TaxTMI 
TaxTMI 
2002 (8) TMI 292
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....m interest payable/paid to the members of the co-operative bank is liable for TDS if it exceeds the limit stated in section 194A(3). 2. In the facts and circumstances of the case, the ld. CIT(A)-I, rune has erred in disallowing assessee's claim that the provision of section 194A(3)(v) is a specific provision. The distinction between members and non-members is possible under clause (v) as well as clause (viia)(b) of section 194A(3). 3. In the facts and circumstances of the case, the ld. CIT(A)-I, Pune has erred in not giving the benefit of interpretation which is more beneficial to the assessee as laid down by the Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC). 4. In the facts and circumstances of the case, the ld. CIT(A)-I was not justified in overlooking the treatment given by CCIT Mumbai where the benefit of clause (v) of section 194A(3) is extended to members' deposit" 3. The facts are that the assessee had credited/paid certain amount by way of interest to the accounts of members/nominal members on their fixed (time) deposits without deduction of tax therefrom for which show cause notice was i....
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....said at the end that the income from interest payable or paid to the members of a co-operative bank is liable for the TDS if it exceeds the limit as mentioned under proviso to sub-clause (1) of section 194A(3) of the Act," Still aggrieved, the assessee is in further appeal but has challenged the action of ld. CIT(A) to the extent of upholding order of Assessing Officer with reference to creating of demand under section 201(1) and interest under section 201(1A) only. 5. While reiterating the submissions as made before the lower authorities it was contended for deletion of the impugned demands. It was next submitted that primarily assessee is a co-operative society registered under relevant provisions of law and section 194A(3)(v) clearly exempts interest income from deduction of tax at source from such income to its members on fixed deposits also. So it was not liable to deduct tax at source from the interest income of the members. Reliance was placed on the Board's circular No. 72 dated 6-1-1972 with the plea that the said circular is still in force as the same has not been withdrawn and placing further reliance on Associated Cement Co. Ltd.'s case Bombay Cloth Syndic....
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....dividual or a HUF. However, in subsequent sub-section, clauses and sub-clauses exemptions have been provided wherein an assessee was not required to deduct the tax as per the provisions of sub-section (1) to section 194A of the Income-tax Act. The sub-section (3) of section 194A provides as under: "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 [two thousand five hundred rupees:]" Thus, the exemption was granted to the tax deductors that if interest paid or payable does not exceed Rs. 2,500 the person responsible was not required to deduct that tax under section 194A(1). The proviso below subsection (3), which was, inserted w.e.f. 1-10-1996 reads as under: [Provided that in respect of income credited or paid in respect of- (a) ** ** ** (b) time deposits with a co-operative society engaged in carrying on the business of banking; (c) **** The p....
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..... 10,000. 10. Clause (viia) of sub-section (3) to section 194A reads as under: "the provisions of sub-section (1) to section 194A of the Income-tax Act shall not apply 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." 11. Thus, sub-clause (a) of clause (viia) has specifically excluded certain categories of banks and credit societies for deduction of interest paid or payable by them these are: (1) A primary agricultural credit society (2) A primary credit society (3) A co-operative land mortgage bank (4) A co-operative land development bank. The sub-clause (b) of clause (viia) has exempted a co-operative society carrying on banking business from the deduction of tax on interest paid or payable on the deposits, other than time d....
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.... Thus, the intention of the Legislature is clear and the Board has clarified the obligation of co-operative societies engaged in the business of banking in the above circular. 13. It is to be mentioned that earlier the banking co-operative societies as well as other banks were not required to deduct tax on time deposits. However, instances came to light of the non-accounted incomes being deposited in the banks in one's own name or in benami deposits. Interest on such deposits is not likely to be declared in the income-tax returns. Thus, keeping in view the above facts and to improve tax compliance section 194A, the Income-tax Act was 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. 14. The main thrust of the assessee's counsel was on the provision of clause (v) of sub-section (3) of section 194A. His main contention was that the act has provided exemption from deducting tax by the co-operative societies on the interest paid to its members. 15. However, as mentioned above the clause (v) of sub-section (3) is general in nature ....
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.... or insertions in section 194A after Finance Act, 1971, the said circular will automatically become redundant and no more operative. 19. The learned counsel has placed reliance on various decisions of the Supreme Court but none of the decisions is directly on the issue involved and hence not relevant. 20. Thus, in view of the above, it is submitted that a co-operative society carrying on the banking business is liable to deduct tax on time deposits if the tax payable is more than Rs. 10,000. If the tax has not been deducted the assessee has to be treated as a defaulter and consequential action will take place. The Assessing Officer was justified in creating a demand and levying under section 20l/201(1A) of the Income-tax Act for the default committed by the assessee under section 194A. It has been held by the Delhi High Court in CIT v. Prem Nath Motors (P.) Ltd. [2002] 253 ITR 705 that if the assessee has committed the default in not deducting the tax or short deduction of tax the charging of interest under section 201(1A) is mandatory. 21. At the first early stage the CIT(A) has discussed the issue in detail and he was of the opinion that the co-operative society has comm....
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....s prescribed. The assessee on the other hand argued that although it is engaged in the business of banking, the assessee is registered as a cooperative society within the meaning of section 2(19) of the Act, therefore, it is not required to deduct any tax at source in respect of income credited or paid by it to its members or nominal members as per sub-clause (v) of section 194A(3) of the Act. It is therefore, necessary to consider in detail as to which of these provisions are applicable/should prevail. For this purpose, following analysis is necessary. 25. The provisions of section 194A have been brought on statute so as to recover the tax on interest, other than the interest on securities, in advance in respect of interest paid by persons other than individuals and HUFs. It is also seen that the income by way of interest from Co-operative Societies is covered under the provisions of section 80L of the Act for deduction allowable thereunder. Therefore, wherever the tax deduction at source is required under the provisions of section 194A adequate deductions are made to the extent of the limit as prescribed. Further the income earned by the co-operative societies from the other c....
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....s would be exempt from responsibility of TDS under section 194A(3)(v) as well as under section 194A(viia)(a) also which means, the same deduction is provided under two sub-clauses of the same sub-section of the Act in which case one of the two is rendered redundant or superfluous. 28. In this case there is a contrast/contradiction between the provisions of proviso to sub-clause (b) and the provisions of sub-clause (v). As per sub-clause (b) under the proviso to section 194A(3)(f), a Co-operative Society engaged in carrying on the business of banking is required to deduct tax at source in respect of time deposits where the amount of interest paid exceeds Rs. 10,000. This requirement is irrespective of the fact whether the interest is paid to members or non-members of such cooperative banks. In case the contention of the assessee is to be accepted then the above mentioned proviso will also be rendered redundant. 29. Similarly, under sub-clause (viiia)(b), the payment of income by way of interest by a Co-operative Society other than Co-operative Bank in respect of deposits other than time deposits made by the members are exempt from tax deduction at source. Once again, the incom....
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.... the special provision does not apply. Keeping this principle in view, while interpreting particular provision, a co-operative society in clause (v) if it comes in conflict with the other provisions of the Act, then the interpretation of the term cooperative society will have to be suitably amended. Now this conflict can be considered as under: "The income from interest referred to in sub-clause (v) is any interest paid to members whereas the interest payable as contemplated under sub-clause (viia)(b) is interest on deposits other than term deposits, which means, by implication, that the interest on term deposits payable by the co-operative Bank to its members is liable to be subjected to tax deduction at source. The interest on term deposits, as per provisions of sub-clause (viia)(b) is liable to TDS equally for members as well as non-members, whereas the same is declared to be exempt under sub-clause (v) if the interpretation of the representative of the assessee were to be accepted. Thus, it results into direct conflict between sub-clause (v) and sub-clause (viia)(b) of the sub-section (3) of section 194A of the Act in order to remedy this conflict between two provision....
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....1 which have been cited by the Assessing Officer in his representation during the appellate proceedings and were taken note of and considered by the learned CIT(A). These notes form contemporaneous evidence so as to indicate the intention of legislation. This is important because when two provisions in the context of the same object oppose each other, it is necessary to adopt interpretation, which will give effect to the intention of legislation. This is also called as purposive interpretation of statutes. 34. Considering the abovementioned facts, it must be seen that after all the intention of provisions of section 194A is to collect tax by way of tax deduction at source for which this specific section was introduced. And, if the interpretation as suggested by the representative of the assessee were to be accepted, such purpose would be defeated. Coming to the observations of the arguments raised by the learned counsel for the assessee, it can be stated in brief, one by one that unless as claimed by the representative of the assessee, the provisions under section 194A(3)(v) are NOT specific because although it deals with exemption in respect of interest payable to members, by i....
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....ear distinction between primary credit society and a Cooperative Society engaged in carrying on business of the banking, it was held as under: "The position as it stood before the amendment of section 194A by the Finance Act, 1996 was to the effect that all co-operative societies engaged in carrying on the business of banking were given the exemption. It is now confined to certain co-operative societies and not engaged in carrying on business of banking. On a plain reading of sub-section (3)(viia) of section 194A, r/w section 2(19), there is total exemption and that is fortified by sub-section (3)(viia)(b). Hence there is no scope for the argument that the primary co-operative societies are not exempted. That would be reading something not found in the Income-tax Act, but could only be stretching the definition found under the Banking Regulation Act. Resort to different provision of another Act may be relevant in the absence of a definition or of a technical nature. For the purpose of understanding the "co-operative society" the meaning that can be given is only as per the definition under section 2(19) and not otherwise. The contention that sub-section 3(i) exemption limi....
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....erala has given clear interpretation favouring the department, so if viewed from this angle, exemption as claimed by the assessee from deductibility of tax at source with respect to interest on time deposits paid/ credited by a Co-operative Bank to its members cannot be to be available to the assessee. As provision has specifically been incorporated with effect from 1-7-1995 in order to bring the interest income on fixed deposits by Co-operative Banks and no distinction has been carved out to treat members and non-members differently, therefore, same comes within the purview of deductibility of tax at source. Moreover this being neither a charging nor penal provision and that apart, it cannot be taken as a case of two interpretations of one provision even as found from close scrutiny of relevant provision, therefore, ratio of the decision in this regard cannot be said to be applicable to the present case. 39. So far as plea of the assessee with regard to letter dated 13th January, 1998 issued by Dy. CIT(HQ) Co-ordination, Bombay on the letterhead of CCIT to the Chairman of the Maharashtra Urban Co-operative Banks Federation Ltd. Mumbai, for non-deduction of tax at source by coop....