Statutory exemption cannot be narrowed by circular; member status under co-operative law governs tax deduction relief.

An administrative circular under the Income-tax Act cannot narrow a statutory exemption by adding a distinction not found in the provision itself. Section 194A(3)(v) exempts interest paid or credited by a co-operative society to a member from tax deduction at source, and where "member" is not defined in the Act, its meaning is taken from the governing co-operative law. Because that law included nominal, associate and sympathiser members, the circular's attempt to confine the exemption to duly registered members exceeded the Board's power under section 119 and was inconsistent with the parent Act.

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Issues: Whether the Central Board of Direct Taxes could, by Circular No. 9 of 2002, restrict the exemption under section 194A(3)(v) of the Income-tax Act, 1961 by distinguishing between duly registered members and nominal members of a co-operative society, and whether such circular was within the scope of section 119 of the Income-tax Act, 1961.

Analysis: The expression "member" is not defined in the Income-tax Act, 1961. Its meaning therefore falls to be understood in the light of the State co-operative law governing the society, under which the definition of member includes nominal, associate and sympathiser members. Section 194A(3)(v) grants an exemption from tax deduction at source for interest credited or paid by a co-operative society to a member, and the provision contains no limitation excluding nominal members. Section 119 empowers the Board to issue administrative instructions for proper administration of the Act, but not to alter the scope of a statutory exemption or import restrictions not found in the enactment. A circular that narrows the exemption by introducing a distinction unknown to the statute exceeds delegated authority and cannot stand against the parent Act.

Conclusion: The circular was held to be beyond the powers conferred by section 119 and contrary to section 194A(3)(v); it was therefore invalid and liable to be quashed.

Ratio Decidendi: An administrative circular issued under section 119 of the Income-tax Act, 1961 cannot override, curtail, or add qualifications to a statutory exemption granted by Parliament, and the term "member" for section 194A(3)(v) must be understood according to the governing co-operative law where the Income-tax Act does not define it.

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