TMI Blog2015 (4) TMI 802X X X X Extracts X X X X X X X X Extracts X X X X ..... ative Bank Ltd. [2015 (1) TMI 743 - ITAT PANAJI].Following the this decision, we hold that the assessee in these assessment years has paid interest above ₹ 10,000/-, to each of the depositors, therefore it is liable to deduct tax at source and the assessee is deemed to be default. Our view was confirmed by the Hon'ble Bombay High Court vide decision in the case of The Marathawada Urban Bank Co-op Association Ltd. [2015 (4) TMI 374 - BOMBAY HIGH COURT]. 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. [2004 (3) TMI 333 - ITAT DELHI] and also the decision of CIT Vs. Eli Lilly & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. 194A(3)(v) make any distinction between the cooperative societies carrying on banking business and other cooperative societies. 7. The Ld. CIT(A) erred in holding that the assessee is required to deduct tax at source ignoring the real purpose behind Circular No.9/2002 dated 11/09/2002 and Hon'ble Bombay High Court decision in the case of Jalgaon District Central Cooperative Bank 265 ITR 423 which is also affirmed by Supreme Court. 8. The Ld. CIT(A) has erred in not giving benefit of interpretation which is more beneficial to the assessee as laid down by Hon'ble Supreme Court in the case of CIT Vs. Vegetables Products Ltd. 88 ITR 192. 9. Reasons assigned for upholding the disallowance and making the addition are wrong, insufficient and contrary to law and facts of the case. 10. The appellant craves leave to add, alter, amend or modify any of the grounds of appeal. 3. Brief facts of the case are that the assessee is a cooperative society engaged in carrying on the business of banking. The assessee has obtained necessary license from the Reserve Bank of India for carrying on banking operations as a cooperative bank. The assessee filed the e-return of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made by the Assessing Officer under section 40(a)(ia) of ₹ 22,11,39,621/- have been discussed by the Assessing Officer in very detail in his assessment order. Briefly, the facts and reasons given by the Assessing Officer in his order are as under: The appellant is a co-operative society engaged in carrying on banking business and the assessee bank's case clearly falls under the ambit of sub-clause (b) of clause 0) of subsection (3) of section 194A and hence, TDS provisions are attracted. As per the said provisions of sub-clause (b) of clause (I) of Section 194A(3) of the Income Tax,1961, any co-operative society Which is engaged in the business of banking shall have to deduct tax on interest paid or payable to any person on time deposits, if the amount of said interest exceeds ₹ 10,000/-. The A.O has distinguished the status of the appellant assessee as co-operative bank vis a vis other co-operative societies as this became imperative due to the fact that the assessee had claimed to be an ordinary co-operative society within the meaning of clause (v) of Sec.194A(3). The A.O has further dwelled on this issue and has stated that the word co-operative society is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the decision of the jurisdictional Karnataka High Court in the case of M. L. Vasudeva Murthy Sons vs. it. Commissioner of Agricultural Income Tax (1992) 198 ITR 426. 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 the 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. Respectfully following the ratio of the above case laws including that of the Supreme Court, the AD has concluded that the assessee's case is covered by the specific provision in clause (i) (viia), rather than the general proi5ions of clause (v) of Sec.194A(3). While coming to this conclusion, the Assessing Officer has relied on the decision ITAT, Pune Bench, Pune in Shagani Nivedita Sahakari bank Ltd v ACIT (2003) 87 ITD 569 wherein, it has been heard that the term co-op society' in sub-clause (v) to be interpreted as co-op society other than co-operative bank and further the provisions which are specific in nature over ride the provisions which are specific in nature. (iv) The Assessing Officer has further obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T. Act, 1961. 5.2.3 It san undisputed fact that the appellant has paid interest on term deposits to the tune of ₹ 2,11,39621/- to depositors without deducting tax at source. The appellant contended that the provisions of TDS are not attracted in view of clause-(v) of subsection (3) of section 194A as the interest payments to the extent of ₹ 2,11,39,621/- have been made to the members of the bank. In this regard, the AC has interpreted the word co-operative society' as employed in sec.1944(3)(v) to mean co-operative society other than co-operative bank as decided by the TAT, Pune Bench, in Shagani Nivedita Sahakari bank Ltd v. ACT 81 ITD 569 wherein, the Hon'ble TAT has held that the term co-operative society' mentioned in section 194A(3)(v) to be interpreted as co-operative society other than co-operative bank. Thus, the AO disallowed the entire interest payments exceeding ₹ 10,000/- made to the members and non-members by the appellant bank for the reasons mentioned above. 5.2.4 On going through the provisions of section 194A(3), it is seen that the Assessing Officer is justified in disallowing the interest payments above the threshold limit of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) may be taken as applying to members and other clauses to the said section may be taken to apply to non members is without any basis ii as much as clauses (i) and (viia) apply to both the members as well as non members. Where ever the legislature intends to apply a particular provision to member or to a member, it has done so expressly. Now coming to the circular No.9 of 2002 issued by the CBDT relied upon by the appellant, the Board vide said circular had sought to interpret the definition of word member' claying that the word member' does not include word nominal member'. It was held by the Bombay Nigh Court in the case of Jalgaon District Central Co-op Bank Ltd Mr v. Union of India 265 ITR 423 (Born), that the Board has no power to interpret the provisions of law by way of circular. The issue at hand of the Bombay High Court was the definition of the word member' as appearing 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. The circular No.9 of 2002 dated 11-09-2002 issued by the CBDT has been Quashed and set aside by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payee members had declared the tax on impugned amount in the return of income, therefore the Assessing Officer is without jurisdiction. The learned AR submitted that the Department cannot be permitted to calculate the tax on the same income twice. Moreover, u/s. 190 of the Act which says that the tax should be payable by deduction or collection at source or by advance payment or by payment u/s. 192(1A) of the Act. Sec. 191 of the Act prescribes that in the event there is a failure on the part of the deductor to deduct tax at source on payments made to the assessee, then the primary liability to pay tax on such income rests on the assessee and the assessee shall pay the tax directly. When the assessee failed to pay tax on such income which was earlier subjected to TDS, the deductor can be held to be an assessee in default u/s. 201(1) of the Act. Section 201(1) of the Act provides that in the event of failure to deduct tax at source on payments which ought to have been subjected to TDS, the deductor shall be held to be an assessee in default. However, sec. 201(1) cannot be read in isolation but has to be read with sec. 191 of the Act, which make it a precondition that for the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r submitted that impugned order passed u/s. 201(1) of the Act holding the assessee as an assessee in default in respect of the interest income paid to member depositors are not in accordance with law and required to be set aside. 6. Learned DR has relied upon the order of Learned CIT(A). 7. We have heard rival contentions of both the parties and looking to the facts and circumstances of the case, we find that the assessee is liable to deduct the tax at source on the term deposit of members and cooperative societies as per the provisions of sec. 194A(3)(vii)(b) of the Act. Section 194A(3)(vii)(b) deals with cooperative societies engaged in the business of banking. If the amount paid or credited to any depositor during the year exceeds ₹ 10,000/-, the provisions of sec. 194A(1) of the Act shall apply to the cooperative society engaged in the banking business shall have to deduct tax on such payment. From the facts of the case, it is seen that the ITO has categorically brought out the material on record to prove that the assessee bank is covered by the provisions of sub-clause (b) of clause (viia) of sec. 194A(3) of the Act. We have taken the consistent view taken by the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1959 Nature of business 1. As defined in Section 6 of Banking. Regulation Act. 2. Can open, savings bank account, current account, overdraft account, cash credit account, issue letter of credit, discounting bills. of exchange, issue cheques, demand drafts (DD), Pay orders, Gift cheques, lockers, bank guarantees etc. 3. Co-operative Banks can act as clearing agent for cheques, DDs, pay -orders and other forms. 4. Banks are bound to follow the rules, regulations and directions issued by Reserve Bank of India (RBI) 1. As per the bye laws of the cooperative society. 2. Society cannot open savings bank account, current account, issue letter of credit, discounting bills of exchange, issue cheque, demand drafts, pay orders, gift cheques, lockers, bank guarantees etc. 3. Society cannot act clearing agent, for cheques, DDs, pay orders and other forms. 4. Society are bound by rules and regulations as specified by in the co-operative societies act. Filing of returns. Co-operative banks. have to submit annual return to RBI every year Society has to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Hon'ble Kerala High Court in the case of ITO Ors. vs. Thodupuzha Urban Co-operative Bank and others have filed the writ before the Hon'ble Kerala High Court, wherein the Hon'ble High Court has held as under: The Income Tax Department has come up with this appeal against the judgment in O.P. No. 17082/1997. (Thodupuzha Urban Co-operative Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 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, dismissed. W.A. No. 2270 of 1998: A reading of the impugned judgment discloses that the writ petitioner, the first respondent, was concede to be an agricultural co-operative society. Consequently, it comes within the purview of clause (viia)(a) of sub-section (3) of section 194A of the Income-tax Act, 1961. Naturally, the first responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nkers 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 before 1st October, 1991 in relation to deduct tax at source in the case of income credited or paid in respect of deposit with a bank company to which banking regulation Act 1940 applies or with a co-operative society engaged in carrying on the business of banking, including co-operative land mortgage bank or co-operative la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee with the finding of ITAT, Tribunal as Hon'ble Kerala High Court has occasioned to interpret Section194A(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 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 6 ten thousand rupees................. (v) to such income credited or paid by a co-operative society 5 to a member thereof or] to any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 ₹ 10000/-. Once the interest payment exceeds that amount the TDS is to be made. Neither in clause (viia) nor in clause (i) there is anything to restrict their applicability only to non-members and therefore they apply to all depositors. Going by the above understanding, the co-op bank is required u/s 194A(1) to make TDS from the interest paid to all depositors. However co-op bank holds the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 societies. This reaffirms the decision of legislature to apply a specific clause to the specific genre cooperative societies, which were earlier carved out of the genus as envisaged in general clause(v). The effect of above amendment was explained by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould 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. 8. By respectfully following the above decision, we hold that the assessee in these assessment years has paid interest above ₹ 10,000/-, to each of the depositors, therefore it is liable to deduct tax at source and the assessee is deemed to be default. 9. Learned AR has relied upon the decision of Hon'ble Allahabad High Court in the case of Jagaran Prakashan Vs. DCIT (TDS) reported in 345 ITR 288 wherein the Hon'ble High Court has interpreted the provisions of sec. 4, 190, 191 201 of the Act. We have gone through the decision of the Hon'ble High Court and we find that the Hon'ble High Court has passed this order in a writ petition, therefore they have not laid down any law, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 94A (3) deals with exemptions. It lays down that upto an amount of ₹ 10,000/- where the payee is a co-operative society engaged in carrying on the business of banking, the provisions of section 194A , requiring the said co-operative society doing a banking business to deduct TDS, will not apply. The said provision exempting operation of section 194A (3) is limited to the extent of the income being paid by the payee to the extent of ₹ 10,000/- and no further. Reliance placed by the learned Counsel for the petitioner on sub-clause (v) of clause (iii) of sub-section (3) of section 194A is misplaced. The said sub-clause (v) would only apply to such income credited or paid by a co-operative society to a member thereof or to any other co-operative society. Sub-clause (viia) (a) and (b) lays down the specific categories of the banks which are exempted from deducting TDS. The income accrued on the deposits other than the time deposits made after 1st day of July, 1995 is not exempted from deducting the TDS by urban co-operative Bank. Subclause (viia) (a) does not include urban co-operative Bank and sub clause (b) of clause (viia) limits the exemption to deposits other than the t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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