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2014 (9) TMI 1168 - AT - Income TaxTDS u/s 194A - 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? - Held that - 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 it is very clear that, by virtue clause(vii), a co-op bank is exempted from making TDS. 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. 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. 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. 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 or after 01-07-1995 with a banking company and a cooperative society engaged in the business of banking. The above explanatory note leaves no doubt, whatsoever, about the applicability of clause (viia) to a cooperative society engaged in the business of banking. The Hon‟ble Supreme Court in the, case of South Indian Corpn. (P) Ltd. vs. Secretary, Board of Revenue 1963 (8) TMI 30 - SUPREME COURT OF INDIA 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.
Issues Involved:
1. Jurisdiction of the ITO Belgaum. 2. Liability to deduct tax at source under Section 194A of the Income Tax Act. 3. Applicability of judicial precedents and High Court judgments. 4. Default under Section 201(1) and 201(1A) of the Income Tax Act. 5. Burden of proof regarding tax payment by recipients. Detailed Analysis: 1. Jurisdiction of the ITO Belgaum: The assessee contested the jurisdiction of the ITO, TDS Ward Belgaum, arguing that the appellant is assessed in Mumbai. The Tribunal upheld the jurisdiction of the ITO, TDS Ward Belgaum, citing that the appellant had obtained a local TAN and conducted business in Belgaum. The Tribunal referenced Section 292BB of the Income Tax Act, which prevents the assessee from challenging the notice if they have appeared or cooperated in the proceedings. Therefore, the grounds of appeal challenging the jurisdiction were dismissed. 2. Liability to Deduct Tax at Source under Section 194A: The Tribunal examined whether the appellant was liable to deduct tax at source on interest payments to its members. The appellant argued that under Section 194A(3)(v), there is no obligation to deduct tax for interest paid by a cooperative society to its members. However, the Tribunal referred to Section 194A(3)(viia), which specifically includes cooperative societies engaged in banking and mandates TDS on interest payments exceeding Rs. 10,000 on time deposits made on or after 1st July 1995. The Tribunal cited various judicial precedents, including the Pune ITAT's decision in Bhagani Nivedita Sahakari Bank Ltd. v. ACIT and the Kerala High Court's decision in Moolamattom Electricity Board Employees Co-op Bank Ltd., which distinguished between a cooperative society and a cooperative bank. The Tribunal concluded that the specific provisions of Section 194A(3)(viia) override the general provisions of Section 194A(3)(v), thus affirming the liability of the appellant to deduct tax at source. 3. Applicability of Judicial Precedents and High Court Judgments: The appellant contended that several judgments, including those from the Bombay High Court in Jalgaon District Central Co-op Bank Ltd. v. Union of India and the Gujarat High Court, supported their position. The Tribunal noted that the Bombay High Court's judgment had quashed CBDT Circular No. 9 of 2002, which attempted to interpret the term "member" in a restrictive manner. However, the Tribunal emphasized that the legislative amendments and specific provisions in Section 194A(3)(viia) were clear in their intent to include cooperative banks under the TDS provisions. The Tribunal also referenced the Karnataka High Court's interpretation in CIT vs. Yeshwanthpur Credit Co-operative Society Limited, which distinguished between cooperative societies and cooperative banks. 4. Default under Section 201(1) and 201(1A): The Tribunal upheld the ITO's decision that the appellant was in default under Sections 201(1) and 201(1A) for failing to deduct tax at source on interest payments. The ITO had calculated the amount payable, including interest, for the relevant assessment years. The Tribunal found that the ITO had correctly applied the provisions of the Income Tax Act and confirmed the amount payable by the appellant. 5. Burden of Proof Regarding Tax Payment by Recipients: The appellant argued that the burden of proving that the recipients had paid the tax on the interest income lay with the revenue. The Tribunal rejected this contention, noting that the appellant had not furnished proof of tax payment by the recipients. The Tribunal emphasized that in cases involving banks, where the number of recipients is large, it is impractical for the ITO to verify each recipient's tax payment. The Tribunal concluded that the appellant must provide proof of tax payment by the recipients to claim relief from the TDS liability. Conclusion: The Tribunal dismissed all the appeals filed by the assessee, confirming the ITO's jurisdiction, the liability to deduct tax at source under Section 194A, and the default under Sections 201(1) and 201(1A). The Tribunal also emphasized the appellant's responsibility to provide proof of tax payment by the recipients to claim relief. The order was pronounced in the open court on 26.09.2014.
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