TMI Blog2015 (4) TMI 329X X X X Extracts X X X X X X X X Extracts X X X X ..... J/2014 - - - Dated:- 25-3-2015 - P. K. Bansal, AM And D. T. Garasia, JM,JJ. For the Appellant : Shri Ashok G Mudnur, CA For the Respondent : Shri Nataraj S, DR ORDER Per D. T. Garasia,J. M. This appeal by the assessee against the order of ld. CIT (A), Belgaum dated 05/08/2014 for the A.Y. 2011-12. 2. The following grounds have been raised:- 1. The learned Commissioner of Income Tax (Appeals), Belgaum has erred in confirming the Assessing Officer order of denying exemption on, interest paid on deposit to members of ₹ 70,52,0237- u/s 194A(3)(v) of the Income Tax Act ,1961 which is opposed to the facts of the case and law as held in the order of Hon'ble ITAT, Panjim for earlier assessment years in ITA 233/PANJ/2004 dt 1st September 2006 for Asst Year 2002-03. 2. The learned Commissioner of Income Tax (Appeals),Belgaum has erred in confirming the Assessing Officer order of denying exemption u/s 194A(3)(v) of the Income Tax Act ,1961 which is opposed to the law and settled judicial opinion. We find support in the following cases: (i) Jalgaon DCC Bank Ltd Vs Union of India (2004) 265 ITR 423 (Bom) HC (ii) Gujarat Urban Coop Bank Fed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereas the provisions contained in sec. 194A(3)(i) (viia) are specific in nature and it is well established principle of interpretation that the specific provisions always override the general provisions. The Assessing Officer has relied upon a decision of ITAT, Pune Bench in the case of Bhagini Nivedita Sahakara Bank Ltd. Vs. ACIT (2008) 87 ITD 569. 4. The matter was carried to the learned CIT(A) and the learned CIT(A) has dismissed the appeal of the assessee by observing as under:- I have carefully considered the facts of the case, submissions made by the assessee and also perused the assessment order. The only ground of appeal raised by the appellant is regarding disallowance made u/s 40(a)(ia) in respect of interest paid on term deposit in excess of ₹ 10,000/- without making TDS u/s 194A amounting to ₹ 70,52,023/- My observations and findings on the issue are as under:- 5.1 DSALLOWANCEOFINTERESTPAID ON TERM DEPOSIT IN EXCESS OF ₹ 10,000/- WITHOUT MAKING TDS: The facts leading to the grounds of appeal No. 1 to 4 and the reasoning relating to the disallowance made by the Assessing Officer under section 40(a)(ia) of ₹ 70,52,023/- have been di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which among others, provides that With a view to imp roving tax compliance, 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 currying on the business of banking . (iii) Since the appellant bank is covered by the provisions of sub-clause (b) of clause (i) of Section 194A (3) as well as the provisions of clause (viia) of the said section which are specific in nature, the appellant cannot put forth its claim under section 194(3)(v) which are general in nature. As the appellant is a co-operative society engaged in the business of banking, it is covered under these aforesaid specific clauses. As per AD the-re are a number of judicial pronouncements wherein it has been held that a specific provision override a general provision. For this purpose reliance has been placed by the AD on Kirloskar Pneumatic Co. Ltd. Vs. Commissioner of Surtax (1994) 210 ITR 485 (Born) and CIT vs. Mahanagar Telephone Nigam Ltd. (2002) 254 ITR 627 Del.) Reliance has also been placed by the A.O on the decision of the jurisdictional Karnataka High Court in the case of M. L. Vasud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g in clause (v) of section 194(3) and the powers of the Central Board of Direct Taxes to issue circulars u/s 119 which would override or detract from the provisions of the Income Tax Act. Nowhere in the above decision, was the applicability of the provisions of sub-clause (v) to the co-operative societies engaged in the business of banking discussed specifically. Therefore, the said decision does not help the case of the appellant. 5.2.1 After discussing various aspects of the issue as discussed above, the AD has to the conclusion that the assessee has failed to deduct tax at source from interest on the deposits exceeding ₹ 10,000/- and therefore, the provisions of section 40(a)(ia) of the income Tax Act, 1961 are squarely applicable in its case. Accordingly, the entire expenditure of ₹ 70,52,023/- claimed by the assessee towards interest payments exceeding ₹ 10,000/- on term deposits to individual members as well as non-members has been disallowed by the Assessing Officer. 5.2.2 In view of the above, the Assessing Officer disallowed a sum of ₹ 2,11,39,6211- under section 40(a)(ia) of the IT. Act, 1961. 5.2.3 It san undisputed fact that the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the moment the amount paid/credited to any depositor during the year exceeds ₹ 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 Sec. 194A(3) as well as the provisions of clause (viia) of Sec.194A(3) which are specific in nature and the appellant cannot put forth its claim under section 194(3)(v) which are general in nature. As the appellant is co-operative society engaged in the business of banking, it is covered under these specific clauses and as has been held by the Hon'ble TAT, Pune Bench, Pune in Bhagani Nivedita Sahakari bank Ltd v. ACIT (2003) 87 ITD 569 that the term co-op society' in sub-clause (v) to be interpreted as 'co-op society other than co-operative bank, the appellant is liable for TOS provisions under section 194A. 5.2.5 The appellant's argument that clause(v) to sec.194A(3) may be taken as applying to members and other c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Panaji in the case of the Bailhongal Urban Co-op. Bank L Vs. KIT Range 1, Belgaum in I.T.A.No. 85/PNJ/2013 dated 28.08.2013 has upheld the decision of the Assessing Officer and the Commissioner of Income tax (Appeals) in disallowing u/s. 40(a)(ia) of the Act the interest amount paid by the assessee Co-operative Bank on term deposit in excess of ₹ 10,000/- without making TD5 u/s. 194A(3)(i) and not allowing assessee's contention that it was riot liable to deduct tax at source by virtue of the provisions of section 194A(3)(v) of the I.T.Act. 5.2.10 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. .70,52,023/- is confirmed. 6. In the result, the appeal is dismissed. 5. Learned AR submitted that the Assessing Officer should have to verify whether the interest income is shown by the member depositor in his return of income or not and if the depositor has already paid the taxes, then the assessee cannot be deemed to be default for deduct the tax at source. The Assessing Officer has not made any attempt to verify if the payee members had declare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be prescribed. Therefore, the assessee cannot be held liable unless the deductor has not paid tax on this income in his return. Learned AR submitted that the deduction of tax at source is the responsibility of the Assessing Officer if the assessee has not deducted the TDS and the deductee has not shown in his return of income, then and only then the assessee can be held in default. The assessee held to be in default even on amount which might actually be exempt in the hands of the payee under any provisions of the Act. Once an amount is exempt in the hands of the assessee, the question of deduction of tax at source does not arise. The learned AR submitted that in this case assessee has already submitted the certificate obtained from the assessee, which proves that the payee have already discharged their tax liability on the impugned interest income. Learned AR relied upon the decision of Hon'ble Allahabad High Court in the case of Jagaran Prakashan v. DCIT (TDS) reported in 345 ITR 288 and the decision of Hon'ble Uttarakhand High Court in the case of DIT, International Taxation v. Maersk Co. Ltd. reported in 334 ITR 79 (FB). Learned AR further submitted that impugned orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iety 5 [to a member thereof or] to any other co- operative society;] (viia) to such income credited or paid in respect of,- (a) deposit with a primary agricultural credit 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; We find that the Co-operative is also interpreted by the Hon'ble jurisdictional Karnataka High Court, wherein in the case of CIT vs. Yeshwanthpur Credit Co-operative Society Limited in ITA No. 237/2012, wherein the Hon'ble High Court has interpreted the Co-operative Bank by observing as under: Nature Co-operative society registered under Banking Regulation Act, 1949 Co-operative Society registered under Karnataka CO-operative Society Act, 1959 Registration Under the Banking Regulation Act, 1949 and Co-operative Societies Act, 1959 Co-operative Societies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 80P(2)(a)(i) i.e., carrying on the business of banking for providing credit facilitates to its members. The object of the aforesaid amendment is not to exclude the benefit extended under Section 80P(i) to the society. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titutions other than individuals and Hindu Undivided Family to deduct income-tax at source, when such institutions pay interest on deposits exceeding the prescribed limit. Sub-section (3)(viia) reads as follows : Sub-section 3 of section 194A of the Act makes it clear that the provisions of sub-section (1) shall not apply in respect of several situations mentioned under that clause. Admittedly, sub-section (1) of section 194A cast the liability on all those institutions other than individuals and Hindu Undivided Family to deduct income-tax at source, when such institutions pay interest on deposits exceeding the prescribed limit. Sub-section (3)(viia) reads as follows : (3) The provisions of sub-section (1) shall not apply (viia) to such income credited or paid in respect of (a) deposits with a primary agricultural credit 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; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said circular is ill founded. The question before the Hon'ble Bombay High Court was not whether a Co-operative Bank not entitle to deduction of tax on interest paid on the deposits with it. To understand the legislative amendment in this regard query wherein in the budgets speech of Finance Minister and his object for suggesting TDS to such deposit in following words to enable the Government to identify income earners, most of whom would not otherwise declare their income or would not declare their full income, I propose to extend the scheme of tax deduction at source to cover new areas of payments in the nature of commissions, interest paid by banks on time deposits and withdrawals from the National Savings Scheme. To minimise the inconvenience for small depositors, tax will be deducted at source only in respect of payments in excess of ₹ 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, banker ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of time deposit made with banking company with reservation that overall limit of ₹ 5,000/- provided in main portion of sub-section 3 would apply to such deposit w.e.f. 19th June, 2001. From this above intention of legislature we are of the view that it is clear that assessee company a Co-operative Society carrying on a business of banking is liable to make TDS u/s. 194A. Learned AR has relied upon the decision of Income Tax Tribunal, Beanglore Bench in the case of Bagalkot District Central Co-op. Bank vs. Joint Commissioner of Income Tax, in ITA NO.1572/Bang/2013, wherein the Tribunal has interpreted the Section 194A(3)(v) which grants an exemption from TDS to such income credited or paid by the Co-operative Society. They have interpreted the word member mentioned in Section 194A(3)(v) of the Act. The Tribunal has also relied upon the decision of Hon'ble 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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 *emphasized+ From a plain reading of above clauses, it is clear that while clause (vii) deals with interest payment by a banking company the clause (viia) deals with interest payment by a certain category cooperative societies including a cooperative society engaged in carrying on the business of banking. It is also clear that, as regards a co-operative society engaged in carrying on the business of banking, there is no exemption for the interest payments in respect of time deposits made on or after 01-07-1995. Further,194A(3)(i) lays down monetary limits up to which is there is no requirement of TDS. The said monetary limits are different for different category of payers. The said clause is reproduced 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged in carrying on the business of banking' was carved out of the genus 'cooperative society' mentioned in clause (v). The scope of the above amendment is explained in Circular no.42 dated 20-06-1970, whose relevant portion is extracted below: I am directed to invite a reference to the Board's Circular No. 22/68-IT(B) [F.No. 12/23/68-IT(B)], dated 28-3/13-5-1968, and to say that the Finance Act of 1970, has made an important change in section 194A by inserting a new clause (vii) in sub-section (3) of that section. As per this clause, the provisions of section 194A are not applicable to income by way of interest credited or paid in respect of deposits with a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act), or with a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank 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 v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planatory notes to Finance Act 1995, contained in CBDT Circular No. 717 dated 14-8-1995 as under. Para 46.2: The (Finance)Act amends Section 194A of the Income-tax Act relating to deduction of income-tax at source from interest other than interest on securities in the case of residents. The amendment provides for deduction of income-tax at source at the rate in force from payment of interest exceeding ten thousand rupees in a financial year on time deposits made on or after 1st of July, 1995 with a banking company or with a co-operative society engaged in carrying on the business of banking. (emphasized) The above explanatory note leaves no doubt, whatsoever, about the applicability of clause (viia) to a cooperative society engaged in the business of banking. 3.Principle of Generalia specialibus non derogant The Hon'ble jurisdiction High court in M.L.Vasudeva Murthy Sons vs. Jt. Commissioner of Ag IT 65 Taxman 185(Kar) has observed that a special provision 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect from Chartered Accountant in such form as may be prescribed. Therefore, we are of the view that the assessee has to prove that payee has shown interest in his return of income and paid the due taxes on this income. Therefore, we do not agree with the submissions of the assessee in this regard. 10. Recently, Hon'ble High Court of Bombay, Bench at Aurangabad on the occasion to interpret in sec. 194A of the Act in the case of The Marathawada Urban Bank Co-op Association Ltd. Vs. Union of India and others in W.P. No. 4935/2003, held as under:- 4. We have gone through the said provision and the impugned Circular. Section 194A mandates that any person other than an individual or a Hindu Undivided family responsible for paying any income by way of interest other than income by way of interest on securities at the time of credit of such income to the account of the payee, to deduct income tax thereon at the rates in force. By virtue of sub-section (3) of section 194A, exception is carved out. The further proviso to section 194A (3) clarifies the situation as to how the income and the limits of the income as detailed in section 194 (3) is to be construed. 5. Section 194A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 194A and that urban co-operative Bank is not liable to deduct TDS if the interest accrued on time deposits is less than ₹ 10,000/-. 8. Writ Petition accordingly is disposed of. Rule discharged. No costs. 11. Our view was confirmed by the Hon'ble Bombay High Court, therefore, we dismiss the ground that assessee is not liable to deduct tax at source. We hold that if the amount more than ₹ 10,000/- is credited as an interest on time deposits, then the urban cooperative Bank is liable to deduct the TDS as is laid down in the said provisions of section 194A and that urban co-operative Bank is not liable to deduct TDS if the interest accrued on time deposits is less than ₹ 10,000/-. Therefore, we reverse the finding of Ld. CIT(A) and restore this issue back to the file of Assessing Officer to verify this fact as per the decision of Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages P. Ltd. (supra) and also the decision of CIT Vs. Eli Lilly Co. reported in 312 ITR 225 (SC) whether payee has paid tax on the interest income received from the assessee society and shown the same in his income tax return. The Assessing Officer is dir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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