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TMI Blog2015 (1) TMI 1407X X X X Extracts X X X X X X X X Extracts X X X X ..... said to have been accrued and the said amount cannot be brought to tax. The Assessing Officer should verify from the P 10,000/- u/s. 40(a)(ia) - Held that:- As decided in ACIT vs. The Belgaum District Central Cooperative Bank Ltd., Belgaum [2015 (1) TMI 743 - ITAT PANAJI] 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. Assessee cooperative bank is liable for TDS u/s. 194. We therefore, dismiss the appeal of the assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... a Ca-operative Bank. This has been decided by the Hon, Tribunal in case of ACIT vs. Vishakhapattan Co-operative Bank Ltd on 29.11.2O11. As such the distinction made is futile one. f) The interest amounting to ₹ 53,00,668/- has been paid to members of the Society Bank. The members of the Society are the owners of the Society. The owners have contributed the Capital in form of Deposit. And therefore for their own amount they themselves cannot be liable for TDS. It is clear that the interest has been paid on Capital by the partners and the same is not subject of TDS Similarly the Capital contribution by the members by way of Deposit is not liable for TDS. Therefore there is wrong application of law and hence, need corrections.. g) The reliance has been placed on am Board Circular regarding the ordinary members and nominal members and the circular has made the distinction between the member and nominal member and the Bombay High Court has struck down this definition and therefore the circular has been withdrawn. Here on the case of hand there is no dispute regarding the member or nominal member. The dispute is regarding the payment of Interest to members. As the interest has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anking company. As per the provisions of sec. 43D of the Act, interest on assets classified as Bad and Doubtful debts is to be accounted as per RBI guidelines. As per sec. 43D of the Act, a Cooperative Bank if it is scheduled bank, the interest in relation to bad and doubtful debts is taxable in the previous year in which it is credited to P & L a/c or on receipt of interest whichever is earlier. This is applicable to assets categorized as bad and doubtful debts as per RBI guidelines. The interest is to be recognized when there is right to receive. But in respect of NPA accounts the same is not guaranteed as the debt itself is doubtful. If interest on such account is taxed it will be against the spirit of law. The Assessing Officer was of the view that the provisions of Karnataka Co-operative Societies Act as well as the circulars issued by the Reserve Bank of India for recognition of interest income, stipulate that a cooperative bank has to account for the interest income on loans on cash basis. Since the assessee being a cooperative bank is not an exception to this. As per the provisions of sec 145(1) of the Act, the assessee can follow either „cash system‟ or „ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the addition made by the Assessing Officer of ₹ 31,87,638/- cannot be sustained in law. Accordingly, the addition of ₹ 31,87,638/- on account of interest receivable on NPA made by the Assessing Officer is deleted." The Department is in appeal against the decision of CIT(A). 5. The learned DR submitted before us that the assessee has not accounted the interest accrued on the loans which are clarified as „Non Performing Assets" by ignoring the provisions of sec. 43D of the Act and relied upon the decision of the Hon‟ble Karnataka High Court. Sec 43D which is amended on 01/04/2002 has provided this benefit of not accounted the interest on non performing assets or doubtful debt is in the Act itself. The cooperative bank does not fall under the category of sec 43D of the Act. The Commissioner has not verified whether the assessee is following mercantile system of accounting or hybrid system of accounting. On 01/04/1989, there is an amendment in sec 145 of the Act. From 01/04/1989, the assessee either can follow cash system of accounting or mercantile system of accounting and the assessee did not follow hybrid system or mixed system of accounting to compute i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. 43D is applicable to National Housing Bank, public financial institution or a scheduled bank or a State financial corporation or a State industrial investment corporation. The assessee is a cooperative bank and is not a scheduled bank, therefore sec. 43D is not applicable. We find that from the definition of scheduled bank as per sec. 36(1)(viia) of the Act, cooperative bank has been omitted by the Finance Act, 2007 w.e.f. 01/04/2007. Therefore, we are of the view that CIT(A) is not justified in holding that sec. 43D is applicable to the assessee-bank. In respect of the assessee, interest accrued on non-performing assets which we can verify from the assessment order that the assessee has submitted the details of NPA account, interest receivable on various types of loans vide his submission dated 11/11/2011 wherein the assessee has not credited the interest receivable of ₹ 31,87,638/- to the P & L account. We rely upon the decision of the Jurisdictional High Court- Karnataka High Court in Canfin‟s (2011) 5 Tax (DT) 49593 and the decision of Hon‟ble Supreme Court in the case of UCO Bank vs. CIT (1999) 237 ITR 889. We are of the view that the Assessing Officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of clause-(v) of sub section (3) of section 194A as the interest payments to the extent of ₹ 53,00,668/- have been made to the. members of the bank in this regard, the AD has interpreted the word 'co operative society' as employed in Sec 194A(3)(v) to mean co-operative society other than co-operative bank as decided by the ITAT, Pune Bench, in Bhagani Nivedita Sahakari bank Ltd v. MIT 87 ITD 569 wherein, the Hon'ble TAT has held that the term 'co-operative society' mentioned in section 194A(3)(v) to be interpreted as co-operative society other than cooperative bank. Thus, the AO disallowed the entire interest payments exceeding ₹ 10,000/- made to the members and non-members by the appellant bank for the reasons mentioned above. 5.1.4 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 IT. Act, 1961. The submissions of the appellant are not acceptable in view of the decision of Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to member or to a fl member, it has done so expressly. 5.1.6 Now coming to the circular No.9 of 2002 issued by the CBDT relied upon by the ant, 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 (6am), 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 194(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 11-09-2002 issued by the CBDT has been quashed and set aside by the Hon'ble High Court. Therefore, the circular No.9 of 2002 dated 11-09-2002 issued by the CBOT does not help the case of the appellant The appellant's reliance on the said circular is found to be ill founded, 517 In order to understand the legislative intent in this regard, it is necessary to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um in I.T.A.No. 324/PNJ/2013 dated 14/11/2014 wherein this Tribunal has taken a decision that the assessee cooperative bank is liable for TDS u/s. 194 of the Act. The Tribunal has held as under:- "9. We have heard the rival contentions and perused the record of the case. The short question before us for adjudication, whether or not, the assessee co-operative bank engaged in the banking business is liable for TDS or not. We find that the assessee's case 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 Act, 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 amounts of said interest exceeds ₹ 10,000/-. The status of the assessee is co-operative bank vis-a-vis other co-operative societies. This has become important due to the fact that the assessee had claimed to be an ordinary co-operative society within the meaning of clause (v) of Section 194A(3) of the Act. The co-operative society incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Society are bound by rules and regulations as specified by in the co-operative societies act. Filing of returns Co-operative banks. have to submit annual return to RBI every year Society has to submit the annual return to Registrar of Societies. Inspection RBI has the power to inspect accounts and over all functioning of the Bank Registrar has the power to inspect accounts and over all functioning of the bank. Part V of the Part V Part V of the Banking Regulation Act is applicable to co-operative bank Part V of the Banking Regulation Act is not applicable to co-operative banks. Use of words The word 'bank' 'banker', 'banking' can be used by a co-operative bank. The word 'bank' 'banker', 'banking cannot be used by a co-operative society 10. We find also support from the decision of Hon'ble High Court, wherein, it has been held as under: "If a Co-operative Bank is exclusively carrying banking business, then the income derived from the said business cannot be deducted in computing the total income of the assessee. The said income is liable for tax. A Co-operative bank as defined under the Banking Regulation Act includes the primary agricultural credit society or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p. Urban T&C Society Ltd., does not fall within the meaning of 'Co-operative Bank' as defined in pan V of the Banking Regulation Act, 1949, sub-section (4) of Section 801' will not apply in its case. 5. These issues with the approval of Chairman, Central Board of Direct Taxes. Yours sincerely, Sd/- (Sobhan Kot) Under Secretary to the Govt of India 12. From the judgements of Hon'ble Jurisdictional Karnataka High Court in the case of Yeshwanthpur Credit Co-operative Society Limited (supra) and Hon'ble Kerala High Court in the case of Moolamatom Electricity Board Employees Co-operative Bank Ltd (supra), we are of the view that the co-operative society and co-operative society carrying on business of banking are on different footing. The AO has also referred the explanatory notes to Finance (No.2) Act, 1991 given in the circular No.621 dated 19.12.1991 which among others, provides that "with a view to improving tax compliance, Section 194A of the 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". Since the assessee bank is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .... ( to such income credited or paid by a co-operative society to a member thereof or to any other co-operative society; (vi,) & (vii,).......... (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 cooperative 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;" 13. We find that similar issue has been dealt with in detail in the case of Saraswati Co-operative Bank Ltd (supra), wherein, it has been held as under: "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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the prescribed limit. Sub-section (3)(viia) reads as follows : Sub-section 3 of section 194A of the Act makes it clear that "the provisions of sub-section (1) shall not apply" in respect of several situations mentioned under that clause. Admittedly, sub-section (1) of section 194A cast the liability on all those institutions other than individuals and Hindu Undivided Family to deduct income-tax at source, when such institutions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest paid on the deposits with it. To understand the legislative amendment in this regard query wherein in the budgets speech of Finance Minister and his object for suggesting TDS to such deposit in following words to enable the Government to identify income earners, most of whom would not otherwise declare their income or would not declare their full income, I propose to extend the scheme of tax deduction at source 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 ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to such deposit w.e.f. 19th June, 2001. From this above intention of legislature we are of the view that it is clear that assessee company a Co-operative Society carrying on a business of banking is liable to make TDS u/s. 194A. Learned AR has relied upon the decision of Income Tax Tribunal, Bangalore Bench in the case of Bagalkot District Central Co-op. Bank vs. Joint Commissioner of Income Tax, in ITA NO.1572/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)(va) of the Act. The decision of Hon'ble Kerala H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of banking" *emphasized+ From a plain reading of above clauses, it is clear that while clause (vii) deals with interest payment by a banking company the clause (viia) deals with interest payment by a certain category cooperative societies including a cooperative society engaged in carrying on the business of banking. It is also clear that, as regards a co-operative 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is extracted below: I am directed to invite a reference to the Board's Circular No. 22/68- IT(B) [F.No. 12/23/68-IT(B)], dated 28-3/13-5-1968, and to say that the Finance Act of 1970, has made an important change in section 194A by inserting a new clause (vii) in sub-section (3) of that section. As per this clause, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on securities in the case of residents. The amendment provides for deduction of income-tax at source at the rate in force from payment of interest exceeding ten thousand rupees in a financial year on time deposits made on or after 1st of July, 1995 with a banking company or with 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 Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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