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2016 (6) TMI 1409 - HC - Income TaxTDS u/s 194A - Co-operative Bank liability to deduct tax on the interest paid to its members - Non deduction of TDS - Whether the Tribunal is right in law in overlooking the established principle of generalia specialibus non derogant vis- -vis the specific provisions of Sec.194A(3)(viia)(b) and general provisions of Sec.194A(3)(v)? - HELD THAT - We find that the issues which arise for consideration in the present appeal are already covered by the decision of this Court in case of The Commissioner of Income Tax and others Vs. The National Co-operative Bank Limited 2016 (6) TMI 1118 - KARNATAKA HIGH COURT we hold that the Assessee which is a co-operative society carrying on banking business when it pays interest income to a member both on time deposits and on deposits other than the deposits with such co-operative society need not deduct tax at source Under Section 194A by virtue of the exemption granted vide Clause (V) of Sub Section (3) of the said section.
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 on the ground that they are exempt 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-ŕ-vis the specific provisions of Section 194A(3)(viia)(b) and general provisions of Section 194A(3)(v) of the Act? 4. Whether the Tribunal was correct in not appreciating the fact 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) deals with co-operative society carrying on the business of banking, hence specific provisions in any case overrides the general provisions? Detailed Analysis: Issue 1: Reliance on Circular No. 9/2002 The Tribunal relied on Circular No. 9/2002, which was quashed by the Hon. Mumbai High Court in the case of Jalgaon District Central Co-operative Bank Ltd. The Tribunal's reliance on this circular was challenged by the Revenue. However, the Tribunal's decision was based on the interpretation that only part of the Circular related to the definition of "member" was quashed, and other parts, particularly those relevant to the case, were still valid. Issue 2: Exemption under Section 194A(3)(v) The Tribunal held that Co-operative Banks are not liable to deduct tax on interest paid to their members, citing the exemption under Section 194A(3)(v) of the IT Act, 1961. This decision was supported by previous judgments, including the case of Bagalkot District Central Co-op Bank vs. JCIT, where it was established that co-operative societies engaged in banking business need not deduct tax at source when paying interest to members. Issue 3: Principle of ‘generalia specialibus non derogant’ The Revenue argued that the Tribunal overlooked the principle of ‘generalia specialibus non derogant,’ which means general provisions do not override specific provisions. The specific provision in question was Section 194A(3)(viia)(b), which deals with co-operative societies carrying on the business of banking. The Tribunal, however, interpreted that Section 194A(3)(v) applies to all co-operative societies, including those engaged in banking, and does not conflict with Section 194A(3)(viia)(b). Issue 4: Specific vs. General Provisions The Tribunal's interpretation was that Section 194A(3)(v) provides a general exemption to all co-operative societies, including those engaged in banking, and this does not get overridden by the specific provisions of Section 194A(3)(i)(b). The Tribunal found harmony between these provisions, stating that each provision overlaps and should be read together to maintain coherence in the statute. Conclusion: The High Court upheld the Tribunal's decision, stating that no substantial question of law arose for consideration. The Court noted that the Tribunal's decision was consistent with the precedent set in the case of Bagalkot District Central Co-op Bank and that the interpretation of the provisions by the Tribunal was correct. The appeal was dismissed, affirming that co-operative banks are not required to deduct tax at source on interest paid to their members under Section 194A(3)(v) of the IT Act, 1961. The Court also referenced Circular No. 19/2015, which clarified that co-operative banks were not required to deduct tax on interest paid to members before June 1, 2015.
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