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2014 (9) TMI 1168 - ITAT PANAJITDS u/s 194A - 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? - Held that:- 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 it is very clear that, by virtue clause(vii), a co-op bank is exempted from making TDS. 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. The stand of appellant is that, even after insertion of specific clause(vii), the general clause(v) will continue to apply to the cooperative banks. If that stand is accepted, the cooperative banks were required to deduct tax from interest paid to depositors who are not its members, rendering clause (vii) redundant. The by Finance Act 1991, for the first time introduced TDS on time deposits by substituting above mentioned clause (vii) with two separate clauses (vii) & (viia). While clause (vii) applied to banking companies, clause (viia) applied to specially created category of cooperative societies. This reaffirms the decision of legislature to apply a specific clause to the specific genre cooperative societies, which were earlier carved out of the genus as envisaged in general clause(v). The effect of above amendment was explained by the CBDT in Circular no 617 dated 22-11-1991 where in it is clarified that: The effect of the aforesaid change is that income-tax shall now be deductible at source from the interest income on the deposits with. (i) a banking company, or cii) a co-operative society engaged in carrying on the business of banking, other than a co-operative land mortgage bank, a co-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. The Finance Act 1995 inserted clauses (vii) & (viia) which lay down that, the exemption as envisaged in 194A(3) is not available in respect of time deposits made on or after 01-07-1995 with a banking company and a cooperative society engaged in the business of banking. The above explanatory note leaves no doubt, whatsoever, about the applicability of clause (viia) to a cooperative society engaged in the business of banking. The Hon‟ble Supreme Court in the, case of South Indian Corpn. (P) Ltd. vs. Secretary, Board of Revenue [1963 (8) TMI 30 - SUPREME COURT OF INDIA] has held that “a special provision should be given to the extent of its scope leaving the general provision to control cases where the special provision does not apply” Therefore, in terms clause (v) which is general in nature will not apply to the co-op bank. The provisions of Section 194A (1)(viia) is clearly applicable and therefore the "assessee‟ has to deduct T.D.S. on income credited or paid in respect of deposits except which falls under that provisions. We therefore, dismiss the appeal of the assessee.
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