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TMI Blog2019 (12) TMI 775X X X X Extracts X X X X X X X X Extracts X X X X ..... M, INCOME TAX DEPARTMENT, R4 BY SRI.THOMAS ABRAHAM SC THIRUVANANTHAPURAM DIST. CO.OP BANK JUDGMENT The issue that arises for consideration in these writ petitions is the entitlement of the petitioners, who are Primary Agricultural Credit Societies registered under the provisions of the Kerala Co-operative Societies Act 1969, to the benefit of an exemption from the provisions of Section 194A of the Income Tax Act ('the Act' for short). The said provision mandates a deduction of tax at source, whenever any person, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, effects payment thereof in cash or by issue of cheque or draft or by any other mode. The provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) xxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxx (ii) xxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxx (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 xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxx (v) to such income credited or[paid by a co-operative society(other than a co-operative bank) to a member thereof or to such income credited or paid by a co-operative society] to any other co-operative society;] 2. It is the case of the petitioners herein that as Primary Agricultural Credit Societies, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions of the Income Tax Department are hereby quashed. 4. As regards the contention of the petitioners with regard to the entitlement to the exemption under 194A(3)(iii)(a), I find that the exemption from the requirement of deducting tax at source is available inter alia only to income credited or paid to any banking company to which the Bank Regulation Act 1949 applies, or to income credited or paid to any co-operative Society engaged in carrying on the business of banking (including a cooperative land mortgage bank). It is the contention of the learned counsel for the petitioners that the phrase 'any co-operative society engaged in carrying on the business of banking' should be interpreted by considering the normal commercial meani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no definition of the word banking under the Income Tax Act, one has to rely either on the dictionary meaning of the term or on the definition of the term as contained in the relevant regulatory statutes and on such interpretation, the petitioner societies cannot be seen as carrying on the business of banking. Reference is also made to the decision of the Bombay High Court in The Hooseini co-operative credit.. v. Assessee [(2015) 377 ITR 272] to suggest that even if the bye-laws of the petitioner societies permit them to accept deposits from persons other than members, the society cannot be categorized as a society engaged in carrying on the business of banking so long as the bye laws of the society do not provide for banking busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icates that the Act will not apply to; (a) a primary agricultural credit society; (b) a co-operative land mortgage bank; (c) any other co-operative society except in the manner and the extent specified in part V. 8. Part V of the Banking Regulation Act comprises of Section 56 which deals with the circumstances, when the Act will apply to Co-operative Societies subject to modifications. The said Part also defines the terms "Cooperative Credit Society," "Primary Agricultural Credit Society", "Primary Credit Society" and "Primary Co-operative Bank". It can be seen from a comparison of the definitions referred above that there is a distinction made between societies, the primary object and principal business of which is to provide fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest income earned on deposits made by the petitioners societies with the Treasury, the circulars issued by the Treasury department, based on like instructions received from the Income Tax Department, directing the deduction of tax at source on such interest income payments, cannot be legally faulted. The challenge in the writ petitions to the said circular issued by the Treasury Department is therefore rejected. Before parting with these cases, it must be pointed out that, in as much as the provisions of Section 194A(3)(iii)(a) provide for an exemption from a procedural requirement under the Income Tax, the interpretation to be placed on the said provision has necessarily to be a strict one that leans in favour of the revenue and against ..... X X X X Extracts X X X X X X X X Extracts X X X X
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