2016 (6) TMI 1118 - HC - Income Tax

TDS u/s 194A - tds applicability on Co-operative Banks - Held that - In view of the referred decision of this Court in case of Bagalkot District Central Co-operative Bank 2015 (1) TMI 1005 - ITAT BANGALORE wherein held that Co-Operative Societies carrying on banking business while paying interest to members on time deposit and deposits other than time deposits need not deduct tax at source U/s 194-A of the Act by virtue of exemption granted U/s 194-A(3)(v) of the Act when the question is already covered by the decision of this Court it cannot be said that any substantial question of law would arise for consideration. However the learned counsel appearing for the appellants-Revenue made an attempt to contend and reiterate the same contention that in view of special provision Section 194A(3) (b) the general exemption as provided under 194A(3) (v) would not be applicable for the Co-operative Banks and he contended that the view taken by the Tribunal cannot be said as correct view and this Court may independently consider the matter and may hold that in view of specific provision general exemption would not be available to co-operative bank. Hence the TDS from the interest exceeding the amount of 10, 000/- was required to be deducted by the respondent-assessee in the present case which is a co-operative bank. As such we are not impressed by the submission that there is any specific provision and therefore general exemption would not apply for the simple reason that the word Members is missing in clause (b). Further in Circular No.19/2015 dated 27.11.2015 at paragraph 42.5 it has been inter alia mentioned as under Hence the Co-operative Bank was not required to deduct tax from the payment of interest on the time deposits of its members paid or credited before first June 2015 . Under the circumstances the question of specific provision as against general provision would not arise for further consideration.

Issues Involved:
1. Whether the Tribunal is right in law in relying on Circular No.9/2002 when the same has been quashed by the Hon. Mumbai High Court in the case of Jalgaon District Central Co-Operative Bank Ltd.?
2. Whether the Tribunal was correct in holding that Co-Operative Banks are not liable to deduct tax on the interest paid to its members under Section 194A(3)(v) of the IT Act 1961?
3. Whether the Tribunal is right in law in overlooking the established principle of 'generalia specialibus non derogant' vis-à-vis the specific provisions of Section 194A(3)(viia)(b) and general provisions of 194A(3)(v) of the Act?
4. Whether the Tribunal was correct in not appreciating that the provision of Section 194A(3)(v) is a general provision granting benefit to all co-operative societies, whereas the provisions of Section 194A(3)(i)(b) deal specifically with co-operative societies carrying on the business of banking?

Detailed Analysis:

Issue 1: Reliance on Circular No.9/2002
The Tribunal relied on Circular No.9/2002, which was partially quashed by the Hon. Mumbai High Court in the case of Jalgaon District Central Co-Operative Bank Ltd. The Tribunal noted that the Bombay High Court quashed only the part of the Circular interpreting the word "member" and not the entire Circular. Therefore, the Tribunal held that the remaining provisions of the Circular, which clarify that co-operative societies carrying on banking business need not deduct tax at source when paying interest to members, still hold good. This interpretation was supported by the CBDT's clarification in Circular No.19/2015.

Issue 2: Liability to Deduct Tax on Interest Paid to Members
The Tribunal held that co-operative societies engaged in banking business are not required to deduct tax at source on interest paid to their members under Section 194A(3)(v) of the IT Act. This decision was based on the Tribunal's earlier ruling in the case of Bagalkot District Central Co-op Bank vs. JCIT and supported by the CBDT Circular No.19/2015, which clarified that co-operative banks need not deduct tax on interest paid to members on deposits before 1st June 2015. The Tribunal's decision was upheld by the High Court, which found no substantial question of law arising from the Tribunal's interpretation.

Issue 3: Principle of 'Generalia Specialibus Non Derogant'
The Tribunal rejected the Revenue's argument that the specific provisions of Section 194A(3)(viia)(b) should override the general provisions of Section 194A(3)(v). The Tribunal found that both provisions could be harmoniously construed. Section 194A(3)(v) exempts co-operative societies from deducting tax on interest paid to members, while Section 194A(3)(viia)(b) provides a specific exemption for interest on deposits other than time deposits paid to non-members. The Tribunal concluded that these provisions are not mutually exclusive and can coexist without conflict.

Issue 4: Specific vs. General Provisions
The Tribunal and the High Court both found that the general exemption under Section 194A(3)(v) applies to all co-operative societies, including those engaged in banking. The specific provision under Section 194A(3)(i)(b), which mandates TDS on interest exceeding ?10,000 paid by co-operative societies engaged in banking, does not override the general exemption for members under Section 194A(3)(v). The High Court noted that the word "Members" is missing in clause (b), and the CBDT Circular No.19/2015 supports the interpretation that co-operative banks need not deduct tax on interest paid to members before 1st June 2015.

Conclusion:
The High Court dismissed the appeals, holding that no substantial questions of law arose for consideration. The Tribunal's reliance on Circular No.9/2002, its interpretation of the provisions of Section 194A, and its application of the principle of 'generalia specialibus non derogant' were found to be correct. The general exemption for co-operative societies, including those engaged in banking, from deducting tax on interest paid to members was upheld.

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