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2015 (7) TMI 614 - ITAT BANGALORE

2015 (7) TMI 614 - ITAT BANGALORE - TMI - TDS 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 - Assessee is a Co-operative Bank carrying on the business of banking - Held that:- Tribunal in the case of Bagalkot District Central Co-operative Bank (2015 (1) TMI 1005 - ITAT BANGALORE ) dealt with identical issue and identical stand taken by the revenue and the Assessee in the case of co-operati .....

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5 AND ITA Nos.368 & 369/Bang/2015 - Dated:- 10-7-2015 - SHRI N.V. VASUDEVAN AND SHRI JASON P. BOAZ, JJ. 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.20 .....

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. 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 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 cred .....

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o proceedings for levy of interest on taxes not deducted u/s.201(1A) of the Act. 5. 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". (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 inc .....

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he 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; (c) ten thousand rupees, on any deposit with post office under any scheme framed by the Central Government and notified by it .....

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ve 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 defi .....

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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 Cooperative Bank Ltd. Vs. Union of India 265 ITR 423 (Bom). In the aforesaid case co-operative s .....

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194A(3)(v) grants an exemption from TDS to such income credited or paid by the co-operative society to a member thereof or to any other cooperative 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 sy .....

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laws and rules. The members eligible for exemption under s. 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 general body meeting or special general body meeting of the cooperative 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 interes .....

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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 .....

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he 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 co-operative 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 .....

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istered or a person duly admitted to membership of a society after registration and includes a nominal, associate or sympathizer member. There 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 gener .....

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pugned 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. 11 .....

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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 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 .....

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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 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 'co-operative society' does not include co-operat .....

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ple of interpretation that when a conflict occurs between a specific provision of the law vis-a-vis the general provision of the law, then, precedence 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 M .....

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er 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 .....

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ative 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 c .....

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erefore not relevant for the purpose of deciding the issue under consideration in Assessee s case. 11. For the above reasons, the AO held that 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. 12. On appeal by the A .....

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nking 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 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 .....

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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 society. This provision therefore applies to all cooperative societies including co-operative society engaged in the business of banking. It is not possib .....

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even if the payment is made to a non-member by a co-operative society, the cooperative 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, there is perfect harmony to the various provisions. We do not agree with the view expressed .....

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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 Hon ble Kerala High Court in the case of Moolamattom Electricity Board Employees Co-op Bank Ltd .....

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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 .....

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arrying 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 c .....

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r paid in respect of deposits (other than time-deposits made on or after 1st July, 1995) with a cooperative 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 cooperative bank may receive without TDS interest on time deposit made with the co-operative bank on or after 1st July, 1995. The Board has considered the matter and it is clarified that a member of a co-operative bank shall receive in .....

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as 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 cooperative society and 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 .....

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st 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 The Ja .....

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hat 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 Bailhongal Uraban Coop Bank Ltd.(supra) are not factually correct. Consequently, the conclusions d .....

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