Saraswat Co-op. Bank Ltd. (Samadevi Galli.), Mumbai V. Income Tax Officer, TDS Ward, Belgaum

ITA 234/PAN/2014

• Counselvise Citation: 23424114 RSA 2014
• Duration Of Justice: 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 07-07-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SONAL LAXMIDAS
• Assessee Lawyers: MIHIR NAWAVADEKAR
• Keywords: Gift; Non-deduction of tax
• Section: 133A; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P. K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO. 233 TO 236/PNJ/2014 (ASSESSMENT YEAR - 2010 - 11 TO 2013 TO 2014) SARASWAT CO - OPERATIVE BANK LTD. (SAMADEVI GALLI) ACCOUNTS DEPT., PLOT NO. 953, APPASAHEB MARATHE MARG, PRABHADEVI, MUMBAI 400 025. PAN:AABAT4497Q (APPELLANT) VS. THE INCOME TAX OFFICER, TDS WARD, BELGAUM. (RESPONDENT) APPELLANT BY : SHRI MIHIR NAWAVADEKAR RESPONDENT BY : SMT. SONAL LAXMIDAS. DATE OF HEARING : 27/08 /2014 DATE OF PRONOUNCEMENT : 01/10 /2014 O R D E R PER: D.T. GARASIA THE ABOVE APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - BELGAUM DATED 03.06.2014 FOR THE ASSESSMENT YEARS 2010 - 11 TO 2013 TO 2014 RESPECTIVELY. 2 . THE COMMON GROUNDS RAISED BY THE ASSESSEE IN ALL THE APPEALS WHICH READ AS UNDER: 1. THE LEARNED CIT(A) ERRED IN UPHOLDING JURISDICTION OF THE ITO BELGAUM, DESPITE JURISDICTION IN APPELLANTS CASE BEING IN MUMBAI AND APPELLANT BEING REGULARLY ASSESSED IN MUMBAI. HE FAILED TO APPRECIATE THAT S.292BB OF THE INCOME TAX ACT, 1961 (WHICH IS RE LIED UPON BY HIM) DOES NOT AT ALL PURPORT TO VALIDATE ORDERS PASSED IN THE ABSENCE OF TERRITORIAL JURISDICTION. FURTHER, HE FAILED TO APPRECIATE THAT ORDER PASSED DESPITE ABSENCE OF JURISDICTION RESULTED IN GRAVE PREJUDICE TO THE APPELLANT. 2. THE LD CIT(A ) ERRED IN HOLDING THAT APPELLANT WAS L IABLE TO DEDUCT TAX AT SOURCE U/ S.194A OF THE ACT IN RESPECT OF INTEREST PAID ON TERM DEPOSITS TO MEMBERS, WITHOUT PROPERLY APPRECIATING AND INTERPRETING (INTER ALIA) S. 194A(3) 2 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO OF THE ACT WHICH SPECIFICALLY PROVIDES THAT THE APPELLANT IS NOT REQUIRED TO DEDUCT TAX AT SOURCE ON SUCH PAYMENTS. 3. THE LD CIT(A) FAILED TO APPRECIATE THAT THE ISSUE WAS DECIDED IN FAVOUR OF APPELLANT BY SEVERAL JUDGMENTS OF THE HONBLE HIGH COURTS, AND BY THE ITAT ALSO. HE ERRED IN NOT FO LLOWING THE RATIO OF THE JUDGMENTS OF THE HIGH COURT; AND FAILED TO APPRECIATE THAT EVEN WHERE TWO VIEWS ARE POSSIBLE, VIEW IN FAVOUR OF THE ASSESSEE IS TO BE PREFERRED. 4. WITHOUT PREJUDICE TO THE ABOVE, THE ID. CIT(A) ERRED IN HOLDING THAT THE APPELLANT IS IN DEFAULT AND IN CONFIRMING ORDERS/DIRECTIONS U/S.201(1) AND 201(1A) OF THE ACT. 5.WITHOUT PREJUDICE, THE LD CIT(A) ERRED IN HOLDING THAT APPELLANT IS LIABLE TO PAY TAX WITHOUT APPRECIATING THAT THE BURDEN/ONUS OF PROVIDING LOSS TO THE REVENUE IS ON TH E REVENUE; AND NEEDS TO BE SATISFIED AS A CONDITION PRECEDENT BEFORE PASSING ORDERS U/S 201. HE ERRED IN HOLDING THAT JUDGMENTS OF THE HONOURABLE ITAT (WHICH HOLD THAT ONUS OF PROVING NON - PAYMENT OF TAX BY RECIPIENT IS ON THE REVENUE) ARE INAPPLICABLE IN T HE CASE OF BANKS, WITHOUT APPRECIATING THAT ITAT HAS CONFIRMED THE SAID PRINCIPLE IN THE CASE OF BANKS ITSELF . 2.1. THERE ARE COMMON GROUNDS IN ALL THE APPEALS, THEREFORE, DISPOSED BY THIS COMMON ORDER. 2.2 . THE SHORT FACTS OF THE CASE ARE THAT THE APPE LLANT, THE SARASWAT COOPERATIVE BANK LTD., IS A CO - OPERATIVE BANK ENGAGED IN 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 AND ITS RBI LICENSE NO. IS ACD - MH - 220 - P. A SURVEY U/S 133A OF THE INCOME TAX ACT, 1961 WAS CONDUCTED BY THE ITO , TDS WARD, BELGAUM AT THE BANKS PREMISES ON 25/10/2013 TO VERIFY COMPLIANCE WITH TDS/TCS PROVISIONS (TAX DEDUCTION/COLLECTION AT SOURCE) AND IT WAS NOTICED THAT NO TDS H AD BEEN MADE FOR THE INTEREST PAYMENTS ON TERM DEPOSITS TO MEMBERS DURING THE F.YS. 2009 - 10 TO 2012 - 13 WHICH WERE LIABLE FOR TDS AT THE RATE OF 10% A S PER THE PROVISIONS OF SECTION 194A(3)(I)(B) OF INCOME TAX ACT. THE ITO HAS CONCLUDED THAT THE ASSESSEE HAS FAILED TO DEDUCT TAX AT SOURCE FROM INTEREST ON TERM DEPOSITS EXCEEDING RS. 10,000/ - AND THEREFORE, THE PROVISIONS OF SECTION 201(1) & 201(1A) OF THE INCOME TAX ACT, 1961 ARE APPLI CABL E IN ITS CASE. SINCE THE DEDUCTOR HAS MADE DEFAULT U/S. 201(1), INTER EST U/S. 201(IA) WAS ALSO REQUIRED TO BE 3 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO LEVIED. THE ITO CALCULATED THE AMOUNT PAYABLE FO R A.Y. 2010 - 11 AT RS.45,24,614/ ; RS.30,99,074/ - U/S 201(1) AND RS.14,25,540/ - U/S. 201(1A). 2.3. THE MATTER CARRIED TO CIT(A) AND CIT(A) HAS CONFIRMED THE ORDER OF ASS ESSING OFFICER BY OBSERVING AS UNDER: 6. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, SUBMISSIONS MADE BY THE ASSESSEE AND ALSO PERUSED THE ORDER OF THE ASSESSING OFFICER. IT IS AN UNDISPUTED FACT THAT THE APPELLANT HAS PAID INTEREST ON TERM DEPO SITS TO THE TUNE OF RS.3,09,90,747/ - TO DEPOSITORS WITHOUT DEDUCTING TAX AT SOURCE. THE APPELLANT CONTENDED THAT THE PROVISIONS OF TDS ARE NOT ATTRACTED IN VIEW OF CLAUSE - (V) OF SUB - SECTION (3) OF SECTION 194 A AS THE INTEREST PAYMENTS TO THE EXTENT OF RS.3 ,09,90,747/ - HAVE BEEN MADE TO T HE MEMBERS OF THE BANK WHICH IS CO - OPERATIVE SOCIETY. IN THIS REGARD, THE ITO, TDS WARD, BELGAUM HAS INTERPRETED THE WORD CO - OP ERATIVE SOCIETY AS EMPLOYED IN SEC.194A(3)(V) TO MEAN CO - OPERATIVE SOCIETY OTHER THAN CO - OPERA TIVE BANK AS DECIDED BY THE ITAT, PUNE BENCH, IN BHAGANI NIVEDI TA SAHAKARI BANK LTD V ACIT 87 I TD 569 WHEREIN, THE HONBLE ITAT HAS HELD THAT THE TERM CO - OPERATIVE SOCIETY MENTIONED IN SECTION 194A(3)(V) TO BE INTERPRETED AS CO - OPERATIVE SOCIETY OTHER TH AN COOPERATIVE BANK. THUS, THE ITO PASSED AN ORDER U/S 201(1)/(1A) AND CALCULATED THE AMOUNT PAYABLE AT RS.45,24,614/ - ; RS30,99,074/ - U/S 201(1) AND RS.14,25,540/ - U/S201(1A). 6.1 ON GOING THROUGH THE PROVISIONS OF SECTION 194A9(3), IT IS SEEN THAT THE IT O IS JUSTIFIED IN PASSING AN ORDER U/S 201(1)/(1A) AND CALCULATING THE AMOUNT PAYABLE AT RS. 45,24,614/ - , RS.30 ,99,074/ - U/S 201(1) AND RS. 14,25,540/ - U/S. 201(1A). THE SUBMISSION OF THE APPELLANT ARE NOT ACCEPTABLE IN VIEW OF THE DECISION OF HONBLE PUN E ITAT IN THE CASE OF BHAGANI NIVEDITA SAHAKARI BANK LTD CITED SUPRA WHEREIN, IT IS CLEARLY HELD THAT SECTION 194A(3)(VIIA)(B) MAKES NO DISTINCTION BETWEEN MEMBERS AND NON - MEMBERS OF CO - OPERATIVE BANK FOR PURPOSE OF DEDUCTION OF TAX AT SOURCE ON INTEREST O N TIME DEPOSITS PAID/CREDITED AND THEREFORE, CO - OPERATIVE BANK WOULD BE LIABLE TO DEDUCT TAX AT SOURCE UNDER SECTION 194A(1) ON INTEREST ON TIME DEPOSITS PAID/CREDITED TO ITS DEPOSITORS, IF SUCH INTEREST AMOUNT EXCEEDED THE LIMIT PRESCRIBED IN PROVISO TO S ECTION 194A(3)(I). FURTHER, THE HONBLE KERALA HIGH COURT IN THE CASE OF MOOLAMATTOM ELECTRICITY BOARD EMPLOYEES CO - OP BANK LTD 238 ITR 630 HAS MADE A CLEAR DISTINCTION BETWEEN PRIMARY CREDIT SOCIETY AND A CO - OP SOCIETY ENGAGED IN BANKING / BUSINESS. THUS, SECTION 194A DEALS WITH CO - OP SOCIETIES ENGAGED IN THE BUSINESS OF BANKING. AS HAS BEEN RIGHTLY HELD BY THE ITO THAT THE MOMENT THE AMOUNT PAID/CREDITED TO ANY DEPOSITOR DURING THE YEAR EXCEEDS RS.10,000, THE PROVISIONS OF SECTION 194A(1) SHALL APPLY AND THE COOPERATIVE SOCIETY ENGAGED IN THE BANKING BUSINESS SHALL HAVE TO DEDUCT TAX ON SUCH PAYMENTS. FROM THE FACTS OF THE CASE, IT IS SEEN THAT THE ITO HAS CATEGORICALLY BROUGHT OUT THE MATERIAL ON RECORD TO PROVE THAT THE APPELLANT 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 SE C.194A(3) WHICH ARE SPECIFIC IN NATURE AND THE APPELLANT 4 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO CANNOT PUT FORTH ITS CLAIM UNDER SECTION 194(3)(V) WHICH ARE GENERAL IN AS THE APPELLANT IS C O - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING, IT IS COVE RED UNDER THESE SPECIFIC CLAUSES AND AS HAS BEEN HELD BY THE HONBLE ITAT, PUNE BENCH, PUNE IN BHAGANI NIVEDITA SAHAKARI BANK LTD V ACIT (2003) 8 7 I TD 569 THAT THE TERM CO - OP SOCIETY IN SUB - CLAUSE (V) TO BE - INTERPRETED AS CO - OP SOCIETY OTHER THAN CO - OPERATIVE BANK THE APPELLANT IS LIABLE FOR TDS PROVISIONS UNDER SECTION 194A 6.2 THE APPELLANTS ARGUMENT THAT CLAUSE(V) TO SEC.194A(3) MAY BE TAKEN AS APPLYING TO MEMBERS AND OTHER CLAUSES TO THE SAID SECTION MAY BE TAKEN TO APPLY TO NON MEMBERS IS WITHOUT ANY BASIS IN AS MUCH AS CLAUSES (I) AND (VILA) APPLY TO BOTH THE MEMBERS AS WELL AS NON MEMBERS. WHERE EVER THE LEGISLATURE INTENDS TO APPLY A PARTICULAR PROVISION TO MEMBER OR TO A NON ME MBER, IT HAS DONE SO EXPRESSLY. 6.3 NOW COMING TO THE CIRCULAR NO.9 OF 2002 ISSUED BY THE CBDT RELIED UPON BY THE APPELLANT, THE BOARD VIDE SAID CIRCULAR HAD SOUGHT TO INTERPRET THE DEFINITION OF WORD MEMBER CLARIFYING THAT THE WORD MEMBER DOES NOT IN CLUDE WORD NOMINAL MEMBER. IT WAS HELD BY THE BO MBAY HIGH COURT IN THE CASE OF J ALGAON DISTRICT CENTRAL CO - OP BANK LTD & ANR V. UNION OF INDIA 265 ERR 423 (BOM ), 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 DEFINITION OF THE WORD MEMBER AS APPEARING IN CLAUSE (V) OF SECTION 194(3) AND THE POWERS OF THE CENTRAL BOARD OF DIRECT TAXES TO ISSUE CIRCULARS U/S 119 WHICH WOULD OVERRIDE OR DETRACT FROM THE PROVISIONS OF THE INCOME TAX ACT. THE CIRCULAR NO.9 OF 2002 DATED 11 - 09 - 2002 ISSUED BY THE 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 CBDT DOES NOT HELP THE CASE OF THE APPELLANT. THE A PPELLANTS RELIANCE ON THE SAID CIRCULAR IS FOUND TO BE ILL FOUNDED. SIMILARLY, THE APPELLANTS RELIANCE ON THE DECISIONS OF THE HIGH COURT IN THE CASES OF J ALGAON DISTRICT CO - OP BANK 265 ITR 423, SUPRA AS WELL AS IN THE CASE OF THE GUJARAT URBAN CO - OPERAT IVE BANK FEDERATION DO NOT HELP THE CASE OF THE APPELLANT AS IN BOTH THE CASES THE DECISION IS SAME AS DISCUSSED ABOVE. 6.4 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 CIRCULAR NO. 621 DATE 19 - 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 T IME DEPOSITS WITH THE AFORESAI D COMPANIES AND CO - OPERATIVE SOCIETIES ENGAGED IN CARRYING ON THE BUSINESS OF BANKING. THIS CIRCULAR OF THE CBDT EXPLAINS IN NO UNCERTAIN TERMS THAT THE INTENTION OF THE LEGISLATURE IN AMENDMENT OF SECTION 194 A, INTER ALIA WAS TO SECURE DEDUCTION OF TAX AT SOURCE FROM INTEREST ON TIME DEPOSITS WITH THE BANKING COMPANIES AND CO - OPERATIVE SOCIETIES ENGAGED IN CARRYING ON THE BUSINESS OF BANKING. THE APPELLANT BEING A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING IS LIABLE TO MAKE TDS U /S 194A. 5 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO 6.5 IN A RECENTLY DELIVERED JUDGMENT, THE HONBLE 1TAT PANAJI BENCH, PANAJI IN THE CASE OF THE BAILHONGAL URBAN CO - OP. BANK LTD. VS. JCIT RANGE 1, BELGAUM IN ITA NO.85/PNJ/2013 DATED 28.08.2013 HAS UPHELD THE DECISION OF THE ASSESSING OFFICER AND THE COMMISSIONER OF INCOME TAX (APPEALS) IN DISALLOWING U/S.40(A)(IA) OF THE L.T.ACT THE INTEREST AMOUNT PAID BY THE ASSESSEE CO - OPERATIVE BANK ON TERM DEPOSIT IN EXCESS OF RS.10,000/ - WITHOUT MAKING TD S U/S. 194A(3)(I) AND NOT ALLOWING ASSESSEES CONTENTION THAT IT WAS NOT LIABLE TO DEDUCT TAX AT SOURCE BY VIRTUE OF THE PROVISIONS OF SECTION 194A(3)(V) OF THE L.T.ACT. 6.6 IN VIEW OF THE ABOVE DISCUSSION AND TAKING INTO CONSIDERATION THE VARIOUS ARGUMENT S GIVEN BY THE ITO IN HIS ORDER, THE DECISION OF THE ITO I N PASSING ORDER U/S 201(1)/(1A) AND CALCU LATING THE AMOUNT PAYABLE AT RS.4 5,24,614/ - ; RS.30,99,074/ - U/S 201(1) AND RS.14,25,540/ - U/S. 201(1A) IS CONFIRMED. 7 . THE APPELLANT HAS ALSO CONTESTED THE JURISDICTION OF THE ITO, TDS WARD BELGAUM IN PASSING ORDER U/S 201(1)/(1A) ON THE GROUND THAT THE APPELLANT IS ASSESSED AT MUMB AI. IT IS SEEN THAT THE APPELLANT HAS IN RESPECT OF ITS BRANCHES AT BELGAUM OBTAINED LOCAL TAN A ND ITS BUSINESS IS RUN IN BELGAU M AND THEREFORE, IT HAS SUBMITTED ITSELF TO THE JURISDICTION OF THE ITO,TDS. WARD, BELGAUM. APART FROM THE MERITS OF THE CASE, THE APPELLANTS GROUND OF APPEAL CHALLENGING THE JU RISDICTION OF THE ITO, TDS WARD , BELGAUM CANNOT BE ENTERTAINED AS PER PROVISIO NS OF SECTION 292BB OF THE INCOME TAX ACT. AS PER THE SA ID SECTION, THE ASSESSEE CANNOT CH ALLENGE THE ISSUE OF NOTICE UNDER ANY SECTION IF THE ASSESSEE HAS APPEARED IN ANY PROCEEDING CO - OPERATED IN ANY INQUIRY RELATING TO AN ASSESSMENT OR REASSESSMENT. THE ACTION OF ITO IS IN CONFORMITY WITH THE LEGAL POSITION ON THE ISSUE. THEREFORE, THE GROUNDS OF APPEALS PERTAINING THE JURISDICTION OF THE ITO ARE DISMISSED. 8. THE APPELLANT HAS ALSO CONTENDED THAT WHEN THE RECIPIENTS OF INTEREST AMOUNT IN ITS CASE HAVE PAID THE TAXES ON INTEREST INCOME, THE APPELLANT DEDUCTOR CAN NOT BE ASKED TO PAY THE TOS AMOUNT U/S 201(1)(1A) AND IT HAS RELIED ON SOME DECIDED CASES IN THIS CONTEXT. THE CONTENTION OF THE APPELLANT IS NOT ACCEPTABLE IN AS MUCH AS THE APPELLANT HAS NOT B EEN ABLE TO FURNISH THE PROOF OF RECIPIENTS OF INTEREST AMOUNT HAVING PAID THE TAX ON INTEREST AMOUNTS AS WAS THE CASE IN THE CASE OF HINDUSTAN COCA COLA 293 ITR 293. THE APPELLANT HAS ALSO CONTENDED THAT AS PER THE JUDGEMENTS OF SOME ITATS, THE ONUS OF PR OVING THE PAYMENTS OF TAX BY THE DEDUCTEES IS ON THE ITO IS IMPRACTICAL IN THE CASE OF BANKS WHERE THE NUMBER OF RECIPIENTS OF INTEREST WOULD RUN INTO THOUSANDS AND THE ITO WOULD NOT BE ABLE TO ACCOMPLISH THE SEEMINGLY IMPOSSIBLE TASK. SECONDLY, SUCH AN EX ERCISE WOULD BE FUTIL E IN BANKS CASE IN AS MUCH AS MOST OF THE RECIPIENTS OF INTEREST FROM A CO - OPERATIVE BANKS MAY NOT BE FILING THE INCOME TAX RETURNS OR WOULD NOT BE DISCLOSING IN THEIR RETURN THE DETAILS ABOUT THE SOURCES OF RECEIPT OF INTEREST. THERE FORE, IT IS IMPERATIVE THAT IN SUCH A SITUATION, THE APPELLANT BANK ON MAKING SUCH A CLAIM FILES THE PROOF OF PAYMENT OF TAXES, IF ANY ON THE INTEREST INCOME EARNED FROM THE ASSESSEE BANK BY THE RESPECTIVE RECIPIENTS OF THE INTEREST AMOUNTS. 6 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO 2.4 LEARNED AR AND DR HAS ARGUED BEFORE US AND BOTH HA VE SUBMITTED THE WRITTEN SUBMISSION. THE FOLLOWING WRITTEN SUBMISSION HAS BEEN MADE BY THE AR READ AS UNDER: 1. UNDER S.194A(3)(V), THERE IS NO OBLIGATION TO DEDUCT TAX AT SOURCE IN RESPECT OF INTEREST IN COME CREDITED OR PAID BY A COOPERATIVE SOCIETY TO A MEMBER THEREOF. FACTUALLY, THERE IS NO DISPUTE THAT THE INTEREST PAYMENTS IN QUESTION ARE ALL BEING MADE TO OUR MEMBERS. WE SEEK TO DRAW YOUR HONOURS KIND ATTENTION TO S.2(19) OF THE INCOME TAX ACT WHICH DEFINES A CO - OPERATIVE SOCIETY AS BEING A COOPERATIVE SOCIETY REGISTERED UNDER THE CO - OPERATIVE SOCIETIES ACT 1912 OR UNDER ANY LAW FOR THE TIME BEING IN FORCE IN ANY STATE FOR THE REGISTRATION OF COOPERATIVE SOCIETIES. UNDER THIS DEFINITION, IT IS CLEA R THAT WE ARE A CO - OPERATIVE SOCIETY. THERE IS NO EXCLUSION THAT BANKS CANNOT BE CO - OPERATIVE SOCIETIES. THUS, IT IS RESPECTFULLY SUBMITTED THAT THE CLEAR POSITION IS THAT WE ARE A CO - OPERATIVE SOCIETY, AND THAT WE ARE NOT REQUIRED TO MAKE ANY DEDUCTION OF TAX AT SOURCE ON INTEREST PAID TO MEMBERS. 2. IT IS FURTHER SUBMITTED THAT S. 194A(VIIA) CANNOT CURTAIL THE SCOPE OF THE PROVISION OF SUB - CLAUSE (V). THE HON BLE BOMBAY HIGH COURT HAS CONSIDERED THE ISSUE IN THE CASE OF JALGAON DISTRICT CO - OP BANK 265 I TR 423. THE HONBLE COURT WAS CONCERNED WITH A CHALLENGE BY A CO - OPERATIVE BANK TO THE PROVISIONS OF A CIRCULAR CURTAILING THE BENEFITS OF SUB - CLAUSE (V). IF AT ALL BANKS ARE NOT ENTITLED TO THE BENEFITS OF SUB - CLAUSE (V), THE COURT WOULD HAVE NATURALLY DI SMISSED THE PETITION AT THE THRESHOLD ITSELF. HOWEVER, THE COURT DID NOT DO SO: IN FACT, THE PETITION WAS ALLOWED; AND THE CIRCULAR WAS STRUCK DOWN TO THE EXTENT TO WHICH IS NARROWED THE SCOPE OF THE BENEFITS WHICH WERE AVAILABLE TO THE ASSESSEE (A COOPERA TIVE BANK) UNDER S.194A(3)(V). FURTHER, WE SEEK TO INVITE YOUR HONOURS ATTENTION TO THE SPECIFIC FINDING OF THE HONBLE BOMBAY HIGH COURT ON PAGE 425 OF THE REPORT (265 ITR), WHERE THE COURT NOTES: ... IT IS AN ACCEPTED FACT THAT THE PROVISIONS OF TAX DE DUCTED AT SOURCE ARE NOT ENFORCEABLE IN RESPECT OF INTEREST PAID BY THE COOPERATIVE SOCIETY/BANK TO ITS MEMBERS HONBLE HIGH COURT HAS EXPRESSLY REFERRED TO BANK IN THE ABOVE HOLDING. 3. WE FURTHER NOTE THAT THE DEPARTMENT PREFERRED AN APPEAL AGAINST THI S DECISION BEFORE THE HONBLE SUPREME COURT. THE HONBLE SUPREME COURT DISMISSED THE DEPARTMENTS APPEAL BY ORDER DATED 7.7.2004. THEREFORE, THE ABOVE HOLDING OF THE HIGH COURT HAS NOT BEEN CONFIRMED BY HONBLE SUPREME COURT ALSO. BASED ON THE ABOVE DECISIO N, THE GUJARAT HIGH COURT HAS ALSO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN SPECIAL CIVIL APPLICATION 1465/2003 DECIDED IN JUNE 2012. IN LIGHT OF THE ABOVE, WE RESPECTFULLY SUBMIT THAT THERE IS NO OBLIGATION ON US TO DEDUCT TAX AT SOURCE ON PAYMENT O F INTEREST TO OUR MEMBERS. WE ALSO RELY ON THE DECISION/REASONING OF HONBLE BANGALORE BENCH DECISION IN THE CASE OF BAGALKOT DISTRICT CO - OP BANK AND BASAVESHWARA COOP BANK, BEING ITA 1572/BLR/2013 AND ITA 275/BLR/2012 RESPECTIVELY. 7 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO 4. IN ANY EVENT, IT IS RESPECTFULLY SUBMITTED THAT THERE IS NO FINDING THAT THE INDIVIDUAL MEMBERS DID NOT PAY THE TAX IN THEIR RETURNS. RELIANCE IS PLACED ON THE DECISION OF AGRA BENCH OF HONBLE ITAT IN THE CASE OF ALLAHABAD BANK. 5. FURTHER, WE PLACE RELIANCE ON THE JUDGMENTS AND ORDERS CITED AT THE TIME OF THE HEARING / ARGUMENTS OF THE PRESENT APPEALS, INCLUDING THE ORDERS OF THE HONBLE BANGALORE BENCH WHICH WERE RELIED ON IN THE COURSE OF THE HEARING. THE CONTENTIONS AND SUBMISSIONS MADE IN THE COURSE OF THE HEARING ARE RE ITERATED. 6. IT IS RESPECTFULLY SUBMITTED AND PRAYED THAT YOUR HONOURS MAY BE PLEASED TO ALLOW THE APPEALS . 2.5. WHEREIN THE FOLLOWING WRITTEN SUBMISSION HAS BEEN MADE BY THE DR READ AS UNDER: THE TDS ON TIME DEPOSITS IS DEALT 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, 1995) WITH A BANKING COMPANY TO WHI CH 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 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 [EMPHASIZED] FROM A PLAIN READING OF ABOVE CLAUSES, IT IS CLEAR THAT WHILE CLAUSE (VII) DEALS WITH INTEREST PAYMENT BY A BANKING COMPANY THE CLAUSE (VIIA) DEALS WITH INTEREST PA YMENT 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 ENGAGED IN CARRYING ON THE BUSINESS OF BANKING, THERE IS NO EXEMPTION FOR THE 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 MONETARY LIMITS ARE DIFFERENT FOR DIFFERENT CATEGORY OF PAYERS. THE SAI D CLAUSE IS REPRODUCED BELOW FOR THE SAKE OF CLARITY: 194A(3) THE PROVISIONS OF SUB - SECTION (1) SHALL NOT APPLY 8 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO (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 CREDI TED 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) A PPLIES (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 THE BUSINESS OF BANKING [EMPHASIZED] (C) TEN THOUSAND RUPEES, ON ANY DEPOSI T 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 BUSI NESS 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 (VIIA) NOR IN CLAUSE (I) THERE IS ANYTHING TO RESTRICT THEIR APPLICABILITY ONLY TO NON - MEMBERS AND THEREFOR E 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 DEPOSITORS. 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: 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 SPECI FICALLY A CO - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING FINDS APPLICATION? 2. LEGISLATIVE HISTORY OF TDS ON INTEREST: A. THE FINANCE ACT 1968, INSERTED CLAUSE (V) IN 194A(3) TO EXEMPT INTEREST PAID BY ON CO - OP SOCIETY TO ANOTHER CO - OP SOCIETY F ROM 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 OUT OF THE GENUS COOPERATIVE SOCIETY MENTIONED IN CLAUSE (V). 9 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO THE SCOPE OF THE ABOVE AMENDMENT IS EXPLAINED IN CIRC ULAR 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 IMPORTAN T 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 1 94A 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 WITH 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 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 SPECIFIC 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) REDUNDANT. 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 SPEC IFIC GENRE COOPERATIVE SOCIETIES, WHICH WERE EARLIER 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 AFO RESAID 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 10 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO 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) & (VIIA) 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 BANKIN G. THIS POSITION OF LAW HAS BEEN EXPLAINED IN THE EXPLANATORY NOTES TO FINANCE ACT 1995, CONTAINED IN CBDT CIRCULAR NO. 717 DATED 14 - 8 - 1995 AS UNDER. 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 DEPOSI TS MADE ON OR AFTER 1ST OF JULY, 1995 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 C OOPERATIVE 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 SPECIAL PROVI SION NORMALLY EXCLUDES THE OPERATION 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 SC OPE LEAVING THE GENERAL PROVISION TO CONTROL CASES WHERE THE SPECIAL PROVISION DOES NOT APPLY 4. JUDICIAL PRONOUNCEMENTS THE COURTS HAVE EXAMINED THE ISSUE OF APPLICABILITY OF TDS PROVISIONS TO THE INTEREST PAID BY A COOPERATIVE SOCIETY ENGAGED IN THE BUS INESS OF BANKING. MOOLAMATTOM ELECTRICITY BOARD EMPLOYEES CO - OP BANK LTD. [1999] 106 TAXMAN 242(KER.) THE HONBLE HIGH COURT HAD CONCLUDED THAT THE SAID TDS PROVISIONS DO NOT APPLY TO PRIMARY CO - OPERATIVE SOCIETIES AND THEY ARE SPECIFICALLY EXEMPT UNDER C LAUSE (VIIA)(A). WHILE DECIDING SO, THE HONBLE COURT, HAD INTERALIA, OBSERVED AS UNDER: THE POSITION AS IT STOOD BEFORE THE SUBSTITUTION OF THE CLAUSE BY THE FINANCE ACT, 1995, WAS TO THE EFFECT THAT ALL CO - OPERATIVE SOCIETIES ENGAGED IN CARRYING ON THE 11 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO BUSINESS OF BANKING WERE GIVEN THE EXEMPTION. IT IS NOW CONFINED TO CERTAIN CO - OPERATIVE SOCIETIES NOT ENGAGED IN CARRYING ON THE BUSINESS OF BANKING THE ABOVE OBSERVATIONS OF THE HONBLE COURT CONFIRMS THAT, AFTER AMENDMENT BY FINANCE ACT 1995, THE EXEMP TION IS CONFINED TO ONLY THOSE CO - OPERATIVE SOCIETIES NOT ENGAGED IN THE BUSINESS OF BANKING. BHAGANI NIVEDITA SAHAKARI BANK LTD V ACIT [2003] 87 ITD 569 (PUNE) (SMC) THE APPELLANT IN THE ABOVE CASE WAS COOPERATIVE BANK WHICH HAD PAID INTEREST TO MEMBERS O N THEIR TIME DEPOSITS WITHOUT TDS. IT TOOK THE STAND THAT, IT IS BASICALLY A CO - OPERATIVE SOCIETY WITHIN THE MEANING OF SECTION 2(19) AND IN VIEW OF GENERAL EXEMPTION AVAILABLE IN SECTION 194A(3)(V), THERE WAS NO REQUIREMENT OF TDS IN RESPECT OF INTEREST PAID TO ITS MEMBERS. THIS STAND WAS REJECTED BY THE HONBLE ITAT AND OBSERVED AS UNDER: A) IT CAN BE NOTICED FROM PERUSAL OF SECTION 194A THAT WHEREVER THE TERM CO - OPERATIVE SOCIETY IS USED INTENDING THEREBY TO INCLUDE A COOPERATIVE SOCIETY ENGAGED IN C ARRYING ON THE BUSINESS OF BANKING, IT IS SO SPECIFICALLY MENTIONED. IN ALL OTHER PLACES, IT CAN BE INFERRED THAT THE TERM CO - OPERATIVE SOCIETY DOES NOT INCLUDE CO - OPERATIVE BANKS. IF SUCH INTERPRETATION IS NOT ADOPTED THERE ARISES A CONFLICT BETWEEN TWO PROVISIONS, VIZ, CLAUSE (V) AND CLAUSE (VIIA) OF SUB - SECTION(3). B) IF THE STAND TAKEN BY THE ASSESSE TO INCLUDE ALL COOPERATIVE SOCIETIES IN CLAUSE (V )IS ACCEPTED, THEN THE EXEMPTIONS PRO VIDD TO PRIMARY AGRICULTURAL CREDIT SOCIETY; PRIMARY CREDIT SOCI ETY; CO - OPERATIVE LAND MORTGAGE BANK; CO - OPERATIVE LAND DEVELOPMENT BANK, VIDE CLAUSE (VIIA)(A) AND TO A OR CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING (VIIA)(B) BECOMES REDUNDANT OR SUPERFLUOUS. IF ON THE CONTRARY IT IS HELD THAT T HE FIVE ABOVE MENTIONED CATEGORIES OF COOPERATIVE SOCIETIES WERE NOT TO BE INCLUDED IN THE TERM CO - OPERATIVE SOCIETY IN CLAUSE (V) THEN, THIS KIND OF RESULT IS AVOIDED. C) THE CO - OPERATIVE SOCIETY AS MENTIONED IN CLAUSE (V) IS A GENERAL SPECIES, WHEREAS THE OTHER FIVE CATEGORIES OF CO - OPERATIVE SOCIETIES WHICH ARE SPECIFICALLY REFERRED TO IN DIFFERENT OTHER PROVISIONS ARE SPECIFIC SPECIES. IT IS A SETTLED PRINCIPLE OF INTERPRETATION THAT WHEN A CONFLICT OCCURS BETWEEN A SPECIFIC PROVISIONS OF THE LAW, VIS - A - VIS, THE GENERAL PROVISIONS OF THE LAW, THEN PRECEDENCE WILL HAVE TO BE GIVEN TO THE SPECIFIC PROVISIONS OF THE LAW SO AS TO OVERRIDE THE EFFECT OF THE GENERAL PROVISION OF THE LAW. THEREFORE IN INTERPRETING PARTICULAR PROVISION, A CO - OPERATIVE SOCIETY IN CLAUSE (V), IF IT COMES IN CONFLICT WITH THE OTHER PROVISIONS OF THE ACT, THEN THE INTERPRETATION OF THE TERM CO - OPERATIVE SOCIETY WOULD HAVE TO BE SUITABLY AMENDED. THEREFORE, IT IS NECESSARY THAT THE TERM CO - OPERATIVE SOCIETY IN CLAUSE (V) BE INTE RPRETED AS CO - OPERATIVE SOCIETY OTHER THAN CO - OPERATIVE BANK. D) CLAUSE (VIIA)(B) WAS INTRODUCED WITH EFFECT FROM 1 - 7 - 1995 WHEREAS CLAUSE (V) WAS ALREADY IN EXISTENCE. THE NEED FOR INTRODUCTION OF CLAUSE (VIIA) (B) WAS MERELY FOR THE 12 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO PURPOSE OF EFFECTING T HE TAX DEDUCTION AT SOURCE FROM THE INTEREST ON FIXED DEPOSITS WITH THE COOPERATIVE BANKS. E) EXEMPTION AS CLAIMED BY THE ASSESSEE FROM TDS WITH RESPECT TO INTEREST ON TIME DEPOSITS PAID/ CREDITED BY A CO - OPERATIVE BANK TO ITS MEMBERS COULD NOT BE AVAILABL E TO THE ASSESSEE. AS PROVISION HAD SPECIFICALLY BEEN INCORPORATED WITH EFFECT FROM 1 - 7 - 1995 IN ORDER TO BRING THE INTEREST INCOME ON FIXED DEPOSITS BY CO - OPERATIVE BANKS AND NO DISTINCTION HAS BEEN CARVED OUT TO TREAT MEMBERS AND NON - MEMBERS DIFFERENTLY, SAME COMES WITHIN THE PURVIEW OF DEDUCTIBILITY OF TAX AT SOURCE. (EMPHASIZED) F) AS PER SUB - CLAUSE (B) UNDER THE PROVISO TO SECTION 1 94A(3)(I), A COOPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING IS REQUIRED TO DEDUCT TAX AT SOURCE IN RE SPECT OF TIME DEPOSITS WHERE THE AMOUNT OF INTEREST PAID EXCEEDS RS. 10,000. THIS REQUIREMENT IS IRRESPECTIVE OF THE FACT WHETHER THE INTEREST IS PAID TO MEMBERS OR NON - MEMBERS OF SUCH CO - OPERATIVE BANKS. G) IT IS AMPLY CLEAR AS PER DECISION OF HONBLE HIGH COURT OF KERALA, IN MOOLAMATTOM ELECTRICITY BOARD EMPLOYEES CO - OP BANK LTD CASE] THAT THE EXEMPTION UNDER SECTION 1 94A(3)(VIIA)(A) IS AVAILABLE TO PRIMARY CREDIT CO - OPERATIVE SOCIETY AND SAID SOCIETY C ANNOT BE CLASSIFIED OR EQUATED WITH THE CO - OPERATIVE SOCIETY ENGAGED IN THE BANKING BUSINESS TO WHICH PROVISIONS OF DEDUCTION OF TAX AT SOURCE ARE APPLICABLE. THE RATIO OF THE DECISION IS FOUND TO BE FAVORING THE CASE OF THE REVENUE THAN THE ASSESSEE. SINC E HONBLE HIGH COURT OF KERALA HAS GIVEN CLEAR INTERPRETATION FAVOURING THE DEPARTMENT SO IF VIEWED FROM THIS ANGLE, EXEMPTION AS CLAIMED BY THE ASSESSEE FROM DEDUCTIBILITY OF TAX AT SOURCE WITH RESPECT TO INTEREST ON TIME DEPOSITS PAID/CREDITED BY A COOPE RATIVE BANK TO ITS MEMBERS CANNOT BE AVAILABLE TO THE ASSESSEE. THE ABOVE FINDINGS OF HONBLE ITAT REQUIRE NO ELABORATION AND THEY ARE SQUARELY APPLICABLE TO THE CASE ON HAND. THE BAILHONGAL URBAN CO - OP BANK LTD V JCIT RANGE - 1(ITA NO.85/PNJ/2013,ITAT, PANA JI 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 DEPOSITS TO ITS MEMBERS WITHOUT DEDUCTING TAX U/S 194A. THE AO APPLIED THE PROVISIONS OF SECTION 40(A)(IA) AND DISALL OWED THE CORRESPONDING EXPENDITURE WITH THE FINDING THAT THE ASSESSEE WAS LIABLE TO DEDUCT TAX IN VIEW OF SPECIFIC CLAUSE (VIIA) OF 194A(3). THIS STAND HAS BEEN UPHELD BY HONBLE ITAT WITH FOLLOWING OBSERVATIONS: A) THE AO CATEGORICALLY BROUGHT OUT MATERIA L ON RECORD TO PROVE THAT THE ASSESSE BANK IS COVERED BY CLAUSES 194A(3)(IB) AS WELL AS 194A(3) (VIIA)(B) WHICH 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 COOPERATI VE SOCIETY ENGAGED IN THE BUSINESS OF BANKING, IT IS COVERED UNDER SPECIFIC CLAUSES. AS HAS BEEN HELD BY ITAT PUNE BENCH IN BHAGANI NIVEDITA SAHAKARI BANK LTD CASE, THE TERM COOPERATIVE SOCIETY IN CLAUSE 13 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO 194A(3)(V) IS TO BE INTERPRETED AS COOPERATIVE SO CIETY 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 ME MBERS 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 HONBLE ITAT ARE SQUARELY APPLICABLE TO THE CASE ON HAND. ACIT V VISAKHAPATNAM CO - OPERATIVE BANK LTD [2011] 47 SOT 295 (VIZAG) OZER MERCHANT CO - OP BANK LTD - ITA NO 1588/PN/2012 IN THESE CASES THE AOS HAD MADE DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT, AS THE ASSESSEE HAD FAILED TO DEDUCT TAX AT SOURCE U/S 194A ON THE INTEREST PAID ON DEPOSITS TO MEMBERS. THE ASSESSEE CLAIMED THAT THE SAID INTEREST WAS PAID ONLY TO MEMBERS AND IT BEING A COOPERATIVE SOCIETY, THERE WAS NO REQUIREMENT OF TDS IN VIEW OF CLAUSE SEC.194A (3) (V). THE CIT (A) & HONBLE ITAT HAVE ACCEPTED THE STAND OF THE ASSESSE WITH FOLLOWING OBSERVATIONS: SECTION 1 94A(3) OF THE ACT PRESCRIBES THE MONETARY LIMITS AND ALSO A LIST OF PAYMENTS WHICH ARE EXEMPT FROM THE REQUIREMENT OF COMPLYING WITH THE PROVISIONS OF TDS PRESCRIBED UNDER SUB SECTION (1) OF THAT SECTION. ON A PLAIN READING OF THE SECTION 194A(3)(V), WE NOTICE THAT THE SAID SECTION PROVIDES BLANKET EXEMPTION TO THE INTEREST PAID BY ANY CO - OPERATIVE SOCIETY TO ITS MEMBERS. THE TERM CO - OPERATIVE SOCIETY HAS BEEN DEFINED UNDER SECTION 2(19) OF THE ACT. IT CAN BE SEEN THAT NEITHER SEC. 2(19) NOR SEC.194A(3) MAKES ANY DISCRIMINATION BETWEEN THE CO - OPERATIVE SOCIETIES CARRYING ON BANKING BUSINESS AND OTHER CO - OPERATIVE SOCIETIES. THE ASSESSEE IS SQUARELY COVERED BY THE EXEMPTION PROVIDED UNDER SECT ION 194A(3)(V) OF THE ACT. AS REGARDS THE ABOVE DECISIONS IT IS ESSENTIAL TO MAKE FOLLOWING OBSERVATIONS: A. THEY DID NOT DISTINGUISH THE DECISION OF HONBE KERALA HC IN MOOLAMATTAM CASE WHEREIN IT WAS HELD THAT, AFTER AMENDMENT OF SECTION 194A, THE EXEMP TION IS NOW CONFINED TO CERTAIN CO - OPERATIVE SOCIETIES NOT ENGAGED IN CARRYING ON THE BUSINESS OF BANKING. B. THEY CONSIDERED ONLY SEC.2(19) AND SEC.194A(3)(V) AND DID NOT TRAVEL BEYOND THAT POINT. IT HAS NOT CONSIDERED THE SPECIFIC CLAUSES 194A(3)(V) AND 194A(3)(VIIA)(B). 14 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO C. THEY DID NOT DISTINGUISH THE DECISION OF HONBLE ITAT PUNE BENCH IN BHAGANI NIVEDITA SAHAKARI BANK CASE WHICH AFTER DETAILED REASONING UPHELD THE APPLICABILITY OF SPECIFIC CLAUSES(IB)&(VIIA) TO CO - OPERATIVE SOCIETY ENGAGED IN THE BUSI NESS OF BANKING VIS - - VIS GENERAL CLAUSE(V). D. THEY DID NOT ALSO APPLY NORMAL PRINCIPLE OF INTERPRETATION OF LAW GENERA/IA SPECIAL/BUS NON DEROGANT. THERE IS NO REASONING GIVEN IN THE ORDER, AS TO WHY HONBLE SUPREME COURTS DECISION IN SOUTH INDIAN COR PN. (P) LTD CASE CANNOT APPLIED. JALGAON DISTRICT CENTRAL CO - OPERATIVE BANK LTD V UNION OF INDIA IN [2003] 265 ITR 423(BOM) THE APPELLANT CLAIMS THAT CIRCULAR NO 9/2002 HAS IN PARA 2 CLARIFIED THAT MEMBERS CO - OP BANK CAN RECEIVE INTEREST WITHOUT TDS IN VIE W OF CLAUSE(V). HOWEVER THE HONBLE MUMBAI HIGH COURT, IN THE ABOVE CASE HAS QUASHED THE ENTIRE CIRCULAR. THE OPERATIVE PART OF THE SAID ORDER IS REPRODUCED BELOW FOR THE SAKE OF CLARITY: IN THE RESULT, BOTH THE WRIT PETITIONS ARE ALLOWED. THE IMPUGNED CI RCULAR NO. 9 OF 2002, DATED 11TH SEPTEMBER, 2002 [F. NO. 275/106/ 2000/IT(B) - ANNEXURE A] IS QUASHED AND SET ASIDE. SIMILARLY, THE LETTER ISSUED BY THE ITO, JALGAON, WARD NO. 2(3) [NO. JAL/ITO/2(3)/TDS/194 /2000 - 03, DATED 9TH OCTOBER, 2002 - ANNEXURE B] IS ALSO QUASHED AND SET ASIDE. RULE MADE ABSOLUTE IN THE ABOVE TERMS. FROM THE ABOVE IT IS DEAR THAT THE HONBLE COURT HAS SET ASIDE AND QUASHED THE CBDT CIRCULAR IN ITS ENTIRETY AND NOT READ DOWN OR MODIFIED THE CIRCULAR. THEREFORE THAT CIRCULAR IS NO LONGE R IN EXISTENCE AND HENCE NO PORTION OF IT CAN BE RELIED UPON. 5. CONCLUSION IN VIEW OF THE ABOVE DISCUSSION, IT IS PLEADED TO DISMISS THE APPEAL ON THE POINT AND DECLARE THAT IN RESPECT OF INTEREST ON TIME DEPOSITS BY A CO - OPERATIVE BANK CLAUSE (VIIA) IS A PPLICABLE AND NOT THE CLAUSE (V) AND TDS WAS REQUIRED TO BE DONE. 2.6. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES, IT IS UNDISPUTED FACT THAT ASSESSEE HAS PAID INTEREST ON TERM DEPOSIT TO RS.18,39,003 1 / - TO DEPOSITOR WITHOUT DEDUCTING THE TAX AT SOURCE. THE ASSESSEE CONTENDED THAT THE PROVISIONS OF TDS ARE NOT ATTRACTED IN VIEW OF CLAUSE (V) OF SUB - SECTION (3) OF SECTION 194A AS THE INTEREST PAYMENTS TO THE EXTENT OF RS.1,83,90,031/ - HAVE BEEN MADE TO THE MEMBERS OF THE BANK WHICH IS A CO - OPER ATIVE SOCIETY. WHILE THE REVENUE CLAIMS THE T.D.S HAS TO BE DEDUCTED AS PER SECTION 194A(VIIA) . THE PROVISIONS OF SECTION 194A(3)(V)(VIIA) WHICH READ AS UNDER: 15 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO (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 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) DEPOSITS (OTHER THAN TIME DEPOSITS MADE ON OR AFTER THE 1 ST DAY OF JULY, 1995) WITH A CO - OPERATIVE SOC IETY, OTHER THAN A CO - OPERATIVE SOCIETY OR BANK REFERRED TO IN SUB - CLAUSE (A), ENGAGED IN CARRYING ON THE BUSINESS OF BANKING; WE FIND THAT THE CO - OPERATIVE IS ALSO INTERPRETED BY THE HONBLE JURISDICTIONAL KARNATAKA HIGH COURT, WHEREIN IN THE CAS E OF CIT VS. YESHWANTHPUR CREDIT CO - OPERATIVE SOCIETY LIMITED IN ITA NO. 237/2012, WHEREIN THE HONBLE HIGH COURT HAS INTERPRETED THE CO - OPERATIVE BANK BY OBSERVING AS UNDER: NATURE CO - OPERATIVE SOCIETY REGISTERED UNDER BANKING REGULATION ACT, 1949 CO - OPE RATIVE 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 ORDERS, GIFT CHEQUES, LOCKERS, BANK GUARANTEES ETC. 3. CO - OPERATIVE BANKS CAN 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 CHEQUES, LOCKERS, BANK GUARANTEES ETC. 3. SOCIETY CANNOT ACT CLEARING AGENT, FOR CHEQUES, 16 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO 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) DDS, P AY 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 R EGISTRAR 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 BANK BANKER, BANKING CANNOT BE USED BY A CO - O PERATIVE SOCIETY MOREOVER, WE FIND THAT IN THE SAID JUDGMENT THE HONBLE HIGH COURT HAS 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 PRIMARY 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 BENEFIT TO A CO - OPERATIVE BANK WHICH IS EXCLUSIVELY CARRYING ON BANKING B USINESS 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 PROVIDING 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. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE THE HONBLE HIGH COURT HAS INTERPRETED THE DIFFERENCE BETWEEN CO - OPERATIVE BANK AND CO - OPERATIVE 17 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO SOCIETY. THE CO - OP ERATIVE BANK AND CO - OPERATIVE SOCIETY IS ALSO INTERPRETED IN THE CASE OF BHAGANI NIVEDITA SAHAKARI BANK LTD. VS. ACIT (2003) 87 ITD 567 WHERE IN IT IS HELD THAT CO - OPERATIVE SOCIETY MENTIONED IN SECTION 194A(3)(V) SHOULD BE INTERPRETED AS CO - OPERATIVE SOCI ETY 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 THE CASE OF MOOLAMATTOM ELECTRICITY BOARD EMPLOYEES CO - OPERATIVE BANK LTD. 630 HA S 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 BUSINESS AS BANKING. WE FIND THAT THE ASSESSEE BANK IS COVERED BY THE PROVISIONS OF SU B - 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. THODUPUZ HA 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 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, THOD UPUZHA, IDUKKI DISTRICT, REPRESENTED BY THE SECRETARY. SUB - SECTION 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 - SEC TION (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) RE ADS AS FOLLOWS : SUB - SECTION 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 18 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO SOURCE, WHEN SUCH INSTITUTIONS PAY INTEREST ON DEPOSITS EXCEEDING THE PRESCRIBED LIMIT. SUB - SECTION (3)(VIIA) READS AS FOLLOWS : '(3) THE PROVISIONS OF SU B - 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) DEPO SITS (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;' THE RESULT WILL BE THAT INTE REST 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 PETITIONER, THE FIRST RESPONDENT HEREIN, DOES NOT COME WITHIN ANY OF THE TYPES OF CO - OPERATIVE SOCIETIES MADE MENTION OF IN SUB - CLAUSE (A) OF CLAUSE (VIIA) OF SUB - SECTION (3) OF SECTION 194 A 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 1 94A(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 SECTION 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 INTERPRETED 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 CENT RAL 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 HAND 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 19 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO 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 CIRCULAR IS ILL FOUNDED. THE QUESTION BEFORE THE HONBLE BOMBAY HIGH COURT WAS NOT WHETHER A CO - O PERATIVE 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 THE 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 DEDUCT ION AT SOURCE TO COVER NEW AREAS OF PAYMENTS IN T HE NATURE OF COMMISSIONS, INTEREST PAID BY BANKS ON TIME DEPOSITS AND WITHDRAWALS FROM THE NATIONAL SAVINGS SCHEME. TO MINIMISE THE INCONVENIENCE FOR SMALL DEPOSITORS, 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 DECLARATION IN THE PRESCRIBED MANNER. SUCH PROVISION RELATES TO TDS INTRODUCED BY FINANCE ACT. 19 91. 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 MINISTER HAS TO BE SENSITIVE TO THE OPINIONS OF HONOURABLE MEMBERS OF PARLIAMENT EVEN WHEN THEY DIFFER FROM HIS OWN CONVICTIONS. HE ACCORDING LY WITHDRAWN THE PROVISION RELATING TO DEDUCTION AT SOURCE IN RESPECT OF INTEREST ON TERM DEPOSIT WITH THE BANK AND COMMISSION W.E.F., JUNE 1992 . 20 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO 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 AMENDMENT WAS MADE TO REST ORE THE POSITION AS WAS BEFORE 1 ST OCTOB ER, 1991 IN RELATION TO DEDUCT TAX AT SOURCE IN THE CASE OF INCO ME CREDITED OR PAID IN RESPECT OF DEPOSIT WITH A BANK COMPANY TO WHICH BANKING REGULATION ACT 1940 APPLIES OR WITH A CO - OPERATIVE SOCIETY ENGAGED IN CAR RY ING ON THE BUSIN ESS OF BANKING, INCLUDING CO - OPERATIVE LAND MORTGAGE BANK OR CO - O PERATIVE LAND DEVELOP MENT 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 INTEREST ON TIME DEPOSIT PAYABLE BY BANK. THE AMENDMENT SECTION 194A NOW PROVIDES FOR DEDUCTION OF TAX AT SOU RCE 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 LIMI T 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 CASE MAY BE . T HE INTEREST ON TIME DEPOSIT MADE WITH A PRIMARY AGRICULTURAL SOCIETY OR A CREDIT SOCIETY OR A CO - OPER ATIVE LAND MORTGAGE BANK OR A CO - OPERATIVE LAND DEVELOPMENT BANK WILL NOT BE SUBJECT TO REQUIREMENT OF DEDUCTION OF TAX AT SOURCE. REFERENCE IN 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 PROVIDING THE SPECIFIC LIMIT OF RS.10,000/ - IN RESPECT OF TIME DEPOSI T MADE WITH BANKING COMPANY WITH RESERVATION THAT OVERALL LIMIT OF RS. 5,000/ - PROVIDED IN MAIN PORTION OF SUB - SECTION 3 WOU LD APPLY TO SUCH DEPOSIT W.E.F. 19 T H JUNE, 2001. FROM THIS ABOVE INTENTION OF LEGISLATURE WE ARE OF THE VIEW THAT IT IS CLEAR THAT A SSESSEE COMPANY A CO - OPERATIVE SOCIETY CARRYING ON A BUSINESS OF BANKING IS LIABLE TO MAKE TDS U/S. 194A. 21 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO LEARNED AR HAS RELIED UPON THE DECISION OF INCOME TAX TRIBUNAL, BE A NGLORE BENCH IN THE CASE OF BAGALKOT DISTRICT CENTRAL CO - OP. BANK VS. JOINT COMMI SSIONER OF INCOME TAX, IN ITA NO.1572/BANG/2013, WHEREIN THE TRIBUN AL HAS INTERPRETED THE SECTION 194A(3)(V) WHICH GRANTS AN EXEMPTION FROM TDS TO SUCH INCOME CREDITED OR PAID BY THE CO - OPERATIVE SOCIETY. THEY HAVE INTERPRETED THE WORD MEMBER MENTIONED I N 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 FOLLOWING 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 KERALA HIGH COURT HAS OCCASIONED TO INTERPRET SECTION194A(3)(V) AND 194 A(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 TH EY HAVE CLEARLY DEFINED AND INTERPRETED THE SECTION IT APPEARS THAT THE BANK DID NOT CONSIDER THE PROVISION OF SECTI ON 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 SUB - SECTION (1) TO THE ACCOUNT OF, OR TO, THE PAY EE, 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 ANY 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; 22 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO (B) DEPOSITS (OTHER THAN TIME DEPOSITS MADE ON OR AFTE R 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 DEALT IN CLAUSES (VII) & (VIIA) OF 194A (3) WHIC H 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, 1995) WITH A BANKING COMPANY TO WHICH THE BANKING R EGULATION 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) DEP OSITS (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 S UB - 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) D EALS WITH INTEREST PAYMENT 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 ENGAGED IN CARRYING ON THE BUSINESS OF BANKING, THERE IS NO EXEMPTION FOR THE IN TEREST 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 MONETARY 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 23 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO (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 (INC LUDING 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 CAR RYING ON THE 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 BAN KING, THE MONETARY LIMIT PRESCRIBED IS RS 10000/ - . ONCE THE INTEREST PAYMENT EXCEEDS THAT AMOUNT T HE TDS IS TO BE MADE. NEITHER IN CLAUSE (VIIA) NOR IN CLAUSE (I) THERE IS ANYTHING TO RESTRICT THEIR APPLICABILITY ONLY TO NON - MEMBERS AND THEREFORE THEY APPL Y 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 DEPOSITORS. HOWEVER CO - OP BANK HOLDS THE VIEW THAT CLAUSE (VIIA) APPLIES ONLY TO NON - MEMBERS AND NOT TO THE MEMBERS. HOW EVER, 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: 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) 24 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO WHICH MENTIONS SPECIFICALLY A C O - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING FINDS APPLICATION? 2. LEGISLATIVE HISTORY OF TDS ON INTEREST: A. THE FINANCE ACT 1968, INSERTED CLAUSE (V) IN 194A(3) TO EXEMPT INTEREST PAID BY ON CO - OP SOCIETY TO ANOTHER CO - OP SOCIETY FROM TDS PURV IEW. 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 OUT OF THE GENUS COOPERATIVE SOCIETY MENTIONED IN CLAUSE (V). THE SCOPE OF THE ABOVE AMENDMENT IS EXPLAINED IN CIRCULAR NO 42 D ATED 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 CLAU SE, THE PROVISIONS OF SECTION 1 94A 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 WITH A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING (INCLUDING A CO - OPERATIVE LAND MORTGAGE BANK OR A CO - OPERA TIVE 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 GENERAL CO - OPERATIVE 25 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO SOCIETY AND NOT AT THE SPECIFIC GENE I.E COOPERAT IVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING. D. THE STAND OF APPELLANT IS THAT, EVEN AFTER INSERTION OF SPECIFIC CLAUSE(VII), THE GENERAL CLAUSE(V) WILL CONTINUE TO APPLY TO THE COOPERATIVE BANKS. IF THAT STAND IS ACCEPTED, THE COOPERATIVE B ANKS WERE REQUIRED TO DEDUCT TAX FROM INTEREST PAID TO DEPOSITORS WHO ARE NOT ITS MEMBERS, RENDERING CLAUSE (VII) REDUNDANT. E. THE BY FINANCE ACT 1991, FOR THE FIRST TIME INTRODUCED TDS ON TIME DEPOSITS BY SUBSTITUTING ABOVE MENTIONED CLAUSE (VII) WITH TW O 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 CO OPERATIVE SOCIETIES, WHICH WERE EARLIER 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 - OP ERATIVE 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 IN SERTED CLAUSES (VII) & (VIIA) WHICH LAY DOWN THAT, THE EXEMPTION AS ENVISAGED IN 194A(3) IS NOT AVAILABLE IN RESPECT OF TIME DEPOSITS 26 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO MADE ON OR AFTER 01 - 07 - 1995 WITH A BANKING COMPANY AND A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING. THIS POSI TION OF LAW HAS BEEN EXPLAINED IN THE EXPLANATORY NOTES TO FINANCE ACT 1995, CONTAINED IN CBDT CIRCULAR NO. 717 DATED 14 - 8 - 1995 AS UNDER. PARA 46.2: THE (FINANCE )ACT AMENDS SECTION 194A OF THE INCOME - TAX ACT RELATING TO DEDUCTION OF INCOME - TAX AT SOURCE F ROM 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 O R AFTER 1ST OF JULY, 1995 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 NORMALL Y EXCLUDES THE OPERATION 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 PROVISION 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 27 . ITA NO. 233 TO 236 /PNJ/201 2(A.Y.2010 - 11 TO2013 - 14 ) SARASWAT CO - OPERATIVE BANK LTD. VS. ITO OF DEPOSITS EXCEPT WHICH FALLS UNDER THAT PROVISIONS. WE THEREFORE, DISMISS THE APPEAL OF THE ASSESSEE. 3 . IN THE RESULT, THE APPEAL OF THE APPELLANT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01.10 .2014. SD/ - SD/ - ( P.K. BANSAL) (D.T. G ARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE : PANAJI / GOA DATED : 01 .09 .2014 P.S. - *PK* COPY TO : ( 1 ) APPELLANT ( 2 ) RESPONDENT ( 3 ) CIT CONCERNED ( 4 ) CIT(A) CONCERNED ( 5 ) D.R ( 6 ) GUARD FILE TRUE COPY, BY ORDER