2003 (9) TMI 56 - HC - Income Tax

Circular No. 9 of 2002 dated 11-09-2002 validity - provisions of section 194A(3)(v) - CBDT, under the garb of section 119 of the Income-tax Act, 1961, cannot exercise wider powers than the powers bestowed on it. The Central Board of Direct Taxes has no power to introduce a substantial change or alteration in the provisions of the Income-tax Act, 1961, by importing ideas unknown to the Income-tax Act, 1961 - Central Board of Direct Taxes has no authority to make a crack in the exemption clause contained in section 194A (3) (v), by issuing the impugned circular Impugned circular issued by the Central Board of Direct Taxes deprives the exemption granted by the Central enactment and, therefore, the said circular is bad in law and liable to be quashed and set aside

Issues Involved:
1. Definition of "member" under section 2(19) of the Maharashtra Co-operative Societies Act, 1960.
2. Authority of the Central Board of Direct Taxes (CBDT) under section 119 of the Income-tax Act, 1961.
3. Validity of CBDT Circular No. 9 of 2002 in relation to section 194A(3)(v) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Definition of "member" under section 2(19) of the Maharashtra Co-operative Societies Act, 1960:
The court examined the definition of "member" as per section 2(19) of the Maharashtra Co-operative Societies Act, 1960, which includes nominal, associate, or sympathizer members. The court highlighted that the definition does not distinguish between different types of members, thus implying that nominal members are also considered full members under the Act. This interpretation was supported by previous judgments, including K.K. Adhikari v. T.G. Kulkarni and CIT v. Varangaon Co-operative Fruit and Agricultural Produce Sale Society Ltd., which established that nominal members, despite having limited rights, are still recognized as members under the Act.

2. Authority of the Central Board of Direct Taxes (CBDT) under section 119 of the Income-tax Act, 1961:
The court scrutinized the powers granted to the CBDT under section 119 of the Income-tax Act, 1961. The court acknowledged that section 119 empowers the CBDT to issue administrative instructions for the proper administration of the Act. However, it emphasized that these instructions must not override or conflict with the provisions of the Income-tax Act itself. The court cited the case of Banque Nationale De Paris v. CIT, where it was held that the CBDT cannot issue circulars that detract from the statutory provisions of the Income-tax Act.

3. Validity of CBDT Circular No. 9 of 2002 in relation to section 194A(3)(v) of the Income-tax Act, 1961:
The court evaluated the validity of CBDT Circular No. 9 of 2002, which restricted the exemption from tax deducted at source (TDS) under section 194A(3)(v) to certain categories of members. The court found that this circular was contrary to the clear and unambiguous language of section 194A(3)(v), which does not differentiate between types of members. The court held that the CBDT overstepped its authority by issuing a circular that effectively amended the statutory provision, which is beyond the scope of its powers under section 119. The court concluded that the circular was invalid as it attempted to introduce distinctions not contemplated by the Income-tax Act.

Conclusion:
The court quashed and set aside CBDT Circular No. 9 of 2002 and the related letter issued by the Income-tax Officer, Jalgaon. The court ruled that the CBDT cannot usurp the powers of Parliament and alter statutory provisions through administrative circulars. The exemption under section 194A(3)(v) applies to all members of a co-operative society as defined under the Maharashtra Co-operative Societies Act, 1960, without any distinction.

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