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2015 (3) TMI 882 - ITAT BANGALORE

2015 (3) TMI 882 - ITAT BANGALORE - TMI - Non deduction of tax at source on the payment of interest on the deposits to members of cooperative society - AO initiated proceedings against the Assessee u/s. 201(1) & u/s.201(1A) - Held that:- The Bangalore Bench of ITAT in the case of Bagalkot District Central Co-op Bank, Vs. JCIT (2015 (1) TMI 1005 - ITAT BANGALORE] held that cooperative societies carrying on banking business while paying interest to members on time deposits and deposits other than .....

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e of Ozer Merchant Co-operative Bank [2015 (3) TMI 919 - ITAT PUNE]. 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 business when it pays interest to its members on deposits need not deduct tax at source in view of the provisions of Sec.194A(3)(v) of the Act

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:- 20-3-2015 - Shri. N. V. Vasudevan And Shri. Jason P. Boaz JJ. For the Appellant : Shri. G.V.Desai, CA For the Respondent : Dr.P.K.Srihari, Addl.CIT ORDER Per Bench: ITA Nos. 1191 to 1194/Bang/2014 are appeals by the Revenue against common order dated 9.6.2014 of CIT(A), Hubli, relating to the assessment year 2009-10 to 2012-13. The Assessee has filed cross-objection against the very same order of the CIT(A). The Cross-objection is purely supportive. 02. Assessee is a Co-operative Bank carryin .....

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u/s.194-A: TDS not made on interest above ₹ 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 o .....

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in so far as it is material to the present case, reads 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, wh .....

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g 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; (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: ………………….. (ii) to .....

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ciety, other than a co-operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking; 05. The stand of the Assessee in the proceedings u/s.201(1) & 201(1A) of the Act was that it was a co-operative society carrying on the business of banking and not a co-operative bank. In this regard the Assessee drew attention of the definition of Co-operative Society as given in Sec.2(19) of the Act which reads thus: Sec.2 (19): "co-operative society" me .....

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mbers 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-o .....

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ative society. The word "member" used in Sec.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. Under Circular No. 9 of 2002, issued by the CBDT, it is an accepted fact that the provisions of TDS are not enforceable .....

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-operative bank, must be entitled to participate and vote in general body meeting or special general body meeting of the co-operative bank and must be entitled to receive share from the profits of the co-operative bank. Acting upon the aforesaid circular the AO held that provisions of Sec.194A(3)(v) of the Act are applicable only when the payment of interest is made by a co-operative society to such members who hold shares and have a right to vote in general body and entitled to share of profits .....

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issued by the CBDT deprives the exemption granted by the central enactment and, therefore, the said circular is bad in law and liable to be quashed and set aside. The petitioner has challenged the circular issued by CBDT. The 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 .....

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redited 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" is not defined in the IT Act, 1961. A co-operative soci .....

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e is no distinction between duly registered member and nominal, associate and sympathizer member. The impugned circular issued by CBDT, which is in the form of clarification with regard to rights and privileges of a duly registered member and nominal member is outside the scope of s. 119. No doubt, s. 119 generates some power in CBDT. But the power so generated by virtue of s. 119 is required to be utilized in a prescribed manner. CBDT is empowered to issue only administrative instructions to th .....

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s authority and has issued the impugned circular directly in conflict with the provisions contained in s. 194A(3)(v). Sec. 119 does not at all support the action of CBDT. CBDT has no authority to make a crack in the exemption clause contained in s. 194A(3)(v), by issuing the impugned circular. The CBDT cannot usurp the powers of Parliament by virtue of s. 119. The CBDT, under the garb of s. 119, cannot exercise wider powers than the powers bestowed on it. The CBDT has no power to introduce a sub .....

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see 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 ₹ 10,000 then it has to deduct tax a .....

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ed 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 'cooperative 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 .....

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recedence will have to be given to the specific provision of the law. Therefore, in view of the above it becomes necessary that the term co-operative society in cl. (v) be interpreted as co-operative society other than co-operative bank. The Tribunal drew support for its conclusion as above from the decision of the Hon ble Kerala High Court in the case of Moolamattom Electricity Board Employees' Co-operative Bank Ltd. vs. ITO 238 ITR 630 (Ker). 3. In the case of Moolamattom electricity Board .....

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total exemption to deposits with the primary credit society. Petitioners are primary credit societies and, therefore, there is exemption towards deduction in respect of income credited or paid for the deposits. Their claim of exemption is reinforced and made clear by a reading of sub-s. (3)(viia)(b) wherein deposits with the primary credit society referred in sub-cl. (a) engaged in carrying on the business activity are exempted. The Hon ble Kerala High Court accepted their plea and in their jud .....

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s. 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 sourc .....

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at the Assessee was under an obligation to deduct tax at source on interest paid u/s.194A(1) of the Act and since the Assessee failed to so deduct tax at source, the Assessee was liable to be treated as an Assessee in default u/s.201(1) of the Act and was also liable to pay interest on tax not deducted at source u/s.201(1A) of the Act. 11. On appeal by the Assessee the CIT(A) cancelled the order of the AO holding that co-operative societies carrying on banking business when it pays interest to i .....

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held that cooperative societies carrying on banking business while paying interest to members on time deposits and deposits other than time deposits need not deduct tax at source u/s.194-A of the Act by virtue of exemption granted u/s.194A(3)(v) of the Act. The learned DR relied on the stand taken by the Revenue in the grounds of appeal filed before the Tribunal. 13. We have considered the rival submissions. This tribunal in the case of Bagalkot District Central Co-operative Bank (supra) dealt w .....

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a provision which mandates deduction of tax at source by a co-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 s .....

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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 exception to Sec.194A(3)(i)(b) of the Act. We do not think that any of the above provisions can be called a general provision and other provisions called specific provisions. Each provision over-lap and if read in the manner as indicated above, .....

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) 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 omisus . We do not think that the provisions of Sec.194A(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 H .....

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a co-operative society to a member whereas sub-s. (3)(viia)(a) provides a total exemption to deposits with the primary credit society. The Hon ble Kerala High Court accepted their plea and in their judgment have observed that Sec.194A (3)(i) exemption limit of ₹ 10,000 to interest paid on time deposits with co-operative societies engaged in carrying on business of banking is allowed but that does not mean that all cooperative societies who have credited or paid exceeding ₹ 10,000 ar .....

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ircular 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 .....

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of subsection (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 cooperative bank on or after 1st July, 1995. The Board has c .....

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time deposits made on or after 1st July, 1995 without TDS under section 194A. 3. A question has also been raised as to whether normal members, associate members and sympathizer members are also covered by the exemption under section 194A(3)(v). It is hereby clarified that the exemption is available only to such members who have joined in application for the registration of the co-operative society and those who are admitted to membership after registration in accordance with the bye-laws and ru .....

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clearly laid down that Co-operative societies carrying on banking business when it pays interest on deposits by its members need not deduct tax at source. The above interpretation of the provisions by the CBDT which is in favour of the Assessee, 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 t .....

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2 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 the conclusion of the ITAT Pune Bench in the case of The Bai .....

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osits 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-ope .....

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