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TMI Blog2023 (1) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... ry 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) of the Income-tax Act, 1961, i.e. carrying on the business of banking for providing credit facilities to its members. It is entitled to the special deduction under section 80P. Thus we inclined to decide the issue in favour of the assessee in allowing the claim u/s 80P of the Act. TDS u/s 194A - payment of interest to its members - non-deduction of TDS for invoking provisions of section 40(a)(ia) - HELD THAT:- In the present case, there is no allegation that the assessee paid interest on deposits other than its members. Hence, the issue is to be decided in favour of the assessee in respect of payment of interest to its members regarding which section 194A of the Act is not applicable in respect of payment of interest to its members. To that extent, the assessee s claim is to be allowed. - ITA No.996/Bang/2022 - - - Dated:- 17-11-2022 - Shri Chandra Poojari, Accountant Member And Smt. Beena Pillai, Judicial Member For the Appellant : Shri Sukesh S. Patil, A.R. For the Respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income of Cooperative Society. The definition contained in Section 2(19) is of 'Cooperative Society' and not a 'Cooperative . The AO held that deductions u/s 80P of the Act are allowed only to Cooperative Societies registered under Karnataka Cooperative Societies Act and not to a Cooperative registered under Karnataka Souharda Sahakari Act. The AO noted that both Act are in force simultaneously. Under Karnataka Cooperatives Act, 1959 the Cooperative Societies are registered and under the Karnataka Souharda Sahakari Act, 1997 a 'Cooperative is registered. Vide amendments in Karnataka Souharda Sahakari Act the scope of Act was expanded but nowhere were Cooperative Societies converted to Cooperatives. In both the Acts the definition of Cooperative and Cooperative Society is independently given. Conversion from Cooperative to Cooperative Society is possible as per Amending Act, 13/2004. Both are independent entities though their conversion from one to another is possible. No person can claim to be a Cooperative Society without registration under Karnataka Cooperative Societies Act and same are controlled through a Registrar Cooperatives. Thus, these two are Indepe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal in the case of M/s. Pavagada Souharda Multi-Purpose Co-operative Ltd. in ITA No.648/Bang/2020 for the assessment year 2016-17 dated 16.9.2021, wherein held as under: 9. We have considered the rival submissions. Sec.2(19) defines co-operative societies for the purpose of the Act and the same is as follows: Definitions. 2. In this Act, unless the context otherwise requires,- (19) co-operative society means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies ; 10. The Hon ble Karnataka High Court in the case of Swabhimani Souharda Credit Co-operative Ltd.(supra) after considering the aforesaid definition of Cooperative society made the following observations: (i) the object of enacting sec80P of the 1961 Act may be defeated if a restrictive meaning is assigned to the definition of co-operative society as given u/s 2(19) in as much as the invokability of the provisions of sec. 80P is dependent upon the entity seeking the benefit thereunder being a co-operative society; going by the txt an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Act, 1949 (Central Act 10 of 1949), the Reserve Bank of India Act, 1934 (Central Act 2 of 1934), the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (Central Act 47 of 1961) and the National Bank for Agriculture and Rural Development Act, 1981 (Central Act 67 of 1981), it shall be deemed to be a Co-operative Society . A close examination of these two definitions shows that they have abundant proximity with each other in terms of content and contours; it hardly needs to be stated that in both these definitions the word 'cooperative' is employed not as an adjective but as a noun; the definition of other relative concepts in the dictionary clauses of these Acts strengthens this view; this apart, sec.7 of the 1997 Act provides that the entity registered as a 'co-operative' shall be a body corporate, notwithstanding the conspicuous absence of the word 'society' as a postfix; sec.9 of the 1959 Act makes the entity once registered u/s.8 thereof a body corporate; both the entities have perpetual succession by operation of law; thus on registration be it under the 1959 Act or the 1997 Act, a legal personality is donned by them, so that inter al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome of the assessee. The income is liable for tax. A co-operative bank as defined under the Banking Regulation Act, includes a primary agricultural credit society or a primary cooperative agricultural rural development bank. The Legislature did not want to deny the said benefit to a primary agricultural credit society or a primary co-operative agricultural and rural development bank. 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) of the Income-tax Act, 1961, i.e. carrying on the business of banking for providing credit facilities to its members. It is entitled to the special deduction under section 80P of the Act. 6. Further, the jurisdictional High Court in the case of Sri Vitthalray Souharda Pattin Sahakari Niyamit Vs. UOI and Others (426 ITR 457) (Karn.), wherein held as under: Held, allowing the petition, that the assessee registered under the 1997 Act was a co-operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to its customers, it is obvious that the taxpayer is engaged itself in the business of banking apart from other trading activities. Exemption u/s. 194A(3)(viia) is applicable only in respect of agricultural cooperative societies. The agricultural cooperative banks are bound to deduct tax. In this case, admittedly, the tax payer is engaged in the banking activity and maintaining savings bank account, current account and providing cheque facility to its customers. Therefore, the taxpayer is bound to deduct tax in respect of interest on the deposits. Therefore, this Tribuna l is of the considered opinion that the decision in the case of Kadachira Service Cooperative Bank Ltd.(supra) may not be applicable to the facts of the present case. Accordingly, the orders of the lower authorities are confirmed. 42.2. Being so, this issue is identical and the facts are also similar to the one considered by this Bench of the Tribunal in the earlier occasion, we are inclined to decided the issue against the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty 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 the Assessee co-operative society complies with all the three conditions. In case, it does not comply with all the three conditions, it cannot be regarded to be a co-operative bank and the provisions of Sec. 80P(4), in our opinion, will not be applicable in the case of the Assessee. Once, the Assessee will not fall within the provisions of Sec. 80P(4), the Assessee, in our opinion, will be eligible to get deduction u/s 80P(2)(a)(i) in respect of whole of the income which the Assessee derives from carrying on the business of banking or providing credit facilities to its members. 8.6 Whether condition no. 1 is applicable in the case of the Assessee, for this we have to look into the bye-laws of the Assessee. The objects of the Assessee in this case are enumerated as under : 1) To provide short terms, medium term and long term loans to its members. 2) To provide over draft facilities to members who are traders and kisan credit card loan to members who are fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 a categorical finding that the Assessee has carried on banking activities on the basis of findings in the assessment order. The relevant portion of the assessment order is as under : 16. This shows that more than 95% percentage of the loans advance for non-agricultural purposes (normal banking business activities like any other commercial bank). The percentage of loans issued for agricultural purposes is only 3.56%. In short, it cannot be said 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. 17. The assessee bank is having four types of share holdings. (A) Class equity shares of Rs. 5/- each with voting rights. It is explained that these shares are issued to individuals. (B) Class equity shares of Rs.250/- each. It is submitted that presently Kerala Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perative 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 Bangalore Bench of the Tribunal in the case of ITO vs. Divyajyothi Credit Co-operative Society Ltd. (supra) in ITA No. 72/Bang/2013. In this case, we notice that the Hon'ble Tribunal confirmed the order of CIT(A) following the decision of the Tribunal in the case of ACIT, Circle 3(1), Bangalore vs. M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd. in ITA No. 1069/Bang/2010 holding that Sec. 80P(2)(a)(i) is applicable only to a co-operative bank and not to credit co-operative society. With due regards to the Bench, we are unable to find any term credit cooperative society u/s 80P(2)(a)(i) or u/s 80P(4), therefore, this decision cannot assist us. We noted that the Hon'ble Gujarat High Court in the case of CITvs. Jafari Momin Vikas Co-op. Credit Society Ltd. in Tax Appeals no 442 of 2013, 443 of 2013 and 863 of 2013 (supra) vide order dt. 15.1.2014 took the view that Sec. 80P( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the first condition as laid down in the definition as given u/s. 5(ccv) of the Banking Regulation act, 1959 for becoming primary cooperative bank . The assessee, therefore, cannot be regarded to be primary cooperative bank and in consequence thereof, it cannot be a co-operative bank as defined under part V of the Banking Regulation Act 1949. Accordingly, in our opinion the provisions of section 80P (4) read with explanation there under will not be applicable in the case of the assessee. The assessee, therefore, in our opinion will be entitled for the deduction u/s 80P(2)(a)(i). We accordingly confirm the order of CIT(A) allowing deduction to the assessee. The other decisions also relied on are not applicable to the facts of the case of the assessee. 8.11. In view of our aforesaid discussion, we hold that the assessee is a primary cooperative bank and therefore hit by the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o-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 Centra l enactments such as the Tamil Nadu Co-operative Societies Act, 1983 the Multi-State Co-operative Societies Act, 2002 the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949 and the National Bank for Agriculture and Rural Development Act, 1981, make any distinction between a co-operative society engaged in carrying on banking business and a co-operative bank. 46. Since there is a reference to the Co-operative Societies Act, 1912, in section 2(19) of the Act, we have also gone to the Co-operative Societies Act, 1912 which in any case has no application to the societies registered in terms of the State enactments. 47. .................The changes that were made to section 194A right from Apri l 1, 1967 upto June 1, 2015, could be summarized, without enlarging the scope of the discussion, as follows: (i) Under the Finance (No. 2) Act of 1967, section 194A was amended with retrospective effect from April 1, 1967, to exclude any income credited or paid to a banking comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 came up with an amendment with effect from October, 1 1991. By this amendment inserted with effect from October, 1, 1991, subclauses 9a) and (b) were inserted under the existing clause (vii) after splitting (vii) into two parts, namely (vii) and (viia). (viia) The rationale for the amendment with effect from October 1, 1991, was explained in the Circular No. 621, dated December 19, 1991, as follows: Provisions for deduction of tax at source on interest income from bank deposits, etc. 55. Section 194A of the Income Tax Act provides that the provisions regarding deduction of income-tax at source shall not apply to the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 income-tax at source from income by way of commission or brokerage will not be required to be made on or after 1st June, 1992. 49. After about three years, the next amendment came under the Finance Act, 1995. The object of this Act was indicated to be to bring about an effective method of widening the tax base by enlarging the scope of deduction of income-tax at source. By this amendment, sub-clauses (a) and (d) of clause (viia) were reintroduced with effect from July 1, 1995. The rationale for such amendment was indicated in Circular No. 717, dated August 14, 1995 as follows: Deduction of tax at source from interest on time deposits with banks. 46.1 On account of the provisions contained in clause (vii) of sub-section (3) of section 194A, income credited or paid in respect of deposits with a ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive 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. 52. While there is no difficulty in clearly identifying three out of those four categories, by at least taking external aid to construction, by referring to the enactments such as the Tamil Nadu Co-operative Societies Act, 1983, the Banking Regulation Act, 1949, the Reserve Bank of India Act, 1934, and National Bank for Agriculture and Rura l Development Act, 1981, there is some difficulty in identifying the cooperative societies that fall under the category of co-operative societies that fall under the category of cooperative societies engaged in carrying on the business of banking . Such a category is not identified in any of these enactments which we have referred to above. The confusion has actually given rise to different Tribunals and different courts coming to different conclusions. 53. That leaves us with one last issue, namely, as to whether t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de 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 (cooperative 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-operative society: (i) Interest payment by a co-operative society to a member thereof or any other cooperative society. (section 194A(3)(v) of the Act). (vi) Interest payments on deposits by a primary agricultural credit society or primary credit society or co-operative land mortgage bank or co-operative land development bank. (section 194A(3)(viia)(a) of the Act). (vii) Interest payment on deposits other than time deposit by a cooperative society engaged in the business of banking other than those mentioned in section 194A(3)(viia)(a) of the Act. (section 194A(3)(viia)(b) of the Act. Therefore, as per the provisions of section 194A(1) read with provisions of sections 194A(3)(i)9b) and 194A(3)(viia)(b), co-operative bank is required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided 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 cooperative 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 its members. 63. It can be seen from the last part 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 June 1, 2015. There is no dispute now that on and from June 1, 2015 the appellant cannot escape the liability from deduction of tax at source. 64. Once an amendment is introduced, for the purpose of removing the anomalous situation or for the purpose of removing the confusions both in the manner in which the provisions stood and the manner in which they were understood, the same could be taken only to have prospective effect. It must be pointed out that Parliament did not choose to answer a questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 an amendment is introduced for the purpose of removing the anomalous situation or for the purpose of removing the confusions both in the manner in which the provisions stood and the manner in which they were understood, the same could be taken only to have prospective effect. It must be pointed out that the Parliament did not choose to answer a question. Rather it chose to amend the provisions. It is now well settled that an amendment can only be prospective unless it is made retrospective by express language or necessary implication. Apart from the fact that the express language of Section 194A after amendment does not indicate any retrospectivity, the note explaining the clauses goes one step further in making it c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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