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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 ..... terest payments to its non members only. This ground of the appeals of the Revenue is partly allowed. - I.T.A. Nos.527-529 & 526/Coch/ 2015 - - - Dated:- 31-5-2018 - S/Shri Chandra Poojari And George George K., JJ. Revenue by Shri A. Dhanaraj, Sr. DR Assessee by Shri Mohan Pulickal, CA ORDER Chandra Poojari, These appeals filed by the Revenue are against the different orders of the CIT(A), Thrissur for different assessment years. 2. There was a delay of 125 days in filing these appeals before the Tribunal. The Revenue has filed a condonation petition accompanied by affidavit stating administrative reasons for the delay in filing the appeals. We have considered the argument of the Ld. DR and gone through the condonation petition alongwith the affidavit. We are satisfied about the reasons explained by the Revenue. Accordingly, we condone the delay of 125 days and admit the appeals for adjudication. 3. The Revenue has raised the common ground in these appeals with regard to deletion of addition made by the Assessing Officer u/s. 40(a)(ia) of the Act for failure to deduct tax at source from the interest payments to its members and non-members by in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to an amount of ₹ 10,000/-. Therefore, exemption for interest is up to ₹ 10,000/-. Thus it is seen that threshold limit of ₹ 10,000/- has been prescribed by the said provision, meaning any interest disbursal above ₹ 10,000/- attracts TDS. The Id. AR's contention that since section 194A(3)(v) exempt any interest paid by co-operative society to its members irrespective of nature of deposit or amount, the action of the assessee society engaged in banking, not to deduct Tax at source is valid, is not correct. The Ld. DR submitted that section 194A(3)(v) is a general provision which encompasses with it co-operative society as a whole, which may be termed as genus, whereas, the assessee co-operative society is into banking can be termed as a species of the said genus; and, section 194A(3)(i)(b) is a special provision for co-operative society engaged in banking business. The maxim generalia specialibus non derogant means literally that general provisions will not abrogate special provisions. When the legislature has given its attention to a separate subject and make provision for it, presumption is that a subsequent general enactment is not intended to interfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judgment rendered in the case of Thodupuzha Urban Cooperative Bank (supra) was applicable to the assessee s case. It is settled law that while interpreting a taxing statute, if two interpretations are possible, the one favourable to the assessee should be adopted. For the same proposition, the Ld. AR relied on the judgments of the Jurisdictional High Court in the case of Moolamattom Electricity Board Employees Co-operative Bank Ltd. others (supra) and Thodupuzha Urban Co-operative Bank Ltd. and another (supra). The Ld. AR submitted that these are the binding decisions of the Jurisdictional High Court which were followed by the CIT(A) and the order of the CIT(A) is to be upheld. 6. We have heard the rival submissions and perused the material on record. Originally this issue came up for consideration before this Tribunal in the case of Pinarayi Service Co-operative Bank Ltd. others vs. ITO (152 ITD 90) wherein it was held as under: 42.1 We have heard both the parties. We find a similar issue came up for consideration of the Cochin Bench of Tribunal in the case of Karivelloor Service Co-operative Bank Ltd. vs. ITO in I.T.A. No. 311/Coch/2012 vide order dated 22-03-2013 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inding in the case of Kunnamangalam Co-operative Bank Ltd. vs. ITO in ITA No. 156/Coch/2014 dated 25/07/2014 wherein it had discussed the meaning of the word co-operative society as under: 8.2 Now, the question before us is whether the Assessee is a cooperative bank or not. Co-operative Bank as defined in Part V of the Banking Regulations Act, 1949 is as under : Co-operative bank means a state co-operative bank, a central cooperative bank and a primary co-operative bank: 8.3 From the definition of Co-operative bank it is apparent that Cooperative bank means state co-operative bank, a Central Co-operative Bank and a Primary Co-operative bank. It is not the case of the revenue that the assessee is a state Co-operative bank or Central Co-operative bank. We have therefore to find whether the assessee is a primary Co-operative bank. 8.4 The Primary Co-operative bank is defined under section 5 clause (CCV) of Banking Regulation Act 1949 as under:- (CCV) primary co-operative bank means a co-operative society, other than a primary agricultural credit society- (1) The primary object or principal business of which is transaction of banking business: (2) the paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different schemes for collection, processing and the marketing of agricultural produce of the members; 6) In order to lend money to members, take loans from government and other co-operative institutions; 7) To provide banking facilities to members including encashment of cheque, drafts, bills etc.; 8) To acquire movable and immovable assets for the functioning of the bank; 9) To collect deposits from members and customers under different deposit Schemes; 10) Marketing of the agricultural produce of the members, cooperating with government and Quasi government agencies; 11) To start branches and extension counters within its area of operation if necessary for the development of the bank; 12) To acquire and market industrial products for the benefit of the members; 13) To issue loans to members under hire purchase scheme for purchasing household articles, machinery, jeep, autorikshaw, car etc. 14) To accept deposits from primary non-agricultural co-operative societies. Out of these, only four objects (i.e. clause no. 2,4,5 and 10) are related to agriculture or agricultural operations. So from the bye-laws of the bank it cannot be aid that the primary o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be issued to State Government, State Co-operative bank, District Co-operative bank, Kerala Coconut Farmer s Co-operative Federation, Local bodies and trust falling under the area of operation of the bank. There is no specific clause in the Bye-laws of the bank which do not permit admission of any other co-operative society as a member. 18. The assessee Co-operative bank is registered as a Primary Agricultural Credit Society, but as narrated above, it does not satisfy the criteria or conditions stipulated in the Banking Regulation Act, 1949. So it squarely falls under the operation of Sub-section (4) of Section 80P of Income Tax Act, 1961. As such the assessee is not eligible for deduction u/s. 80P of the Income Tax Act, 1961. 8.8 The deposits accepted are used by the Assessee co-operative society for lending or investment. This fact has not been denied. Even out of the deposits so received, the loans have been given to the members of the society in accordance with the objects as enumerated above. Thus, in our opinion, condition no. 1 stands satisfied and it cannot be said that the Assessee society was not carrying on banking business as it was accepting deposits from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State Legislature for issuing a circular. The issue does not relate to the claim of deduction u/s 80P(2)(a)(i). While dealing with this issue, the Hon'ble High Court under para 12 observed as under : 12. It is not possible to accept this contention. The petitioners are not the banking institutions coming under the purview of the Banking Regulation Act. They are the co-operative societies registered under the Act, and as such they are governed by the provisions of the Act passed by the State Legislature. Consequently, the State Government has control over them to the extent the Act permits. Major activities of the petitioners are to finance its members. For the purpose of financing its members, they borrow money from the financing agencies and repay the same. Merely because the petitioners-the co-operative societies in question-are required to advance loans to their members, they do not cease to be co-operative societies governed by the Act nor can they be treated as banking companies. It is also not possible to hold that these activities of the petitioners amount to banking as contemplated under the Banking Regulation Act, 1949, inasmuch as these co-operative societies ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout TDS interest on time deposit made with the co-operative bank on or after 1-7- 1995. The Board has considered the matter and it is clarified that a member of a co-operative bank shall receive interest on both time deposits and deposits other than time deposits with such co-operative bank without TDS under section 194A by virtue of the exemption granted vide clause (v) of sub-section (3) of the said section. The provisions of clause (viia) of the said sub-section are applicable only in case of a nonmember depositor of the co-operative bank, who shall receive interest only on deposits other than time deposits made on or after 1/7/1995 without TDS under section 194A. 6.3 The Ld. AR further contended that in view of the above circular, the issue in dispute is to be decided in favour of the assessee which is binding on the Revenue as held by the Supreme Court in the case of K.P. Varghese vs. ITO (131 ITR 597). 6.4 Further, it was noticed that in the case of ACIT vs. Visakhapatnam Cooperative Ltd. (47 SOT 295), it was held that the assessee being a cooperative bank is exempt from TDS provisions as far as the payment of interest was to its own members. Recently, the Madras Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 968, which came into effect from 1st April, 1968, clause (v) was inserted, so as to exclude the income credited or paid by a co-operative society to any other co-operative society. In other words, by the 1968 amendment, the liability to deduct tax at source was not there in respect of co-operative societies. The payment of interest to members was not covered even at that time. (iii) By the next amendment, which came into effect from April 1, 1970, the income credited or paid in respect of deposits made with a co-operative society engaged in carrying on the business of banking including a co-operative land mortgage bank or cooperative land development bank was excluded from the liability to deduct tax at source. Therefore, we can take it that it was only from April 1, 1970, that the income credited or paid in respect of deposits made with co-operative societies engaged in banking business, became exempt from liability to deduct tax at source. (iv) The reason perhaps as to why the benefit was sought to be extended to the deposits made in co-operative societies carrying on the business of banking was that the colonial acts namely, the Cooperative Societies Act, 1912 and the Mult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a view to improving tax compliance, section 194A of the Income-tax Act has been amended to secure deduction of tax at source from interest on time deposits with the aforesaid banking companies and co-operative societies engaged in carrying on the business of banking. However, the requirement of deduction of tax at source will not apply in the case of interest on time deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative bank. Further, there will be no requirement of deduction of tax at source if the amount of interest does not exceed two thousand five hundred rupees in a financial year. The term of time deposits has been defined to mean deposits, excluding recurring deposits, repayable on the expiry of fixed periods. Thus, interest on savings bank accounts and recurring deposit accounts is not subject to deduction of tax at source. 48. The amendment inserted with effect from October, 1, 1991, appears to have drawn flak within a few months. It appears that representations poured in from several quarters, forcing the Government to come up with yet another amendment with effect from June 1, 1992. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. The amendment provides for deduction of income-tax at source at the rates in force (at present, 10 per cent. in the case of resident non-corporate persons and 20 per cent. Plus surcharge thereon in the case of domestic companies) from payment of interest exceeding ten thousand rupees in a financial year on time deposits made on or after July 1, 1995, with a banking company or with a co-operative society engaged in carrying on the business of banking. The aforesaid limit of ten thousand rupees shall be computed with reference to the income credited or paid by a branch of the banking company or the co-operative society, as the case may be. The interest on time deposits made 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, will not be subject to the requirement of deduction of income-tax at source. The expression time deposits is defined to mean deposits, excluding recurring deposits, repayable on the expiry of fixed period. 46.3 The amendment will take effect from July 1, 1995. 52. As we have indicated earlier, sub-section (1) of section 194A imposes an obligation upon eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne 1, 2015, sub-section(3) of section 194A stands amended. Clause 42 of the Finance Bill, 2015, reads as follows: 42. In section 194A of the Income-tax Act, in sub-section (3), with effect from the 1st day of June, 2015, - (a) in clause (i), after the proviso, the following proviso shall be inserted namely:- Provided further that the amount referred to in the first proviso shall be computed with reference to the income credited or paid by the banking company or the co-operative society or the public company, as the case may be, where such banking company or the co-operative society or the public company has adopted core banking solutions . (b) in clause (v), for the words paid by a co-operative society to a member thereof or , the words and brackets paid by a co-operative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a co-operative society shall be substituted; (c) after clause (v), the following Explanation shall be inserted, namely :- Explanation.- For the purposes of this clause, co-operative bank shall have the same meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egories. This has led to dispute as to whether the cooperative banks, for which the specific provisions of tax deduction exist in the form of section 194A(1), section 194A(3)(viia)(b) and section 194A(3)(viia)(b) of the Act, can take the benefit of general exemption provided to all co-operative societies from deduction of tax on payment of interest to members. The matter has been carried to judicial forums and in some cases a view has been taken that the provisions of section 194A(3)(viia)(b) of the Act makes no distinction between members and non-members of co-operative banks for the purposes of deduction of tax, hence, the co-operative banks are required to deduct tax on payment of interest on time deposit and cannot avoid the same by taking the plea of the general exemption provided under section 194A(3)(v) of the Act. This is because the specific provision of tax deduction provided under section 194A(3)(i)(b) and 194A(3)(viia)(b) of the Act for co-operative banks override the general exemption provided to all co-operative societies for non-deduction of tax from interest payment to members under section 194A(3)(v) of the Act. As there is no difference in functioning of the co-op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom June 1, 2015. 65. Therefore our answer to the first substantial question of law would be in favour of the assessee. 6.5 Later on, this judgment was considered by the Chennai Bench of the Tribunal in the case of Coimbatore District Central Co-operative Bank Ltd. Another vs. ITO (46 CCH 372) after taking note of the amendment made by the Parliament in Section 194A(3) of the Act by Finance Bill, 2015 with effect from 1,6.2015, it was held that the express language of Section 194A does not indicate any retrospectivity, therefore, the assessee cannot escape the liability from deduction of tax at source from 1.6.2015. The Madras High Court clarified that before 1.6.2015, the assessee was not expected to deduct tax on the interest paid to its members. Accordingly, the question was answered in favour of assessee. In. view of this judgment of Madras High Court, according to the Ld. counsel, the assessee need not deduct tax in respect of interest paid till 31.05.2015. This judgment of Madras High Court was subsequently followed in the assesse's own case by judgment dated 29.10.2015. The Madras High Court considered an identical issue in assessee's own case in TC(A) No.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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