2015 (4) TMI 374 - HC - Income Tax

Liability on urban co-operative Bank to deduct the TDS - Held that - It is a settled proposition of law that various sub-sections in a provision have to be read in harmony. A head on collision between sub-sections of the same provision has to be avoided. They cannot be read in a matter which render one provision superfluous of a dead letter. Reading clause (viia) and clause (v) conjointly and in harmony the only irresistible conclusion that can be drawn is that interest above ₹ 10,000/- credited on time deposits by urban co-operative Bank in the account of the payee would be liable for deduction of the tax at source, meaning thereby that an interest credited below ₹ 10,000/- by urban co-operative Bank will not be liable for the tax deducted at source. Even the learned Asstt. Solicitor General conceded to the position that for amount below ₹ 10,000/- TDS is not required to be deducted by the urban co-operative Bank. The Circular dated 23.10.2003, issued by respondent no.3, thereby directing deduction of tax at source on the deposits does not clarity the aforesaid aspect. The Circular will have to be read in a manner that if the amount more than ₹ 10,000/- is credited as an interest on time deposits. Then the urban co-operative Bank is liable to deduct the TDS as is laid down in said provisions of section 194A and that urban co-operative Bank is not liable to deduct TDS if the interest accrued on time deposits is less than ₹ 10,000/-.

Summary

Issues:
Impugning a circular directing tax deduction on deposits under section 194A of the Income Tax Act, 1961.

Analysis:
The petitioner challenged a circular issued by the respondent, directing tax deduction on deposits. The petitioner argued that the circular contradicted section 194A of the Income Tax Act, which exempts urban co-operative societies from deducting TDS on income credited to account holders. The petitioner emphasized strict construction of taxing statutes and cited specific provisions exempting co-operative societies from TDS. The petitioner relied on a Supreme Court judgment to support their argument.

The respondents contended that the circular clarified the legal position under section 194A. They argued that the exemption under section 194A(3)(viia) applied only to co-operative societies engaged in banking business and not to other banks. They highlighted that the exemption was for deposits other than time deposits and that interest on time deposits by urban co-operative banks was not exempt from TDS.

Upon reviewing the provisions and the circular, the court noted that section 194A required tax deduction on interest income at the time of credit to the payee's account. The court analyzed exemptions under section 194A(3), specifying that co-operative societies engaged in banking were exempt up to Rs. 10,000 of income. The court clarified that interest above Rs. 10,000 on time deposits by urban co-operative banks was liable for TDS, while amounts below Rs. 10,000 were not. The court emphasized harmonious interpretation of sub-sections to avoid rendering provisions redundant.

The court concluded that the circular lacked clarity on when TDS should be deducted by urban co-operative banks. It ruled that TDS was required on interest exceeding Rs. 10,000 on time deposits, as per section 194A provisions. The judgment disposed of the writ petition, with no costs imposed.