIEWS WERE TAKEN BY THE VISHAKAPATNAM B ENCH OF THE TRIBUNAL IN THE VISHAKAPATNAM CO-OPERATIVE B ANK IN I. T. A. NOS. 5 AND 19 OF 2011 DECIDED ON AUGUST 29 , 2011, AND THE PUNE BENCH OF THE TRIBUNAL IN OZER MERCHANT CO-OPERATIVE BANK IN I. T. A. NO. 1588/PN/ 2012, DECIDED ON OCTOBER 30, 2013. 57. HOWEVER, A CONTRA VIEW WAS EXPRESSED BY THE PAN AJI BENCH IN I. T. A. NO. 85/PN/2013 IN THE CASE OF BAI LHONGAL URBAN CO-OPERATIVE BANK LTD. V. JOINT CIT DECIDED O N AUGUST 28, 2013. BUT THE DECISION OF THE PANAJI BEN CH WAS BASED UPON THE DECISION OF THE BOMBAY HIGH COURT IN JALGAON DISTRICT CENTRAL CO-OPERATIVE BANK LTD. V. UNION OF INDIA [2004] 265 ITR 423 (BOM), WHEREIN THE BOMBAY HIGH COURT WAS CONCERNED WITH CIRCULAR NO. 9 OF 2002, DA TED SEPTEMBER, 11, 2002*, WHICH MADE A DISTINCTION BETW EEN THE NOMINAL MEMBERS, ASSOCIATE MEMBERS AND SYMPATHIZER MEMBERS. WE ARE NOT CONCERNED IN THIS B ATCH ABOUT THE CATEGORIZATION OF MEMBERS. WE ARE CONCERN ED ABOUT THE DISTINCTION MADE BETWEEN SUB-CLAUSES (A) AND (B) OF CLAUSE (VIIA) OF SUB-SECTION (3). 58. THE REVENUE PLACES RELIANCE UPON THE DECISION O F THE DIVISION BENCH OF THE KERALA HIGH COURT IN ITO V. THODUPUZHA URBAN CO-OPERATIVE BANK LTD. [2003] 264 ITR 36 (KER). BUT IN THE SAID CASE, THERE WAS NO ISSUE AS TO WHETHER THE ASSESSEE FELL UNDER ONE OR TWO OF THE T YPES OF CO-OPERATIVE SOCIETIES MENTIONED IN SUB-CLAUSE (A) OF CLAUSE (VIIA) OR NOT. IT WAS ADMITTEDLY A CO-OPERAT IVE SOCIETY AND HENCE THE KERALA HIGH COURT CAME TO THE CONCLUSION THAT SUB-CLAUSE (A) OF CLAUSE (VIIA) WAS APPLICABLE. ITA NOS.2055 & 2056/2014. :- 29 -: 59. IN KADIRUR VANITHA CO-OPERATIVE SOCIETY LTD. V. ITO [2011] 196 TAXMAN 418 (KER), THE ASSESSEE CLAIMED THAT IT WAS A PRIMARY CREDIT CO-OPERATIVE SOCIETY. SINCE IT WAS A QUESTION OF FACT, THE KERALA HIGH COURT RELEGATED T HE PARTIES FOR APPROPRIATE ADJUDICATION BEFORE THE DEPARTMENTAL AUTHORITIES AFTER PRODUCING NECESSARY CERTIFICATES. 60. THAT LEAVES US WITH ONE LAST ISSUE, NAMELY, AS TO WHETHER THE CONFLICT OF OPINION BETWEEN THE TRIBUNA LS AND THE HIGH COURTS WAS CONFINED ONLY TO QUASI-JUDICIAL AND JUDICIAL BODIES OR AS TO WHETHER THERE WAS A CONFUS ION EVEN IN THE MINDS OF THE LEGISLATURE. THE ANSWER TO THIS QUESTION CAN BE FOUND IN THE MANNER IN WHICH AN AMENDMENT HAS BEEN BROUGHT FORTH WITH EFFECT FROM J UNE 1, 2015 AND THE MEMORANDUM EXPLAINING THE CLAUSES. 61. WITH EFFECT FROM JUNE 1, 2015, SUB-SECTION (3) OF SECTION 194A STANDS AMENDED. CLAUSE 42 OF THE FINAN CE BILL, 2015*, READS AS FOLLOWS : '42. IN SECTION 194A OF THE INCOME-TAX ACT, IN SUB- SECTION (3), WITH EFFECT FROM THE 1ST DAY OF JUNE, 2015, (A) IN CLAUSE (I), AFTER THE PROVISO, THE FOLLOWING PROVISO SHALL BE INSERTED, NAMELY : 'PROVIDED FURTHER THAT THE AMOUNT REFERRED TO IN TH E FIRST PROVISO SHALL BE COMPUTED WITH REFERENCE TO THE INC OME CREDITED OR PAID BY THE BANKING COMPANY OR THE CO- OPERATIVE SOCIETY OR THE PUBLIC COM PANY, AS THE CA SE MAY BE, WHERE SUCH BANKING COMPANY OR THE CO- OPERATIVE SOCIETY OR THE PUBLIC COMPANY HAS ADOPTED CORE BANK ING SOLUTIONS.' (B) IN CLAUSE (V), FOR THE WORDS 'PAID BY A CO-OPER ATIVE SOCIETY TO A MEMBER THEREOF OR', THE WORDS AND BRAC KETS 'PAID BY A CO-OPERATIVE SOCIETY (OTHER THAN A CO-OP ERATIVE BANK) TO A MEMBER THEREOF OR TO SUCH INCOME CREDITE D OR PAID BY A CO-OPERATIVE SOCIETY' SHALL BE SUB STITUT ED ; (C) AFTER CLAUSE (V), THE FOLLOWING EXPLANATION SHA LL BE INSERTED, NAMELY : ITA NOS.2055 & 2056/2014. :- 30 -: 'EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, 'CO- OPERATIVE BANK' SHALL HAVE THE SAME MEANING ASSIGNE D TO IT IN PART V OF THE BANKING REGULATION ACT, 1949 (1 0 OF 1949) ; (D) FOR CLAUSE (IX), THE FOLLOWING CLAUSES SHALL BE SUBSTITUTED, NAMELY : '(IX) TO SUCH INCOME CREDITED BY WAY OF INTEREST ON THE COMPEN SATION AMOUNT AWARDED BY THE MOTOR ACCIDENTS CLAIMS TRIBUNAL ; (IXA) TO SUCH INCOME PAID BY WAY OF INTEREST ON THE COMPENSA TION AMOUNT AWARDED BY THE MOTOR ACCIDENTS CLAIMS TRIBUNAL WHERE THE AMOUNT OF SUCH INCOME OR, AS THE CASE MAY BE, THE AGGREGATE OF THE AMOUNTS OF SU CH INCOME PAID DURING THE FINANCIAL YEAR DOES NOT EXCE ED FIFTY THOUSAND RUPEES ;' (E) IN EXPLANATION 1 BELOW CLAUSE (XI), FOR THE WOR D 'EXCLUDING', THE WORD 'INCLUDING' SHALL BE SUBSTITU TED.' 62. THE RELEVANT PORTION OF THE MEMORANDUM EXPLAINI NG THE CLAUSES IN THE FINANCE BILL READS AS FOLLOWS (S EE [2015] 371 ITR (ST.) 292, 344) : 'SECTION 194A(1) READ WITH SECTION 194A(3)(I) OF TH E ACT PROVIDE FOR DEDUCTION OF TAX ON INTEREST (OTHER THA N INTEREST ON SECURITIES) OVER A SPECIFIED THRESHOLD, I.E., RS. 10,000 FOR INTEREST PAYMENT BY BANKS, CO-OPERATIVE SOCIETY ENGAGED IN BANKING BUSINESS (CO-OPERATIVE B ANK) AND POST OFFICE AND RS. 5,000 FOR PAYMENT OF INTERE ST BY OTHER PERSONS. FURTHER, SUB-SECTION (3) OF SECTION 194A, INTER ALIA, ALSO PROVIDES FOR EXEMPTION FROM DEDUCT ION OF TAX IN RESPECT OF FOLLOWING INTEREST PAY MENTS BY C O- OPERATIVE SOCIETY : (I) INTEREST PAYMENT BY A CO-OPERATIVE SOCIETY TO A MEMBER THEREOF OR ANY OTHER CO-OPERATIVE SOCIETY. [ SECTION 194A(3)(V) OF THE ACT] ITA NOS.2055 & 2056/2014. :- 31 -: (II) INTEREST PAYMENTS ON DEPOSITS BY A PRIMARY AGRICULTURAL CREDIT SOCIETY OR PRIMARY CREDIT SOCIE TY OR CO- OPERATIVE LAND MORTGAGE BANK OR CO-OPERATIVE LAND DEVELOPMENT BANK. [SECTION 194A(3)(VIIA)(A) OF THE ACT] (III) INTEREST PAYMENT ON DEPOSITS OTHER THAN TIME DEPOSIT BY A CO-OPERATIVE SOCIETY ENGAGED IN THE BUSINESS O F BANKING OTHER THAN THOSE MENTIONED IN SECTION 194A(3)(VIIA)(A) OF THE ACT. [SECTION 194A(3)(VIIA) (B) OF THE ACT] THEREFORE, AS PER THE PROVISIONS OF SECTION 194A(1) READ WITH PRO VISIONS OF SECTIONS 194A(3)(I)(B) AND 194A(3)(VIIA)(B), CO-OPERATIVE BANK IS REQUIRED TO DEDUCT TAX FROM INTEREST PAYMENT ON TIME DEPOSITS IF THE A MOUNT OF SUCH PAYMENT EXCEEDS SPECIFIED THRESHOLD OF RS. 10,000. HOWEVER, AS THE PROVISIONS OF SECTION 194A( 3)(V) OF THE ACT PROVIDE A GENERAL EXEMPTION FROM MAKING TAX DEDUCTION FROM PAYMENT OF INTEREST BY ALL CO-OPERAT IVE SOCIETIES TO ITS MEMBERS, THE CO-OPERATIVE BANKS TR IED TO AVAIL THIS EXEMPTION BY MAKING THEIR DEPOSITORS AS MEMBERS OF DIFFERENT CATEGORIES. THIS HAS LED TO DI SPUTE AS TO WHETHER THE CO-OPERATIVE BANKS, FOR WHICH THE SP ECIFIC PROVI SIONS OF TAX DEDUCTION EXIST IN THE FORM OF S ECTION 194A(1), SECTION 194A(3)(I)(B) AND SECTION 194A(3)(VIIA)(B) OF THE ACT, CAN TAKE THE BENEFIT O F GENERAL EXEMPTION PROVIDED TO ALL CO-OPERATIVE SOCIETIES FR OM DEDUCTION OF TAX ON PAYMENT OF INTEREST TO MEMBERS. THE MATTER HAS BEEN CARRIED TO JUDICIAL FORUMS AND IN S OME CASES A VIEW HAS BEEN TAKEN THAT THE PROVISIONS OF SECTION 194A(3)(VIIA)(B) OF THE ACT MAKES NO DISTINCTION BE TWEEN MEMBERS AND NON-MEMBERS OF CO-OPERATIVE BANKS FOR T HE PURPOSES OF DEDUCTION OF TAX, HENCE, THE CO-OPERATI VE BANKS ARE REQUIRED TO DEDUCT TAX ON PAYMENT OF INTE REST ON TIME DEPOSIT AND CANNOT AVOID THE SAME BY TAKING THE PLEA OF THE GENERAL EXEMPTION PROVIDED UNDER SECTIO N 194A(3)(V) OF THE ACT. THIS IS BECAUSE THE SPECIFIC PROVISION OF TAX DEDUCTION PROVIDED UNDER SECTION 194A(3)(I)(B) AND 194A(3)(VIIA)(B) OF THE ACT FOR C O- OPERATIVE BANKS OVERRIDE THE GENERAL EXEMPTION PROV IDED TO ALL CO-OPERATIVE SOCIETIES FOR NON-DEDUCTION OF TAX FROM INTEREST PAYMENT TO MEMBERS UNDER SECTION 194A(3)(V ) OF THE ACT. ITA NOS.2055 & 2056/2014. :- 32 -: AS THERE IS NO DIFFERENCE IN THE FUNCTIONING OF THE CO- OPERATIVE BANKS AND OTHER COMMERCIAL BANKS, THE FIN ANCE ACT, 2006, AND FINANCE ACT, 2007, AMENDED THE PROVI SIONS OF THE ACT TO PROVIDE FOR CO-OPERATIVE BANKS A TAXA TION REGIME WHICH IS SIMILAR TO THAT FOR THE OTHER COMME RCIAL BANKS. THEREFORE, THERE IS NO RATIONALE FOR TREATIN G THE CO- OPERATIVE BANKS DIFFERENTLY FROM OTHER COMMERCIAL B ANKS IN THE MATTER OF DEDUCTION OF TAX AND ALLOWING THEM TO AVAIL THE EXEMP TION MEANT FOR SMALLER CREDIT CO-OPERATIV E SOCIETIES FORMED FOR THE BENEFIT OF SMALL NUMBER OF MEMBERS. HOWEVER, AS MENTIONED EARLIER, A DOUBT HAS BEEN CREATED REGARDING THE APPLICABILITY OF THE SPE CIFIC PROVISIONS MANDATING DEDUCTION OF TAX FROM THE PAYM ENT OF INTEREST ON TIME DEPOSITS BY THE CO-OPERATIVE BA NKS TO ITS MEMBERS BY CLAIM ING THAT GENERAL EXEMPTION PRO VIDED IS ALSO APPLICABLE FOR PAYMENT OF INTEREST TO MEMBE R DEPOSITORS. IN VIEW OF THIS, IT IS PROPOSED TO AMEN THE PROVISIONS OF THE SECTION 194A OF THE ACT TO EXPRES SLY PROVIDE FROM THE PROSPECTIVE DATE OF JUNE 1, 2015 T HAT THE EXEMPTION PROVIDED FROM DEDUCTION OF TAX FROM PAYME NT OF INTEREST TO MEMBERS BY A CO- OPERATIVE SOCIETY U NDER SECTION 194A(3)(V) OF THE ACT SHALL NOT APPLY TO TH E PAYMENT OF INTEREST ON TIME DEPOSITS BY THE CO-OPER ATIVE BANKS TO ITS MEMBERS.' 63. IT CAN BE SEEN FROM THE LAST PART OF THE PORTIO N EXTRACTED ABOVE THAT THE VERY NOTE EXPLAINING THE C LAUSE WAS SPECIFIC TO THE EFFECT THAT THE PROPOSAL WAS TO BRING FORTH AN AMENDMENT WITH PROSPECTIVE EFFECT FROM JUN E 1, 2015. THERE IS NO DISPUTE NOW THAT ON AND FROM JUNE 1, 2015 THE APPELLANT CANNOT ESCAPE THE LIABILITY FROM DEDUCTION OF TAX AT SOURCE. 64. ONCE AN AMENDMENT IS INTRODUCED, FOR THE PURPOS E OF REMOVING THE ANOMALOUS SITUATION OR FOR THE PURPOSE OF REMOVING THE CONFUSIONS BOTH IN THE MANNER IN WHICH THE PROVISIONS STOOD AND THE MANNER IN WHICH THEY WERE UNDERSTOOD, THE SAME COULD BE TAKEN ONLY TO HAVE PROSPECTIVE EFFECT. IT MUST BE POINTED OUT THAT PAR LIAMENT DID NOT CHOOSE TO ANSWER A QUESTION. RATHER IT CHOS E TO AMEND THE PROVISIONS. IT IS NOW WELL-SETTLED THAT A N AMENDMENT CAN ONLY BE PROSPECTIVE UNLESS IT IS MADE RETROSPECTIVE BY EXPRESS LANGUAGE OR NECESSARY IMPLICATION. APART FROM THE FACT THAT THE EXPRESS L ANGUAGE OF SECTION 194A AFTER AMENDMENT DOES NOT INDICATE A NY RETROSPECTIVITY, THE NOTE EXPLAINING THE CLAUSES GO ES ONE ITA NOS.2055 & 2056/2014. :- 33 -: STEP FURTHER IN MAKING IT CLEAR THAT IT WAS INTENDE D TO HAVE PROSPECTIVE EFFECT FROM JUNE 1, 2015. 65. THEREFORE OUR ANSWER TO THE FIRST SUBSTANTIAL Q UESTION OF LAW WOULD BE IN FAVOUR OF THE ASSESSEE. 6. ABOVE JUDGMENT BY HONBLE JURISDICTIONAL HIGH COUR T HAD COME AFTER THE REFERENCE WAS MADE TO THIS SPECIAL B ENCH. WE FIND THAT THEIR LORDSHIPS HAD DULY CONSIDERED A DECISION OF P ANAJI BENCH OF THE TRIBUNAL IN THE CASE OF THE BAILHOGAL URBAN CO-OPERATIVE BANK LTD (SUPRA) AT PARA 57 OF THE JUDGMENT. PANAJI BENCH IN THE CA SE OF SARASWAT CO-OPERATIVE BANK LTD (SUPRA) RELIED ON BY THE LD. DEPARTMENTAL REPRESENTATIVE, HAD STRONGLY RELIED ON ITS EARLIER DECISION IN THE CASE OF THE BAILHOGAL URBAN CO-OPERATIVE BAN K LTD (SUPRA). THIS IS CLEAR FROM THE FOLLOWING PARA IN THE ORDER OF T HE TRIBUNAL IN THE CASE OF SARASWAT CO-OPERATIVE BANK LTD (SUPRA). THE BAILHONGAL URBAN CO-OP BANK LTD V JCIT RANGE- 1(ITA NO.85/PNJ/2013,ITAT, PANAJI BENCH) DATED 28-08-2013 IN THIS CASE THE APPELLANT, A CO-OPERATIVE SOCIETY ENGAGED IN BUSINESS OF THE BANKING HAD PAID INTEREST ON TIME D EPOSITS TO ITS MEMBERS WITHOUT DEDUCTING TAX U/S 194A. THE AO APPL IED THE PROVISIONS OF SECTION 40(A)(IA) AND DISALLOWED THE CORRESPONDING EXPENDITURE WITH THE FINDING THAT THE ASSESSEE WAS LIABLE TO DEDUCT TAX IN VIEW OF SPECIFIC CLAUSE (VIIA) OF 194 A(3). THIS STAND HAS BEEN UPHELD BY HONIBLE ITAT WITH FOLLOWING OBSE RVATIONS: ITA NOS.2055 & 2056/2014. :- 34 -: A) THE AO CATEGORICALLY BROUGHT OUT MATERIAL ON RECORD TO PROVE THAT THE ASSESSE BANK IS COVERED BY CLAUSES 194A(3)(IB) AS WELL AS 194A(3) (VIIA)(B) WH ICH ARE SPECIFIC IN NATURE AND THE ASSESSEE CANNOT PUT FORTH ITS CLAIM UNDER 1 94A(3)(V) WHICH IS GENERAL IN NATURE. B) AS THE ASSESSEE IS COOPERATIVE SOCIETY ENGAGED I N THE BUSINESS OF BANKING, IT IS COVERED UNDER SPECIF IC CLAUSES. AS HAS BEEN HELD BY ITAT PUNE BENCH IN BHAGANI NIVEDITA SAHAKARI BANK LTD CASE, THE TERM COOPERATIVE SOCIETY IN CLAUSE 194A(3)(V) IS TO BE INTERPRETED AS COOPERATIVE SOCIETY OTHER THAN COOPERATIVE BANK. C) THE ARGUMENT THAT CLAUSE 194A(3)(V) MAY BE TAKEN AS APPLYING TO MEMBERS AND OTHER CLAUSES APPLICABLE TO NON-MEMBERS, IS WITHOUT ANY BASIS IN AS MUCH AS CLAUSES 1 94A(3)(IB) AS WELL AS 1 94A(3) (VIIA)(B) APPLY TO BOTH MEMBERS AS WELL AS NON- MEMBERS. D) WHERE EVER THE LEGISLATURE INTENDS TO APPLY PARTICULAR PROVISION TO MEMBER OR TO A NON-MEMBER, IT HAS DONE SO EXPRESSLY. THE ABOVE CATEGORICAL OBSERVATIONS OF HONIBLE ITAT ARE SQUARELY APPLICABLE TO THE CASE ON HAND. 7. IT IS THUS CLEAR THAT THE DISTINCTION SOUGHT TO BE ARGUED BY THE LD. DEPARTMENTAL REPRESENTATIVE, WAS CONSIDERED BY THEI R LORDSHIPS. THEIR LORDSHIPS HAD OVERRULED THE DECISION OF THIS TRIBU NAL IN THE CASE OF THE COIMBATORE DISTRICT CENTRAL CO-OPERATIVE BANK LTD I N ITA 2445 TO 2451/MDS/2014. THUS THE ISSUE RAISED BEFORE US IS THE SAME AS THE ITA NOS.2055 & 2056/2014. :- 35 -: SUBSTANTIAL QUESTION OF LAW CONSIDERED BY THE HONB LE JURISDICTIONAL HIGH COURT IN THE CASE OF THE COIMBATORE DISTRICT CENTRA L CO-OPERATIVE BANK LTD (SUPRA) AND IT STANDS ANSWERED IN FAVOUR OF TH E ASSESSEE. HAVING ANSWERED THE QUESTION RAISED, IN THE NORMAL COURSE THE APPEALS SHOULD HAVE BEEN REVERTED TO THE DIVISION BENCH FOR DISPOS AL. HOWEVER THE ONLY ISSUE RAISED BY THE ASSESSEE IN THE IMPUGNED APPEAL S HAVING BEEN ANSWERED, NO USEFUL PURPOSE WILL BE SERVED IN FOLLO WING SUCH PROCESS. WE THEREFORE HOLD THAT THE ASSESSEE WAS NOT OBLIG ED TO DEDUCT TAX AT SOURCE ON THE INTEREST PAYMENTS MADE TO ITS MEMBERS FOR THE IMPUGNED ASSESSMENT YEARS. 8. IN THE RESULT, THE APPEALS OF THE ASSESSE E FOR BOTH THE YEARS ARE ALLOWED. ORDER PRONOUNCED ON TUESDAY, THE 9 TH DAY OF OCTOBER, 2018, AT CHENNAI. SD/- SD/- SD/- (N.R.S. GANESAN) (A.MOHAN ALANKAMONY) (ABRAH AM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBE R ACCOUNTANT MEMBER !' / CHENNAI #$ / DATED: 9TH OCTOBER, 2018. KV $%&& '(&)( / COPY TO: & 1 . / APPELLANT 3. & *&+, / CIT(A) 5. (-.& / / DR 2. / RESPONDENT 4. & * / CIT 6. .0&1 / GF