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TMI Blog2015 (4) TMI 1250X X X X Extracts X X X X X X X X Extracts X X X X ..... 3043, 3044, 3045, 3046, 3047 & 3048/Mds/2014 S.P. Nos.223, 224, 225, 226, 227, 228 & 229/Mds/2015, I.T.A. Nos.2523, 2524, 2525, 2526, 2527, 2528 & 2529/Mds/2014 S.P. Nos.237, 238, 239, 240, 241, 242 & 243/Mds/2015, I.T.A. Nos.3035, 3036, 3037, 3038, 3039, 3040 & 3041/Mds/2014 S.P. Nos.244, 245, 246, 247, 248, 249 & 250/Mds/2015, I.T.A. Nos.2452, 2453, 2454, 2455, 2456, 2457 & 2458/Mds/2014 S.P. Nos.251, 252, 253, 254, 255, 256 & 257/Mds/2015, I.T.A. Nos.2459, 2460, 2461, 2462, 2463, 2464 & 2465/Mds/2014 S.P. Nos.258, 259, 260, 261, 262, 263 & 264/Mds/2015, I.T.A. Nos.185, 186, 187, 188, 189, 190 & 191/Mds/2015 S.P. Nos.265, 266, 267, 268, 269, 270 & 271/Mds/2015, I.T.A. Nos.192, 193, 194, 195, 196, 197 & 198/Mds/2015 S.P. Nos.272, 273, 274, 275, 276, 277 & 278/Mds/2015, I.T.A. Nos.2496, 2497, 2498, 2499, 2500, 2501 & 2502/Mds/2014 S.P. Nos.279, 280, 281, 282, 283, 284 & 285/Mds/2015, I.T.A. Nos.2516, 2517, 2518, 2519, 2520, 2521 & 2522/Mds/2014 ORDER PER BENCH: All the Stay Petitions and connected appeals of the assessees are directed against the respective orders of the Commissioner of Income Tax (Appeals). Since common issue arises for consideration in all the stay pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch of this Tribunal found that Section 194A(3)(v) of the Act applies to all co-operative societies, including co-operative societies engaged in the business of banking. 4. The Ld. counsel further submitted that the co-operative societies engaged in the business of banking cannot be excluded from the provisions of Section 194A(3)(v) of the Act. The Bangalore Bench of this Tribunal referring to Section 194A(3)(i)(b) of the Act, found that payment by a co-operative society to a member and payment by a co-operative society to a non-member would be continued to be governed by the provisions of Section 194A(3)(v) of the Act. The Bangalore Bench further found that Section 194A(3)(viiab) of the Act refers to payment of interest on deposits other than time deposit, even if the payment is made to a nonmember by a co-operative society. Accordingly, the Bangalore Bench found that when a co-operative society is carrying on the business of banking and pays interest to its members both on time deposit and deposits other than time deposit, such a co-operative society need not deduct tax at source as provided in 194A(1) of the Act by virtue of exemption granted under Section 194A(3)(v) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , have any transaction with nonmembers, the Ld. counsel clarified that all the transactions of the assessee-co-operative societies are only with members and no transaction was made with non-members. 8. In view of the above, the Ld. counsel for the assessees submitted that the assessees are not liable to deduct tax with regard to payment of interest on deposits made by their members, therefore, the orders of the lower authorities treating the assessees as assessee in default under Sections 201 & 201(1A) of the Act , are not justified. 9. On the contrary, Shri S. Das Gupta, the Ld. Departmental Representative, submitted that the framers of the law in their wisdom, intended to classify the co-operative society, which is engaged itself in the business of banking, and other co-operative society which are not engaged in the business of banking. Accordingly, under Section 194A(3)(i)(b) of the Act, the law makers introduced a provision for deduction of tax when the payment exceeds Rs. 10,000/- by a co-operative society carrying on the business of banking. However, sub-clause (v) of Section 194A(3) of the Act provides for non-deduction of tax when income was credited by a co-operative soc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant material on record. Admittedly, all the assessees are registered as co-operative societies under the Cooperative societies Act and they are carrying on business in banking. The question arises for consideration is when a cooperative society engaged itself in the business of banking, whether it is liable to deduct tax on the income/interest paid to depositors/ members? Before going to the question, we have to examine the legislative history of Section 194A which provides for deduction of tax on payment of interest other than securities. It is also necessary to examine the provisions of Section 80P of the Act, which provides for exemption of income of the co-operative societies. For the purpose of convenience, we are reproducing Section 80P of the Act, which reads as follows:- 80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed,-- (i) where such co-operative society is a consumers' cooperative society, 2one hundred thousand rupees ; and (ii) in any other case, twenty thousand rupees. Explanation.--In this clause, "consumers' co-operative society" means a society for the benefit of the consumers; (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income ; (e) in respect of any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income; (f) in the case of a co-operative society, not being a housing society or an urban consumers' society or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does not exceed twenty thousand rupees, the amount of any income by way of interest on securities or any income from house property chargeable under section 22. Explanation- For the purposes of this section, an "urban consumers cooperative so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning assigned in Part V of the Banking Regulation Act. We have carefully gone through the provisions of Banking Regular Act. Section 56 of the Banking Regulation Act which defines "cooperative bank" as follows:- "co-operative bank" means a state co-operative bank, a central co-operative bank and a primary co-operative bank. In this case, the assessee is a state co-operative bank. Therefore, under Section 80P(4) of the Act, the assessee is not eligible for deduction under Section 80P in respect of income from banking business with effect from 1.4.2007. 12. Now coming to Section 194A of the Act, it reads as follows:- 194A. (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 income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciety or the public company, as the case may be ; (iii) to such income credited or paid to-- (a) any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank), or (b) any financial corporation established by or under a Central, State or Provincial Act, or (c) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or (d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or (e) any company or co-operative society carrying on the business of insurance, or (f) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette ; (iv) to such income credited or paid by a firm to a partner of the firm ; (v) to such income credited or paid by a co-operative society to a member thereof or to any other co-operative society ; (vi) to such income credited or paid in respect of deposits under an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial year. 13. This Section was introduced in the statute book by Finance (No.2) Act, 1967 with effect from 1.4.1967, which provides for deduction of tax on payment of interest other than individual or Hindu Undivided Family, to a resident at the time of crediting income or payment. By Finance Act, 1975 with effect from 1.4.1975, sub-section (3) of Section 194A was substituted. The Central Board of Direct Taxes, while explaining the scope and effect of the amendment which was introduced in Section 194A(3), has clarified as follows in Circular No.621 dated 19.12.1991, reported in 195 ITR (Statutes) 154:- "55. Section 194A of the Income-tax Act provides that the provisions regarding deduction of income-tax at source shall not apply to the income 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 the Act) or with 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). 55.1 Instances have come to notice of the unaccounted incomes being deposited in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposit accounts are not subjected to deduction of tax at source. The Parliament, by Finance Act, 1996 with effect from 1.10.1996, introduced a proviso to Section 194A(3)(i) of the Act. While explaining the scope and effect of the proviso to Section 194A(3)(i) of the Act, the CBDT has clarified as follows in Circular No.717 dated 14.08.1995, reported in (1995) 215 ITR (Statutes) 70:- "46.1 On account of the provisions contained in clause (vii) of sub-section (3) of section 194A, income credited or paid in respect of deposits with a banking company to which the Banking Regulation Act, 1949, applies or with a co-operative society engaged in carrying on the business of banking is exempt from the requirement of deduction of income-tax at source. 46.2 The 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 rates in force (a present, ten per cent in the case of resident non-corporate persons and 20 per cent plus surcharge thereon in the case of domestic companies) from payment of interest exceeding ten th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (viia) which also provides for non-deduction of tax at the time of credit or payment by the primary agricultural credit society, co-operative society. Section 193A(3)(viia)(b) clearly says that the deposit other than time deposit with a co-operative society engaged in carrying on business of banking is not subjected to deduction of tax. In fact, the CBDT, while clarifying the scope and effect of Section 194A(3) as substituted by Finance Act, 1975 explains the same. Therefore, what was excluded in Section 194A(3)(viia)(b) is time deposit made with co-operative society engaged in carrying on banking business. In respect of other deposits such as Saving Bank deposit, Recurring Deposit, etc., even the co-operative society engaged in carrying on the business of banking need not deduct tax. In view of the above, the Parliament makes it clear that in respect of time deposit, a cooperative society engaged in carrying on the business of banking, has to deduct tax at the time of payment of interest. In respect of other deposits such as Savings Bank deposit or Recurring deposit, Section 194A is silent. Therefore, at the best, we may say that other than interest on time deposit, the co-operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion are applicable only in case of a non-member depositor of the co-operative bank, who shall receive interest only on deposits other than time deposits made on or after 1st July, 1995 without TDS under section 194A. 3. A question has 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 co-operative 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 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 cooperative bank. [F.No.275/106/2000-IT(B)] (2002) 177 CTR (St) 1" Para 2 of the circular says that a member of a co-operative bank shall receive interest on both time deposits and deposits other than time deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961. The Central Board of Direct Taxes, under the garb of section 119 of the Income-tax Act, 1961, cannot exercise wider powers than the powers bestowed on it. The Central Board of Direct Taxes has no power to introduce a substantial change or alteration in the provisions of the Income-tax Act, 1961, by importing the ideas unknown to the Income-tax Act, 1961. The impugned circular, therefore, does not stand to the legal test. 26. In the result, both the writ petitions are allowed. The impugned Circular No.9 of 2002 dated 11-9-2002 (F.No.275/106/2000/IT(B)-Annexure-A) is quashed and set aside. Similarly, the letter issued by the Income Tax Officer, Jalgaon, Ward No.2(3) (No.JAL/Income Tax Officer/2(3)/TDS/194/2000-03 dated 9-10-2002-Annexure B) is also quashed and set aside. Rule made absolute in the above terms." 19. In view of the above, as rightly submitted by the Ld. D.R., the circular issued by the CBDT in Circular No.9 of 2002 dated 11.9.2002 was quashed and set aside in its entirety and not in existence as on today. Therefore, it may not be correct in saying that only para 3 of the circular was quashed. The circular was purported to be issued in exercise of executive powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered the circular issued by the CBDT in Circular No.621 dated 19.12.1991 and Circular No.717 dated 14.8.1995 and legislative history of Section 80P and 194A of the Act. 21. The Kerala High Court in Moolamattom Electricity Board Employees' Co-operative Bank Ltd. In re (1999) 238 ITR 630 considered the identical issue and observed as follows at pages 633 and 634 of ITR:- ".......The position as it stood before the substitution of the clause by the Finance Act, 1996, was to the effect that all cooperative societies engaged in carrying on the business of banking were given the exemption. It is now confined to certain co-operative societies not engaged in carrying on the business of banking. On a plain reading of sub-section (3)(viia) of the Act read with section 2(19) of the Act, there is total exemption and that is fortified by sub-section (3)(viia)(b). Hence, there is no scope for the argument that the primary co-operative societies are not exempted. That would be reading something not found in the Income-tax Act, but could only be stretching the definition found under the Banking Regulation Act. Resort to a different provision of another Act may be relevant in the absence of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench of this court in S.K. Dutta, ITO v. Lawrence Singh Ingty (1968) 68 ITR 272 held (page 275): "It is not in dispute that taxation laws must also pass the test of article 14. That has been laid down by this court in Moopil Nair v. State of Kerala [1961] 3 SCR 77. But as observed by this court in East India Tobacco Co. v. State of Andhra Pradesh [1963] 1 SCR 404, 409 in deciding whether the taxation law is discriminatory or not it is necessary to bear in mind that the State has a wide discretion in selecting persons or objects it will tax, and that a statute is not open to attach on the ground that it taxes some persons or objects and not others; it is only when within the range of its selection, the law operates unequally, and that cannot be justified on the basis of any valid classification, that it would be violative of article 14. It is well settled that a State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably." The above dictum applies in full force as regards the present case. The object sought to be achieved was to eradicate the evil pract ..... X X X X Extracts X X X X X X X X Extracts X X X X
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