Income Tax Appellate Tribunal - Panji
The Belgaum Industrial Co-Op. Bank ... vs Assessee on 15 January, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL,PANAJI BENCH, PANAJI
[Before Shri P. K. Bansal, AM & Shri D.T Garasia, JM]
I.T.A No. 358/PNJ/2014 A.Y 2009-10
The Belgaum Industrial Vs. JCIT, Range-2, Belgaum
Co-operative Bank Ltd
PAN: AAAAT2307E
(Appellant) (Respondent)
For the appellant: Shri B.B. Chandargi,CA, ld.AR
For the respondent : Shri S.S Sundaresan, ld.DR
Date of hearing: 15-01-2015
Date of pronouncement: 15-01-2015
आदे श/ORDER
Per Shri D.T Garasia, JM:
This appeal has been filed by the assessee against the separate order of the ld. CIT(A), Belgaum dated 05/08/2014 for the assessment years 2009-10.
2. The assessee has raised the following grounds of appeal for the assessment year under consideration:-
1. The learned Commissioner of Income Tax(Appeals), Belgaum has erred in upholding the order passed by the Assessing Officer disallowing the appellant's claim under Section. 40(a)(ia) of the Income Tax Act 1961 which is opposed to law and facts of the case.
2. The learned Commissioner of Income Tax(Appeals), Belgaum has erred in upholding the Assessing Officer order of treating the Interest paid to Members without making TDS u/s 194A as not an allowable expense and disallowed the deduction u/s 40(a)(ia) of the Income Tax 1961 which is opposed to law and precedent in the following Cases with similar facts:
(i) Bombay High court in case of Jalagaon DCC Bank (265 ITR
423)
(ii) I.T.A.T. Bench of Vishakapatnam
(iii) Gujarat High court in case of Gujrat Urban Co-operative Bank Federation V/s Union of India dated 12.06.2012
(iv) Karnataka High court in case of Additional commissioner of Income Tax Vs. Rajajinagar Co-operative Bank Ltd (2011) 5 Taxcorp (DT) 49901 (Karnataka)
(v) Supreme court in the case of Commissioner of Income tax Vs. Vegetable Products Ltd [1973] 88 ITR 192 [SC]
3. The learned Commissioner of Income Tax(Appeals), Belgaum has erred in misinterpreting the 194A(3)(v) which specifically carves out an exception to 194A(1) on interest paid by a Co-Operative Society to its members. This view was taken in the case of Jalagaon DCC Bank 2 ITA No 358/PNJ/2014-JM The Belgaum Industrial Co-op Bank Ltd Case and Clarification issued by the DBDT in Circular No.9/2002 dated 11-9-2002.
3. The short facts of the case are that the assessee is a co-operative bank and engaged in the business of banking. It has obtained necessary license from Reserve Bank of India for carrying on its banking operations as a co-operative bank. The assessee filed its return of income for assessment year 2009-10 on 29-09-2009 declaring a total income of Rs.75,10,360/-. The assessment was completed under Section. 143(3) determining the taxable income at Rs.76,76,616/-. The AO observed that the assessee has paid interest on term deposit in excess of Rs.10,000/- without making TDS and total interest so paid of Rs.7,14,002/- is liable to be disallowed u/s 40(a)(ia) of the I.T Act 1961.
4. Matter carried to ld. CIT(A) and CIT(A) has dismissed the appeal of the assessee by observing as under:-
―5. I have carefully considered the facts of the case, submissions made by the assessee and also perused the assessment order. The only ground of appeal raised by the appellant is regarding disallowance made u/s40(a)(ia) in respect of interest paid on term deposit in excess of Rs.10,000/- without making TDS u/s194A amounting to Rs.7,14,002/-. My observations and findings on the issue are as under:-
5.1 DISALLOWANCE OFINTEREST PAID ON TERM DEPOSIT IN EXCESS OF RS.10,000/- WITHOUT MAKING TDS:
The facts leading to the grounds of appeal No.1 to 3 and reasoning relating to the disallowance made by the assessing Officer under section 40(a)(ia) of Rs.7,14,002/- have been discussed by the Assessing Officer in very detail in his assessment order. Briefly, the facts and reasons given by the Assessing Officer in his order are as under:-
(i) The appellant is a cooperative society engaged in carrying on banking business and the assessee bank's case clearly falls under the ambit of sub-clause (b) of clause(i) of sub-section (3) of section 194A and hence, TDS provisions are attracted. As per the said provisions of sub-clause(b) of clause(i) of Section 194A(3) of the Income Tax, 1961, any co-operative society which is engaged in the business of banking shall have to deduct tax on interest paid or payable to any person on time deposits, if the amount of said interest exceeds Rs.10,000/-. The AO has distinguished the status of the appellant assessee as co-operative bank vis a vis other co-operative societies as this became imperative due to the fact that the assessee had claimed to be an ordinary co-operative society within the meaning of clause (v) of Sec 194A(3). The AO has further dwelled on this issue and has stated that the word ‗co-operative society' is an omnibus word which includes different types of co-operative societies engaged in different types of activities. Where ever a reference is made to any co-operative society, the Income Tax Act, 1961 has clearly distinguished and specified the type of co-operative society based on 3 ITA No 358/PNJ/2014-JM The Belgaum Industrial Co-op Bank Ltd the type of activity carried out. Such a distinction was required as the Legislature intends to extent different benefits to different types of co-
operative societies through the Income Tax Act. Thus, as per Assessing Officer, the appellant is claiming benefit of sections 36(1)(vva), 269SS and 269T on the ground that it is a ‗co-op bank' but for availing exemption from TDS under section 194A, it is claiming itself as an ordinary ‗co-operative society within the meaning of 194A(3)(v). While distinguishing between ordinary co operative society and the cooperative society carrying on business of banking, the AO has relied on the decision of Kerala High Court in the case of Moolamatom Electricity Board Employees Co-operative Bank Ltd (1999) 238 ITR 630.
(ii) The AO in his Assessment Order has mentioned that in order to understand the legislative intent in this regard, it is necessary to refer to the explanatory notes to Finance (No 2) Act, 1991 given in the circular No.621 dated 19-12-1991 which among others, provides that‖ With a view to improving tax compliance, Sec 194A of the Act has been amended to secure deduction of tax at source from interest on time deposits with the aforesaid banking companies and co-operative societies engaged in carrying on the business of banking‖.
(iii) Since the appellant bank is covered by the provisions of sub-clause(b) of clause(i) of Section 194A(3) as well as the provisions of clause (viia) of the said action which are specific in nature, the appellant cannot put forth its claim under section 194(3)(v) which are general in nature. As the appellant is a co-operative society engaged in the business of banking, it is covered under these aforesaid specific clauses. As per AO there are a number of judicial pronouncements wherein it has been held that a specific provision override a general provision. For this purpose reliance has been placed by the AO on Kirloskar Pneumatic Company Ltd Vs. Commissioner of Surtax (1994) 210 ITR 485 (Bom) and CIT vs. Mahanagar Telephone Nigam Ltd (2002) 254 ITR 627(Del). Reliance has also been placed by the AO on the decision of the Jurisdictional Karnataka High Court in the case of M.L Vasudeva Murthy & Sons vs. Jt. Commissioner of Agricultural Income Tax (1992) 198 ITR 426. The Hon'ble Supreme Court in the case of South Indian Corporation (P) Ltd Vs. Secretary, Board of Revenue AIR 1964 SC 207 has held that the 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. Respectfully following the ratio of the above case laws including that of the Supreme Court, the AO has concluded that the assessee's case is covered by the specific provision in clause (i) & (vii), rather than the general provisions of clause (v) of Sec 194A(3).
While coming to this conclusion, the Assessing Officer has relied on the decision of Hon'ble I.T.A.T. Pune Bench Pune in Bagani Nivedita Sahakari bank Ltd v. ACIT (2003) 87 ITD 569 wherein, it has been held that the term ‗co-op society' in sub-clause (v) to be interpreted as ‗co-op society other than co-operative bank and further the provisions which are specific in nature over ride the provisions which are specific in nature.
(iv) The Assessing Officer has further observed that in the provisions of section 194A(3)(i) only the nature of the ‗player' has been defined in the respective sub-clause and the proviso thereof which includes the appellant co- operative bank. Since the appellant being the ‗prayer' is squarely covered 4 ITA No 358/PNJ/2014-JM The Belgaum Industrial Co-op Bank Ltd under sub-clause (b) of clause (i) of Sec 194A(3) and the provisions of said clause are squarely applicable to any payee i.e member, non-member, co-op society urban co-op bank etc are all covered under the ambit of clause (i) of section 194A(3), who ever receives interest from the appellant.
(v) Regarding the heavily relied upon decision in the case of Jalgaon District Co-operative Bank Ltd & Anr Vs. Union of India (2004) 265 ITR 423 by the appellant, the AO has mentioned that in the said case, the Hon'ble High Court was concerned with as to whether the exemption granted to the Co- operative Society u/s194A clause(3)(v) can be taken away by creating a distinction between duly registered member and nominal member which is unknown to the exemption clause contained in section 194A(3) of the Income Tax Act, 1961. The issue at hand with Bombay High Court in the Jalagaon District Central Co-operative Bank Ltd, Supra was the definition o the word ‗member' as appearing in clause (v) of section 194(3) and the powers of the Central Board of Direct Taxes to issue circulars u/s119 which override or detract from the provisions of sub-clause(v) to the co-operative societies engaged in the business of banking discussed specifically. Therefore, the said decision does not help the case of the appellant.
After discussing various aspects of the issue as discussed above, the AO has come to the conclusion that the assessee has failed to deduct tax at source from interest on term deposits exceeding Rs.10,000/- and therefore, the provisions of section 40(a)(ia) of the Income Tax Act, 1961 are squarely applicable in its case. Accordingly, the entire expenditure of Rs.7,14,002/- claimed by the assessee towards interest payments exceeding Rs.10,000/- on term deposits to individual members as well as non-members has been disallowed by the Assessing Officer.
5.2.3 It is an undisputed fact that the appellant has paid interest on term deposits to the tune of Rs.7,14,002/- to deposits 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 rs.7,14,002/- have been made to the members of the bank. In this regard, the AO has interpreted the word ‗co-operative society' employed in Sec. 194A(3)(v) to mean co-operative bank as decided by the I.T.A.T., Pune Bench, in Bhagini Nivedita Sahakari bank Ltd. v. ACIT 87 ITD 569 wherein, the Hon'ble I.T.A.T. has held that the term ‗co-operative society' mentioned in section 194A(3)(v) to be interpreted as co-operative society other than co-operative bank. Thus, the AO disallowed the entire payments exceeding rs.10,000/- made to members and non-members by the appellant bank for the reasons mentioned above.
5.2.4 On going through the provisions of section 194A(3), it is seen that the Assessing Officer is justified in disallowing the interest payments above the threshold limit of rs.10,000/- paid to the depositors as the appellant bank had failed to deduct tax at source thereby rendering itself liable for disallowance under section 40(a)(ia) of the I.T Act, 1961. The submissions of the appellant are not acceptable in view of the decision of Hon'ble Pune I.T.A.T. in the case of Bhagiani Nivedita Sahakari bank Ltd cited supra, wherein, it is clearly held that section 194A(3)(vii)(b) makes no distinction between members and non- members of co-operative bank for purpose of deduction of tax at source on interest on time deposits paid/credited and therefore, co-operative bank would be liable to deduct tax at source under section 194A(1) on interest on 5 ITA No 358/PNJ/2014-JM The Belgaum Industrial Co-op Bank Ltd time deposits paid/credit to its deposits, if such interest amount exceeded the limit prescribed in proviso to section 194A(3)(i). Further, the Hon'ble Kerala High Court in the case of Moolamatom Electricity Board Employees Co-op Bank Ltd 238 ITR 630 has made a clear distinction between primary credit society and a co-operative society engaged in banking business. Thus, section 194A deals with co-op societies engaged in the business of banking, co- operative societies engaged in providing credit facilities to the members, etc. As has been rightly held by the Assessing Officer that the moment the amount paid/credited to any depositor during the year exceeds rs.10,000, the provisions of section 194A(1) shall apply and the co-operative society engaged in the banking business shall have to deduct tax on such payments. From the facts of the case, it is seen that the Assessing Officer categorically brought out the material on record to prove that the appellant bank is covered by the provisions of sub-clause (b) of clause(i) of Sec 194A(3) s well as the provisions of clause (viia) of Sec 194A(3) which are specific in nature and the appellant cannot put forth its claim under section 194A(3)(v) which are general in nature. 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 I.T.A.T., Pune Bench, Pune in Bhagani Nivedita Sahakari bnk 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. 5.2.5 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 (viia) 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.
5.2.6 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 Jalgaon District Central Co-op Bank Ltd & Anr v. Union of India 265 ITR 423 (Bom), that the Board has no power to interpret the provisions of law by way of circular. The issue at hand of the Bombay High Court was the definition of the word ‗member' as appearing in clause (v) of section 194A(3) and the powers of the Central Board of Direct Taxes to issue circulars u/s 119 which would override or detract from the provisions of the Income Tax Act. The circular No.9 of 2002 dated 11-02-2002 issued by the CBDT has been quashed and set aside by the Hon'ble High Court.
5.2.7 Therefore, the circular No.9 of 2002 dated 11-09-2002 issued by the CBDT does not help the case of the appellant. The appellant's reliance on the said circular is found to be ill founded.
5.2.8 In order to understand the legislative intent in this regard, it is necessary to refer to the explanatory notes to Finance (No.2) Act, 1991 given in the circular No.621 dated 19-12-1991 which among others, provides that ―With a view to improving tax compliance, Sec 194A of the Act has been amended to secure deduction of tax at source from interest on time deposits with the aforesaid banking companies and co-operative societies engaged in carrying on the business of banking‖ 6 ITA No 358/PNJ/2014-JM The Belgaum Industrial Co-op Bank Ltd This Circular of the CBDT explains in no uncertain terms that the intention of the legislature in amendment of Section 194A, inter alia was to secure deduction of tax at source from interest on time deposits with the banking companies and co-operative societies engaged in carrying on the business of banking. The appellant being a co-operative society engaged in carrying on the business of banking is liable to make TDS u/s194A. 5.2.9 In a recently delivered judgment, the Hon'ble I.T.A.T. Panaji Bench, Panaji in the case of Bailhongal Urban Co-op Bank Ltd Vs. JCIT Range 1, Belgaum in ITA No.85/PNJ/2013 dated 28.08.2013 has upheld the decision of the Assessing Officer and the Commissioner of Income Tax (Appeals) in disallowing u/s40(a)(ia) of the I.T Act the interest amount paid by the assessee Co-operative Bank on term deposit in excess of Rs.10,000/- without making TDS u/s194A(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 I.T Act.
5.2.10 In view of the above discussion and taking into consideration the various arguments given by the A.O in her order, the legislature's intent behind the introduction of relevant provisions of Section 194A as explained in the explanatory notes to Finance (No.2) Act, 1991, Supra and respectfully following the decision of Hon'ble I.T.A.T. Panaji Bench in the case of Bailhongal Urban Co-op Bank Ltd, Supra, the disallowance made by the A.O under section 40(a)(ia) amounting to Rs.7,14,002/- is confirmed."
6. The assessee is in appeal against the decision of the ld.CIT(A).
7. We have heard the rival contentions of both the parties. During the course of hearing before us the ld.AR of the assessee has filed written submissions and analysed the sections by observing as under:-
―Analysis:
1. The analysis of the section can be discussed as below a. 194(1)- TDS obligation b. 194A(2) - Omitted c. 194A(3)- Exceptions to Section 194A(1) [from clause (i) to (x)] d. 194A(4)- Discretion to increase or reduce the TDS made.
2. As per section 194A(1) TDS provisions are applicable in case of the assessee, we are not at all disputing the same. It is crystal clear as mentioned in the section 194A(1), but, the co-operatives are exempted from this legal duty under sub-section (3) clause(v). We can apply the analogy of the definition of ‗Income' taxable under the Income tax Act and deductions and exclusions under the Act available for the taxable income. Here I will take one instance to make it clear, it will not be correct on the part of the Assessing Officer if, he reads only the definition of income clause disregarding the deductions and beneficial provisions available to the assessee under other sections of the Act, which is not at all called for and not as per the intention of the law. In this case also, as per the section Assessee should make the TDS where interest is paid on time deposits to non-members.
7 ITA No 358/PNJ/2014-JM The Belgaum Industrial Co-op Bank Ltd
3. The clause (v) of the sub section(3) of 194A is specific and not general. It is well settled that, what is not contemplated in the exemption clause cannot be imported to deprive the exemption granted to the co-operatives.
4. Honourable Vishakapatnam Bench of I.T.A.T. has decided the same issue in favour of the assessee, mentioning ‗Co-operative bank is a Co-operative society and not liable to deduct tax at source as per the provisions of Sec 194A(3)(v)'.
The copy of the judgement is enclosed herewith for your perusal and kind consideration.
5. The decision of the Honourable Bombay High Court in Jalgaon DCC Bank's Case (265 ITR 423) is again reiterated by the Gujarat High Court in the case of Gujarat Urban Co-operative Bank Federation V/s. Union of India dated 12.06.2012.
6. Our jurisdictional honourable High court of Karnataka had an occasion to consider the issue of levying a penalty under Section. 271C read with section 194A and 273B in case of Additional commissioner of Income Tax Vs. Rajajinagar Co-operative Bank Ltd (2011) 5 Taxcorp (DT) 49901 (Karnataka). In this case also the honourable high court has direct mention regarding this issue in para No.10 of the judgement.
―In the instant case, the assessee is a co-operative Bank. Clause (iv) of the sub- section(3) of 194A expressly exempts the Bank from deducting the tax at source on interest payable by the Bank to its members and other co-operative societies. By misconstruing this provision they also did not deduct tax from the interest payable to non members. That is the bonafide mistake which they have committed.......... Therefore the order passed by the Tribunal and the appellate commissioner is valid and do not suffer from any legal infirmity which calls for interference.‖
7. However, there are two contrary decisions of the I.T.A.T. Benches of Pune and Panaji.
8. However, recently, The Bangalore Bench of I.T.A.T. in case of Bagalkot DCC Bank case and Pune Bench in Ozer Merchant Co-op Bank Case have held that TDS provisions are not applicable to co-op Banks as per Sec194A(3)(v) on interest paid on term deposit to members.
9. Where there are two contrary views held on the same issue, the decision favorable to the assessee must be adopted. This view was expressed by the Honourable Supreme Court in the case of Commissioner of Income Tax Vs. Vegetable Products Ltd [1973] 881 ITR 192 [(S.C].
10. From the above mentioned discussion, based on provisions of the law, decisions of the courts, clarification issued by the CBDT it is clear that, the assessee is eligible, as per section 194A(3)(v) of the act and accordingly not liable to make TDS on interest paid on term deposits to members.‖
8. On the other hand, the ld.DR has relied on the decision of the ld.CIT(A) and the earlier orders of the Hon'ble I.T.A.T, Panaji passed in ITA No.85/PNJ/2013 in the case of Bagal Coat Co-op, ITA Nos.327-329 & CO No.31/PNJ/2014 in the case of The Dainvadriya Sahakara Bank, ITA Nos. 237-240/PNJ/2014 & ITA Nos.233 to 236/PNJ/2014 in the case of M/s.
8 ITA No 358/PNJ/2014-JM The Belgaum Industrial Co-op Bank Ltd Saraswat Co-op Bank Ltd and I.T.A No. 344/PNJ/2014 in the case of Shree Basaveshwar Co- op. Bank Ltd
9. Having heard the rival contentions of both the parties and looking to the facts and circumstances of the case, we are of the view that the issue is now controversy that the assessee has paid interest on term deposits to the members/depositors without deducting the TDS under Section. 194A of the Act. The assessee contended that the provisions of TDS are not attracted in view of sub section(3)(v) of section 194A of the Act as interest payment to that extent has been made to members of bank. We find that in the case of Shreee Basaveshwar Co-operative Bank in ITA No. 344/PNJ/204 for the assessment years 2011-12 vide order dated 05-01-2015, wherein we find that the assessee is required to deduct a tax at source in respect of time deposits in excess of Rs.10,000/- interest payment to members of the assessee bank. We have already held that the co-operative bank and co-operative society both are different and independent. The co-operative bank was registered under the Banking Regulations Act 1949. The co-operative society was registered under the Karnataka Co-operative Societies Act 1959 only. Therefore, we are of the view that TDS is required to be made on time deposit on interest payment after 01-07-1995. We have already dealt with this issue in detail in para 2.6 of the said tribunal order, which reads as under:-
―2.6. We have heard the rival contention of both the parties, it is undisputed fact that assessee has paid interest on term deposit to Rs.18,39,0031/- to depositor without deducting the tax at source. The assessee 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 Rs.1,83,90,031/- have been made to the members of the bank which is a Co-operative society. While the revenue claims the T.D.S has to be deducted as per section 194A(3)(viia)(b). The provisions of Section 194A(3)(v)(a)(viia) which read as under:
―(3) The provisions of sub- section (1) shall not apply-
(i) 5 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 6 ten thousand rupees..........................
(v) to such income credited or paid by a co- operative society 5 [to a member thereof or] to any other co- operative society;] (viia) to such income credited or paid in respect of,-
(a) deposit 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;
9 ITA No 358/PNJ/2014-JM The Belgaum Industrial Co-op Bank Ltd We find that the Co-operative is also 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 Co-operative
registered under Society registered
Banking Regulation under Karnataka
Act, 1949 CO-operative
Society Act, 1959
Registration Under the Banking Co-operative Societies
Regulation Act, 1949 Act, 1959
and Co-operative
Societies Act, 1959
Nature of business 1. As defined in 1. As per the bye laws
Section 6 of Banking. of the cooperative
Regulation Act. society.
2. Can open, savings 2. Society cannot open
bank account, current savings bank
account, overdraft account, current
account, cash credit account, issue letter of
account, issue letter of credit, discounting
credit, discounting bills.. bills of exchange, issue of exchange, cheque, demand issue cheques, drafts, pay orders, demand drafts (DD), gift cheques, Pay orders, Gift lockers, bank cheques, lockers, bank guarantees etc. guarantees etc. 3. Society cannot act
3. Co-operative Banks clearing agent, for can act as clearing agent cheques, DDs, pay for cheques, DDs, pay - orders and other orders and other forms. forms.
4. Banks are bound to 4. Society are bound follow the rules, by rules and regulations and regulations as directions issued by specified by in the co-
Reserve Bank of India operative
(RBI) societies act.
Filing of returns Co-operative banks. Society has to submit
. have to submit annual the annual return to
return to RBI every year Registrar of Societies.
Inspection RBI has the power to Registrar has the
inspect accounts and power to inspect
over all functioning of accounts and over all
the Bank functioning of the
bank.
Part V of the
Part V Part V of the Banking Part V of the
10 ITA No 358/PNJ/2014-JM
The Belgaum Industrial Co-op Bank Ltd
Regulation Act is Banking
applicable to co- Regulation Act is not
operative bank applicable to co-
operative banks.
Use of words The word ‗bank' The word ‗bank'
‗banker', ‗banking' can ‗banker', ‗banking
be used by a co- cannot be used by a
operative bank. co-operative society
Moreover, we find that in the said judgment the Hon'ble High Court has held as under:
―If a Co-operative Bank is exclusively carrying banking business, then the income derived from the said business cannot be deducted in computing the total income of the assessee. The said income is liable for tax. A Co-operative bank as defined under the Banking Regulation Act includes the primary agricultural credit society or a primary co-operative agricultural rural development bank. The Legislature did not want to deny the said benefit to a primary agricultural credit society or a primary cooperative agricultural and rural development bank. They did not want to extend the said benefit to a co-operative bank which is exclusively carrying on banking business i.e., the purport of the amendment. If the assessee is not a Co-operative bank carrying on exclusively banking business and if it does not possess a license from the Reserve Bank of India to carry on business, then it is not a Co-operative bank. It is a Co-operative society which 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. We find that the assessee bank is covered by the provisions of sub-clause (b) of clause (i) of Sec.194A(3) as well as the provisions of clause (viia) of Section 194A(3) which are specific in nature and 194A(3)(v) which are general in nature. We find that the Hon'ble Kerala High Court in the case of ITO& Ors. vs. Thodupuzha Urban Co-operative Bank and others have filed the writ before the Hon'ble Kerala High Court, wherein the Hon'ble High Court has held as under:
―The Income Tax Department has come up with this appeal against the judgment in O.P. No. 17082/1997.(Thodupuzha Urban Co-operative Bank Ltd., In [1999]238 ITR630(Ker). That petition was filed by five co-operative Societies, when they were faced with a notice from the appellant to deduct the income-tax out of the interest paid by them on time deposits, in respect of every payment exceeding Rs. 10,000, at the 11 ITA No 358/PNJ/2014-JM The Belgaum Industrial Co-op Bank Ltd relevant point of time. The learned single judge as per the impugned judgment, quashed the notices holding that going by the provisions contained in section 194A(3)(viia)(a) of the Income Tax Act, for short ―the Act‖ ,the writ petitioners were not liable to deduct income-tax at source in respect of the interest so paid, as sub-section (3) exempts them from the coverage of sub-section (1) of section 194A of the Act.
Aggrieved by the judgment, this appeal is filed only against the 4th petitioner in O.P. No. 17082/1997 (see[199]238 ITR 630), namely, the Thodupuzha Urban Co- operative Bank Ltd. No. 394, Thodupuzha, Idukki District, represented by the secretary. Sub-section 3 of section 194A of the Act makes it clear that "the provisions of sub- section (1) shall not apply" in respect of several situations mentioned under that clause. Admittedly, sub-section (1) of section 194A cast the liability on all those institutions other than individuals and Hindu Undivided Family to deduct income-tax at source, when such institutions pay interest on deposits exceeding the prescribed limit. Sub- section (3)(viia) reads as follows :
Sub-section 3 of section 194A of the Act makes it clear that "the provisions of sub- section (1) shall not apply" in respect of several situations mentioned under that clause. Admittedly, sub-section (1) of section 194A cast the liability on all those institutions other than individuals and Hindu Undivided Family to deduct income-tax at source, when such institutions 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, irrespective of Whether it is a time deposit or any other type of deposit, the 4th petitioner, first respondent will not be liable to deduct income-tax, as such society is under sub-section (3) taken out of the purview of section 194A(1) of the Act. Therefore, the writ appeal fails, dismissed.
W.A. No. 2270 of 1998:
A reading of the impugned judgment discloses that the writ petitioner, the first respondent, was concede to be an agricultural co-operative society. Consequently, it comes within the purview of clause (viia)(a) of sub-section (3) of section 194A of the Income-tax Act, 1961. Naturally, the first respondent-society will not be liable in terms of sub-section (1) of section 194A. The writ appeal fails, dismissed.
12 ITA No 358/PNJ/2014-JM The Belgaum Industrial Co-op Bank Ltd From this above we are of the view that the Hon'ble High Court has interpreted sub- section (v) and(viia)(a) of Section 194A(3).
Now coming to Circular No. 9/2002, issued by the CBDT, which is relied upon the assessee. The said circular sought to interpret the definition of ―member‖ clarified that the member does not include the nominal member. It was held by the Bombay High Court in the case of Jalgaon District Central Co-operative Bank Ltd. & Anors. vs. Union of India 265 ITR 423, that the Board has no power to interpret the provisions of law by way of circular. The issue in hand of Hon'ble Bombay High Court was the definition of word ―member‖ as appearing in clause-(v)of Section 194A(3) and power of Central Board of Direct Tax to issue circular u/s 119 which would override or detract from the provisions of Income Tax Act. The Circular No.9/2002 dated 11.9.2002 issued by CBDT has been quashed and set aside by Hon'ble Bombay High Court. Therefore, circular No.9/2002 dated 11.09.2002 issued by CBDT does not help to the case of the assessee. The assessee relied upon the said circular is ill founded. The question before the Hon'ble Bombay High Court was not whether a Co-operative Bank not entitle to deduction of tax on interest paid on the deposits with it.
To understand the legislative amendment in this regard query wherein in the budgets speech of Finance Minister and his object for suggesting TDS to such deposit in following words to enable the Government to identify income earners, most of whom would not otherwise declare their income or would not declare their full income, I propose to extend the scheme of tax 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 Rs.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 and commission w.e.f., June 1992.
Accordingly, Finance Act 1992 substituted a new Clause (vii) w.e.f., 1st June, 1992, sub-section 3 of Section 194A for clause (vii) and someone as earlier introduced by Finance No.2 Act w.e.f., 1st October, 1991. This amendment was made to restore the position as was before 1st October, 1991 in relation to deduct tax at source in the case of income credited or paid in respect of deposit with a bank company to which banking regulation Act 1949 applies or with a co-operative society engaged in carrying on the business of banking, ―including co-operative land mortgage bank or co-operative land development bank‖ This was brought into w.e.f., 1.4.1992.
Finance Act 1995 w.e.f., 1st July 1995 again withdrawn the exemption for interest on time deposit payable by bank. The amendment Section 194A now provides for deduction of tax at source at the rate in force from payment for interest exceeding Rs.10,000/-in a financial year on time deposits made on or after 1st July,1995 with a banking company or with a Co-operative society engaged in carrying on business of banking. The aforesaid limit of Rs.10,000/- shall be computed with reference to the income credited or paid by branch of banking company or Co-operative Society as the 13 ITA No 358/PNJ/2014-JM The Belgaum Industrial Co-op Bank Ltd case may be. The interest on time deposit made with a primary agricultural society or a credit society or a co-operative land mortgage bank or a Co-operative land development bank will not be subject to requirement of deduction of tax at source. Reference in this connection may be made to circular no. 715 dated 18th August, 1995 and explanatory circular no. 717 dated 14th August, 1995. The Finance Act 2001 by amendment in provision to sub-section (3) of Section 194 has omitted the provision therein providing the specific limit of Rs.10,000/- in respect of time deposit made with banking company with reservation that overall limit of Rs. 5,000/- provided in main portion of sub-section 3 would apply to such deposit w.e.f. 19th June, 2001. From this above intention of legislature we are of the view that it is clear that assessee company a Co-operative Society carrying on a business of banking is liable to make TDS u/s. 194A.
Learned AR has relied upon the decision of Income Tax Tribunal, Beanglore Bench in the case of Bagalkot District Central Co-op. Bank vs. Joint Commissioner of Income Tax, 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)(viia) 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 Bench did not consider the provision of section 194A(3)(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(3)(viia) will become redundant. The section cannot be read in this manner. For the sake of clarity, we have analyse the Section 194A(3)(v) and (viia) which read as under:
―(3) The provisions of sub- section (1) shall not apply-
(i) 5 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 6 ten thousand rupees.................
(v) to such income credited or paid by a co- operative society 5 to a member thereof or] to any other co- operative society;
(viia) to such income credited or paid in respect of,-
(a) deposit 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 TDS on time deposits is dealt in clauses (vii) & (viia) of 194A (3) which are extracted below:
(3) The provisions of sub-section (1) shall not apply
(vii) : to such income credited or paid in respect of deposits (other than time deposits made on or after the 1st day of July, 1995) with a banking company to which the
14 ITA No 358/PNJ/2014-JM The Belgaum Industrial Co-op Bank Ltd Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution 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 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 notified by it in this behalf; and
(d) five thousand rupees in any other case]:] From the above it is clear that, in case of a payer which is a cooperative society engaged in the business of banking, the monetary limit prescribed is Rs 10000/-. Once the interest payment exceeds that amount the TDS is to be made. Neither in clause (viia) nor in clause (i) there is anything to restrict their applicability only to non-members and therefore they apply to all depositors.
Going by the above understanding, the co-op bank is required u/s 194A(1) to make TDS from the interest paid to all depositors. However co-op bank holds the view that clause (viia) applies only to non-members and not to the members. However, on perusal of clause (viia), nothing in it to restrict its application only to non-members. The stand taken by co-op bank is that the interest paid to members is exempted in clause(v). The appellant is placing reliance on Circular no 9 of 2002 in its support. In this scenario, the moot question for consideration is:
Whether, in respect of interest paid on time deposits by a co-op bank, the clause(v) which deals with cooperative societies will apply or the clause (viia) which mentions specifically „a co-operative society engaged in the business of banking‟ finds application?
2. Legislative history of TDS on interest:
a. The Finance act 1968, inserted clause (v) in 194A(3) to exempt interest paid by on co-op society to another co-op society from TDS purview.
15 ITA No 358/PNJ/2014-JM The Belgaum Industrial Co-op Bank Ltd b. The Finance Act 1970, inserted 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 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 required to deduct tax from interest paid to depositors who are not its members, rendering clause (vii) redundant.
e. The by Finance Act 1991, for the first time introduced TDS on time deposits by substituting above mentioned clause (vii) with two separate clauses (vii) & (viia). While clause (vii) applied to banking companies, clause (viia) applied to specially created category of cooperative societies. This reaffirms the decision of legislature to apply a specific clause to the specific genre cooperative societies, which were earlier carved out of the genus as envisaged in general clause(v).
The effect of above amendment was explained by the CBDT in Circular no 617 dated 22-11-1991 where in it is clarified that:
The effect of the aforesaid change is that income-tax shall now be deductible at source from the interest income on the deposits with. (i) a banking company, or cii) a co- operative society engaged in carrying on the business of banking, other than a co- operative land mortgage bank, a co-operative land development bank, primary agricultural credit society or a primary credit society (emphasized) The above circular clearly states that, it was only by introduction of clause (viia), a cooperative society engaged in the business of banking was brought under the purview of TDS on time deposits. The TDS on time deposits was withdrawn very next year by way of substituting above mentioned clauses (vii) & (viia) with a combined clause (vii) and status quo ante was restored.
f. The Finance Act 1995 inserted clauses (vii) & (viia) which lay down that, the exemption as envisaged in 194A(3) is not available in respect of time deposits made on
16 ITA No 358/PNJ/2014-JM The Belgaum Industrial Co-op Bank Ltd 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 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. Respectfully following the above, we dismiss the appeal of the assessee.
10. In the result, appeal of the assessee is dismissed.
Order is pronounced in the open court on 15-01-2015
Sd/- Sd/-
(P. K. Bansal ) (D.T Garasia)
Accountant Member Judicial Member
Dated : 15-01-2015
**PRADIP(Sr.P.S.)
Copy of the order forwarded to:
1. Appellant -
2 Respondent -
3. The CIT(A) concerned
4. The CIT concerned
5. The D.R 6. Guard File
True Copy, By order Asstt. Registrar