2016 (8) TMI 956 - HC - Income Tax

TDS liability on Co-operative Bank to deduct tax on the interest paid to its members - Held that - Circular No.9 dated 11.09.2002, the CBDT has very clearly laid down that co-operative societies carrying on banking business when it pays interest on deposits by its members need not deduct tax at source in view of the provisions of Sec.194A(3)(v) of the Act. Tribunal was correct in holding that Co-operative Bank are not liable to deduct tax on the interest paid to its members on the ground that they are exempt u/s 194A(3)(v) of the IT Act, 1961 - Decided against revenue

Issues Involved:
1. Reliance on Circular No.9/2002 by the Tribunal.
2. Liability of Co-operative Banks to deduct tax on interest paid to members under Section 194A(3)(v) of the IT Act, 1961.
3. Application of the principle of 'generalia specialibus non derogant' with respect to Sections 194A(3)(viia)(b) and 194A(3)(v) of the Act.
4. Specific versus general provisions concerning tax deduction under Sections 194A(3)(i)(b) and 194A(3)(v) of the Act.

Detailed Analysis:

1. Reliance on Circular No.9/2002 by the Tribunal:
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 contested by the Revenue. However, the High Court observed that the Tribunal's decision was consistent with its earlier rulings, which were not interfered with by the higher courts.

2. Liability of Co-operative Banks to Deduct Tax on Interest Paid to Members:
The Tribunal held that Co-operative Banks are not liable to deduct tax on the interest paid to their members under Section 194A(3)(v) of the IT Act, 1961. This was based on the interpretation that Section 194A(3)(v) provides a broad exemption applicable to all co-operative societies, including those engaged in banking. This interpretation was supported by various judicial precedents, including the decision of the Bangalore Bench of ITAT in the case of Bagalkot District Central Co-op Bank vs. JCIT.

3. Principle of 'Generalia Specialibus Non Derogant':
The Revenue argued that the Tribunal overlooked the principle of 'generalia specialibus non derogant,' which means that specific provisions override general provisions. The specific provision under Section 194A(3)(viia)(b) was argued to override the general exemption under Section 194A(3)(v). However, the Tribunal and the High Court found that both provisions could coexist harmoniously, with Section 194A(3)(v) applying to payments made to members and Section 194A(3)(viia)(b) applying to non-members.

4. Specific Versus General Provisions:
The Revenue contended that Section 194A(3)(i)(b), which deals specifically with co-operative societies engaged in banking, should override the general provision under Section 194A(3)(v). The Tribunal and the High Court disagreed, stating that the provisions do not conflict but rather complement each other. The High Court noted that the specific provision under Section 194A(3)(i)(b) applies to non-members, while the general exemption under Section 194A(3)(v) applies to members.

Conclusion:
The High Court dismissed the Revenue's appeal, affirming the Tribunal's decision that Co-operative Banks are not required to deduct tax on interest paid to their members under Section 194A(3)(v). The court found no substantial question of law that warranted further consideration. The decision was consistent with earlier rulings and supported by judicial precedents and CBDT Circulars.

Note:
The judgment was delivered by a bench comprising multiple judges, but separate judgments by individual judges were not mentioned. The analysis is based on the collective reasoning of the bench.

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