TMI Blog2002 (8) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... , the ld. CIT(A)-I, rune has erred in disallowing assessee's claim that the provision of section 194A(3)(v) is a specific provision. The distinction between members and non-members is possible under clause (v) as well as clause (viia)(b) of section 194A(3). 3. In the facts and circumstances of the case, the ld. CIT(A)-I, Pune has erred in not giving the benefit of interpretation which is more beneficial to the assessee as laid down by the Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC). 4. In the facts and circumstances of the case, the ld. CIT(A)-I was not justified in overlooking the treatment given by CCIT Mumbai where the benefit of clause (v) of section 194A(3) is extended to members' deposit" 3. The facts are that the assessee had credited/paid certain amount by way of interest to the accounts of members/nominal members on their fixed (time) deposits without deduction of tax therefrom for which show cause notice was issued to the assessee and in response thereto it was argued before the Assessing Officer that the bank is not liable to deduct tax on such interest payments to the members/nominal members. The bank is a co-operativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aggrieved, the assessee is in further appeal but has challenged the action of ld. CIT(A) to the extent of upholding order of Assessing Officer with reference to creating of demand under section 201(1) and interest under section 201(1A) only. 5. While reiterating the submissions as made before the lower authorities it was contended for deletion of the impugned demands. It was next submitted that primarily assessee is a co-operative society registered under relevant provisions of law and section 194A(3)(v) clearly exempts interest income from deduction of tax at source from such income to its members on fixed deposits also. So it was not liable to deduct tax at source from the interest income of the members. Reliance was placed on the Board's circular No. 72 dated 6-1-1972 with the plea that the said circular is still in force as the same has not been withdrawn and placing further reliance on Associated Cement Co. Ltd.'s case Bombay Cloth Syndicate v. CIT [1995] 214 ITR 210 (Bom.), Royal Calcutta Turf Club v. Dy. CIT [2001] 76 ITD 237 (Cal), CIT v. V.P. Co-operative Federation Ltd. [1989] 176 ITR 435 (SC) pleaded for deletion of the demand. It was further contended by making refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-section (3) of section 194A provides as under: "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 [two thousand five hundred rupees:]" Thus, the exemption was granted to the tax deductors that if interest paid or payable does not exceed Rs. 2,500 the person responsible was not required to deduct that tax under section 194A(1). The proviso below subsection (3), which was, inserted w.e.f. 1-10-1996 reads as under: [Provided that in respect of income credited or paid in respect of- (a) (b) time deposits with a co-operative society engaged in carrying on the business of banking; (c) The provisions of this clause shall have effect as if for the words "two thousand five hundred rupees", the words "ten thousand rupees" had been substituted and the aforesaid amount shall be computed with reference to the income credited or paid by a branch of the banking company or the co-operative society, or the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative land mortgage bank or a cooperative 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." 11. Thus, sub-clause (a) of clause (viia) has specifically excluded certain categories of banks and credit societies for deduction of interest paid or payable by them these are: (1) A primary agricultural credit society (2) A primary credit society (3) A co-operative land mortgage bank (4) A co-operative land development bank. The sub-clause (b) of clause (viia) has exempted a co-operative society carrying on banking business from the deduction of tax on interest paid or payable on the deposits, other than time deposits. It means a cooperative society engaged in carrying on the business of banking is not required to deduct the tax on the deposits other than the time deposits, e.g. Saving deposits, recurring deposits, etc. The said society was also not liable to deduct the tax on time deposits made before the 1st day of July, 1995. However, as per sub-clause (b) of clause (v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposited in the banks in one's own name or in benami deposits. Interest on such deposits is not likely to be declared in the income-tax returns. Thus, keeping in view the above facts and to improve tax compliance section 194A, the Income-tax Act was amended to secure deduction of tax at source from interest on time deposits with the aforesaid banking companies and co-operative societies engaged in carrying on the business of banking. 14. The main thrust of the assessee's counsel was on the provision of clause (v) of sub-section (3) of section 194A. His main contention was that the act has provided exemption from deducting tax by the co-operative societies on the interest paid to its members. 15. However, as mentioned above the clause (v) of sub-section (3) is general in nature while the provisions of sub-clause (b) of proviso to subsection (3) as well as the provisions of clause (viia) are specific in nature wherein a banking co-operative society is liable to deduct tax on the interest paid or payable on time deposits if the amount of interest is more than Rs. 10,000, irrespective of the person to whom the interest is paid. There are a number of judicial pronouncements wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness is liable to deduct tax on time deposits if the tax payable is more than Rs. 10,000. If the tax has not been deducted the assessee has to be treated as a defaulter and consequential action will take place. The Assessing Officer was justified in creating a demand and levying under section 20l/201(1A) of the Income-tax Act for the default committed by the assessee under section 194A. It has been held by the Delhi High Court in CIT v. Prem Nath Motors (P.) Ltd. [2002] 253 ITR 705 that if the assessee has committed the default in not deducting the tax or short deduction of tax the charging of interest under section 201(1A) is mandatory. 21. At the first early stage the CIT(A) has discussed the issue in detail and he was of the opinion that the co-operative society has committed a default under section 194A and hence the Assessing Officer was justified in levying interest under section 20l/201(1A) of the Income-tax Act. 22. It is further mentioned that assessee's counsel himself submitted that for subsequent years the bank has started deducting the tax on time deposits if the interest paid or payable is more than Rs. 10,000 in the case of all the persons including the members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essary to consider in detail as to which of these provisions are applicable/should prevail. For this purpose, following analysis is necessary. 25. The provisions of section 194A have been brought on statute so as to recover the tax on interest, other than the interest on securities, in advance in respect of interest paid by persons other than individuals and HUFs. It is also seen that the income by way of interest from Co-operative Societies is covered under the provisions of section 80L of the Act for deduction allowable thereunder. Therefore, wherever the tax deduction at source is required under the provisions of section 194A adequate deductions are made to the extent of the limit as prescribed. Further the income earned by the co-operative societies from the other co-operative societies is exempt under the provisions of section 80P of the Act. Accordingly, it is also seen that wherever such interest is payable to a cooperative society the tax is not required to be deducted at source and such specific exemptions have been made. This clearly spells the purpose or intention of the legislation in bringing on statute the provisions under section 194A of the Act. On this background ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 194A(3)(f), a Co-operative Society engaged in carrying on the business of banking is required to deduct tax at source in respect of time deposits where the amount of interest paid exceeds Rs. 10,000. This requirement is irrespective of the fact whether the interest is paid to members or non-members of such cooperative banks. In case the contention of the assessee is to be accepted then the above mentioned proviso will also be rendered redundant. 29. Similarly, under sub-clause (viiia)(b), the payment of income by way of interest by a Co-operative Society other than Co-operative Bank in respect of deposits other than time deposits made by the members are exempt from tax deduction at source. Once again, the income from interest on deposits other than time deposits given by Co-operative Societies other than Co-operative Banks to its members are clearly exempt from tax deduction at source under clause (v) of sub-section (3) also. Thus exemption from TDS is available once again in respect of income from interest on other than time deposits with Co-operative Society other than Co-operative Bank under the two sub-clauses of a subsection provided in the Act. This will render o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viia)(b) is interest on deposits other than term deposits, which means, by implication, that the interest on term deposits payable by the co-operative Bank to its members is liable to be subjected to tax deduction at source. The interest on term deposits, as per provisions of sub-clause (viia)(b) is liable to TDS equally for members as well as non-members, whereas the same is declared to be exempt under sub-clause (v) if the interpretation of the representative of the assessee were to be accepted. Thus, it results into direct conflict between sub-clause (v) and sub-clause (viia)(b) of the sub-section (3) of section 194A of the Act in order to remedy this conflict between two provisions it will have to be considered in such a way that the specific provision as mentioned under sub-clause (viia)(b) will have to be given precedence over application of sub-clause (v) so that the conflict is removed: 31. Therefore, in view of the above it becomes necessary that the term Cooperative Society in sub-clause (v) be interpreted as Co-operative Society other than Co-operative Bank. 32. This point can further be considered from another angle. Sub-clause (viia)(b) has been introduced w.e.f. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34. Considering the abovementioned facts, it must be seen that after all the intention of provisions of section 194A is to collect tax by way of tax deduction at source for which this specific section was introduced. And, if the interpretation as suggested by the representative of the assessee were to be accepted, such purpose would be defeated. Coming to the observations of the arguments raised by the learned counsel for the assessee, it can be stated in brief, one by one that unless as claimed by the representative of the assessee, the provisions under section 194A(3)(v) are NOT specific because although it deals with exemption in respect of interest payable to members, by implication, the same is contemplated in respect of time deposits under clauses (viia)(a) and (viia)(b) of the Act. Therefore, reference to 'members' of Co-operative Society is not only talked about in provisions of section (v) it is also referred elsewhere, therefore, provisions of sub-clause (v) are of general nature and NOT specific as claimed by the assessee. On the contrary, the mention regarding to Co-operative Banks and other for specific categories are made only wherever that has been relevant. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (19), there is total exemption and that is fortified by sub-section (3)(viia)(b). Hence there is no scope for the argument that the primary co-operative societies are not exempted. That would be reading something not found in the Income-tax Act, but could only be stretching the definition found under the Banking Regulation Act. Resort to different provision of another Act may be relevant in the absence of a definition or of a technical nature. For the purpose of understanding the "co-operative society" the meaning that can be given is only as per the definition under section 2(19) and not otherwise. The contention that sub-section 3(i) exemption limit has been increased to Rs. 10,000 to time deposits with co-operative societies engaged in carrying on business of banking, would have to be reconciled and if so done, then all co-operative societies who have credited or paid exceeding Rs. 10,000 are liable for deduction cannot be accepted. Firstly, the provision deals only with the time deposit and secondly, the expression used is "the co-operative society engaged in carrying on business of banking". There may be many co-operative societies that may come under sub-section (3)(viia)(b). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the purview of deductibility of tax at source. Moreover this being neither a charging nor penal provision and that apart, it cannot be taken as a case of two interpretations of one provision even as found from close scrutiny of relevant provision, therefore, ratio of the decision in this regard cannot be said to be applicable to the present case. 39. So far as plea of the assessee with regard to letter dated 13th January, 1998 issued by Dy. CIT(HQ) Co-ordination, Bombay on the letterhead of CCIT to the Chairman of the Maharashtra Urban Co-operative Banks Federation Ltd. Mumbai, for non-deduction of tax at source by cooperative bank is concerned, the same reads as under: "Sub: TDS on interest on Deposits - section 194A(3)(v) of Income-tax Act, 1961: Please refer to your letter F.No. 10-03-97 on the above subject. In view of the provisions of section 194A(3)(v) the Urban Co-operative Banks registered under concerned State Co-operative Act are exempted in respect of TDS on interest credited or paid by co-operative society to a member thereof or to any other co-operative society." 40. As appears from the contents of this letter, it does not give clarification with rega ..... X X X X Extracts X X X X X X X X Extracts X X X X
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