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TMI Blog2015 (1) TMI 743X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 64,63,35,343/-, inter alia, making the following disallowances: i) Interest on term deposit in excess of Rs. 10,000/- u/s.40(a)(ia): Rs.22,65,75,356/- ii) Int. On receivable on loans & investment but not credited to P&L account: Rs.27,58,64,367/- iii) Dividend income claimed as exempt: Rs. 60,12,920/- 4. Being aggrieved by the assessment order, the assessee filed appeal before ld CIT(A), who partly allowed the appeal. Hence, both the sides are in appeal before us. 5. The assessee in its appeal has raised two grounds as under: "1. The ld CIT(A) has erred in disallowing the interest paid on term deposits in excess of Rs. 10,000/- without making TDS thereby adding Rs. 22,65,75,356/- to income, though the same is claimed as exempt u/s.194A(v) being interest paid to members. 2. The ld CIT(A has erred in disallowing dividend income of Rs. 60,12,920/- though the same is claimed as exempt u/s.80P(2)(d)." 6. Apropos first issue taken by the assessee, facts are that during the course of assessment proceedings, the Assessing Officer observed that assessee had paid interest on term deposit in excess of Rs. 10,000/- without making TDS and the total interest so paid of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t source on interest on time deposits paid/credited and therefore, co-operative bank would be liable to deduct tax at source under section 194A(1) on interest on time deposits paid/credit to its depositors, it such interest amount exceeded the limit prescribed in proviso to section 194A(3)(i). Further, the Hon'be Kerala High Court in the case of Mootamattom Clectricity Board Employees Co-op Bank Ltd 238 ITR 630 has made a clear distinction between primary credit society and a coop society engaged in banking business. Thus, section 194A deals with co-op societies engaged in the business 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 provisions 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 (b) of clause (i) of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, Sec 194A 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 societies engaged in Carrying on the business of banking. This circular of the CBDT explains in no uncertain terms that the intention of the legislature in amendment of Section 194A, inter alia was to secure deduction of tax at source from interest on time deposits with the banking companies and cooperative societies engaged in carrying on the business of banking. The appellant being a Co-operative society engaged in carrying on the business of banking is liable to make TDS u/s 194A. 5.1.9 In view of the above discussion and taking into consideration the various reasons given by the Assessing Officer, the disallowance made under section 40(a)(ia) amounting to Rs. 22,65,75,356/- is confirmed." 7. At the time of hearing, ld counsel for the assessee submitted before us that this Tribunal has dealt with similar issue in the case of The Bailhongal Urban Co-Op. Bank Ltd vs JCIT (ITA No.85/Pnj/2013) for A.Y. 2009-2010, wherein, the Hon'ble Karnataka High Court has stayed the above order for one week, therefore, he request ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uct tax on interest paid or payable to any person on time deposits, if the amounts of said interest exceeds Rs. 10,000/-. The status of the assessee is co-operative bank vis-a-vis other co-operative societies. This has become important due to the fact that the assessee had claimed to be an ordinary co-operative society within the meaning of clause (v) of Section 194A(3) of the Act. The co-operative society includes different types of co-operative society in different type of activities. Wherever, the 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 legislation intends to extend different benefits to different types of co-operative societies through the Income tax Act. The assessee claimed the benefit of sections 36(1)(viia), 269 SS and 269T on the ground that it is a co-operative bank but for availing exemption from TDS under section 194A, it is claiming itself as an ordinary 'co-operative society' within the meaning of section 194A(3)(v) of the Act. We find that this distinguishes the co-operative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be used by a co-operative society 10. We find also support from the decision of Hon'ble High Court, wherein, it has been held as under: "If a Co-operative Bank is exclusively carrying banking business, then the income derived from the said business cannot be deducted in computing the total income of the assessee. The said income is liable for tax. A Co-operative bank as defined under the Banking Regulation Act includes the primary agricultural credit society or a primary co-operative agricultural rural development bank. The Legislature did not want to deny the said benefit to a primary agricultural credit society or a primary cooperative agricultural and rural development bank. They did not want to extend the said benefit to a co-operative bank which is exclusively carrying on banking 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 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying on business of banking are on different footing. The AO has also referred the explanatory notes to Finance (No.2) Act, 1991 given in the circular No.621 dated 19.12.1991 which among others, provides that "with a view to improving tax compliance, Section 194A 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 societies engaged in carrying on the business of banking". Since the assessee bank is covered by the provisions of said clause (b) of clause (i) of section 194A(3) as well as provisions of clause (a) of said section, which are specific in nature, we hold that the assessee is not entitled for benefit by arguing that section 194A(3) is specific in nature. We find that wherever there is specific provision, it override the general provision. For this proposition, we rely upon the decision of the Jurisdictional Karnataka High Court in the case of M.L.Vasudeva Murthy and Sons and others vs.Joint Commissioner of Agricultural Income tax, 198 ITR 426(KAR). The Hon'ble Supreme Court in the case of South Indian Corpn. (P) Ltd. vs. Secretary, Board of Revenue AIR 1964 SC 207 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -operative Bank Ltd (supra), wherein, it has been held as under: "Looking to the facts and circumstances of the case the Hon'ble 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 word Co-operative and Co-operative Society and further the Hon'ble 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 clause (viia) of Section 194(3)A which are specific in nature and 194(3)(v) which are general in nature. We find that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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;" 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 covered by sub-section (1), and therefore, will be liable to deduct income-tax. The appellant does not have a case before us that the 4th petitioner, the first respondent herein, does not come within any of the types of co-operative societies made mention of in sub-clause (a) of clause (viia) of sub-section (3) of section 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 such society is under sub-section (3) taken out of the purview of section 194A(1) of the Act. Therefore, the writ appeal fails, dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2500 per year. Those receiving payments in excess of the limit but not having taxable income will have the facility of collecting payment with no tax deduction by filing a declaration in the prescribed manner. Such provision relates to TDS introduced by Finance Act. 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., 1st June, 1992, sub-section 3 of Section 194A for clause (vii) and someone as earlier introduced by Finance No.2 Act w.e.f., 1st October, 1991. This amendment was made to restore the position as was befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bombay High Court and the circular issued by CBDT and they relied upon circular issued by CBDT following the judgement of Jalgaon District Central Co- operative Bank Ltd. & Anors. Vs. Union of India, they were of the opinion that the Co-operative Bank are not subject to TDS under 194A. We do not agree with the finding of ITAT, Tribunal as Hon'ble Kerala High Court has occasioned to interpret Section 194A(3)(v) and 194A(3)(va) of the Act. The decision of Hon'ble 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 section 194A (viia) will become redundant. The section cannot be read in this manner. For the sake of clarity, we have analyse the Section 194A(3)(v) and (viia) which read as under: "(3) The provisions of sub- section (1) shall not apply- (i) 5 where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced 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 bank or banking institution, referred to in section 51 of that Act); (b) ten thousand rupees, where the payer is a co-operative society engaged in carrying on the business of banking [emphasized] (c) ten thousand rupees, on any 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 anyth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank or a co-operative land development bank). All such banking institutions are, therefore, no longer required to deduct tax from interest paid or credited to the accounts of a resident depositor. (emphasized) From the above circular it is very clear that, by virtue clause(vii), a co-op bank is exempted from making TDS. c. The Finance Act 1971, which inserted the words (to a member thereof or) in clause (v) and the said amendment was directed only at the general co-operative society and not at the specific gene i.e cooperative society engaged in carrying on the business of banking. d. The stand of appellant is that, even after insertion of specific clause(vii), the general clause(v) will continue to apply to the cooperative banks. If that stand is accepted, the cooperative banks were required to deduct tax from interest paid to depositors who are not its members, rendering clause (vii) redundant. e. The by Finance Act 1991, for the first time introduced TDS on time deposits by substituting above mentioned clause (vii) with two separate clauses (vii) & (viia). While clause (vii) applied to banking companies, clause (viia) applied to specially created category of cooperative soci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision normally excludes the operation of a general provision ". The Hon'ble Supreme Court in the, case of South Indian Corpn. (P) Ltd. vs. Secretary, Board of Revenue AIR 1964 SC 207 has held that "a special provision should be given to the extent of its scope leaving the general provision to control cases where the special provision does not apply" Therefore, in terms clause (v) which is general in nature will not apply to the co-op bank. The provisions of Section 194A (1)(viia) is clearly applicable and therefore the 'assessee' has to deduct T.D.S. on income credited or paid in respect of deposits except which falls under that provisions. We therefore, dismiss the appeal of the assessee." 14. In consistent with our decision, we dismiss the assessee's first issue by upholding the decisions of the revenue authorities. 15. The second issue relates to disallowance of dividend income of Rs. 60,12,920/, claimed by the assessee as exempt u/s.80P(2)(d) of the Act. 16. The Assessing Officer noticed that the assessee had credited gross dividend receipts of Rs. 60,12,920/- to the P&L account and claimed the said income as exempt from tax in the statement of computati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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