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TMI Blog2015 (1) TMI 1406X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, we are of the view that TDS is required to be made on time deposit on interest payment after 01-07-1995. - decided against assessee. - I.T.A No. 358/PNJ/2014 - - - Dated:- 15-1-2015 - Shri P. K. Bansal And Shri D.T Garasia, JJ. For the appellant: Shri B.B. Chandargi,CA, ld.AR For the respondent : Shri S.S Sundaresan, ld.DR ORDER Shri D.T Garasia, This appeal has been filed by the assessee against the separate order of the ld. CIT(A), Belgaum dated 05/08/2014 for the assessment years 2009-10. 2. The assessee has raised the following grounds of appeal for the assessment year under consideration:- 1. The learned Commissioner of Income Tax(Appeals), Belgaum has erred in upholding the order passed by the Assessing Officer disallowing the appellant s claim under Section. 40(a)(ia) of the Income Tax Act 1961 which is opposed to law and facts of the case. 2. The learned Commissioner of Income Tax(Appeals), Belgaum has erred in upholding the Assessing Officer order of treating the Interest paid to Members without making TDS u/s 194A as not an allowable expense and disallowed the deduction u/s 40(a)(ia) of the Income Tax 1961 whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer under section 40(a)(ia) of ₹ 7,14,002/- have been discussed by the Assessing Officer in very detail in his assessment order. Briefly, the facts and reasons given by the Assessing Officer in his order are as under:- (i) The appellant is a cooperative society engaged in carrying on banking business and the assessee bank s case clearly falls under the ambit of sub-clause (b) of clause(i) of sub-section (3) of section 194A and hence, TDS provisions are attracted. As per the said provisions of sub-clause(b) of clause(i) of Section 194A(3) of the Income Tax, 1961, any co-operative society which is engaged in the business of banking shall have to deduct tax on interest paid or payable to any person on time deposits, if the amount of said interest exceeds ₹ 10,000/-. The AO has distinguished the status of the appellant assessee as co-operative bank vis a vis other co-operative societies as this became imperative due to the fact that the assessee had claimed to be an ordinary co-operative society within the meaning of clause (v) of Sec 194A(3). The AO has further dwelled on this issue and has stated that the word co-operative society is an omnibus word which inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ictional Karnataka High Court in the case of M.L Vasudeva Murthy Sons vs. Jt. Commissioner of Agricultural Income Tax (1992) 198 ITR 426. The Hon'ble Supreme Court in the case of South Indian Corporation (P) Ltd Vs. Secretary, Board of Revenue AIR 1964 SC 207 has held that the 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. Respectfully following the ratio of the above case laws including that of the Supreme Court, the AO has concluded that the assessee s case is covered by the specific provision in clause (i) (vii), rather than the general provisions of clause (v) of Sec 194A(3). While coming to this conclusion, the Assessing Officer has relied on the decision of Hon'ble I.T.A.T. Pune Bench Pune in Bagani Nivedita Sahakari bank Ltd v. ACIT (2003) 87 ITD 569 wherein, it has been held that the term co-op society in sub-clause (v) to be interpreted as co-op society other than co-operative bank and further the provisions which are specific in nature over ride the provisions which are specific in nature. (iv) The Assessing Officer has further observed that in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use (v) of sub-section (3) of section 194A as the interest payments to the extent of ₹ 7,14,002/- have been made to the members of the bank. In this regard, the AO has interpreted the word co-operative society employed in Sec. 194A(3)(v) to mean co-operative bank as decided by the I.T.A.T., Pune Bench, in Bhagini Nivedita Sahakari bank Ltd. v. ACIT 87 ITD 569 wherein, the Hon'ble I.T.A.T. has held that the term co-operative society mentioned in section 194A(3)(v) to be interpreted as co-operative society other than co-operative bank. Thus, the AO disallowed the entire payments exceeding ₹ 10,000/- made to members and non-members by the appellant bank for the reasons mentioned above. 5.2.4 On going through the provisions of section 194A(3), it is seen that the Assessing Officer is justified in disallowing the interest payments above the threshold limit of ₹ 10,000/- paid to the depositors as the appellant bank had failed to deduct tax at source thereby rendering itself liable for disallowance under section 40(a)(ia) of the I.T Act, 1961. The submissions of the appellant are not acceptable in view of the decision of Hon'ble Pune I.T.A.T. in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... member or to a non member, it has done so expressly. 5.2.6 Now coming to the circular No.9 of 2002 issued by the CBDT relied upon by the appellant, the Board vide said circular had sought to interpret the definition of word member clarifying that the word member does not include word nominal member . It was held by the Bombay High Court in the case of Jalgaon District Central Co-op Bank Ltd Anr v. Union of India 265 ITR 423 (Bom), that the Board has no power to interpret the provisions of law by way of circular. The issue at hand of the Bombay High Court was the definition of the word member as appearing in clause (v) of section 194A(3) and the powers of the Central Board of Direct Taxes to issue circulars u/s 119 which would override or detract from the provisions of the Income Tax Act. The circular No.9 of 2002 dated 11-02-2002 issued by the CBDT has been quashed and set aside by the Hon'ble High Court. 5.2.7 Therefore, the circular No.9 of 2002 dated 11-09-2002 issued by the CBDT does not help the case of the appellant. The appellant s reliance on the said circular is found to be ill founded. 5.2.8 In order to understand the legislative intent in this r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b. 194A(2) Omitted c. 194A(3)- Exceptions to Section 194A(1) [from clause (i) to (x)] d. 194A(4)- Discretion to increase or reduce the TDS made. 2. As per section 194A(1) TDS provisions are applicable in case of the assessee, we are not at all disputing the same. It is crystal clear as mentioned in the section 194A(1), but, the co-operatives are exempted from this legal duty under sub-section (3) clause(v). We can apply the analogy of the definition of Income taxable under the Income tax Act and deductions and exclusions under the Act available for the taxable income. Here I will take one instance to make it clear, it will not be correct on the part of the Assessing Officer if, he reads only the definition of income clause disregarding the deductions and beneficial provisions available to the assessee under other sections of the Act, which is not at all called for and not as per the intention of the law. In this case also, as per the section Assessee should make the TDS where interest is paid on time deposits to non-members. 3. The clause (v) of the sub section(3) of 194A is specific and not general. It is well settled that, what is not contemplated in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n issued by the CBDT it is clear that, the assessee is eligible, as per section 194A(3)(v) of the act and accordingly not liable to make TDS on interest paid on term deposits to members. 8. On the other hand, the ld.DR has relied on the decision of the ld.CIT(A) and the earlier orders of the Hon'ble I.T.A.T, Panaji passed in ITA No.85/PNJ/2013 in the case of Bagal Coat Co-op, ITA Nos.327-329 CO No.31/PNJ/2014 in the case of The Dainvadriya Sahakara Bank, ITA Nos. 237-240/PNJ/2014 ITA Nos.233 to 236/PNJ/2014 in the case of M/s. Saraswat Co-op Bank Ltd and I.T.A No. 344/PNJ/2014 in the case of Shree Basaveshwar Co-op. Bank Ltd 9. Having heard the rival contentions of both the parties and looking to the facts and circumstances of the case, we are of the view that the issue is now controversy that the assessee has paid interest on term deposits to the members/depositors without deducting the TDS under Section. 194A of the Act. The assessee contended that the provisions of TDS are not attracted in view of sub section(3)(v) of section 194A of the Act as interest payment to that extent has been made to members of bank. We find that in the case of Shreee Basaveshwar Co-opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king; We find that the Co-operative is also interpreted by the Hon ble jurisdictional Karnataka High Court, wherein in the case of CIT vs. Yeshwanthpur Credit Co-operative Society Limited in ITA 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-operative Societies Act, 1959 Nature of business 1. As defined in Section 6 of Banking. Regulation Act. 2. Can open, savings bank account, current account, overdraft account, cash credit account, issue letter of credit, discounting bills.. of exchange, issue cheques, demand drafts (DD), Pay orders, Gift cheques, lockers, bank guarantees etc. 3. Co-operative Banks can act as clearing agent for cheques, DDs, pay -orders and other forms. 4. Banks are bound to follow the rules, regulations and directions i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive 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. Looking to the facts and circumstances of the case the Hon ble High Court has interpreted the difference between Co-operative Bank and Co-operative Society. The Co-operative Bank and Co-operative Society is also interpreted in the case of Bhagani Nivedita Sahakari Bank Ltd. vs. ACIT (2003) 87 ITD 567 where in it is held that Co-operative Society mentioned 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 bankin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons pay interest on deposits exceeding the prescribed limit. Sub-section (3)(viia) reads as follows : (3) The provisions of sub-section (1) shall not apply (viia) to such income credited or paid in respect of (a) deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank; (b) deposits (other than time deposits made on or after the 1st day of July, 1995) with 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; The result will be that 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. 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, irrespe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to cover new areas of payments in the nature of commissions, interest paid by banks on time deposits and withdrawals from the National Savings Scheme. To minimise the inconvenience for small depositors, tax will be deducted at source only in respect of payments in excess of ₹ 2500 per year. Those receiving payments in excess of the limit but not having taxable income will have the facility of collecting payment with no tax deduction by filing a declaration in the prescribed manner. Such provision relates to TDS introduced by Finance Act. 1991. Invited consideration criticism from taxpayers, bankers above inconvenience and difficulty in implementation of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 572/Bang/2013, wherein the Tribunal has interpreted the Section 194A(3)(v) which grants an exemption from TDS to such income credited or paid by the Co-operative Society. They have interpreted the word member mentioned in Section 194A(3)(v) of the Act. The Tribunal has also relied upon the decision of Hon ble Bombay High Court and the circular issued by CBDT and they relied upon circular issued by CBDT following the judgement of Jalgaon District Central Co-operative Bank Ltd. Anors. Vs. Union of India, they were of the opinion that the Co-operative Bank are not subject to TDS under 194A. We do not agree with the finding of ITAT, Tribunal as Hon ble Kerala High Court has occasioned to interpret Section194A(3)(v) and 194A(3)(viia) 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 Bench did not consider the provision of section 194A(3)(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(3)(viia) will become redundant. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive society engaged in carrying on the business of banking, there is no exemption for the interest payments in respect of time deposits made on or after 01-07-1995. Further,194A(3)(i) lays down monetary limits up to which is there is no requirement of TDS. The said monetary limits are different for different category of payers. The said clause is reproduced below for the sake of clarity: 194A(3) The provisions of sub-section (1) shall not apply- (i) 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- (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 Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use, the provisions of section 194A are not applicable to income by way of interest credited or paid in respect of deposits with a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act), or with a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank). All such banking institutions are, therefore, no longer required to deduct tax from interest paid or credited to the accounts of a resident depositor. (emphasized) From the above circular it is very clear that, by virtue clause(vii), a co-op bank is exempted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a co-operative society engaged in carrying on the business of banking. (emphasized) The above explanatory note leaves no doubt, whatsoever, about the applicability of clause (viia) to a cooperative society engaged in the business of banking. 3.Principle of Generalia specialibus non derogant The Hon ble jurisdiction High court in M.L.Vasudeva Murthy Sons vs. Jt. Commissioner of Ag IT 65 Taxman 185(Kar) has observed that a specialprovision normally excludes the operation of a general provision . 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, 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. Respectfully following th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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