Appeal details
Counselvise Citation
34724114 RSA 2014
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
25-03-2015
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
DB
Next Hearing Date
05-03-2015
Assessment Year
2011-2012
Appeal Filed On
10-10-2014
Judgement Text
1 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. 3 47 /PNJ/201 4 (ASST. YEAR : 20 1 1 - 1 2 ) SHRI BASAVESHWAR CO - OPERATIVE BANK LTD. , RAVIWAR PETH, BELGAUM. VS. A C IT, CIRCLE - 1 , BELGAUM. PAN NO. AAAAB 3041 M (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ASHOK G. MUDNUR - CA DEPARTMENT BY : SHRI NATARAJ S . - D.R. DATE OF HEARING : 0 5 / 0 3 /2015 . DATE OF PRONOUNCEMENT : 2 5 / 0 3 /201 5 . O R D E R PER D.T. GARASIA , J .M TH I S APPEAL BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT (A), BELGAUM DATED 05 /0 8 /201 4 FOR THE A.Y. 20 1 1 - 1 2 . 2. T HE FOLLOWING GROUNDS HAVE BEEN RAISED: - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS),BELGAUM HAS ERRED IN CONFIRMING THE ASSESSING OFFICER ORDER OF DENYING EXEMPTION ON, INTEREST PAID ON DEPOSIT TO MEMBERS OF RS 70,52,0237 - U/S 194A(3)(V) OF THE INCOME TAX ACT ,1961 WHICH IS OPPOSED TO THE F ACTS OF THE CASE AND LAW AS HELD IN THE ORDER OF HON'BLE ITAT, PANJIM FOR 2 EARLIER ASSESSMENT YEARS IN ITA 233/PANJ/2004 DT 1 ST SEPTEMBER 2006 FOR ASST YEAR 2002 - 03. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS),BELGAUM HAS ERRED IN CONFIRMING THE ASSESSING OFFICER ORDER OF DENYING EXEMPTION U/S 194A(3)(V) OF THE INCOME TAX ACT ,1961 WHICH IS OPPOSED TO THE LAW AND SETTLED JUDICIAL OPINION. WE FIND SUPPORT IN THE FOLLOWING CASES : (I) JALGAON DCC BANK LTD VS UNION OF INDIA (2004) 265ITR 423 (BOM) HC (II) GUJARAT URBAN COOP BANK FEDERATION VS UNION OF INDIA (2012) 209 TAXMAN 340 (GUJ) HC. (III) THE BAGALKOT DCC BANK LTD VS JOINT COMMISSIONER OF INCOME TAX, BIJAPUR RANGE, BIJAPUR ITA NO 1572/BANG/2013 DT 30.05.2014 . (IV) ACIT, CIRCLE 1(1) VISAKHAPATAM VS VISKHAPATAM COOP BANK LTD., VISAKHATAPAM, ITAT(2011) 47SOT295 (VIZAG). (V) OZER MERCHANT COOPERATIVE BANK ITA NO 1588/PN/2012 DT 30.10.2013 OF I.T.A.T. PUNE. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS),BELGAUM HAS ERRED CONFIRMING THE ASSESSING OFFICER ORDER OF APPLYING PROVISIONS OF 194A(3)(I)(B) AND MAKING DISALLOWANCE U/S 40(A)(IA) OF THE INCOME TAX ACT 1961 WHICH IS OPPOSED TO THE FACTS OF THE CASE AND LAW. - AS HELD IN THE BAGALKOT DCC BANK LTD VS JOINT COMMISSIONER OF INCOME TAX,BIJAPUR RANGE, BIJAPUR ITA NO 1572/BANG/2013 DT 30.05.2014. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), BELGAUM AND ASSESSING OFFICER HAVE ERRED IN MAKING DISALLOWANCE U/S 40(A)(IA) ON THE AMOUNTS PAID RATHER THAN ON AMOUNT PAYABLE - AS HELD IN CIT VS VECTOR SHIPPING SERVICES (P) LTD., 357 ITR 642 (ALL) HC. 5 . THE APPELLANTS CRAVES LEAVE TO ADD/ALTER ANY OF THE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF FINAL HEARING. 3. SHORT FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COOPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING. THE ASSESSEE 3 HAS OBTAINED NECESSARY LICENSE FROM THE RESERVE BANK OF INDIA FOR CARRYING ON BANKING OPERATIONS AS A COOPERATIVE BANK. THE ASSESSEE FILED THE E - RETURN OF INCOME FOR A.Y. 20 11 - 1 2 ON 2 5 /09/20 11 DECLARING A TOTAL INCOME OF RS. 95,44,820 / - . THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE 'ACT', FOR SHORT) VIDE ORDER DATED 2 3 /12/201 3 DETERMINING THE TAXABLE INCOME AT RS. 1,6 5 , 96,8 40/ - . THE ASSESSING OFFICER MADE THE ADDITION OF RS. 70,52,02 3/ - ON ACCOUNT OF INTEREST ON TERM DEPOSITS IN EXCESS OF RS. 10,000/ - U/S. 40(A)(IA) OF THE ACT. T HE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS PAID INTEREST ON TERM DEPOSIT IN EXCESS OF RS. 10,000/ - WITHOUT MAKING TDS AND THE TOTAL INTEREST SO PAID OF RS. 70,52,023 / - , IS LIABLE TO BE DISALLOWED U/S. 40(I)(IA) OF THE ACT. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE BANK CANNOT CLAIM EXEMPTION FROM MAKING TDS ON INTEREST PAID TO THE MEMBERS AS PER PROVISIONS OF SEC. 194A(3)(V) OF THE ACT AS THESE PROVISIONS ARE GENERAL IN NATURE, WHEREAS THE PROVISIONS CONTAINED IN SEC. 194A(3)(I) & (VIIA) ARE SPECIFIC IN NATURE AND IT IS WELL ESTABLISHED PRINCIPLE OF INTERPRETATION THAT THE SPECIFIC PROVISIONS ALWAYS OVERRIDE THE GENERAL PROVISIONS. T HE ASSESSING OFFICER HAS RELIED UPON A DECISION OF ITAT, PUNE BENCH IN THE CASE OF BHAGINI NIVEDITA SAHAKARA BANK LTD. VS. ACIT (2008) 87 ITD 569. 4 4 . THE MATTER WAS CARRIED TO THE LEARNED CIT(A) AND THE LEARNED CIT(A) HAS DISMISSED THE APPEAL OF THE ASSES SEE BY OBSERVING AS UNDER: - I HAVE CAREFU L LY CONSIDERED THE FACTS OF THE CASE, SUBMISSIONS MADE BY THE ASSESSEE AND A L SO PERUSED THE ASSESSMENT ORDER. THE ON LY GROUND OF APPEA L RAISED BY THE APPELLANT I S REGARDI N G DISALLOWANCE MADE U/S 40 (A)( IA) IN RESPECT OF INTEREST PAID ON TERM DEPOSIT IN EXCESS OF RS.1 0 ,000/ - WITHOUT MAKING TD S U/S 194A AMOUNTING TO RS. 70,52,023/ - MY OBSERVATIONS AND FINDINGS ON THE ISSUE ARE AS UNDER: - 5.1 DSALLOWANCEOFINTERESTPAI D ON TERM DEPOSIT I N EXCESS OF RS. 10,000/ - WITHOUT MAK I NG TDS: THE FACTS LEADING TO THE GROUNDS OF APPEA L NO. 1 TO 4 AND THE REASONING RELATING TO THE DISA L LOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A)(IA) OF RS. 70,52,023/ - HAVE BEEN DISCUSSED BY THE ASSESSING O FFICER IN VERY DETA IL IN HIS ASSESSMENT ORDER. BRIEFLY, THE FACTS AND REASONS GIVEN BY THE ASSESSING OFFICER IN HIS ORDER ARE AS UNDER: ( I ) THE APPELLANT IS A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON BANKING BUSINESS AND THE ASSESSEE BA NKS CASE CLEARLY FALLS UNDER THE AMBIT OF SUB - CLAUSE (B) OF CLAUSE 0) OF SUBSECTION (3) OF SECTION 194A AND HENCE, TDS PROVISIONS ARE ATTRACTED. AS PER THE SAID PROVISIONS OF SUB - CLAUSE (B) OF CLAUSE (I) OF SECTION 194A(3) OF THE INCOME TAX,1961, ANY CO - OPER ATIVE SOCIETY WHICH IS ENGAGED IN THE BUSINESS OF BANKING SHALL HAVE TO DEDUCT TAX ON INTEREST PAID OR PAYABLE TO ANY PERSON ON TIME DEPOSITS, IF THE AMOUNT OF SAID INTEREST EXCEEDS RS.10,000/ - . THE A.O HAS DISTINGUISHED THE STATUS OF THE APPE LLANT ASSESSE E AS CO - OPERATIVE BANK VIS A VIS OTHER CO - OPERATIVE SOCIETIES AS THIS BECAME IMPERATIVE DUE TO THE FACT THAT THE ASSESSEE HAD CLAIMED TO BE AN ORDINARY CO - OPERATIVE SOCIETY WITHIN THE MEANING OF CL AUSE (V) OF SEC.194A(3). THE A.O HAS FURTHER DWELLED ON THI S ISSUE AND HAS STATED THAT THE WORD CO - OPERATIVE SOCIETY IS AN OMNIBUS WORD WHICH INCLUDES DIFFERENT TYPES OF CO - OPERATIVE SOCIETIES ENGAGED IN - DIFFERENT TYPES OF ACTIVITIES. WHERE EVE A REFERENCE IS MADE TO ANY CO - OPERATIVE SOCIETY, THE INCOME TAX ACT , 1961 HAS CLEARLY DISTINGUISHED AND SPECIFIED THE TYPE OF CO - OPERATIVE SOCIETY BASED ON THE TYPE OF ACTIVITY CARRIED OUT. SUCH A DISTINCTION WAS REQUIRED AS THE LEGISLATURE INTENDS TO EXTEND RENT BENEFITS TO DIFFERENT TYPES OF CO - OPERATIVE SOCIETIES THROU GH THE INCOME TAX ACT. THUS, R ASSESSING OFFICER, THE APPELLANT IS CLAIMING BENEFIT OF SECTIONS 36(1)(VIIA), 26955 AND 269T THE GROUND THAT IT IS A CO - OP BANK BUT FOR AVAILING EXEMPTION FROM TOS 5 UNDER SECTION 194A, IT IS CLAIMING ITSELF AS AN ORDINARY C O - OPERATIVE SOCIETY WITHIN THE MEANING OF 194A(3)(V). WHILE DISTINGUISHING BETWEEN ORDINARY CO OPERATIVE SOCIETY AND THE COOPERATIVE SOCIETY CARRYING ON BUSINESS OF BANKING, THE A.O HAS RELIED ON THE DECISION OF KERALA HIGH COURT IN THE CASE OF MOO JAM AT OM ELECTRICITY BOARD EMPLOYEES CO - OPERATIVE BANK LTD. (1999) 238 ITR 630. (II) THE A.O IN HIS ASSESSMENT ORDER HAS MENTIONED THAT IN ORDER TO UNDERSTAND THE LEGISLATIVE INTENT IN THIS REGARD, IT IS NECESSARY TO REFER TO THE EXPLANATORY NOTES TO FINANCE (NO . 2) ACT, 19 91 GIVEN IN THE CIRCULAR NO. 621 DATED 19 - 12 - 1991 WHICH AMONG OTHERS, PROVIDES THAT WITH A VIEW TO IMP ROVING TAX COMPLIANCE, SEC. 194A OF THE ACT HAS BEEN AMENDED TO SECURE DEDUCTION OF TAX AT SOURCE FROM INTEREST ON TIME DEPOSITS WITH THE AF ORESAID BANKING COMPANIES AND CO - OPE R ATIVE SO CI ETIES ENGAGED IN CURRYING ON THE BUSINESS OF BANKING. (III) SINCE THE APPELLANT BANK IS COVERED BY THE PROVISIONS OF SUB - CLAUSE (B) OF CLAUSE (I) OF SECTION 194A (3) AS WELL AS THE PROVISIONS OF C L AUSE (VIIA) OF THE SAID SECTION WHICH ARE SPECIFIC IN NATURE, THE APPE LL ANT CANNOT PUT FORTH ITS C L AIM UNDER SECTION 194(3)(V) WHICH ARE GENERAL IN NATURE. AS THE APPELLANT IS A CO - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING, IT IS COVERED UNDER THESE AFORES AID SPECIFIC CLAUSES. AS PER AD THE - RE ARE A NUMBER OF JUDICIAL PRONOUNCEMENTS WHEREIN IT HAS BEEN HELD THAT A SPECIFIC PROVISION OVERRIDE A GENERAL PROVISION. FOR THIS PURPOSE RELIANCE HAS BEEN PLACED BY THE AD ON KIR L OSKAR PNEUMATIC CO. LTD. VS. COMMISSI ONER OF SURTAX (1994) 210 ITR 485 (BORN) AND CIT VS. MAHANAGAR TELEPHONE NIGAM LTD. (2002) 254 TR 627 DEL.) RELIANCE HAS ALSO BEEN PLACED BY THE A.O ON THE DECISION OF THE JURISDICTIONAL KARNATAKA HIGH COURT IN THE CASE OF M. L. VASUDEVA MURTHY & SONS VS. IT. COMMISSIONER OF AGRICULTURAL INCOME TAX (1992) 198 TR 426. THE HONBLE SUPREME COUR T IN THE CASE OF SOUTH INDIAN CO RPN. (P) LTD. VS. SECRETARY, BOARD OF REVENUE AIR 1964 SC 207 HAS HE LD THAT THE SPECIA L PROVISION SHOULD BE GIVEN TO THE EXTENT OF ITS SC OPE LEAVING THE GENERA L PROVISION TO CONTROL CASES WHERE THE SPECIAL PROVISION DOES NOT APPLY. RESPECTFULLY FOLLOWI NG THE RATIO OF THE ABOVE CASE L AWS INCLUDING THAT OF THE SUPREME COURT, THE AD HAS CONCLUDED THAT THE ASSESSEES CASE IS COVERED BY THE SPEC IFIC PROVISION IN CLAUSE (I) & (VI I A), RATHER THAN THE GE NERAL PROI5IONS OF CLAUSE (V) OF SEC.194A(3). WHILE COMING TO THIS CONCLUSION, THE ASSESSING OFFICER HAS RELIED ON THE DECISION ITAT, PUNE BENCH, PUNE IN SHAGANI NIV E DITA SAH AKARI BANK LTD V ACIT (2 003) 87 I TD 56 9 WHEREIN, IT HAS BEEN HE A RD THAT THE TERM CO - OP 6 SOCIETY IN SUB - CLAUSE (V) TO BE INTERPRETED AS CO - OP SOCIETY OTHER THAN CO - OPERATIVE BANK AND FURTHER THE PROVISIONS WHICH ARE SPECIFIC IN NATURE OVER RIDE THE PROVISIONS WHICH ARE SPECIFIC IN NATURE. (IV) THE ASSESSING OFFICER HAS FURTHER OBSERVED THAT IN THE PROVISIONS OF SECTION 194A(3)(I) ONLY THE NATURE OF THE PAYER HAS BEEN DEFINED IN THE RESPECTIVE SUB - CLAUSE AND THE PROVISO THEREOF WHICH INCLUDES THE APPE LL ANT CO - OPERATIVE BANK. SIN CE THE APPE LLANT BEING THE PAYER IS SQUARELY COVERED UNDER SUB - CLAUSE (B) O F CLAUSE (I)) OF SEC.194A(3) AND THE PROVISIONS OF SAID CLAUSE ARE SQUARELY APPLICABLE TO ANY PAYEE I.E. MEMBER, NON - MEMBER, CO - OP SOCIETY, URBAN CO - OP BANK E TC ARE ALL COVERED UN DER THE AMBIT OF CAUSE (I) OF SECTION 194A(3), WHO EVER RECEIVES INTEREST FROM THE APPELLANT. (V) REGARDING THE HEAVILY RELIED UPON DECISION IN THE CASE OF J A LAGON DISTRICT CENTRAL CO - OPERATIVE BANK LTD. & ANR. VS. UNION OF INDIA (2004) 265 IT R 423 BY THE APPELLANT, THE AG HAS MENTIONED THAT IN THE SAID CASE, THE H ONBLE HIGH COURT WAS CONCERNED WITH AS TO WHETHER THE EXEMPTION GRANTED TO THE CO - OPERATIVE SOCIETY U/S 194A C L AUSE (3)(V) CAN BE TAKEN AWAY BY CREATING A DISTINCTION BETWEEN DUTY REGISTERED MEMBE R AND NOMINA L MEMBER WHICH IS UNKNOWN TO THE EXEMPTION CLAUSE CONTAINED IN SECTION 194A(3)(V) OF THE INCOME TAX ACT, 1961. THE ISSUE AT HAND WIT H THE BOMBAY HIGH COURT IN THE JALAGON DISTRICT CENTRAL CO - OPERATIVE BANK LTD., SUPRA WAS THE DEFINITION OF THE WORD MEMBER AS APPEARING IN CLAUSE (V) OF SECTION 194(3) A N D THE POWERS OF THE CENTRAL BOARD OF DIRECT TAXES TO I SSUE C IRCULARS U /S 119 WHICH WOUL D OVERRIDE OR DETRACT FROM THE PROVISIONS OF THE INCOME TAX ACT. NOWHERE IN THE ABOVE DECISION, WAS THE APPLICABILITY OF THE PROVISIONS OF SUB - C L AUSE (V ) TO THE CO - OPERATIVE SOCIETIES ENGAGED IN THE BUSINESS OF BANKING DISCUSSED SPECIFICALLY. THEREFORE, THE SAID DECISION DOES NOT HELP THE CASE OF THE APPELLANT. 5.2.1 AFTER DISCUSSING VARIOUS ASPECTS OF THE ISSUE AS DISCUSSED ABOVE, THE AD HAS TO THE CONCLUSION THAT THE ASSESSEE HAS FAILED TO DEDUCT TAX AT SOURCE FROM INTEREST ON THE DEPOSITS EXCEEDING RS. 10,000/ - AND THEREFORE, THE P R OV I SIONS OF SECTION 40(A)(IA) OF T HE I NCOME TAX ACT, 1961 ARE SQUARELY APPLICABLE IN ITS CASE. ACCORDINGLY, THE ENTIRE EXPENDITURE OF RS. . 70,52,023/ - CLAIMED BY THE ASSESSEE TOWARDS INTEREST PAYMENTS EXCEEDING RS. 10,000/ - ON TERM DEPOSITS TO INDIVIDUAL MEMBERS AS WELL AS NON - MEMBERS HAS BEEN DISA LL OWED BY THE ASSESSING OFFICER. 5.2.2 IN VIEW OF THE ABOVE, THE ASSESSING OFFICER DISALLOWED A SUM OF RS.2 ,11,39,6211 - UNDER SECTION 40(A)(IA) OF THE IT. ACT, 1961. 7 5.2.3 IT SAN UNDISPUTED FACT THAT THE APPELLANT HAS PAID INTEREST ON TERM DEPOSITS TO THE TUNE OF RS. 70,52,023/ - TO DEPOSITORS WITHO UT DEDUCTIN G TAX AT SOURCE. THE APPELLANT C ONTEND E D THAT THE PRO VISIONS OF TDS ARE NOT ATTRACTED IN VIEW OF CL AUSE - (V) OF SUBSECTION (3) OF SECTION 194A AS THE INTEREST PAYMENTS TO THE EXTENT OF RS. 70,52,023/ - HAVE BEEN MADE TO THE MEMBERS OF THE BANK. I N THIS REGARD, THE AC HAS INTERPRETED THE WORD CO - OPERATIVE SOCI ETY AS EMPLOYED IN SEC. 1944(3)(V) TO MEAN CO - OPERATIVE SOCIETY OTHER THAN CO - OPERATIVE BANK AS DECIDED BY THE TAT, PUNE BENCH, IN SHAGANI NIVEDITA SAHAKARI BANK LTD V. ACT 81 I TD 569 WHEREIN, THE HONBLE TAT HAS HELD THAT THE TERM CO - OPERATIVE SOCIETY MENTIONED IN SECTION 194A(3)(V) TO BE INTERPRETED AS CO - OPERATIVE SOC I ETY OTHER THAN CO - OPERATIVE BANK. THUS, THE A O DISALLOWED THE ENTIRE I NTEREST PAYMENTS EXCEEDING RS.10 ,000 / - MADE TO THE MEMBERS AND NON - MEMBERS BY THE APPELLANT BANK FOR THE REASONS MENTIONED ABOVE. 5.2.4 ON GOING THROUGH THE PROVISIONS OF SECTION 194A{3), IT IS SEEN THAT THE ASSESSING OFFICER IS JUSTI FI ED IN DISALLOWING THE INTEREST PAYMENTS ABOVE THE THRESHOLD L IMIT OF RS.1 0 ,000 PAID TO THE DEPOSITORS AS THE APPELLANT BANK HAD FAILE D TO DEDUCT TAX AT SOURCE THEREBY RENDERING ITSELF LIABLE F OR DISALLOWANCE UNDER SECTION 40 (A) ( IA) OF THE IT. ACT, 19 61. THE SUBMISSIONS 0T THE APPEL LANT ARE NOT ACCEPTABLE IN VIEW OF THE DECISION OF HONBLE PUNE ITAT IN THE CASE OF BHAGANI NIVEDITA SAHAKA RI 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 OP ERATIVE HANK FOR PURPOSE OF DEDUCTION OF TAX AT SOURCE OR INTEREST ON TIME DEPOSITS CREDITED AND THEREFORE, CO - OPE RATIVE BANK WOULD BE LIABLE TO DEDUCT TAX AT SOURCE UNDER SEC. 194A(1) ON INTEREST ON TIME DEPOSITS PAID/CREDIT TO ITS DEPOSITORS, IF SUCH INTEREST A MOUNT EXCEEDED THE L IMIT PRESCRIBE D IN PROVISO TO SECTION 194A(3)( I). FURTHER, THE HONBLE KERALA HIGH COU RT IN THE CASE OF M OOLAMATTOM 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 B USINESS OF BANKING, CO - OPERATIVE SOCIETIES ENGAGED IN PROVIDING CREDIT FACILITIES TO THE MEMBERS, ETC. AS HAS BEEN RIGHTLY HELD BY THE ASSESSING OFFICER THAT THE MOMENT THE AMOUNT PAID/CREDITED TO ANY DEPOSITOR DURING THE YEAR EXCEEDS RS.10,000, THE PROVI SIONS OF SECTION 194A(1) SHALL APPLY AND THE CO - OPERATIVE 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 ASSESSING OFFICER CATEGORICALLY BROUGHT OUT THE MATERIAL ON RECORD TO PROVE THAT THE APPELLANT BANK IS COVERED BY THE PROVISIONS OF SUB - CLAUSE 8 (B) OF CLAUSE (I) OF SEC. 194A(3) AS WELL AS THE PROVISIONS OF CLAUSE (VI I A) OF SEC.194A(3) WHICH ARE SPECIFIC IN NATURE AND THE APPELLANT CANNOT PUT FORTH ITS CLAIM UNDER SECTION 194(3)(V) WHICH ARE GENERAL IN NATURE. AS THE APPELLANT IS CO - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING, IT IS COVERED UNDER THESE SPECIFIC CLAUSES AND AS HAS BEEN HELD BY THE HONBLE TAT, PUNE BENCH, PUNE IN BHAGANI NVEDITA SAHAKARI BANK LT D V. ACIT (2003) 87 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 LI AB L E FOR TOS PRO VI SIONS UNDER SECTION 194A. 5.2.5 THE APPELLANTS ARGUMENT THAT CLAUSE(V) TO SEC.194 A(3) MAY BE TAKEN AS APPLYING TO MEMBERS AND OTHER CLAUSES TO THE SAID SECTION MAY BE TAKEN TO APP L Y TO NON MEMBERS IS WITHOUT ANY BASIS II AS MUCH AS CLAUSES (I) AND (VII A) APPLY TO BOTH THE MEMBERS AS WELL AS NON MEMBERS. WHERE EVER THE LEGISLATURE INTEN DS TO APPLY A PARTICULAR PROVISION TO MEMBER OR TO A M EMBER, IT HAS DONE SO EXPRESSLY. 5.2.6 NOW COMING TO THE CIRCULAR NO.9 OF 2002 ISSUED BY THE CBDT RELIED UPON BY THE APPELLA NT, THE BOARD VIDE SAID CIRCULAR HAD SOUGHT TO INTERPRET THE DEFINITION OF WOR D MEMBER CLA YING THAT THE WORD MEMBER DOES NOT INCLUDE WORD NOMINAL MEMBER. IT WAS HE L D BY THE BOMBAY NIGH COURT IN THE CASE OF JALGAON DISTRICT CENTRAL CO - OP BANK LTD & MR V. UNION OF INDIA 265 ITR 423 (BORN), THAT THE BOARD HAS NO POWER TO INTERPRET THE PROVISIONS OF L AW 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 CIRCU L ARS 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 . 5.2.7 THEREFORE, THE CIRCULAR NO.9 OF 2002 DATED 1A09 - 20O2 ISSUED BY THE CBDT DOES NOT HELP THE CASE OF THE APPELLANT. THE APPELLANTS REL I ANCE ON THE SAID CIRCULAR IS FOUND TO BE ILL FOUNDE D . 5.2.8 IN ORDER TO UNDERSTAND THE LEGISLATIVE INTENT IN THIS REGARD, IT IS NECESSARY TO REFER TO THE EXPL ANATORY NOTES TO FINANCE (NO. 2) ACT, 1991 G IV EN N THE CIRCU L AR NO. 621 DATED 19 - 12 - 1991 WHICH AMONG OTHERS, PROVIDES THAT WITH A VIEW TO IMPROVING TAX COMPLIANCE, SEC. 194 A OF THE ACT HAS BEEN AMENDED TO SECURE DEDUCTION OF TAX AT SOURCE FROM INTEREST ON TIME DEPOSITS WITH THE AFORESAID BANKING COMPANIES AND CO - OPERATIVE SOCIET IES ENGAGED N CARRYING ON THE BU SINESS OF BANKING. 9 THIS CIRCU L AR OF THE CBDT EX PLAINS IN NO UNCERT AIN TERMS THAT THE INTENTION OF THE LEGIS LA TURE IN AMENDMENT OF SECTION 194A, INTER AL I A WAS TO SECURE DEDUCTION OF TAX AT SOURCE FROM INTEREST ON T IME DEPOSITS WITH THE BANKING COMPANIES AND CO - OPERATIVE SOCIETIES ENGAGED IN CARRYING ON THE BUSINESS OF BA NKING. THE APPELL ANT BEING A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING IS LIABLE TO MAKE TDS U/S 194A. 5.2.9 IN A RECENTLY DELIVERED JUDGMENT, THE HONBLE ITAT PANAJI BENCH, PANAJI IN THE CASE OF THE BA ILHONGAL URBAN CO - OP. BANK L VS. KIT RANGE 1, BELGAUM IN I.T.A.NO. 85/PNJ /2013 DATED 28.08.2013 HAS UPHE L D THE DECISION OF THE ASSESSING OFFICER AND THE COMMISSIONER OF INCOME TAX (APPEALS) IN DISALLOWING U/S. 40(A)(IA) OF THE ACT THE INTEREST AMOUNT PAID BY THE ASSESSEE CO - OPERATI VE BANK ON TERM DEPOSIT IN EXCESS OF RS.1 0 ,000/ - WITH OUT MAKING TD5 U/S. 194A(3)(I) AND NOT ALLOWING ASSESSEES CONTENTION THAT IT WAS RIOT LIABLE TO DEDUCT TAX AT SOURCE BY VIRTUE OF THE PROVISIONS OF SECTION 194A(3)(V) OF THE I.T.ACT. 5.2.1 0 IN VIEW OF T HE ABOVE DISCUSSION AND TAKING INTO CONSIDERATION THE VARIOUS REASONS GIVEN BY THE ASSESSING OFFICER, THE DISA LL OWANCE MA D E UNDER SECTION 40(A )( IA) AMOUNTING TO RS. . 70,52,023/ - IS CONFIRMED. 6. IN THE RESULT, THE APPEAL IS DISMISSED. 5. LEARNED AR SUBMITTED THAT THE ASSESSING OFFICER SHOULD HAVE TO VERIFY WHETHER THE INTEREST INCOME IS SHOWN BY THE MEMBER DEPOSITOR IN HIS RETURN OF INCOME OR NOT AND IF THE DEPOSITOR HAS ALREADY PAID THE TAXES, THEN THE ASSESSEE CANNOT BE DEEMED TO BE DEFA ULT FOR DEDUCT THE TAX AT SOURCE. THE ASSESSING OFFICER HAS NOT MADE ANY ATTEMPT TO VERIFY IF THE PAYEE MEMBERS HAD DECLARED THE TAX ON IMPUGNED AMOUNT IN THE RETURN OF INCOME, THEREFORE THE ASSESSING OFFICER IS WITHOUT JURISDICTION. THE LEARNED AR SUBMI TTED THAT THE DEPARTMENT CANNOT BE PERMITTED TO CALCULATE THE TAX ON THE SAME INCOME TWICE. MOREOVER, 10 U/S. 190 OF THE ACT WHICH SAYS THAT THE TAX SHOULD BE PAYABLE BY DEDUCTION OR COLLECTION AT SOURCE OR BY ADVANCE PAYMENT OR BY PAYMENT U/S. 192(1A) OF TH E ACT. SEC. 191 OF THE ACT PRESCRIBES THAT IN THE EVENT THERE IS A FAILURE ON THE PART OF THE DEDUCTOR TO DEDUCT TAX AT SOURCE ON PAYMENTS MADE TO THE ASSESSEE, THEN THE PRIMARY LIABILITY TO PAY TAX ON SUCH INCOME RESTS ON THE ASSESSEE AND THE ASSESSEE SH ALL PAY THE TAX DIRECTLY. WHEN THE ASSESSEE FAILED TO PAY TAX ON SUCH INCOME WHICH WAS EARLIER SUBJECTED TO TDS, THE DEDUCTOR CAN BE HELD TO BE AN ASSESSEE IN DEFAULT U/S. 201(1) OF THE ACT. SECTION 201(1) OF THE ACT PROVIDES THAT IN THE EVENT OF FAILURE TO DEDUCT TAX AT SOURCE ON PAYMENTS WHICH OUGHT TO HAVE BEEN SUBJECTED TO TDS, THE DEDUCTOR SHALL BE HELD TO BE AN ASSESSEE IN DEFAULT. HOWEVER, SEC. 201(1) CANNOT BE READ IN ISOLATION BUT HAS TO BE READ WITH SEC. 191 OF THE ACT, WHICH MAKE IT A PRECONDI TION THAT FOR THE DEDUCTOR TO BE HELD TO BE ASSESSEE IN DEFAULT, THE ASSESSEE PAYEE SHOULD HAVE ALSO FAILED TO REMIT THE TAXES DUE ON SUCH INCOME IN HIS RETURN OF INCOME. THUS THE LAW REQUIRES THAT THERE HAS TO BE A FACT FINDING EXERCISE BY THE AUTHORITIE S BY WAY OF ASCERTAINING AS TO WHETHER IN THE EVENT OF DEDUCTOR HAVING FAILED TO DEDUCT TAX AT SOURCE ON CERTAIN PAYMENTS, THE PAYEE HAVE ALSO FAILED TO DECLARE SUCH INCOME IN THEIR RETURN OF INCOME AND PAID THE TAXES. IT IS ONLY WHEN THE PAYEE HAS FAILED TO REMIT THE TAXES AND 11 THE DEPARTMENT IS UNABLE TO RECOVER FROM THEM THAT THE LIABILITY CAN BE CASTED ON THE DEDUCTOR TO PAY SUCH TAXES ON HIS OWN ACCOUNT. SECTION 201(1) PROVIDES THAT ANY PERSON, INCLUDING THE PRINCIPAL OFFICER OF A COMPANY, WHO FAILS T O DEDUCT THE TAX AT SOURCE, ON THE SUM PAID TO A RESIDENT OR ON THE SUM CREDITED TO THE ACCOUNT OF A RESIDENT SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT, IF SUCH RESIDENT HAS FURNISHED HIS RETURN OF INCOME U/S. 139 OF THE ACT AND HAS TAKEN INTO ACCOU NT SUCH SUM FOR COMPUTING INCOME IN SUCH RETURN OF INCOME AND HAS PAID THE TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETURN OF INCOME AND THE PERSON FURNISHES A CERTIFICATE TO THIS EFFECT FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED. THEREFORE , THE ASSESSEE CANNOT BE HELD LIABLE UNLESS THE DEDUCTOR HAS NOT PAID TAX ON THIS INCOME IN HIS RETURN. LEARNED AR SUBMITTED THAT THE DEDUCTION OF TAX AT SOURCE IS THE RESPONSIBILITY OF THE ASSESSING OFFICER IF THE ASSESSEE HAS NOT DEDUCTED THE TDS AND TH E DEDUCTEE HAS NOT SHOWN IN HIS RETURN OF INCOME, THEN AND ONLY THEN THE ASSESSEE CAN BE HELD IN DEFAULT. THE ASSESSEE HELD TO BE IN DEFAULT EVEN ON AMOUNT WHICH MIGHT ACTUALLY BE EXEMPT IN THE HANDS OF THE PAYEE UNDER ANY PROVISIONS OF THE ACT. ONCE AN AMOUNT IS EXEMPT IN THE HANDS OF THE ASSESSEE, THE QUESTION OF DEDUCTION OF TAX AT SOURCE DOES NOT ARISE. THE LEARNED AR SUBMITTED THAT IN THIS CASE ASSESSEE HAS ALREADY 12 SUBMITTED THE CERTIFICATE OBTAINED FROM THE ASSESSEE, WHICH PROVES THAT THE PAYEE HAV E ALREADY DISCHARGED THEIR TAX LIABILITY ON THE IMPUGNED INTEREST INCOME. LEARNED AR RELIED UPON THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF JAGARAN PRAKASHAN V. DCIT (TDS) REPORTED IN 345 ITR 288 AND THE DECISION OF HONBLE UTTARAKHAND HI GH COURT IN THE CASE OF DIT, INTERNATIONAL TAXATION V. MAERSK CO. LTD. REPORTED IN 334 ITR 79 (FB). LEARNED AR FURTHER SUBMITTED THAT IMPUGNED ORDER PASSED U/S. 201(1) OF THE ACT HOLDING THE ASSESSEE AS AN ASSESSEE IN DEFAULT IN RESPECT OF THE INTEREST IN COME PAID TO MEMBER DEPOSITORS ARE NOT IN ACCORDANCE WITH LAW AND REQUIRED TO BE SET ASIDE. 6. LEARNED DR HAS RELIED UPON THE ORDER S OF REVENUE AUTHORITIES . 7. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PARTIES AND LOOKING TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, WE FIND THAT THE ASSESSEE IS LIABLE TO DEDUCT THE TAX AT SOURCE ON THE TERM DEPOSIT OF MEMBERS OF THE COOPERATIVE SOCIETIES AS PER THE PROVISIONS OF SEC. 194A(3) (VIIA)(B) OF THE ACT. SECTION 194A (3)(VIIA)(B) DEALS WITH COOPERATIVE SOCIETIE S ENGAGED IN THE BUSINESS OF BANKING. IF THE AMOUNT PAID OR CREDITED TO ANY DEPOSITOR DURING THE YEAR EXCEEDS RS. 10,000/ - , THE PROVISIONS OF SEC. 194A(1) OF THE ACT SHALL APPLY TO THE COOPERATIVE SOCIETY ENGAGED 13 IN THE BANKING BUSINESS SHALL HAVE TO DEDUCT TAX ON SUCH PAYMENT. FROM THE FACTS OF THE CASE, IT IS SEEN THAT THE ITO HAS CATEGORICALLY BROUGHT OUT THE MATERIAL ON RECORD TO PROVE THAT THE ASSESSEE BANK IS COVERED BY THE PROVISIONS OF SUB - CLAUSE(B) OF CLAUSE ( VI I A ) OF SEC. 194A(3) OF THE ACT. WE HAVE TAKEN THE CONSISTENT VIEW TAKEN BY THE ITAT, PANAJI BENCH IN THE CASE OF SARASWAT CO - O PERATIVE BANK LTD VS. ITO, TDS WARD, BELGAUM IN I.T.A.NOS. 233 TO 236/PNJ/2014, WHICH READS AS UNDER: - 2.6. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PAR TIES, 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 EXTENT 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(VIIA). THE PROVISIONS OF SECTION 194A(3)(V)(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; (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. 14 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 - OPERATIVE SOCIETY REGISTERED UNDER KARNATAKA CO - OPERATIVE SOCIETY ACT, 1959 REGISTRATION UNDER THE BANKING REGULATION ACT, 1949 AND CO - OPERATIVE SOCIETIES ACT, 1959 CO - OPERATIVE SOCIETIES ACT, 1959 NATURE OF BUSINESS 1. AS DEFINED IN SECTION 6 OF BANKING. REGULATION ACT. 2. CAN OPEN, SAVINGS BANK ACCOUNT, CURRENT ACCOUNT, OVERDRAFT ACCOUNT, CASH CREDIT ACCOUNT, ISSUE LE TTER 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 - ORDERS AND OTHER FORMS. 4. BANKS ARE BOUND TO FOLLOW THE RULES, REGULATIONS AND DIRECTIONS ISSUED BY RESERVE BANK OF INDIA (RBI) 1. AS PER THE BYE LAWS OF THE COOPERATIVE SOCIETY. 2. SOCIETY CANNOT OPEN SAVINGS BANK ACCOUNT, CURRENT ACCOUNT, ISSUE LETTER OF CREDIT, DISCOUNTING BILLS OF EXCHANGE, ISSU E 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 AND REGISTRAR HAS THE POWER TO INSPECT 15 OVER ALL FUNCTIONING OF THE BANK 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 ASSESSEE. THE SAID INCOME IS LIABLE FOR TAX. A CO - OPERATIVE BANK AS DEFINED UNDER THE BANKI NG 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 AGRICU LTURAL 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 - 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 SOCIETY. THE CO - OPERATIVE BANK AND CO - OPERATIVE SOCIETY IS ALSO INTERPRETED IN THE CASE OF BHAGANI NIVEDITA SAHAKARI BANK LTD. VS. ACIT (2003) 87 ITD 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 INTERPRETED THE WOR D 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 16 ENGAG ED 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 CLAUSE (VIIA) OF SE CTION 194(3)A WHICH ARE SPECIFIC IN NATURE AND 194(3)(V) WHICH ARE GENERAL IN NATURE. WE FIND THAT THE HONBLE KERALA HIGH COURT IN THE CASE OF ITO& ORS. VS. THODUPUZHA URBAN CO - OPERATIVE BANK AND OTHERS HAVE FILED THE WRIT BEFORE THE HONBLE KERALA HIGH C OURT, 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 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 LEARNED SINGLE J UDGE 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 RESPECT OF SEVERAL SI TUATIONS MENTIONED UNDER THAT CLAUSE. ADMITTEDLY, SUB - SECTION (1) OF SECTION 194A CAST THE LIABILITY ON ALL THOSE INSTITUTIONS OTHER THAN INDIVIDUALS AND HINDU UNDIVIDED FAMILY TO DEDUCT INCOME - TAX AT SOURCE, WHEN SUCH INSTITUTIONS PAY INTEREST ON DEPOSITS EXCEEDING THE PRESCRIBED LIMIT. SUB - SECTION (3)(VIIA) READS AS FOLLOWS : SUB - SECTION 3 OF SECTION 194A OF THE ACT MAKES IT CLEAR THAT 'THE PROVISIONS OF SUB - SECTION (1) SHALL NOT APPLY' IN RESPECT OF SEVERAL SITUATIONS MENTIONED UNDER THAT CLAUSE. ADMIT TEDLY, SUB - SECTION (1) OF SECTION 194A CAST THE LIABILITY ON ALL THOSE INSTITUTIONS OTHER THAN INDIVIDUALS AND HINDU UNDIVIDED FAMILY TO DEDUCT INCOME - TAX AT SOURCE, WHEN SUCH INSTITUTIONS PAY INTEREST ON DEPOSITS EXCEEDING THE PRESCRIBED LIMIT. SUB - SECTIO N (3)(VIIA) READS AS FOLLOWS : '(3) THE PROVISIONS OF SUB - SECTION (1) SHALL NOT APPLY (VIIA) TO SUCH INCOME CREDITED OR PAID IN RESPECT OF (A) DEPOSITS WITH A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CREDIT SOCIETY OR A CO - OPERATIVE LAND MORTGAGE BANK OR A CO - OPERATIVE LAND DEVELOPMENT BANK; (B) DEPOSITS (OTHER THAN TIME DEPOSITS MADE ON OR AFTER THE 1ST DAY OF JULY, 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;' 17 THE RESULT WILL BE THAT INTEREST PAID ON TIME DEPOSITS BY A CO - OPERATIVE SOCIETY, OTHER THAN A CO - OPERATIVE SOCIE TY 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 FI RST 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 TY PE OF DEPOSIT, THE 4TH PETITIONER, FIRST RESPONDENT WILL NOT BE LIABLE TO DEDUCT INCOME - TAX, AS SUCH SOCIETY IS UNDER SUB - SECTION (3) TAKEN OUT OF THE PURVIEW OF SECTION 194A(1) OF THE ACT. THEREFORE, THE WRIT APPEAL FAILS, DISMISSED. W.A. NO. 2270 OF 199 8: 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 TH E 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 CENTRAL CO - OPERATIVE BANK LTD. & ANORS. VS. UNION OF INDIA 265 ITR 423, THAT THE BOARD HAS NO POWER TO INTERPRET THE PROVISIONS OF LAW BY WAY OF CIRCULAR. THE ISSUE IN HAND OF HONBLE BOM BAY HIGH COURT WAS THE DEFINITION OF WORD MEMBER AS APPEARING IN CLAUSE - (V)OF SECTION 194A(3) AND POWER OF CENTRAL BOARD OF DIRECT TAX TO ISSUE CIRCULAR U/S 119 WHICH WOULD OVERRIDE OR DETRACT FROM THE PROVISIONS OF INCOME TAX ACT. THE CIRCULAR NO.9/2002 DATED 11.9.2002 ISSUED BY CBDT HAS BEEN QUASHED AND SET ASIDE BY HONBLE BOMBAY HIGH COURT. THEREFORE, CIRCULAR NO.9/2002 DATED 11.09.2002 ISSUED BY CBDT DOES NOT HELP TO THE CASE OF THE ASSESSEE. THE ASSESSEE RELIED UPON THE SAID CIRCULAR IS ILL FOUNDED. THE QUESTION BEFORE THE HONBLE BOMBAY HIGH COURT WAS NOT WHETHER A CO - OPERATIVE BANK NOT ENTITLE TO DEDUCTION OF TAX ON INTEREST PAID ON THE DEPOSITS WITH IT. TO UNDERSTAND THE LEGISLATIVE AMENDMENT IN THIS REGARD QUERY WHEREIN IN THE BUDGETS SPEECH O F FINANCE MINISTER AND HIS OBJECT FOR SUGGESTING TDS TO SUCH DEPOSIT IN FOLLOWING WORDS TO ENABLE THE GOVERNMENT TO IDENTIFY 18 INCOME EARNERS, MOST OF WHOM WOULD NOT OTHERWISE DECLARE THEIR INCOME OR WOULD NOT DECLARE THEIR FULL INCOME, I PROPOSE TO EXTEND T HE 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 DEDU CTED 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 PRESCR IBED MANNER. SUCH PROVISION RELATES TO TDS INTRODUCED BY FINANCE ACT. 1991. INVITED CONSIDERATION CRITICISM FROM TAXPAYERS, BANKERS ABOVE INCONVENIENCE AND DIFFICULTY IN IMPLEMENTATION OF THIS PROVISIONS. THE FINANCE MINISTER IN HIS BUDGET SPEECH IN 1992 EXPRESSED THAT THE SYSTEM OF TAX DEDUCTION AT SOURCE IS A USEFUL TOOL AND ONE OF THE WELL RECOGNISED METHODS OF ENFORCING TAX COMPLIANCE IN MANY COUNTRIES. HOWEVER, A HARASSED FINANCE 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 PROVISION 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 DEPOSIT WITH A BANK COMPANY TO WHICH BANKING REGULATION ACT 1940 APPLIES OR WITH A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING, INCLUDI NG 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 DE POSITS MADE ON OR AFTER 1 ST JULY,1995 WITH A BANKING COMPANY OR WITH A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON BUSINESS OF BANKING. THE AFORESAID LIMIT OF RS.10,000/ - SHALL BE COMPUTED WITH REFERENCE TO THE INCOME CREDITED OR PAID BY BRANCH OF BANKING COMPANY OR CO - OPERATIVE 19 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 PROVISION TO SUB - SECTION (3) OF SECTION 194 HA S 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 - SECTION 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. LEARNED AR HAS RELIED UPON THE DECISION OF INCO ME 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 194A(3)(V) WHICH GRANTS AN EXEMPTION FROM TDS TO SUCH INC OME 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 RELIE D 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 194A(3)(VA) OF THE ACT. THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF ITO & ORS. VS. THODUPUZHA URBAN CO - OPERATIVE BANK, WHEREIN THEY HAVE CLEARLY DEFINED AND INTERPRETED THE SECTION IT APPEARS THAT THE BANK DID NOT CONSIDER THE PROVISION OF SECTION 194A(VIIA). THEREFORE, WHEN THERE IS A SPECIFIC PROVISION, GENERAL PROVISION CANNOT BE APPLIED IN THE CASE OF THE ASSESSEE OTHERWISE THE PROVISION OF SE CTION 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 - 20 (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; (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 THE TDS ON TIME DEPOSITS IS DEALT IN CLAUSES (VII) & (VIIA) OF 194A (3) WHICH ARE E XTRACTED 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 REGULATI ON 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 - CLAU SE (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 PAYMENT BY A CERTAIN CATE GORY 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 PAYME NTS 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 21 CATEGORY OF PAYERS. THE SAID CLAUSE IS REPRODUCED BELOW FOR THE SAKE OF CLARITY: 194A(3) THE PROVISIONS OF SUB - SECTION (1) SHALL NOT APPLY (I) WHERE THE AMOUNT OF SUCH INCOME OR, AS THE CASE MAY BE, THE AGGREGATE OF THE AMOUNTS OF SUCH INCOME CREDITED OR PAID OR LIKELY TO BE CREDITED OR PAID DURING THE FINANCIAL YEAR BY THE PERSON REFERRED TO IN SUB - SECTION (1) TO THE ACCOUNT OF, OR TO, THE PAYEE, [DOES NOT EXCEED (A) TEN THOUSAND RUPEES, WHERE THE PAYER IS A BANKING COMPANY TO WHICH THE BANKING REGULATION ACT, 1949 (10 OF 1949) APPLIES (INCLUDING ANY B ANK 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 DEPOSIT WITH POST OFFICE UNDE R 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 MO NETARY 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 THEREFORE THEY APPLY TO ALL DEP OSITORS. 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 PER USAL 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 SPECIFICALLY A CO - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING FINDS APPLICATION? 22 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 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 AME NDMENT, 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 - 1 970, WHOSE RELEVANT PORTION IS EXTRACTED BELOW: I AM DIRECTED TO INVITE A REFERENCE TO THE BOARDS CIRCULAR NO. 22/68 - IT(B) [F.NO. 12/23/68 - IT(B)], DATED 28 - 3/13 - 5 - 1968, AND TO SAY THAT THE FINANCE ACT OF 1970, HAS MADE AN IMPORTANT CHANGE IN SECTION 194A BY INSERTING A NEW CLAUSE (VII) IN SUB - SECTION (3) OF THAT SECTION. AS PER THIS CLAUSE, THE PROVISIONS OF SECTION 194A ARE NOT APPLICABLE TO INCOME BY WAY OF INTEREST CREDITED OR PAID IN RESPECT OF DEPOSITS WITH A BANKING COMPANY TO WHICH THE BANKING REGU LATION 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 DE VELOPMENT 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 RE QUIRED TO DEDUCT TAX FROM INTEREST PAID TO DEPOSITORS WHO ARE NOT ITS MEMBERS, RENDERING CLAUSE (VII) REDUNDANT. 23 E. THE BY FINANCE ACT 1991, FOR THE FIRST TIME INTRODUCED TDS ON TIME DEPOSITS BY SUBSTITUTING ABOVE MENTIONED CLAUSE (VII) WITH TWO SEPARATE C LAUSES (VII) & (VIIA). WHILE CLAUSE (VII) APPLIED TO BANKING COMPANIES, CLAUSE (VIIA) APPLIED TO SPECIALLY CREATED CATEGORY OF COOPERATIVE SOCIETIES. THIS REAFFIRMS THE DECISION OF LEGISLATURE TO APPLY A SPECIFIC CLAUSE TO THE SPECIFIC GENRE COOPERATIVE SO CIETIES, 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 INC OME - TAX SHALL NOW BE DEDUCTIBLE AT SOURCE FROM THE INTEREST INCOME ON THE DEPOSITS WITH. (I) A BANKING COMPANY, OR CII) A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING, OTHER THAN A CO - OPERATIVE LAND MORTGAGE BANK, A CO - OPERATIVE LAND DEVELOPMENT BANK, PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CREDIT SOCIETY (EMPHASIZED) THE ABOVE CIRCULAR CLEARLY STATES THAT, IT WAS ONLY BY INTRODUCTION OF CLAUSE (VIIA), A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING WAS BROUGHT UNDER THE PURVIEW OF TDS ON TIME DEPOSITS. THE TDS ON TIME DEPOSITS WAS WITHDRAWN VERY NEXT YEAR BY WAY OF SUBSTITUTING ABOVE MENTIONED CLAUSES (VII) & (VIIA) WITH A COMBINED CLAUSE (VII) AND STATUS QUO ANTE WAS RESTORED. F. THE FINANCE ACT 1995 INSERTED CLAUSE S (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 BANKING. THIS POSITION OF LAW H AS 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 T HE 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. (EMPHASIZE D) 24 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 SPECIAL PROVISION NORMALLY EXCLUDES THE OPERATION OF A GENERAL PROVISION. THE HONBLE SUPREME COURT IN THE, CASE OF SOUTH INDIAN CORPN. (P) LTD. VS. SECRETARY, BO ARD 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 NATU RE 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, DISM ISS THE APPEAL OF THE ASSESSEE. 8 . BY RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE HOLD THAT THE ASSESSEE HAS PAID INTEREST MORE THAN RS. 10,000/ - TO EACH OF DEPOSITORS , THEREFORE , ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE AND THE ASSESSEE IS DEEMED TO BE DEFAUL T . 9 . LEARNED AR HAS RELIED UPON THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF JAGARAN PRAKASHAN VS. DCIT (TDS) REPORTED IN 345 ITR 288 WHEREIN THE HONBLE HIGH COURT H AS INTERPRETED THE PROVISIONS OF SEC. 4, 190, 191 & 201 OF THE ACT. WE HAVE GONE THROUGH THE DECISION OF THE HONBLE HIGH COURT AND WE FIND THAT THE HONBLE HIGH COURT HAS PASSED THIS ORDER IN A WRIT PETITION, THEREFORE THEY HAVE NOT LAID DOWN ANY LAW, HENCE, THIS JUDGMENT WILL NOT HELPFUL TO THE ASSESSE E. THE LEARNED AR HAS RELIED UPON A DECISION OF ITAT AGRA 25 BENCH IN THE CASE OF ALLAHABAD BANK V. ITO IN I.T.A.NO. 448 TO 454/AGRA/2011 AND HE SUBMITTED THAT AS PER THE ABOVE JUDGMENT, IT IS THE DUTY OF THE ASSESSING OFFICER TO FIND OUT WHETHER THE ASSESSE E HAS DEDUCTED THE TAX AT SOURCE OR NOT. IF TAX IS NOT DEDUCTED AT SOURCE AND IF PAYEE HAS NOT ALREADY SHOWN THAT AMOUNT IN HIS RETURN OF INCOME, THEN AND ONLY THEN THE ASSESSING OFFICER CAN BE HELD THE ASSESSEE IS LIABLE. THE LEARNED AR SUBMITTED THAT TAX DEDUCTOR CANNOT BE TREATED AS ASSESSEE IN DEFAULT TILL IT IS FOUND THAT THE ASSESSEE HAS ALSO FAILED TO PAY SUCH TAX DIRECTLY. AS WE HAVE ALREADY HELD THAT IT IS THE DUTY OF THE ASSESSEE TO SHOW TO THE INCOME - TAX AUTHORITIES THAT THE PAYEE HAS ALREADY DECLARED THE IMPUGNED INTEREST IN HIS RETURN OF INCOME. AS PER THE PROVISO U/S. 201(1) OF THE ACT WHICH WAS ADDED BY THE PARLIAMENT, IT IS CLEAR THAT IN THE EVENT OF PAYEE HAS ALREADY DECLARED IN HIS RETURN OF INCOME AND PAID THE TAXES, THEN THE DEDUCTOR CANNOT BE HELD TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH INCOME. IT IS THE DUTY OF THE ASSESSEE TO FILE A CERTIFICATE TO THIS EFFECT FROM CHARTERED ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED. THEREFORE, WE ARE OF THE VIEW THAT THE ASSESSEE HAS T O PROVE THAT PAYEE HAS SHOWN INTEREST IN HIS RETURN OF INCOME AND PAID THE DUE TAXES ON THIS INCOME . THEREFORE, WE DO NOT AGREE WITH THE SUBMISSION S OF THE ASSESSEE IN THIS REGARD. 26 10. RECENTLY , HONBLE HIGH COURT OF BOMBAY, BENCH AT AURANGABAD ON T HE OCCASION TO INTERPRET IN SEC. 194 A OF THE ACT IN THE CASE OF THE MARATHAWADA URBAN BANK CO - OP ASSOCIATION LTD. VS. UNION OF INDIA AND OTHERS IN W.P. NO . 4935/2003 , HELD AS UNDER: - 4. WE HAVE GONE THROUGH THE SAID PROVISION AND THE IMPUGNED CIRCULAR. SECTION 194A MANDATES THAT ANY PERSON OTHER THAN AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY RESPONSIBLE FOR PAYING ANY INCOME BY WAY OF INTEREST OTHER THAN INCOME BY WAY OF INTEREST ON SECURITIES AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PA YEE, TO DEDUCT INCOME TAX THEREON AT THE RATES IN FORCE. BY VIRTUE OF SUB - SECTION (3) OF SECTION 194A, EXCEPTION IS CARVED OUT. THE FURTHER PROVISO TO SECTION 194A (3) CLARIFIES THE SITUATION AS TO HOW THE INCOME AND THE LIMITS OF THE INCOME AS DETAILED IN SECTION 194 (3) IS TO BE CONSTRUED. 5. SECTION 194A (3) DEALS WITH EXEMPTIONS. IT LAYS DOWN THAT UPTO AN AMOUNT OF RS.10,000/ - WHERE THE PAYEE IS A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING, THE PROVISIONS OF SECTION 194A , REQU IRING THE SAID CO - OPERATIVE SOCIETY DOING A BANKING BUSINESS TO DEDUCT TDS, WILL NOT APPLY. THE SAID PROVISION EXEMPTING OPERATION OF SECTION 194A (3) IS LIMITED TO THE EXTENT OF THE INCOME BEING PAID BY THE PAYEE TO THE EXTENT OF RS.10,000/ - AND NO FURTHE R. RELIANCE PLACED BY THE LEARNED COUNSEL FOR THE PETITIONER ON SUB - CLAUSE (V) OF CLAUSE (III) OF SUB - SECTION (3) OF SECTION 194A IS MISPLACED. THE SAID SUB - CLAUSE (V) WOULD ONLY APPLY TO SUCH INCOME CREDITED OR PAID BY A CO - OPERATIVE SOCIETY TO A MEMBER T HEREOF OR TO ANY OTHER CO - OPERATIVE SOCIETY. SUB - CLAUSE (VIIA) (A) AND (B) LAYS DOWN THE SPECIFIC CATEGORIES OF THE BANKS WHICH ARE EXEMPTED FROM DEDUCTING TDS. THE INCOME ACCRUED ON THE DEPOSITS OTHER THAN THE TIME DEPOSITS MADE AFTER 1ST DAY OF JULY, 199 5 IS NOT EXEMPTED FROM DEDUCTING THE TDS BY URBAN CO - OPERATIVE BANK. SUBCLAUSE (VIIA) (A) DOES NOT INCLUDE URBAN CO - OPERATIVE BANK AND SUB CLAUSE (B) OF CLAUSE (VIIA) LIMITS THE EXEMPTION TO DEPOSITS OTHER THAN THE TIME DEPOSITS. 6. IT IS A SETTLED PROPOS ITION OF LAW THAT VARIOUS SUB - SECTIONS IN A PROVISION HAVE TO BE READ IN HARMONY. A HEAD ON COLLISION BETWEEN SUBSECTIONS OF THE SAME PROVISION HAS TO BE AVOIDED. THEY CANNOT BE READ IN A MANNER WHICH WOULD RENDER ONE PROVISION SUPERFLUOUS OR A DEAD LETTER. READING CLAUSE (VIIA) AND CLAUSE (V) CONJOINTLY AND IN HARMONY, THE ONLY IRRESISTIBLE 27 CONCLUSION THAT CAN BE DRAWN IS THAT INTEREST ABOVE RS. 10,000/ - CREDITED ON TIME DEPOSITS BY URBAN CO - OPERATIVE BANK IN THE ACCOUNT OF THE PAYEE WOULD BE LIABLE FOR DEDUCTION OF THE TAX AT SOURCE, MEANING THEREBY THAT AN INTEREST CREDITED BELOW RS.10,000/ - BY URBAN COOPERATIVE BANK WILL NOT BE LIABLE FOR THE TAX DEDUCTED AT SOURCE. EVEN THE LEARNED ASSTT. SOLICITOR GENERAL CONCEDED TO THE POSITION THAT FOR AMOUNT BELOW RS.10,000/ - , TDS IS NOT REQUIRED TO BE DEDUCTED BY THE URBAN COOPERATIVE BANK. 7. THE CIRCULAR IMPUGNED DOES NOT CLARIFY THE AFORESAID ASPECT. THE CIRCULAR WILL HAVE TO BE READ IN A MANNER THAT IF THE AMOUNT MORE THAN RS. 10,000/ - IS CREDITED AS AN INTEREST ON TIME DEPOSITS, THEN THE URBAN COOPERATIVE BANK IS LIABLE TO DEDUCT THE TDS AS IS LAID DOWN IN SAID PROVISIONS OF SECTION 194A AND THAT URBAN CO - OPERATIVE BANK IS NOT LIABLE TO DEDUCT TDS IF THE INTEREST ACCRUED ON TIME DEPOSITS IS LESS THAN RS. 10,000/ - . 8. WRIT PETITION ACCORDINGLY IS DISPOSED OF. RULE DISCHARGED. NO COSTS. 1 1 . OUR VIEW WAS CONFIRMED BY THE HONBLE BOMBAY HIGH COURT, THEREFORE, WE DISMISS THE GROUND THAT ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE . WE HOLD THAT IF THE AMOUNT MORE THAN RS. 10,000/ - IS CREDITED AS AN INTEREST ON TIME DEPOSITS, THEN THE URBAN COOPERATIVE BANK IS LIABLE TO DEDUCT THE TDS AS IS LAID DOWN IN THE SAID PROVISIONS OF SECTION 194A AND THAT URBAN CO - OPERATIVE BANK IS NOT LIABLE TO DEDUCT TDS IF THE INTEREST ACCRUED ON TIME DEPOSITS IS LESS THAN RS. 10,000/ - . THEREFORE, WE REVERSE THE FINDING OF LD. CIT(A) AND RESTORE THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO VERIFY THIS FACT AS PER THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF HINDUSTAN COCA COLA BEVERA GES P. LTD. (SUPRA) AND ALSO THE DECISION OF CIT VS. ELI LILLY & CO. 28 REPORTED IN 312 ITR 225 (SC) WHETHER PAYEE HAS PAID TAX ON THE INTEREST INCOME RECEIVED FROM THE ASSESSEE SOCIETY AND SHOWN THE SAME IN HIS INCOME TAX RETURN . THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE SAME AND PASS THE ORDER IN ACCORDANCE WITH LAW. 1 2 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ( ORDER PRONOUNCED IN THE OPEN COURT ON 2 5 T H MARCH , 201 5 ). S D / - S D / - (P.K. BANSAL) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 2 5 T H MARCH , 201 5 . VR / - COPY TO: 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE LD. CIT 4 . THE CIT(A) 5 . THE D.R 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., PANAJI .
