TMI Blog2015 (1) TMI 1005X X X X Extracts X X X X X X X X Extracts X X X X ..... our of assessee for statistical purposes. - I.T.A No.1572/Bang/2013 - - - Dated:- 30-5-2014 - SHRI. N. V. VASUDEVAN AND SHRI. JASON P. BOAZ, JJ. For the Appellant : Shri. Ramasubramaniyan, CA For the Respondent : Shri. Bijoy Kumar Panda, Addl.CIT ORDER PER N. V. VASUDEVAN, JUDICIAL MEMBER : This is an appeal by the Assessee against the order of the CIT(A), Belgaum dt 16.09.2013, relating to the assessment year 2009-10. Assessee is a Co-operative Bank carrying on the business of banking. In the course of assessment proceedings u/s.143(3) of the Income Tax Act, 1961 (the Act) for AY 09-10, the AO noticed that the Assessee had paid interest of ₹ 1,29,19,176 on deposits from members and non-members and payment to each of the depositors exceeded a sum of ₹ 10,000/-. The AO was of the view that as per the provisions of Sec.194A(1) of the Act, the Assessee who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, ought to have at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was of the view that the aforesaid sum claimed as deduction while computing income from business cannot be allowed. The AO accordingly proposed to add the sum of ₹ 1,29,19,176 to the total income declared by the Assessee in the return of income. 04. In response to the show cause notice of the above proposing disallowance of interest expenses u/s.40(a)(ia) of the Act, the Assessee drew attention of the AO to the provisions of Sec. 194A of the Act, which provides as follows: Sec. 194A.- Interest other than Interest on securities . (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : (2) .. (3) The provisions of sub-section (1) shall not apply- (i) Where the amount of such income or, as the case may be, the aggr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the AO to the decision of the Hon'ble Bombay High Court in the case of The Jalgaon District Central Co-operative Bank Ltd. Vs. Union of India 265 ITR 423 (Bom). In the aforesaid case co-operative societies challenged Circular No.9 of 2002 dated 11 th Sept. 2002 issued by the CBDT in the context of obligation to deduct tax at source by co-operative societies. As we have already seen that Sec. 194A of the IT Act, 1961, deals with interest other than interest on securities. Sub-s. (1) of s. 194A mandates deduction of income tax at source in respect of the income by way of interest whereas sub-s. (3) of s. 194A engrafts an exception to the applicability of the provisions of sub-s. (1). Sec. 194A(3)(v) grants an exemption from TDS to such income credited or paid by the co-operative society to a member thereof or to any other co-operative society. The word member used in See. 194A(3)(v) of the Act according to the petitioner was without any words of limitation. The petitioners contended that the expression member is defined in s. 2(19) of the Maharashtra Co-operative Societies Act, 1960. The said definition of member includes nominal, associate or sympathiser member also. U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the impugned circular and the competency of CBDT to issue a circular contrary to the provisions of Sec.194A(3)(v) of the Act. The Hon'ble Bombay High Court held that Sec. 194A(3)(v) grants an exemption from TDS to income credited or paid by the co-operative society to a member thereof or to any other co-operative society. Clause (v) of sub-s. (3) of s. 194A is very lucid and clear in its terms which suggests that the provisions relating to TDS are inapplicable to the income credited or paid by the co-operative society to the member thereof. The word member used in this provision is without any words of limitation. The expression member is not defined in the IT Act, 1961. A co-operative society has to be established under the provisions of law made by the State legislature. The definition of expression member is given under s. 2(19) of the Maharashtra Co-operative Societies Act, 1960. As per the definition, member . means a person joining an application for registration of a co-operative society, which is subsequently registered or a person duly admitted to membership of a society after registration and includes a nominal, associate or sympathizer member. There is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociety carrying on the business of banking, if it pays interest on deposits exceeding ₹ 10,000 then it has to deduct tax at source. He held that specific provisions will override general provisions and therefore the Assessee being a co-operative society engaged in the business of banking had to deduct tax at source on payment of interest in excess of ₹ 10,000/-. 2. The AO placed strong reliance on the Single Member decision of the ITAT in the case of Bhagani Nivedita Sah Bank Ltd. Vs. ACIT 87 ITD 569 (Pune) wherein it was held that from perusal of s. 194A that wherever the term `co-operative society' is used intending thereby to include a co-operative society engaged in carrying on the business of banking, it is so specifically mentioned. In other words, wherever the provision applies to a co-operative bank, there is specific mention to that effect. In all other places, it can be inferred that the term co-operative society does not include co-operative banks. This kind of presumption is required to be made because, as demonstrated by the AO, there arises a conflict between two provisions viz., cl. (v) and cl. (viia), if such interpretation is not adopt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposits received by it. d) U/s 194A(3)(viia)(b) of the Act a co-operative society other than a cooperative society or a bank referred to in Clause (a) need not deduct tax at source on interest paid on any deposit other than time deposits. 2.3 The following chart explains the position: Type of Interest/ Payee ₹ 10,000 or less 194A(3)(i)(b) Any Amount/Any type of interest paid by a Co-op Society 194A(3)(v) Interest on deposits other than time- deposits 194A(3)(viia)(b) Interest on time deposit 194A (3)(v) Member Exempt Exempt Exempt Exempt Non-Member Exempt TDS to be made Exempt TDS to be made According to him the above chart would clearly show that when a co-operative society is paying interest to its members, it need not deduct tax at source. It was his submission that the Assessee is a co-operative society registered under the Mysore Co-operative Socie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to him the observations of the AO in this regard were not correct as the Hon'ble High Court struck down only that portion of circular which dealt with Boards clarification as to who is a member. The court never had an occasion to go into a question. whether S. 194A(3)(v) of the Act would cover- a co-operative bank or not. It was finally submitted that the Assessee is entitled to deduction and no disallowance is called for u/s 40(a)(ia) of the Act. 14. The learned DR while reiterating the stand of the AO/Cl T(A) further relied on the decision of the ITAT Panaji Bench in ITA No.85/PN/2013 for AY 09-10 in the case of The Bailhongal Uraban Co-op Bank Ltd. Vs. JCIT order dated 28.8.2013 wherein the Tribunal followed the order of SMC Bench in the case of Bhagani Nivedita Sah Bank Ltd. Vs. ACIT 87 ITD 569 (Pune). Without prejudice to his submission that TDS provisions were applicable even in the case of payment of interest to member depositors by a co-operative society, it was submitted by him that the order of the AO/CIT(A) is not clear as to whether the interest disallowed pertains to interest paid to members or non-members and this aspect has to be verified, if necessary. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled a general provision and other provisions called specific provisions. Each provision over-lap and if read in the manner as indicated above, there is perfect harmony to the various provisions. We do not agree with the view expressed by the Pune ITAT SMC in the case of Bhagani Nivedita Sahakari Bank Ltd. (supra) when it says that Co-operative society as mentioned in el. (v) is a general species, whereas the other five categories of co-operative societies which are specifically referred to in other provisions are specific co-operative societies. The further conclusion in the said decision that the term `co-operative society' in cl. (v) of s. 194A(3) has to be interpreted as co-operative society other than co-operative bank, is again unsustainable. The law is well settled that by a process of interpretation one cannot add on words that are not found in the text of the statute. Such a course is permitted only when there is causus omissus . We do not think that the provisions of section 194 A(3) (v) suffers from any causus omisus as has been interpreted by the ITAT Pune Bench SMC. 16. We are also of the view that the decision of the Hon'ble Kerela High Court in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sub-section (3) of section 194A exempts such income credited or paid by a co-operative society to a member thereof from the requirement of TDS. On the other hand, clause (viia) of sub-section (3) of section 194A exempts from the requirement of TDS such income credited or paid in respect of deposits (other than time-deposits made on or after 1st July, 1995) with a co-operative society engaged in carrying on the business of banking. 2. Representations have been received in the Board seeking clarification as to whether a member of a co-operative bank may receive without TDS interest on time deposit made with the co-operative bank on or after 1st July, 1995. The Board has considered the matter and it is clarified that a member of a co-operative bank shall receive interest on both time deposits and deposits other than time deposits with such co-operative bank without TDS under section 194A by virtue of the exemption granted vide clause (v) of sub-section (3) of the said section. The provisions of clause (viia) of the said sub-section are applicable only in case of a non-member depositor of the co-operative bank, who shall receive interest only on deposits other than t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Hon'ble Bombay High Court? In our view para-2 of the Circular still holds good and the conclusion of the ITAT Pune Bench in the case of The Bailhongal Uraban Co-op Bank Ltd.(supra) are not factually correct. Consequently, the conclusions drawn in the aforesaid decision also contrary to facts and hence cannot be considered as precedent. 20. The learned counsel for the Assessee has brought to our notice that the ITAT Vishakapatnam Bench in the case of The Visakhapatnam Co-operative Bank ITA No.5 and 19 of 2011 order dated 29.8.2011 has held that co-operative societies carrying on banking business when it pays interest to its members on deposits it need not deduct tax at source in view of the provisions of Sec.194A(3)(v) of the Act. Similar view has also been expressed by the Pune Bench of the ITAT in the case of Ozer Merchant Co-operative Bank ITA No.1588/PN/2012 order dated 30.10.2013. We may add that in both these decisions the discussion did not turn on the interpretation of Sec.194A(3)(i)(b) of the Act vis-a-vis Sec.194A(3)(v) of the Act. It is thus clear that the preponderance of judicial opinion on this issue is that co-operative societies carrying on banking b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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