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TMI Blog2015 (1) TMI 743X X X X Extracts X X X X X X X X Extracts X X X X ..... I 53 - KERALA High Court] has distinguished this. The decision of Hon'ble Kerala High Court in the case of ITO & Ors. vs. Thodupuzha Urban Co-operative Bank, wherein they have clearly defined and interpreted the Section it appears that the bank did not consider the provision of section 194A(viia). Therefore, when there is a specific provision, general provision cannot be applied in the case of the assessee otherwise the provision of section 194A (viia) will become redundant. Interest paid on time deposits by a co-operative society, other than a co-operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking will be covered by sub-section (1), and therefore, will be liable to deduct income-tax. - Decided against assessee. Dividend income disallowed though the same is claimed as exempt u/s.80P(2)(d) - Held that:- We are of the view that both the revenue authorities are justified in holding that provisions of section 80-P(4) is not applicable to co-operative bank. Addition of ₹ 27,58,64,367/- deleted on account of accrued interest on loans by CIT(A) - Held that:- Interest accrued on sticky advances which was not brought in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xempt u/s.80P(2)(d). 6. Apropos first issue taken by the assessee, facts are that during the course of assessment proceedings, the Assessing Officer observed that assessee had paid interest on term deposit in excess of ₹ 10,000/- without making TDS and the total interest so paid of ₹ 22,65,75,356/-, is liable to be disallowed u/s. 40(a)(ia) of the Act. The Assessing Officer held that assessee bank cannot claim exemption from making TDS on interest paid to the members as per provisions of section 194A(3)(v) as these provisions are general in nature, whereas, the provisions contained in section 194A(3)(i) (viia) are specific in nature and it is well established principle of interpretation that the specific provisions always override the general provisions. In support of this, the AO relied on the judgement of ITAT Pune in the case of Bhagini Nivedita Sahakara Bank Ltd vs. ACI, (2003) 87 ITD 569. The matter carried to ld CIT(A) and ld CIT(A) confirmed the addition made by the AO, by observing as under: 5.1.3 It is an undisputed fact that the appellant has paid interest on term to the tune of ₹ 226575356/- to depositors without deducting tax at sour appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the co- operative society engaged in the banking business shall have to deduct tax on such payments. From the facts of the case, it is seen that the Assessing Officer categorically brought out the material on record to prove that the appellant bank is covered by the provisions of sub-clause (b) of clause (i) of Sec.194A(3) as well as the provisions of clause (viia) of Sec.194A(3) which are specific in nature and the appellant cannot put forth its claim under section 194(3)(v) which are general in nature. As the appellant is co-operative society engaged in the business of banking, it is covered under these specific clauses and as has been held by the Hon'ble ITAT, Pune Bench, Pune in Bhagani Nivedita Sahakari bank Ltd v. ACIT (2003)87 ITD 569 that the term 'co-op society' in sub-clause (v) to be interpreted as 'co-op society other than cooperative bank, the appellant is liable for TDS provisions under section 194A. 5.1.5 The appellant's argument that clause(v) to sec.194A(3) may be taken as applying to members and other clauses to the said section may be taken to apply to non members is without any basis in as much as clauses (i) and (viia) apply to both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. At the time of hearing, ld counsel for the assessee submitted before us that this Tribunal has dealt with similar issue in the case of The Bailhongal Urban Co-Op. Bank Ltd vs JCIT (ITA No.85/Pnj/2013) for A.Y. 2009-2010, wherein, the Hon'ble Karnataka High Court has stayed the above order for one week, therefore, he requested not to hear the appeal. Ld A.R. submitted that this Tribunal in the case of The Bailhongal Urban Co-Op. Bank Ltd(supra) has taken a view that co-operative bank is exmpt for deduction of tax as per section 194A of the Act. He submitted that similarly the ITAT Bangalore Bench has taken a view that the cooperative bank has not to deduct tax at source, hence, appeal of the assessee was allowed. The Tribunal has discussed the issue in detail. Therefore, ITAT Bangalore Bench is in favour of the assesee. He submitted that similarly, Pune Bench of ITAT in the case of ACIT vs. The Ozer Merchant Co-operative Bank Ltd(ITA No.1588/PN/2012) held that no TDS has to be made by the co-op bank. He referred to the decision of ITAT Panaji Bench in ITA No.18/Pnj/2005 for A.Y. 2002-03, the combination of Shri Satish Chandra and Shri V.K.Gupta has taken the view that no TD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee claimed the benefit of sections 36(1)(viia), 269 SS and 269T on the ground that it is a co-operative bank but for availing exemption from TDS under section 194A, it is claiming itself as an ordinary 'co-operative society' within the meaning of section 194A(3)(v) of the Act. We find that this distinguishes the co-operative society and the cooperative society carrying on business of banking. The Hon'ble Kerala High Court in the case of Moolamatom Electricity Board Employees Co-operative Bank Ltd., 238 ITR 630 has distinguished this. We also rely upon the decision of Hon'ble Jurisdictional Karanataka High Court in the case of CIT vs. Yeshwanthpur Credit Co-operative Society Limited in Income Tax Appeal No.237/2012, wherein, the Hon'ble High Court has interpreted the co-operative bank by observing as under: Nature Co-operative society registered under Banking Regulation Act, 1949 Co-operative Society registered under Karnataka CO-operative Society Act, 1959 Registration Under the Banking Regulation Act, 1949 and Co-operative Societies Act, 1959 Co-operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... co-operative agricultural rural development bank. The Legislature did not want to deny the said benefit to a primary agricultural credit society or a primary cooperative agricultural and rural development bank. They did not want to extend the said benefit to a co-operative bank which is exclusively carrying on banking business i.e., the purport of the amendment. If the assessee is not a Co-operative bank carrying on exclusively banking business and if it does not possess a license from the Reserve Bank of India to carry on business, then it is not a Co-operative bank. It is a Co-operative society which also carries on the business of lending money to its members which is covered under Section 80P(2)(a)(i) i.e., carrying on the business of banking for providing credit facilitates to its members. The object of the aforesaid amendment is not to exclude the benefit extended under Section 80P(i) to the society. 11. In the above judgement, Hon'ble High Court has held that the co-operative bank and co-operative society is different entity and they are on different footing. We also rely upon the clarification made by CBDT in this regard, which reads as under: No. 133/06/2007-TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness of banking . Since the assessee bank is covered by the provisions of said clause (b) of clause (i) of section 194A(3) as well as provisions of clause (a) of said section, which are specific in nature, we hold that the assessee is not entitled for benefit by arguing that section 194A(3) is specific in nature. We find that wherever there is specific provision, it override the general provision. For this proposition, we rely upon the decision of the Jurisdictional Karnataka High Court in the case of M.L.Vasudeva Murthy and Sons and others vs.Joint Commissioner of Agricultural Income tax, 198 ITR 426(KAR). The Hon'ble Supreme Court in the case of South Indian Corpn. (P) Ltd. vs. Secretary, Board of Revenue AIR 1964 SC 207 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, we are of the view that in this case, assessee's case is covered by the provisions of clause (i) and (va) which are the general provisions of clause (v) of Section 194A(3) of the Act. We reproduce the section for the sake of convenience, which reads as under: Section : 194A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in Section 194A(3)(v) should be interpreted as Co-operative Society other than Co-operative Bank. We find that the ITAT Pune Bench has interpreted the word Co-operative and Co-operative Society and further the Hon'ble Kerala High Court in the case of Moolamattom Electricity Board Employees Co-operative Bank Ltd. 630 has made a clear distinction between primary credit society and a co-operative society engaged in banking business. Section 194A dealt with Co-operative Society engaged in business as banking. We find that the assessee bank is covered by the provisions of sub-clause (b) of clause (i) of Sec.194A(3) as well as the provisions of clause (viia) of Section 194(3)A which are specific in nature and 194(3)(v) which are general in nature. We find that the Hon'ble Kerala High Court in the case of ITO Ors. vs. Thodupuzha Urban Co-operative Bank and others have filed the writ before the Hon'ble Kerala High Court, wherein the Hon'ble High Court has held as under: The Income Tax Department has come up with this appeal against the judgment in O.P. No. 17082/1997. (Thodupuzha Urban Co-operative Bank Ltd., In [1999] 238 ITR 630(Ker). That petition was filed by fiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by a co-operative society, other than a co-operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking will be covered by sub-section (1), and therefore, will be liable to deduct income-tax. The appellant does not have a case before us that the 4th petitioner, the first respondent herein, does not come within any of the types of co-operative societies made mention of in sub-clause (a) of clause (viia) of sub-section (3) of section 194A of the Act. Therefore, irrespective of Whether it is a time deposit or any other type of deposit, the 4th petitioner, first respondent will not be liable to deduct income-tax, as such society is under sub-section (3) taken out of the purview of section 194A(1) of the Act. Therefore, the writ appeal fails, dismissed. W.A. No. 2270 of 1998: A reading of the impugned judgment discloses that the writ petitioner, the first respondent, was concede to be an agricultural co-operative society. Consequently, it comes within the purview of clause (viia)(a) of sub-section (3) of section 194A of the Income-tax Act, 1961. Naturally, the first respondent-society will not be liable in terms of sub-section (1) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this provisions. The finance minister in his budget speech in 1992 expressed that The system of tax deduction at source is a useful tool and one of the well recognised methods of enforcing tax compliance in many countries. However, a harassed Finance Minister has to be sensitive to the opinions of Honourable Members of Parliament even when they differ from his own convictions. He accordingly withdrawn the provision relating to deduction at source in respect of interest on term deposit with the bank and commission w.e.f., June 1992. Accordingly, Finance Act 1992 substituted a new Clause (vii) w.e.f., 1st June, 1992, sub-section 3 of Section 194A for clause (vii) and someone as earlier introduced by Finance No.2 Act w.e.f., 1st October, 1991. This amendment was made to restore the position as was before 1st October, 1991 in relation to deduct tax at source in the case of income credited or paid in respect of deposit with a bank company to which banking regulation Act 1940 applies or with a co-operative society engaged in carrying on the business of banking, including co-operative land mortgage bank or co-operative land development bank This was brought into w.e.f., 1.4.1992. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court has occasioned to interpret Section 194A(3)(v) and 194A(3)(va) of the Act. The decision of Hon'ble Kerala High Court in the case of ITO Ors. vs. Thodupuzha Urban Co-operative Bank, wherein they have clearly defined and interpreted the Section it appears that the bank did not consider the provision of section 194A(viia). Therefore, when there is a specific provision, general provision cannot be applied in the case of the assessee otherwise the provision of section 194A (viia) will become redundant. The section cannot be read in this manner. For the sake of clarity, we have analyse the Section 194A(3)(v) and (viia) which read as under: (3) The provisions of sub- section (1) shall not apply- (i) 5 where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub- section (1) to the account of, or to, the payee, does not exceed 6 ten thousand rupees................. (v) to such income credited or paid by a co- operative society 5 to a member thereof or] to any other co- operative society; (viia) to such income credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of, or to, the payee, [does not exceed- (a) ten thousand rupees, where the payer is a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution, referred to in section 51 of that Act); (b) ten thousand rupees, where the payer is a co-operative society engaged in carrying on the business of banking [emphasized] (c) ten thousand rupees, on any deposit with post office under any scheme framed by the Central Government and notified by it in this behalf; and (d) five thousand rupees in any other case]:] From the above it is clear that, in case of a payer which is a cooperative society engaged in the business of banking, the monetary limit prescribed is ₹ 10000/-. Once the interest payment exceeds that amount the TDS is to be made. Neither in clause (viia) nor in clause (i) there is anything to restrict their applicability only to non-members and therefore they apply to all depositors. Going by the above understanding, the co-op bank is required u/s 194A(1) to make TDS from the interest paid to all depositors. However co-op bank holds the view that clause (viia) applies only to non-members and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted from making TDS. c. 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. d. 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. e. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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. 14. In consistent with our decision, we dismiss the assessee's first issue by upholding the decisions of the revenue authorities. 15. The second issue relates to disallowance of dividend income of ₹ 60,12,920/, claimed by the assessee as exempt u/s.80P(2)(d) of the Act. 16. The Assessing Officer noticed that the assessee had credited gross dividend receipts of ₹ 60,12,920/- to the P L account and claimed the said income as exempt from tax in the statement of computation of income. The assessee did not give any reason for claiming the dividend income of ₹ 60,12,920/-as exempt. As per the provision of Sec. 80P(4) were inserted w.e.f. 01.03.2007 i.e. from AY 2007-08, which state that the provisions of Sec. 80P shall no ..... 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