Shree Basaveshwar Co-op. Bank Ltd., Belgaum V. Income Tax Officer, TDS Ward, Belgaum

ITA 344/PAN/2014

• Counselvise Citation: 34424114 RSA 2014
• Duration Of Justice: 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2015
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 10-10-2014
• Court: TRIBUNAL
• Department Lawyers: VINAY SINGH RAWAT LD
• Assessee Lawyers: ASHOK G M UDHUR CA LD
• Keywords: Gift; Non-deduction of tax
• Section: 143(3); 133A; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ,PANAJI BENCH, PANAJI [BEFORE SHRI P. K. BANSAL, AM & SHRI D.T GARASIA, JM ] I.T . A NO . 34 4 /PNJ/2014 A.Y 200 1 1 - 12 SHR EE BASAVESHWAR CO - OP. VS. I.T.O, TDS W ARD, BELGAUM B ANK LTD PAN: AA A AB3041M ( APPELLANT) ( RESPONDENT ) FOR THE APPELLANT: SHRI ASHOK G M UDHUR, CA , LD.AR FOR THE RESPONDENT : SHRI VINAY SINGH RAWAT, LD.DR DATE OF HEARING: 0 5 - 01 - 2015 DATE OF PRONOUNCEMENT: 0 5 - 01 - 2015 / ORDER PER SHRI D.T GARASIA, J M: TH IS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE SEPARATE ORDER OF THE LD. CIT (A) , B ELGAUM DATED 01/08/ 2014 FOR THE ASSESSMENT YEAR S 20 1 1 - 12. 2. THE ASSESSEE HAS RAISED T HE FOLLOWING GROUNDS OF APPEAL FOR THE ASSESSMENT YEAR UNDER CONSIDERATION : - 1. THE LEARNED CIT(A), BELGAUM AND ASSESSING OFFICER ERRED IN FACTS AND LAW IN TREATING APPELLANT IN DEFAULT UNDER SECTION. 201(1) EVEN WHEN THE I.T.A.T. PANJIM IN ITA NO.23 3/PANJ/2004 HAS HELD IN ASSESSEE OWN CASE FOR THE ASST YEAR 2002 - 03 THAT TAX IS NOT DEDUCTABLE ON INTEREST PAID TO MEMBERS AND CO O PERATIVE SOCIETIES IN VIEW OF EXEMPTION U/S 194A(3) (V) OF THE INCOME TAX ACT 1961. 2. THE LEARNED CIT(A), BELGA UM AN D ASSESSING OFFICER ERRED IN FACTS AND LAW IN TREATING A SSESSEE IN DEFAULT U/S 201(1) EVEN WHEN THE LAW IS SETTLED THAT INTEREST PAID TO MEMBERS OF COOPERATIVE SOCIETIES IS EXEMPT U /S 194A (3) (V) AS HELD BY HIGH COURTS AND I.T.A.T. BENCHES: (I) THE JALGAON DCC BANK LTD VS. UNION OF INDIA (2004) (II) GUJARAT URBAN CO O PERATIVE BANK FEDERATION VS. UNION OF INDIA (2012) 209 TAXMAN 340(GUJ) (III) ASST COMMISSIONER OF INCOME TAX CIRCLE I, NASIK VS. OZER MERCHANT COOPERATIVE BANK LTD ITA 1588/PNJ/2012 DATED 30.10.2013 (IV) ASST. COMMISSIONER OF INCOME TAX CIRCLE 1(1) VS. VISAKHAPATNAM COOP BANK LTD ITA 5/VIZAG/2011 DT. 29.08.2011 (V) THE BAGALKOT DISTRICT CENTRAL COOP BANK LTD VS. JOINT COMMISSIONER OF INCOME T AX, BIJAPUR RANGE BIJAPUR ITA 1572/BANG/2013 DT. 30.05.2014. 2 ITA NO . 34 4/ PNJ/2014 - JM SHREE BASAVESHWAR CO - OP BANK LTD 3 . THE LEARNED CIT(A), BELGAUM AND ASSESSING OFFICER ERRED IN TREATING THAT APPELLANT WAS LIABLE TO DEDUCT TAX U/S. 194A(3)(I)(B) CONTRADICTING THE VIEW TAKEN BY EARLIER ASSESSING OFFICE R WHO HAS PASSED ASSESSMENT U/S 143(3) FOR THE ASST YEAR 2009 - 10 AND SOME EARLIER YEARS HOLDING THE VIEW THAT INTEREST PAID TO MEMBERS IS EXEMPT U /S 194A(3)(V) OF THE ACT. 4 . THE LEARNED ASSESSING OFFICER ERRED IN FACTS AND LAW IN TREATING THE ASS ESSEE IN DEFAULT WITHOUT GIVING OPPORTUNITY NOR VERIFYING THAT THE RECIPIENT OF INCOME HAVE NO CAUSED ANY LOSS OF REVENUE TO GOVERNMENT UNDER PROVISO U/S 201(1) OF THE INCOME TAX ACT 1961 HINDUSTAN COLA BEVERAGES (P) LTD VS. CIT (2007) 163 TAXMAN 255(SC) JAGRAN PRAKASHAN LTD VS. DCIT (TDS) (2012) 345 ITR 288(ALL) HC 3. THE S HORT FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A CO - OPERATIVE BANK AND ENGAGED IN THE BUSINESS OF BANKING. IT HAS OBTAINED NECESSARY LICENSE FROM RESERVE BANK OF IND IA FOR CARRYING ON ITS BANKING OPERATIONS AS A CO - OPERATIVE BANK. ITS RBI LICENSE NO. IS UBD/KA/552P. A SURVEY U /S 133A OF THE I.T ACT 1961 WAS CONDUCTED BY THE INCOME TAX OFFICER, TDS WARD, BELGAUM AT THE BANKS PREMISE ON 12 - 12 - 2013 TO VERIFY COMPLIANC E WITH TDS/TCS (TAX DEDUCTION/TAX COLLECTION AT SOURCE) PROVISIONS. ON VERIFICATION, IT WAS NOTICED THAT NO TDS HAD BEEN MADE FOR THE INTEREST PAYMENTS ON TERM DEPOSITS TO MEMBERS DURING THE F.YS 2009 - 10 TO 2012 - 2013 , WHICH WERE LIABLE FOR TDS @ 10% AS P ER PROVISIONS OF SECTION 194A(3)(I)(B) OF THE I.T ACT 1961. 4 .1 THE INCOME TAX OFFICER CONCLUDED THAT THE ASSESSEE HAS FAILED TO DEDUCT TAX AT SOURCE FROM INTEREST ON TERM DEPOSITS EXCEEDING RS.10,000/ - THEREFORE, THE PROVISIONS OF SECTION 201(1) & 201(1A) OF THE I.T ACT 1961 ARE APPLICABLE IN THE CASE OF THE ASSESSEE. SINCE THE ASSESSEE HAS FAILED TO DEDUCT THE TDS, THE ASSESSEE/DEDUCTOR IS DEFAULT U/S 201(1) , INTEREST U/S 201(1A) WAS REQUIRED TO BE LEVIED. THUS, THE INCOME TAX OFFICER CALCULATED THE AMOU NT PAYABLE FOR A.Y 201 1 - 12 AT RS. 13,29,185/ - , RS. 9,04,211 / - U/S 201(1) AND RS.4, 2 4,974 / - U/S 201(1A). 5 . MATTER CARRIED TO LD. CIT(A) AND CIT(A) HAS CONFIRMED THE ACTION OF THE AO. 6 . THE ASSESSEE IS IN APPEAL AGAINST THE DECISION OF THE LD.CIT(A). 7 . WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. DURING THE COURSE OF HEARING BEFORE US THE LD.AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A CO - OPERATIVE SOCIETY 3 ITA NO . 34 4/ PNJ/2014 - JM SHREE BASAVESHWAR CO - OP BANK LTD ENGAGED IN BANKING BUSINESS AND INTEREST PAID TO ITS MEMBERS IS NOT LIA BLE FOR T AX DEDUCTION. HE FURTHER SUBMITTED THAT FOR THE PAST MANY YEARS THE ASSESSEE BANK HAS BEEN FILING RETURN OF INCOME REGULARLY AND EXEMPTION FROM TDS U / S 194A(3)(V) HAS BEEN ALLOWED TO ASSESSEE YEAR AFTER YEAR UPTO ASSESSMENT YEAR 2009 - 10 . THE AO HA S RELIED UPON THE DECISION OF THE I.T.A.T. PUNE IN THE CASE BHAGANI NIVEDITA SHAHARI BANK LTD . BY CBDTS CIRCULAR 9/2002 DT 11 - 9 - 2002 CLARIFIED THAT A MEMBER OF A COOPERATIVE BANK SHALL RECEIVE INTEREST ON BOTH TIME DEPOSITS AND DEPOSITS OTHER THAN TIME D EPOSITS WITH COOPERATIVE BANK WITHOUT TDS U/S 194A BY VIRTUE OF EXEMPTION GRANTED VIDE CLAUSE (V) OF SUB - SECTION (3) OF THE SAID SECTION. IT WAS CLARIFIED THAT A MEMBER IS ONE WHO HAS JOINED IN APPLICATION FOR THE REGISTRATION OF THE COOPERATIVE SOCIET Y AND THOSE WHO ARE ADMITTED TO MEMBERSHIP AFTER REGISTRATION IN ACCORDANCE WITH THE BYE - LAWS AND RULES. A MEMBER ELIGIBLE FOR EXEMPTION U/S 194A(3) MUST HAVE SUBSCRIBED TO AND FULLY PAID FOR AT LEAST ONE SHARE O THE COOPERATIVE BANK , MUST BE ENTITLED TO P ARTICIPATE AND VOTE IN THE GENERAL BODY MEETINGS AND TO SHARE FROM THE PROFITS OF THE COOPERATIVE BANK . THE CIRCULAR ALSO CLARIFIED THAT THE PROVISIONS OF SECTION 194A(3) (VIIA) ARE APPLICABLE ONLY IN CASE OF NON - MEMBER DEPOSITOR OF THE COOPERATIVE BANK , W HO SHALL RECEIVE INTEREST ONLY ON DEPOSITS OTHER THAN TIME DEPOSITS MADE ON OR AFTER 1.7.1995 WITHOUT TDS UNDER SECTION 194A. THIS CIRCULAR 9/2002 WAS CHALLENGED IN THE BOMBAY HIGH COURT IN THE CASE OF JALGAON DCC BANK VS. UNION F INDIA (2004) 265 ITR 423( BOM) , WHEREIN THE HON'BLE BOMBAY HIGH COURT HAS QUASHED THE SAID CBDT CIRCULAR. THE LD. AR OF THE ASSESSEE HAS ALSO RELIED UPON THE DECISIONS ON THE FOLLOWING CASES: A) GUJARAT URBAN BANK FEDERATION VS. U.O.I 209 TAXMAN 340(GUJ) B) THE I.T.A.T. VISAKH APATNAMS ORDER DATED 29.08.2011 IN ITA NOS. 5 & 19 OF 2011 C) THE I.T.A.T. PANAJIS ORDER IN ITA NO.1588/PN/2012 IN THE CASE OF THE OZER MERCHANT CO - OP BANK LTD D) THE I.T.A.T. BANGALORES ORDER IN ITA 275/BANG/2012 DT. 27.06.2014[ASESSEES OWN C ASE] 8 . ON THE OTHER HAND, THE LD.DR HAS RELIED ON THE DECISION OF THE LD.CIT(A). 9 . HAVING HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE , WE ARE OF THE VIEW THAT THE ISSUE IS NOW CONTROVERSY THAT THE ASSESSEE HAS PAID INTEREST ON TERM DEPOSITS TO THE TUNE OF RS. 90,42,115/ - TO THE DEPOSITORS WITHOUT DEDUCTING THE TDS AT SOURCE. THE ASSESSEE CONTENDED THAT THE PROVISIONS OF TDS ARE NOT ATTRACTED IN VIEW OF SUB SECTION(3)(V) OF SECTION 194A OF THE AC T AS INTEREST PAYMENT TO THAT EXTENT HAS BEEN MADE TO MEMBERS OF BANK. WE FIND THAT IN THE CASE OF SARASWAT CO - OPERATIVE BANK IN ITA NO S . 233 TO 236/PNJ/2014 FOR THE ASSESSMENT YEARS 2010 - 11 TO 2013 - 14 VIDE ORDER 4 ITA NO . 34 4/ PNJ/2014 - JM SHREE BASAVESHWAR CO - OP BANK LTD DATED 01/10/2014, WHEREIN WE FIND THAT THE A SSESSEE IS REQUIRED TO DEDUCT A TAX AT SOURCE IN RESPECT OF TIME DEPOSITS IN EXCESS OF RS.10,000/ - INTEREST PAYMENT TO MEMBERS OF THE ASSESSEE BANK. WE HAVE ALREADY HELD THAT THE CO - OPERATIVE BANK AND CO - OPERATIVE SOCIETY BOTH ARE DIFFERENT AND INDEPENDEN T . THE CO - OPERATIVE BANK WAS REGISTERED UNDER THE BANKING REGULATIONS ACT 1949. THE CO - OPERATIVE SOCIETY WAS REGISTERED UNDER THE KARNATAKA CO - OPERATIVE SOCIETIES ACT 1959 . THEREFORE, WE ARE OF THE VIEW THAT TDS IS REQUIRED TO BE MADE ON TIME DEPOSIT ON I NTEREST PAYMENT AFTER 01 - 07 - 1995. WE HAVE ALREADY DEALT WITH THIS ISSUE IN DETAIL IN PARA 2.6 OF THE SAID TRIBUNAL ORDER, WHICH READS AS UNDER: - 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.18,39,0031/ - 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 EXTE NT OF RS.1,83,90,031/ - HAVE BEEN MADE TO THE MEMBERS OF THE BANK WHICH IS A CO - OPERATIVE SOCIETY. WHILE THE REVENUE CLAIMS THE T.D.S HAS TO BE DEDUCTED AS PER SECTION 194A( 3)( VIIA) (B) . THE PROVISIONS OF SECTION 194A(3)(V) ( A ) (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 O R 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 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; (B) DEPOSITS (OTHER THAN TIME DEPOSITS MADE ON OR AFTER THE 1 ST DAY OF JULY, 1995) WITH A CO - OPERATIVE SOCIETY, OTHER THAN A CO - OPERATIVE SOCIETY OR BANK REFERRED TO IN SUB - CLAUSE (A), ENGAGED IN CARRYING ON THE BUSINESS OF BANKING; WE FIND THAT THE CO - OPERATIVE IS ALSO INTERPRETED BY THE HONBLE JURISDICTIONAL KARNATAKA HIGH COURT, WHEREIN IN THE CASE OF CIT VS. YESHWANTHPUR CREDIT CO - OPERATIVE SOCIETY LIMITED IN ITA NO. 2 37/2012, 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 - OPERATIVE SOCIETY REGISTERED UNDER KARNATAKA CO - OPERATIVE SOCIETY ACT, 1959 REGISTRATION UNDER THE BANKING REGULATION ACT, 1949 AND CO - OPERATIVE SOCIETIES ACT, 1959 CO - OPERATIVE SOCIETIES ACT, 1959 5 ITA NO . 34 4/ PNJ/2014 - JM SHREE BASAVESHWAR CO - OP BANK LTD NATURE OF BUSINESS 1. AS DEFINED IN SECTION 6 OF BANKING. REGULATION ACT. 2. CAN OPEN, SAVINGS BANK ACCOUNT, CURRENT ACCOUNT, OVERD RAFT 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 ACT AS CLEARING AGENT FOR CHEQUES, DDS, PAY - OR DERS AND OTHER FORMS. 4. BANKS ARE BOUND TO FOLLOW THE RULES, REGULATIONS AND DIRECTIONS ISSUED BY RESERVE BANK OF INDIA (RBI) 1. AS PER THE BYE LAWS OF THE COOPERATIVE SOCIETY. 2. SOCIETY CANNOT OPEN SAVINGS BANK ACCOUNT, CURRENT ACCOUNT, ISSUE LETTER OF CREDIT, DISCOUNTING BILLS OF EXCHANGE, ISSUE CHEQUE, DEMAND DRAFTS, PAY ORDERS, GIFT CHEQUES, LOCKERS, BANK GUARANTEES ETC. 3. SOCIETY CANNOT ACT CLEARING AGENT, FOR CHEQUES, DDS, PAY ORDERS AND OTHER FORMS. 4. SOCIETY ARE BOUND BY RULES AND REGULATIONS AS SPECIFIED BY IN THE CO - OPERATIVE SOCIETIES ACT. FILING OF RETURNS . CO - OPERATIVE BANKS. HAVE TO SUBMIT ANNUAL RETURN TO RBI EVERY YEAR SOCIETY HAS TO SUBMIT THE ANNUAL RETURN TO REGISTRAR OF SOCIETIES. INSPECTION RBI HAS THE POWER TO INSPECT ACCOUNTS AN D 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 - OPERATIVE 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 6 ITA NO . 34 4/ PNJ/2014 - JM SHREE BASAVESHWAR CO - OP BANK LTD ASSESSEE. THE SAID INCOME IS LIABLE FOR TAX. A CO - OPERAT IVE 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 SOCI ETY 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 BUSINESS I.E., THE PURPORT OF THE AMENDMENT. IF THE ASSESSEE IS NOT A CO - OPER ATIVE 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 MON EY 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 TH E 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 SOCIETY. THE CO - OPERATIVE BANK AND CO - OPERATIVE SOCIETY IS ALSO INTERPRETED IN THE CASE OF BHA GANI 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 SOCIETY OTHER THAN CO - OPERATIVE BANK. WE FIND THAT THE ITAT PUNE BENCH HAS INTER PRETED 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 HAS MADE A CLEAR DISTINCTION BETWEEN PRIMARY CREDIT SOCIETY AND A CO - OPERATIVE SOCIETY ENGAGED IN BANKING BUSINESS. SECTION 194A DEALT WITH CO - OPERATIVE SOCIETY ENGAGED IN BUSINESS AS BANKING. WE FIND THAT THE ASSESSEE BANK IS COVERED BY THE PROVISIONS OF SUB - CLAUSE (B) OF CLAUSE (I) OF SEC.194A(3) AS WELL AS THE PROVISIONS OF CLAUS E (VIIA) OF SECTION 194 A (3) WHICH ARE SPECIFIC IN NATURE AND 194 A (3)(V) WHICH ARE GENERAL IN NATURE. WE FIND THAT THE HONBLE KERALA HIGH COURT IN THE CASE OF ITO& ORS. VS. THODUPUZHA URBAN CO - OPERATIVE BANK AND OTHERS HAVE FILED THE WRIT BEFORE THE HONBL E 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 WA S FILED BY FIVE CO - OPERATIVE SOCIETIES, WHEN THEY WERE FACED WITH A NOTICE 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 L EARNED SINGLE JUDGE AS PER THE IMPUGNED JUDGMENT, QUASHED THE NOTICES HOLDING 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 FROM THE COVERAGE OF SUB - SECTION (1) OF SECTION 194A OF THE ACT. AGGRIEVED BY THE JUDGMENT, THIS APPEAL IS FILED ONLY AGAINST THE 4TH PETITIONER IN O.P. NO. 17082/1997 (SEE[199]238 ITR 630), NAMELY, THE THODUPUZHA URBAN CO - OPERATIVE BANK LTD. NO. 394, THODUPUZHA, IDUKKI DISTRICT, REPRESENTED BY THE SECRETARY. SUB - SECTION 3 OF SECTION 194A OF THE ACT MAKES IT CLEAR THAT 'THE PROVISIONS OF SUB - SECTION (1) SHALL NOT APPLY' IN RESPEC T OF SEVERAL SITUATIONS MENTIONED UNDER THAT CLAUSE. ADMITTEDLY, SUB - SECTION (1) OF SECTION 194A CAST THE LIABILITY ON ALL THOSE INSTITUTIONS OTHER THAN INDIVIDUALS AND HINDU UNDIVIDED FAMILY TO DEDUCT INCOME - TAX AT SOURCE, WHEN SUCH INSTITUTIONS PAY INTER EST ON DEPOSITS EXCEEDING THE PRESCRIBED LIMIT. SUB - SECTION (3)(VIIA) READS AS FOLLOWS : 7 ITA NO . 34 4/ PNJ/2014 - JM SHREE BASAVESHWAR CO - OP BANK LTD 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 THA T CLAUSE. ADMITTEDLY, SUB - SECTION (1) OF SECTION 194A CAST THE LIABILITY ON ALL THOSE INSTITUTIONS OTHER THAN INDIVIDUALS AND HINDU UNDIVIDED FAMILY TO DEDUCT INCOME - TAX AT SOURCE, WHEN SUCH INSTITUTIONS PAY INTEREST ON DEPOSITS EXCEEDING THE PRESCRIBED LI MIT. SUB - SECTION (3)(VIIA) READS AS FOLLOWS : '(3) THE PROVISIONS OF SUB - SECTION (1) SHALL NOT APPLY (VIIA) TO SUCH INCOME CREDITED OR PAID IN RESPECT OF (A) DEPOSITS WITH A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CREDIT SOCIETY OR A CO - OPERATI VE 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;' THE RESULT WILL BE THAT INTEREST PAID ON TIME DEPOSITS BY A CO - OPERATIVE SOCIETY, OTHER THAN A CO - OPERATIVE SOCIETY OR BANK REFERRED TO IN SUB - CLAUSE (A), ENGAGED IN CARRYING ON THE BUSINESS OF BANKING WILL BE CO VERED 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 194A OF THE ACT. THEREFORE, IRRESPECTIVE OF WHETHER IT IS A TIME DEPOSIT OR ANY OTHER TYPE OF DEPOSIT, THE 4TH PETITIONER, FIRST RESPONDENT WILL NOT BE LIABLE TO DEDUCT INCOME - TAX, AS SUC H SOCIETY IS UNDER SUB - SECTION (3) TAKEN OUT OF THE PURVIEW OF SECTION 194A(1) OF THE ACT. THEREFORE, THE WRIT APPEAL FAILS, DISMISSED. W.A. NO. 2270 OF 1998: A READING OF THE IMPUGNED JUDGMENT DISCLOSES THAT THE WRIT PETITIONER, THE FIRST RESPONDENT, W AS 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 SUB - SECTION (V) AND(V II A) (A) OF SECTION 194A(3). NOW COMING TO CIRCULAR NO. 9/2002, ISSUED BY THE CBDT, WHI CH IS RELIED UPON THE ASSESSEE. THE SAID CIRCULAR SOUGHT TO INTERPRET THE DEFINITION OF MEMBER CLARIFIED THAT THE MEMBER DOES NOT INCLUDE THE NOMINAL MEMBER. IT WAS HELD BY THE BOMBAY HIGH COURT IN THE CASE OF JALGAON DISTRICT CENTRAL CO - OPERATIVE BANK L TD. & 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 CIRCULAR NO.9/2002 DATED 11.9.2002 ISSUED BY CBDT HAS BEEN QUASHED AND SET ASIDE BY HONBLE BOMBAY HIGH COURT. THE REFORE, 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 8 ITA NO . 34 4/ PNJ/2014 - JM SHREE BASAVESHWAR CO - OP BANK LTD QUESTION BEFORE THE HONBLE BOMBAY HIGH COURT WAS NOT WHETHER A CO - OPERATIVE BANK NOT ENTIT LE 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 ENABL E THE GOVERNMENT TO IDENTIFY INCOME EARNERS, MOST OF WHOM WOULD NOT OTHERWISE DECLARE THEIR INCOME OR WOULD NOT DECLARE THEIR FULL INCOME, I PROPOSE TO EXTEND THE SCHEME OF TAX DEDUCTION AT SOURCE TO COVER NEW AREAS OF PAYMENTS IN THE 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 PAYMEN TS 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. 1991. INVITED CONSIDERAT ION 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 RECO GNISED 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 ACCORDINGLY WITHDRAWN THE PROVISI ON RELATING TO DEDUCTION AT SOURCE IN RESPECT OF INTEREST ON TERM DEPOSIT WITH THE BANK AND COMMISSION W.E.F., JUNE 1992 . ACCORDINGLY, FINANCE ACT 1992 SUBSTITUTED A NEW CLAUSE (VII) W.E.F., 1 ST JUNE, 1992, SUB - SECTION 3 OF SECTION 194A FOR CLAUSE (VII) AND SOMEONE AS EARLIER INTRODUCED BY FINANCE NO.2 ACT W.E.F., 1 ST OCTOBER, 1991. THIS AMENDMENT WAS MADE TO RESTORE THE POSITION AS WAS BEFORE 1 ST OCTOBER, 1991 IN RELATION TO DEDUCT TAX AT SOURCE IN THE CASE OF INCOME CREDITED OR PAID IN RESPECT OF DEPOSI T WITH A BANK COMPANY TO WHICH BANKING REGULATION ACT 194 9 APPLIES OR WITH A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING, INCLUDING CO - OPERATIVE LAND MORTGAGE BANK OR CO - OPERATIVE LAND DEVELOPMENT BANK THIS WAS BROUGHT INTO W.E.F. , 1.4.1992. FINANCE ACT 1995 W.E.F., 1 ST JULY 1995 AGAIN WITHDRAWN THE EXEMPTION FOR INTEREST ON TIME DEPOSIT PAYABLE BY BANK. THE AMENDMENT SECTION 194A NOW PROVIDES FOR DEDUCTION OF TAX AT SOURCE AT THE RATE IN FORCE FROM PAYMENT FOR INTEREST EXCEEDING RS.10,000/ - IN A FINANCIAL YEAR ON TIME DEPOSITS MADE ON OR AFTER 1 ST JULY,1995 WITH A BANKING COMPANY OR WITH A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON BUSINESS OF BANKING. THE AFORESAID LIMIT OF RS.10,000/ - SHALL BE COMPUTED WITH REFERENCE TO THE INC OME CREDITED OR PAID BY BRANCH OF BANKING COMPANY OR CO - OPERATIVE SOCIETY AS THE CASE MAY BE. THE INTEREST ON TIME DEPOSIT MADE WITH A PRIMARY AGRICULTURAL SOCIETY OR A CREDIT SOCIETY OR A CO - OPERATIVE LAND MORTGAGE BANK OR A CO - OPERATIVE LAND DEVELOPMENT BANK WILL NOT BE 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 PROV ISION TO SUB - SECTION (3) OF SECTION 194 HAS OMITTED THE PROVISION THEREIN PROVIDING THE SPECIFIC LIMIT OF RS.10,000/ - IN RESPECT OF TIME DEPOSIT MADE WITH BANKING COMPANY WITH RESERVATION THAT OVERALL LIMIT OF RS. 5,000/ - PROVIDED IN MAIN PORTION OF SUB - SE CTION 3 WOULD APPLY TO SUCH DEPOSIT W.E.F. 19 TH JUNE, 2001. FROM THIS ABOVE INTENTION OF LEGISLATURE WE ARE OF THE VIEW THAT IT IS CLEAR THAT ASSESSEE COMPANY A CO - OPERATIVE SOCIETY CARRYING ON A BUSINESS OF BANKING IS LIABLE TO MAKE TDS U/S. 194A. LEARN ED AR HAS RELIED UPON THE DECISION OF INCOME TAX TRIBUNAL, BEANGLORE BENCH IN THE CASE OF BAGALKOT DISTRICT CENTRAL CO - OP. BANK VS. JOINT COMMISSIONER OF INCOME TAX, IN ITA NO.1572/BANG/2013, WHEREIN THE TRIBUNAL HAS INTERPRETED THE SECTION 9 ITA NO . 34 4/ PNJ/2014 - JM SHREE BASAVESHWAR CO - OP BANK LTD 194A(3)(V) WHIC H GRANTS AN EXEMPTION FROM TDS TO SUCH INCOME CREDITED OR PAID BY THE CO - OPERATIVE SOCIETY. THEY HAVE INTERPRETED THE WORD MEMBER MENTIONED IN SECTION 194A(3)(V) OF THE ACT. THE TRIBUNAL HAS ALSO RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT AND THE CIRCULAR ISSUED BY CBDT AND THEY RELIED UPON CIRCULAR ISSUED BY CBDT 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 UNDE R 194A. WE DO NOT AGREE WITH THE FINDING OF ITAT, TRIBUNAL AS HONBLE KERALA HIGH COURT HAS OCCASIONED TO INTERPRET SECTION194A(3)(V) AND 194A(3)(V II A) OF THE ACT. THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF ITO & ORS. VS. THODUPUZHA URBAN CO - OPERATIVE BANK, WHEREIN THEY HAVE CLEARLY DEFINED AND INTERPRETED THE SECTION IT APPEARS THAT THE BENCH DID NOT CONSIDER THE PROVISION OF SECTION 194A (3) (VIIA). THEREFORE, WHEN THERE IS A SPECIFIC PROVISION, GENERAL PROVISION CANNOT BE APPLIED IN THE CA SE OF THE ASSESSEE OTHERWISE THE PROVISION OF SECTION 194A (3) (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 S UB - 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 FINA NCIAL 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 SO CIETY 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 - OPER ATIVE LAND DEVELOPMENT BANK; (B) DEPOSITS (OTHER THAN TIME DEPOSITS MADE ON OR AFTER THE 1 ST DAY OF JULY, 1995) WITH A CO - OPERATIVE SOCIETY, OTHER THAN A CO - OPERATIVE SOCIETY OR BANK REFERRED TO IN SUB - CLAUSE (A), ENGAGED IN CARRYING ON THE BUSINESS OF BAN KING 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 O N OR AFTER THE 1ST DAY OF JULY, 1995) WITH A BANKING COMPANY TO WHICH THE BANKING REGULATION ACT, 1949 (10 OF 1949) APPLIES (INCLUDING ANY BANK OR BANKING INSTITUTION REFERRED TO IN SECTION 51 OF THAT ACT); (VIIA) : TO SUCH INCOME CREDITED OR PAID IN RESPE CT 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 PA YMENT 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 EN GAGED 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. 10 ITA NO . 34 4/ PNJ/2014 - JM SHREE BASAVESHWAR CO - OP BANK LTD FURTHER,194A(3)(I) LAYS DOWN MONETARY LIMITS UP TO WHICH IS THERE IS NO REQUIREMENT OF TDS. THE SAID MONE TARY LIMITS ARE DIFFERENT FOR DIFFERENT CATEGORY OF PAYERS. THE SAID CLAUSE IS REPRODUCED BELOW FOR THE SAKE OF CLARITY: 194A(3) THE PROVISIONS OF SUB - SECTION (1) SHALL NOT APPLY (I) WHERE THE AMOUNT OF SUCH INCOME OR, AS THE CASE MAY BE, THE AGGREGATE O F 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 BANKI NG COMPANY TO WHICH THE BANKING REGULATION ACT, 1949 (10 OF 1949) APPLIES (INCLUDING ANY BANK OR BANKING INSTITUTION, REFERRED TO IN SECTION 51 OF THAT ACT); (B) TEN THOUSAND RUPEES, WHERE THE PAYER IS A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSI NESS OF BANKING [EMPHASIZED] (C) TEN THOUSAND RUPEES, ON ANY DEPOSIT WITH POST OFFICE UNDER ANY SCHEME FRAMED BY THE CENTRAL GOVERNMENT AND NOTIFIED BY IT IN THIS BEHALF; AND (D) FIVE THOUSAND RUPEES IN ANY OTHER CASE]:] FROM THE ABOVE IT IS CLEAR THAT, IN CASE OF A PAYER WHICH IS A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING, THE MONETARY LIMIT PRESCRIBED IS RS 10000/ - . ONCE THE INTEREST PAYMENT EXCEEDS THAT AMOUNT THE TDS IS TO BE MADE. NEITHER IN CLAUSE (VIIA) NOR IN CLAUSE (I) THERE IS ANYTHI NG TO RESTRICT THEIR APPLICABILITY ONLY TO NON - MEMBERS AND THEREFORE THEY APPLY TO ALL DEPOSITORS. GOING BY THE ABOVE UNDERSTANDING, THE CO - OP BANK IS REQUIRED U/S 194A(1) TO MAKE TDS FROM THE INTEREST PAID TO ALL DEPOSITORS. HOWEVER CO - OP BANK HOLDS THE V IEW 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 I N 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 COOPERAT IVE SOCIETIES WILL APPLY OR THE CLAUSE (VIIA) WHICH MENTIONS SPECIFICALLY A CO - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING FINDS APPLICATION? 2. LEGISLATIVE HISTORY OF TDS ON INTEREST: A. THE FINANCE ACT 1968, INSERTED CLAUSE (V) IN 194A(3) TO E XEMPT INTEREST PAID BY ON CO - OP SOCIETY TO ANOTHER CO - OP SOCIETY FROM TDS PURVIEW. B. THE FINANCE ACT 1970, INSERTED CLAUSE (VII) IN SECTION 194A(3) WHICH FOR THE FIRST TIME, CREATED A NEW TYPE OF CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING, AS DISTINCT FROM THE COOPERATIVE SOCIETY AS ENVISAGED IN CLAUSE (V). BY THIS AMENDMENT, A SPECIFIC SPECIE CALLED A COOPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING WAS CARVED OUT OF THE GENUS COOPERATIVE SOCIETY MENTIONED IN CLAUSE (V). THE SCOPE OF THE ABOVE AMENDMENT IS EXPLAINED IN CIRCULAR NO 42 DATED 20 - 06 - 1970, WHOSE RELEVANT PORTION IS EXTRACTED BELOW: I AM DIRECTED TO INVITE A REFERENCE TO THE BOARDS CIRCULAR NO. 22/68 - IT(B) [F.NO. 12/23/68 - IT(B)], DATED 28 - 3/13 - 5 - 1 968, AND TO SAY THAT THE FINANCE ACT OF 1970, HAS MADE AN IMPORTANT CHANGE IN SECTION 194A BY INSERTING A NEW CLAUSE (VII) IN SUB - SECTION (3) OF THAT SECTION. AS PER THIS CLAUSE, THE PROVISIONS OF SECTION 194A ARE NOT APPLICABLE TO INCOME BY WAY OF INTERES T 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 11 ITA NO . 34 4/ PNJ/2014 - JM SHREE BASAVESHWAR CO - OP BANK LTD 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 T O 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 INTROD UCED 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 T HE DECISION OF LEGISLATURE TO APPLY A SPECIFIC CLAUSE TO THE SPECIFIC 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 DATE D 22 - 11 - 1991 WHERE IN IT IS CLARIFIED THAT: THE EFFECT OF THE AFORESAID CHANGE IS THAT INCOME - TAX SHALL NOW BE DEDUCTIBLE AT SOURCE FROM THE INTEREST INCOME ON THE DEPOSITS WITH. (I) A BANKING COMPANY, OR CII) A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING, OTHER THAN A CO - OPERATIVE LAND MORTGAGE BANK, A CO - OPERATIVE LAND DEVELOPMENT BANK, PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CREDIT SOCIETY (EMPHASIZED) THE ABOVE CIRCULAR CLEARLY STATES THAT, IT WAS ONLY BY INTRODUCTION OF CLAUSE (VIIA), A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING WAS BROUGHT UNDER THE PURVIEW OF TDS ON TIME DEPOSITS. THE TDS ON TIME DEPOSITS WAS WITHDRAWN VERY NEXT YEAR BY WAY OF SUBSTITUTING ABOVE MENTIONED CLAUSES (VII) & (VIIA) WITH A COMBI NED 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 CO MPANY AND A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING. 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 SECTI ON 194A OF THE INCOME - TAX ACT RELATING TO DEDUCTION OF INCOME - TAX AT SOURCE FROM INTEREST OTHER THAN INTEREST ON SECURITIES IN THE CASE OF RESIDENTS. THE AMENDMENT PROVIDES FOR DEDUCTION OF INCOME - TAX AT SOURCE AT THE RATE IN FORCE FROM PAYMENT OF INTEREST EXCEEDING TEN THOUSAND RUPEES IN A FINANCIAL YEAR ON TIME DEPOSITS MADE ON OR AFTER 1ST OF JULY, 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 D OUBT, 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. COMMISSION ER OF AG IT 65 TAXMAN 185(KAR) HAS OBSERVED THAT A SPECIALPROVISION NORMALLY EXCLUDES THE OPERATION OF A GENERAL PROVISION . 12 ITA NO . 34 4/ PNJ/2014 - JM SHREE BASAVESHWAR CO - OP BANK LTD THE HONBLE SUPREME COURT IN THE, CASE OF SOUTH INDIAN CORPN. (P) LTD. VS. SECRETARY, BOARD OF REVENUE AIR 1964 SC 207 HAS HELD T HAT 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 OF DEPOSITS EXCEPT WHICH FALLS UNDER THAT PROVISIONS. WE THEREFORE, DISMISS THE APPEAL OF THE ASSESSEE. RES PECTFULLY FOLLOWING THE ABOVE, WE DISMISS THE APPEAL OF THE ASSESSEE. 1 0 . IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED . ORDER IS PRONOUNCED IN THE OPEN COURT ON 0 5 - 01 - 2015 SD/ - SD/ - ( P. K. BANSAL ) ( D.T GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 0 5 - 01 - 2015 **PRADIP (SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. A PPELLANT 2 RESPONDENT 3. THE CIT(A) CONCERNED 4. 5. THE CIT CONCERNED THE D . R 6. GUARD FILE TRUE COPY, BY ORDER, ASSTT. REGISTRAR