TMI Blog2014 (10) TMI 860X X X X Extracts X X X X X X X X Extracts X X X X ..... sions 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 - ITA No. 233 to 236/PNJ/2014 - - - Dated:- 1-10-2014 - SHRI P. K. BANSAL, ACCOUNTANT MEMBER And SHRI D.T. GARASIA, JUDICIAL MEMBER For the Appellant : Shri Mihir Nawavadekar For the Respondent : Smt. Sonal Laxmidas. ORDER PER: D.T. GARASIA The above appeals have been filed by the assessee against the order of CIT(A)-Belgaum dated 03.06.2014 for the Assessment Years 2010-11 to 2013 to 2014 respectively. 2. The common grounds raised by the assessee in all the appeals which read as under: 1. The learned CIT(A) erred in upholding jurisdiction of the ITO Belgaum, despite jurisdiction in appellant‟s case being in Mumbai and appellant being regularly assessed in Mumbai. He failed to appreciate that s.292BB of the Income Tax Act, 1961 (which is relied upon by him) does not at all purport to validate orders passed in the absence of territorial jurisdiction. Further, he failed to appreciate that order passed despite absence of jurisdiction resulted in grave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source from interest on term deposits exceeding ₹ 10,000/- and therefore, the provisions of section 201(1) 201(1A) Of the Income Tax Act, 1961 are applicable in its case. Since the deductor has made default u/s. 201(1), interest u/s. 201(IA) was also required to be levied. The ITO calculated the amount payable for A.Y. 2010-11 at ₹ 45,24,614/; ₹ 30,99,074/- u/s 201(1) and ₹ 14,25,540/- u/s. 201(1A). 2.3. The matter carried to CIT(A) and CIT(A) has confirmed the order of Assessing Officer by observing as under: 6. I have carefully considered the facts of the case, submissions made by the assessee and also perused the order of the Assessing Officer. It is an undisputed fact that the appellant has paid interest on term deposits to the tune of ₹ 3,09,90,747/- to depositors without deducting tax at source. The appellant contended that the provisions of TDS are not attracted in view of clause-(v) of sub-section (3) of section 194A as the interest payments to the extent of ₹ 3,09,90,747/- have been made to the members of the bank which is Co-operative society.‟ In this regard, the ITO, TDS ward, Belgaum has interpreted the word co-opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 194(3)(v) which are general in 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 ITAT, 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 TDS provisions under section 194A 6.2 The appellant‟s argument that clause(v) to sec.194A(3) 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 in as much as clauses (I) and (vila) 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 non member, it has done so expressly. 6.3 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‟ clarifying that the word member‟ does not include word nominal member‟. It was held by the Bombay High Court in the case of Jal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk on term deposit in excess of ₹ 10,000/- without making TDS u/s. 194A(3)(i) and not allowing assessee‟s contention that it was not liable to deduct tax at source by virtue of the provisions of section 194A(3)(v) of the l.T.Act. 6.6 In view of the above discussion and taking into consideration the various arguments given by the ITO in his order, the decision of the ITO in passing order u/s 201(1)/(1A) and calculating the amount payable at ₹ 45,24,614/-; ₹ 30,99,074/- u/s 201(1) and ₹ 14,25,540/- u/s. 201(1A) is confirmed. 7. The appellant has also contested the jurisdiction of the ITO, TDS Ward Belgaum in passing order u/s 201(1)/(1A) on the ground that the appellant is assessed at Mumbai. It is seen that the appellant has in respect of its branches at Belgaum obtained local TAN and its business is run in Belgaum and therefore, it has submitted itself to the jurisdiction of the ITO,TDS. ward, Belgaum. Apart from the merits of the case, the appellant‟s ground of appeal challenging the jurisdiction of the ITO, TDS Ward, Belgaum cannot be entertained as per provisions of section 292BB of the Income Tax Act. As per the said section, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in any state for the registration of cooperative societies. Under this definition, it is clear that we are a co-operative society . There is no exclusion that banks cannot be co-operative societies. Thus, it is respectfully submitted that the clear position is that we are a co-operative society, and that we are not required to make any deduction of tax at source on interest paid to members. 2. It is further submitted that S. 194A(viia) cannot curtail the scope of the provision of sub-clause (v). The Hon ble Bombay High Court has considered the issue in the case of Jalgaon District Co-op Bank 265 ITR 423. The Hon‟ble Court was concerned with a challenge by a co-operative bank to the provisions of a Circular curtailing the benefits of sub-clause (v). If at all banks are not entitled to the benefits of sub-clause (v), the Court would have naturally dismissed the petition at the threshold itself. However, the Court did not do so: in fact, the petition was allowed; and the Circular was struck down to the extent to which is narrowed the scope of the benefits which were available to the assessee (a cooperative bank) under s.194A(3)(v). Further, we seek to invite Your Honours&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tution referred to in section 51 of that Act); (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 [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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d clause (vii) in section 194A(3) which for the first time, created a new type of co-operative society engaged in carrying on the business of banking, as distinct from the cooperative society as envisaged in clause (v). By this amendment, a specific specie called a cooperative society engaged 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 1 94A 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d clauses (vii) (viia) which lay down that, the exemption as envisaged in 194A(3) is not available in respect of time deposits made on or after 01-07-1995 with a banking company and a cooperative society engaged in the business of banking. This position of law has been explained in the explanatory 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is not adopted there arises a conflict between two provisions, viz, clause (v) and clause (viia) of sub-section(3). b) If the stand taken by the assesse to include all cooperative societies in clause (v )is accepted, then the exemptions pro vid d to primary agricultural credit society; primary credit society; co-operative land mortgage bank; co-operative land development bank, vide clause (viia)(a) and to a or co-operative society engaged in carrying on the business of banking (viia)(b) becomes redundant or superfluous. If on the contrary it is held that the five above mentioned categories of Cooperative Societies were not to be included in the term Co-operative Society‟ in clause (v) then, this kind of result is avoided. c) The co-operative society as mentioned in clause (v) is a general species, whereas the other five categories of co-operative societies which are specifically referred to in different other provisions are specific species. it is a settled principle of interpretation that when a conflict occurs between a specific provisions of the law, vis-a-vis, the general provisions of the law, then precedence will have to be given to the specific provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposits paid/credited by a Cooperative Bank to its members cannot be available to the assessee. The above findings of Hon‟ble ITAT require no elaboration and they are squarely applicable to the case on hand. The Bailhongal Urban Co-op Bank Ltd v JCIT Range-1(ITA No.85/PNJ/2013,ITAT, Panaji Bench) dated 28-08-2013. In this case the appellant, a co-operative society engaged in business of the banking had paid interest on time deposits to its members without deducting tax u/s 194A. The AO applied the provisions of section 40(a)(ia) and disallowed the corresponding expenditure with the finding that the assessee was liable to deduct tax in view of specific clause (viia) of 194A(3). This stand has been upheld by Hon‟ble ITAT with following observations: a) The AO categorically brought out material on record to prove that the assesse bank is covered by clauses 194A(3)(ib) as well as 194A(3) (viia)(b) which are specific in nature and the assessee cannot put forth its claim under 1 94A(3)(v) which is general in nature. b) As the assessee is cooperative society engaged in the business of banking, it is covered under specific clauses. As has been held by ITAT Pune bench in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beyond that point. It has not considered the specific clauses 194A(3)(v) and 194A(3)(viia)(b). c. They did not distinguish the decision of Hon‟ble ITAT Pune bench in Bhagani Nivedita Sahakari Bank case which after detailed reasoning upheld the applicability of specific clauses(ib) (viia) to co-operative society engaged in the business of banking vis- -vis general clause(v). d. They did not also apply normal principle of interpretation of law Genera/ia special/bus non derogant‟. There is no reasoning given in the order, as to why Hon‟ble Supreme Court‟s decision in South Indian Corpn. (P) Ltd case cannot applied. Jalgaon District Central Co-operative Bank Ltd v Union of India in [2003] 265 ITR 423(Bom) The appellant claims that circular no 9/2002 has in para 2 clarified that members co-op bank can receive interest without TDS in view of clause(v). However the Hon‟ble Mumbai High Court, in the above case has quashed the entire circular. The operative part of the said order is reproduced below for the sake of clarity: In the result, both the writ petitions are allowed. The impugned Circular No. 9 of 2002, dated 11th September, 2002 [F. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso 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 Act, 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 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich 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 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. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitutions 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; 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, irresp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x 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, bankers 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative 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 by 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 very clear that, 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 requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 specialprovision 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 provision should 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. 3. In the result, the appeal of the appellant is dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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