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TMI Blog2018 (5) TMI 1794X X X X Extracts X X X X X X X X Extracts X X X X ..... ailure to deduct tax at source from the interest payments to its members and non-members by invoking the specific provisions of sec. 194A of the Act. 4. The Ld. DR submitted that the assessee is a co-operative society registered under the Kerala Co-operative Societies Act, 1969 and is listed as a scheduled bank for conducting banking business under Banking Regulations Act, 1949 after obtaining license from RBI. Therefore, it is governed by the RBI rules to commence and carry on banking business. Further, it was submitted that the judgments of the Jurisdictional High Court in the case of Moolamattom Electricity Board Employees' Co-operative Bank Ltd. & others (238 ITR 630) and ITO and another vs. Thodupuzha Urban Co-operative Bank Ltd. and another (264 ITR 36) are not applicable to the facts of this case as the assessees therein are not governed by the RBI rules. 4.1 The Ld. DR relied on the order of the ITAT Panaji Bench in the case of The Belgaum Industrial Co-operative Bank Ltd. vs. JCIT in ITA No. 358/PNJ/2014 dated 15/01/2015. The Ld. DR also relied on the order of the Delhi Bench of the Tribunal in the case of Noida Commercial Co-operative Bank Ltd. vs. ITO(TDS) (44 CCH 442) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that a subsequent general enactment is not intended to interfere with the special provision unless it manifests that intention very clearly. The maxim has been frequently applied to solve apparent conflicts between provisions of the same statute or of different statutes and applying of said maxim to the instant case, the argument that section 194A(3)(v) absolves the assessee from deducting TDS, cannot be accepted. The Ld. DR submitted that since section 194A(3)(i)(b) of the Act was not brought to the notice of the Bench while passing order in Kashipur Urban Cooperative Bank Ltd. vs. ITO (ITA No.5329/D/2013 for the assessment year 2012-13) cannot be called a good law and it was a per incuriam order and so cannot be called a valid precedent to bind the Tribunal. The Ld. DR submitted that reliance on CBDT circular (supra) cannot be countenanced because it is a trite law that CBDT circular cannot over-ride the prescription of statute passed by the parliament and there is no quarrel that assessee is a co-operative society engaged in banking business and the exemption for deducting tax at source for payment of interest is only up to Rs. 10,000/-. So, according to the Ld. DR, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n I.T.A. No. 311/Coch/2012 vide order dated 22-03-2013 wherein it was held as under: "11. We have considered the rival submissions on either side and also perused the material available on record. In the case of Kadachira Service Co-operative Bank Ltd. (supra), this Tribunal found that the taxpayers were not carrying on any banking activity and, therefore, they are agricultural cooperative societies. In view of the specific provisions exempting the agricultural co-operative societies from deduction of tax in respect of agricultural co-operative societies this Tribunal found that section 194A(3)(viia) is not applicable to agricultural co-operative societies. In this case, it appears that the taxpayer was accepting deposits and maintaining savings bank account and current bank account. The taxpayer is providing cheque facilities to its customers. Apart from this, the taxpayer is engaged in the business of purchase and sale of cement, hardware, medicine and home appliances. The loan appears to have been given on pledging of gold jewellery and mortgage of land. In view of the admitted fact that the taxpayer is maintaining savings account, current account and providing cheque facility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction of banking business: (2) the paid-up share capital and reserves of which are not less than one lakh of rupees: and (3) the bye-laws of which do not permit admission of any other co-operative society as a member: Provided that this sub-clause shall not apply to the admission of a co-operative bank as a member by reason of such co-operative bank subscribing to the share capital of such Co-operative society out of funds provided by the State Government „for the purpose" 8.5 From the aforesaid definition, it is apparent that if the co-operative society complied with all the three conditions; firstly that the primary object or principle business transacted by it is a banking business, secondly, the paid up share capital and reserve of which are 1 lakh or more and thirdly, by laws of the co-operative society do not permit admission of any other co-operative society as a member, it will be regarded to be primary co-operative bank. If co-operative society does not fulfill any of the conditions, it cannot be regarded to be a primary co-operative bank. Therefore, in the case of the Assessee we have to examine on the basis of the facts and materials on record whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t cannot be aid that the primary object or principal business of the bank is to provide financial accommodation to its members for agricultural purposes or for the purposes connected with agricultural activities. 8.7 On the basis of these objects whether it can be said that the primary object or principal business of the Assessee is transaction of banking business? Banking business has been defined u/s 5(b) of the Banking Regulation Act in the following manner : " banking" means the accepting, for the purpose of lending or in vestment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise." From the said definition it is clear that banking means accepting deposit of money from the public which is repayable on demand or otherwise and withdrawal of these deposits by cheque, draft, order or otherwise and these deposits are accepted for the purpose of lending or investment. These deposits must be accepted from the public, not only from the members. These deposits must be repayable on demand or otherwise and could be withdrawn by the depositor by cheque, draft or otherwise. We notice that the CIT(A) has given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from the persons who have no voting right. So far as the second condition is concerned, there is no dispute that the paid up share capital and reserves in the case of the Assessee is more than Rs. 1 lac. Therefore, the Assessee satisfies the second condition. 8.9 Thus, we notice that all the three conditions in the case of the assessee for becoming primary cooperative bank stand complied with. 8.10 We have gone through the decision of the Hyderabad bench of this Tribunal in the case of The Citizen Cooperative Society vs. Addl. CIT, 41 305 (Hyd). We notice that this decision is applicable to the facts of the case before us. In that decision, under para 23 the Tribunal has given a finding that the Assessee is carrying on banking business and for all practical purposes it acts like a co-operative bank. The Society is governed by the Banking Regulations Act. Therefore, the society being a co-operative bank providing banking facilities to members is not eligible to claim deduction u/s 80P(2)(a)(i) after the introduction of sub-section (4) to section 80P. In view of this finding, the Assessee was denied deduction u/s 80P(2)(a)(i). We have also gone through the decision of the Banga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are not established for the purpose of doing "banking" as defined in section 5(b) of the Banking Regulation Act, 1949." This decision, in our opinion, is not applicable to the case before us because the provisions of Sec. 80P(2)(a)(i), as we have already held in the preceding paragraphs, are applicable to a co-operative society which is engaged in carrying on banking business facilities to its members if it is not a co-operative bank. We have also gone through the decision of this Bench in the case of DCIT vs. Jayalakshmi Mahila Vividodeshagala Souharda Sahakari Ltd. in ITA No. 1 to 3/PNJ/2012 dt. 30.3.2012 (supra). While discussing this issue, after analysing the aims and objects of the co-operative society under para 12 of its order, this Tribunal has held as under : "12.From the aforesaid objects, it is apparent that none of the aims and objects allows the assessee cooperative society to accept deposits of money „from public for the purpose of lending or investment. In our opinion until and unless that condition is satisfied, it cannot be said that the prime object or principal business of the assessee is banking business. Therefore, the assessee will not comply with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adras High Court in the case of Coimbatore District Central Co-operative Bank Ltd. vs. ITO (382 ITR 266) had an occasion to go into the provisions of sec. 194A of the I.T. Act which is similar to the issue before us. In that case, after elaborate discussion, the High Court opined as under: "45 The second substantial question of law that we have framed for consideration is as to whether there exists a substantial or marked difference between a co-operative society engaged in carrying on banking business and a co-operative bank and if so, under which category the appellant would fall. The answer is too obvious in view of the foregoing discussion. Except the provisions of sub-clause (b) of clause (i), subclause (a) of clause (iii) and sub-clauses (a) and (b) of cause (viia) of subsection (3) of section 194A, we do not find anywhere a dichotomy created between a co-operative bank and a co-operative society engaged in carrying on banking businesses. Therefore our answer to the second substantial question of law would be that none of the State or Central enactments such as the Tamil Nadu Co-operative Societies Act, 1983 the Multi-State Co-operative Societies Act, 2002 the Reserve Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the Multi-Unit Co-operative Societies Act, 1942 were debated after India attained independence and a co-operative movement was already at the dawn in the State of Maharashtra where sugarcane was grown to a large extent. (v) Finding that the benefit granted by the 1970 amendment was applicable only to the incomes credited or paid in respect of deposits made with co-operative societies carrying on the business of banking, the Government came up with the next amendment with effect from April 1, 1971, to enlarge the scope of the benefit to members of co-operative societies irrespective of whether the society carried on banking business or not. In other words, by the amendment that came with effect from April, 1, 1971, two sets of exemptions were granted, one was in respect of income credited or paid in respect of deposits made with a co-operative society carrying on the business of banking and the other was the income credited or paid by a co-operative society to a member or to any other society. To put it differently, one more category which was excluded from the application of section 194A was inserted with effect from April 1, 1971. (vi) After nearly 20 years, the Government c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . By this amendment, the position that prevailed prior to October 1, 1991, was restored. In fact, the next Circular bearing No. 636 dated August 31, 1992 explained the rationale for the restoration of the position on the following lines: "Modification of the provisions regarding deduction of tax at source:........ 49.1 A large number of representations have been received from members of public, representative bodies and banks pointing out various difficulties which had arisen on account of the operation of these provisions. Keeping in view these difficulties, the Act amends, - (a) section 194A of the income-tax Act, to restore the position as obtaining before October 1, 1991, in relation to deduction of income tax a source in the case of income 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 cooperative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank), and (b) section 194H of the Income-tax Act, to provide that the deduction of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson. Even individuals and Hindu undivided families are covered by the proviso subject to certain conditions. Therefore the exclusions found in sub-section (3) are naturally to be construed stricto sensu. 53. But unfortunately, if a taxing statute and an exclusion clause contained in the taxing statute are to be construed strictly, the provisions themselves should make it clear as to who are the persons who are to be charged or exempted and what are the circumstances under which they are charged or excluded. Though the legislative intent appears to be to deal with four different types of co-operative societies, the categorization appears to have been made by the various sub-sections and clauses of section 194A without defining each one of those categories. The four categories of co-operative societies sought to be dealt with under section 194A are (a) co-operative societies; (b) co-operative societies carrying on the business of banking; (c) co-operative societies banks; (d) primary agricultural credit society, primary credit society, co-operative land mortgage bank and co-operative land development bank. 54. While there is no difficulty in clearly identifying three out of tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ix), the following clauses shall be substituted, namely:- (ix) to such income credited by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal; (ixa) to such income paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income paid during the financial year does not exceed fifty thousand rupees,' (e) in Explanation 1 below clause (xi), for the word 'excluding', the word 'including' shall be substituted." The relevant portion of the memorandum explaining the clauses in the Finance Bill reads as follows "Section 194A(1) read with section 194A(3)(i) of the Act provide for deduction of tax on interest (other than interest on securities) over a specified threshold, i.e., Rs. 10,000 for interest payment by banks, co-operative society engaged in banking business (co-operative bank) and post office and Rs. 5,000 for payment of interest by other persons. Further, sub-section (3) of section 194a, inter alia, also provides for exemption from deduction of tax in respect of following interest payments by co-opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anks, the Finance Act, 2006, and Finance Act, 2007, amended the provisions of the Act to provide for co-operative banks a taxation regime which is similar to that for the other commercial banks. Therefore, there is no rationale for treating the co-operative banks differently from other commercial banks in the matter of deduction of tax and allowing them to avail the exemption meant for smaller credit co-operative societies formed for the benefit of small number of members. However, as mentioned earlier, a doubt has been created regarding the applicability of the specific provisions mandating deduction of tax from the payment of interest on time deposits by the co-operative banks to its members by claiming that general exemption provided is also applicable for payment of interest to member depositors. In view of this, it is proposed to amend the provisions of the section 194A of the Act to expressly provide from the prospective date of June 1, 2015 that the exemption provided from deduction of tax from payment of interest to members by a co-operative society under section 194A(3)(v) of the Act shall not apply to the payment of interest on time deposits by the co-operative banks to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the amendment made in Section 194A of the Act by Finance Bill, 2015 with effect from 01.06.2015, found that the express language of Section 194A (3) clearly indicates that the exemption provided for deduction of tax from the payment of interest to the members by a co-operative society under Section 194A(3)(v) of the Act shall not apply to payment of interest on any deposit by the cooperative banks to its members with effect from 01.06.2015. The Madras High Court found that after 01.06.2015, the assessee cannot escape from the liability of deduction of tax at source. The Madras High Court further found that the amendment made in Section 194A(3) of the Act was not retrospective in operation. It is intended to have prospective effect with effect from 01.06.2015. Accordingly, the question was answered in favour of assessee. It can be seen from the last portion of the portion extracted above that the very note explaining the clause was specific to the effect that the proposal was to bring forth an amendment with prospective effect from 1.6.2015. There is no dispute now that on and from 1.6.2015 the assessee cannot escape the liability from deduction of tax at source. Once a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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