TMI Blog2015 (7) TMI 614X X X X Extracts X X X X X X X X Extracts X X X X ..... For The Appellant : Mrs. Sheetal Borkar, Advocate For The Respondent : Shri P. Dhivahar, Jt. CIT(DR) ORDER Per N.V. Vasudevan, Judicial Member The appeals in ITA Nos.368 369/Bang/2015 are filed by the assessee against the common order dated 10.2.2015 of the CIT(Appeals), Hubli relating to assessment years 2010-11 2011-12. 2. These appeals arise out of orders passed by the AO u/s.201(1) 201(1A) of the Income Tax Act, 1961 ( the Act ). The main grievance projected by the Assessee in these appeals is against the conclusion of the Revenue authorities that the there was an obligation on the part of the Assessee to deduct tax at source on payments made to members on time and other deposits where the payment exceeded ₹ 10,000 per annum in the case of each of such depositor u/s.194A of the Act. 3. The Assessee is a Co-operative Bank carrying on the business of banking. In the course of proceedings u/s.201(1) 201(1A) of the Act, the AO noticed that the Assessee had paid interest on deposits from members and payment to each of the depositors exceeded a sum of ₹ 10,000/- for both the Assessment Years. 4. The AO was of the view that as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er thereof or to any other co-operative society; (vi) (vii) .. (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 cooperative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking; 6. 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 means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies ; 7. The Assessee drew attention of the Assessing Officer to the Sec.194A(3)(v) of the Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k. 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 of the co-operative society. Accordingly payment of interest by a co-operative society to a member who is a nominal member or sympathiser member were held by the AO to be subject to deduction of tax at source, if such payment to each member exceeded ₹ 10,000 in a year. 8. According to the petitioners before the Hon ble Bombay High Court, who were co-operative societies, the CBDT cannot issue a circular which is contrary to the provisions of s. 194A(3)(v) of the IT Act, 1961. The circular 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... By impugned circular, the co-operative society cannot be deprived of its right of exemption given under IT Act, 1961. The CBDT has overstepped its 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 substantial change or alteration in the provisions of the IT Act, 1961, by importing the ideas unknown to the IT Act, 1961. The impugned circular, therefore, does not stand to the legal test. The impugned circular No. 9 of 2002, dt. 11th Sept., 2002 was accordingly quashed and set aside. 9. The Assessee thus submitted that there was no obligation on its part to deduct tax at source on the aforesaid sums which was interest paid to its members. 10. The AO however did not accept the plea of the Assessee for the following reasons:- 1. Under the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 630 (Ker). 3. In the case of Moolamattom electricity Board Employees Cooperative Bank Ltd. (supra), the petitioners were primary credit societies registered under the Kerala Co-operative Societies Act and they challenged the applicability of Sec.194A of the Act on the interest paid by it on deposits received by them in view of the specific provisions of Sec.194A(3(viia) of the Act. It was submitted by the petitioner that sub-s.194A(3)(v) deals with such income credited or paid by a co-operative society to a member whereas subs. (3)(viia)(a) provides a 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 judgment have observed that Sec.194A (3)(i) exemption limit of ₹ 10,000 to interest paid on time deposits with co-operative societies en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irtue of exemption granted u/s.194A(3)(v) of the Act. The learned DR relied on the orders of the revenue authorities. 14. We have considered the rival submissions. This tribunal in the case of Bagalkot District Central Co-operative Bank (supra) dealt with identical issue and identical stand taken by the revenue and the Assessee in the case of co-operative society engaged in banking business and have upheld identical order of CIT(A). The relevant observations of the Tribunal in this regard were as follows:- 15. We have given a very careful consideration to the rival submissions. We are of the view that the submissions made by the learned counsel for the Assessee deserves to be accepted. As rightly contended by him Sec.194A(3)(i)(b) of the Act is a provision which mandates deduction of tax at source by a cooperative 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 cooperative society to a member thereof or to any other cooperative soc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed that they need not deduct tax at source on interest paid. It was submitted by the petitioner that subs. 194A(3)(v) deals with such income credited or paid by a cooperative 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 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 ₹ 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. That does not mean that Sec.194A(3)(v) of the Act is applicable only to Cooperative 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd those who are admitted to membership after registration in accordance with the bye-laws and rules. A member eligible for exemption under section 194A(3)(v) must have subscribed to and fully paid for at least one share of the co-operative bank, must be entitled to participate and vote in the General Body Meetings and/or Special General Body Meetings of the co-operative bank and must be entitled to receive share from the profits of the co-operative bank. [F. No. 275/106/2000-IT(B)] (2002) 177 CTR (St) 1 18. It can be seen from para-2 of the Circular referred to above that the CBDT has very 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 Uraban 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 T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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