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TMI Blog2015 (3) TMI 882X X X X Extracts X X X X X X X X Extracts X X X X ..... : Particulars FY FY 2011-12 FY 2010-11 FY 2009-10 FY 2008-09 Default u/s.194-A: TDS not made on interest above Rs. 10,000/- Rs.1,60,70,633 Rs.1,49,33,436 Rs.1,54,55,579 Rs2,08,49,807 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 mode, whichever is earlier, deducted income-tax thereon at the rates in force. Admittedly the Assessee did not deduct tax at source on the payment of interest on the deposits to members. The AO accordingly initiated proceedings against the Assessee for treating the Assessee as an Assessee in default u/s.201(1) of the Act for taxes not deducted at source and also proceedings for levy of interest on taxes not deducted u/s.201(1A) of the Act. 03. The relevant provisions of Sec.194A of the Act, in so far as it is material to the present case, reads as follows: Sec.194A: Interest other than "Interest on securities". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or under any other law for the time being in force in any State for the registration of co-operative societies ;' 06. The Assessee drew attention of the AO to the Sec.194A(3)(v) of the Act and submitted that co-operative societies have no obligation to deduct tax at source on interest paid to members. The Assessee thus took a stand that the entire sum sought to be disallowed was payment of interest to members and therefore there was no obligation to deduct tax at source in view of the provisions of Sec.194A(3)(v) of the Act. The Assessee also drew attention 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 11th 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 exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CBDT has issued the circular by virtue of s. 119 of the IT Act, 1961. The petitioner has found fault with the authority of CBDT. The power which has been assumed by CBDT, does not in fact spring from s. 119 of the IT Act, 1961. No doubt, s. 119 of the Act empowers the CBDT to issue instructions to the subordinate authorities for proper administration of the Act. Having been aggrieved by the impugned circular co-operative societies filed writ petition under Art. 226 r/w Art. 227 of the Constitution of India and thereby challenged the validity 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 cooperative 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" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etect tax at source on the aforesaid sums which was interest paid to its members. 09. The AO however did not accept the plea of the Assessee for the following reasons: 1. Under the Act different benefits are given to different co-operative societies depending upon the nature of a particular co-operative society. According to the AO, Sec.194A(3)(v) of the Act was a general provision granting benefit to all co-operative societies. But Sec.194A(3)(i)(b) of the Act specifically provides that a co-operative society carrying on the business of banking, if it pays interest on deposits exceeding Rs. 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 Rs. 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted their plea and in their judgment have observed that Sec.194A (3)(i) exemption limit of Rs. 10,000 to interest paid on time deposits with cooperative societies engaged in carrying on business of banking is allowed but that does not mean that all co-operative societies who have credited or paid exceeding Rs. 10,000 are liable to deduct tax at source. The Court held that co-operative society engaged in carrying on business of banking and primary credit societies stand on different footing and belong to different class. 4. In para-37 of its judgment the Pune ITAT in the case of Bhagani Nivedita Sah Bank Ltd. (supra) the learned Single member has observed that it is amply clear as per Hon'ble High Court of Kerala in the case of Moolamattom's case (supra)that the exemption under s. 194A(3)(viia)(b) is available to primary credit co-operative society and said society cannot be classified or equated with the co-operative society engaged in the banking business to which provisions of deduction of tax at source are applicable. 5. The AO also distinguished the decision rendered by the Hon'ble Bombay High Court in the case of Jalagon District Central Cooperative Bank (supra) as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -operative Society carrying on the business of banking, where the income in the form of interest which is paid by such society is in excess of ten thousand rupees. Sec.194A(3)(v) of the Act provides that tax need not be deducted at source where the income in the form of interest is credited or paid by a co-operative society to a member thereof or to any other co-operative society. This provision therefore applies to all co-operative societies including co-operative society engaged in the business of banking. It is not possible to exclude co-operative society engaged in the business of banking from the provisions of Sec.194A(3)(v) of the Act on the ground that the same is covered by the provisions of Sec.194A(3)(i)(b) of the Act. Sec.194A(3)(v) of the Act refers to payment by a co-operative Society to a member and payment by a co-operative society to nonmember would continue to be governed by the provisions of Sec.194A(3)(i)(b) of the Act. Similarly u/s.194A(3)(viia)(b) interest on deposits other than time deposits even if the payment is made to a nonmember by a co-operative society, the co-operative society need not deduct tax at source. Thus this section carves out another excepti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... footing and belong to different class. That does not mean that Sec.194A(3)(v) of the Act is applicable only to Co-operative Societies other than co-operative societies carrying on the business of banking as observed in para-37 of its judgment the Pune ITAT in the case of Bhagani Nivedita Sah Bank Ltd. (supra). In fact in para-2 of Circular No.9 dated 11.9.2002, the CBDT has very clearly laid down that Cooperative societies carrying on banking business when it pays interest on deposits by its members need not deduct tax at source in view of the provisions of Sec.194A(3)(v) of the Act. 17. We also find that the CBDT in Circular No.9 dated 11.9.2002 clarified certain aspects which are relevant to the present case. The same reads thus: "Circular No.9 of 2002 "Sub : Tax deduction at source under section 194A of the Income-tax Act, 1961 -Applicability of the provisions in respect of income paid or credited to a member of co-operative bank- Reg. 11/09/2002 TDS 194A Under section 194A of the Income-tax Act, 1961, tax is deductible at source from any payment of income by way of interest other than income by way of interest on securities. Clause (v) of subsection (3) of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in our view is binding on the tax authorities. 19. In the case decided by ITAT Panaji Bench in ITA No.85/PN/2013 for AY 09-10 in the case of The Bailhongal Urban Co-op Bank Ltd. Vs. JCIT order dated 28.8.2013, the tribunal proceeded on the footing that the aforesaid circular has been quashed by 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) and therefore chose to follow the decision rendered by Pune ITAT SMC in the case of Bhagani Nivedita Sahakari Bank Ltd. (supra). In our view the Hon'ble Bombay High Court in the case of Jalgaon District Central Co-operative Bank Ltd.'s case was dealing with a case of challenge to para-3 of CBDT Circular No.9 dated 11.9.2002 which tried to interpret the word "member" as given in Sec.194A(3)(v) of the Act. It is only that part of the Circular that had been quashed by the Hon'ble Bombay High Court and the other paragraphs of the Circular had no connection with the issue before the Hon'ble Bombay high Court. How could it be said that the entire circular has been quashed by the Hon'ble Bombay High Court? In our view para- 2 of the Circular still holds good and th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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