TaxTMI 
TaxTMI 
2015 (4) TMI 329
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....d to the law and settled judicial opinion. We find support in the following cases: (i) Jalgaon DCC Bank Ltd Vs Union of India (2004) 265 ITR 423 (Bom) HC (ii) Gujarat Urban Coop Bank Federation Vs Union of India (2012) 209 Taxman 340 (Guj) HC. (iii) The Bagalkot DCC Bank Ltd Vs Joint Commissioner of Income Tax, Bijapur Range, Bijapur ITA No 1572/Bang/2013 dt 30.05.2014. (iv) ACIT, Circle 1(1) Visakhapatam Vs Viskhapatam Coop Bank Ltd., Visakhatapam, ITAT(2011) 47 SOT 295 (Vizag). (v) Ozer Merchant Cooperative Bank ITA No 1588/PN/2012 dt 30.10.2013 of I.T.A.T. Pune. 3. The learned Commissioner of Income Tax (Appeals),Belgaum has erred confirming the Assessing Officer order of applying provisions of 194A(3)(i)(b) and making disallowance u/s 40(a)(ia) of the Income Tax Act 1961 which is opposed to the facts of the case and law. -As held in The Bagalkot DCC Bank Ltd Vs Joint Commissioner of Income Tax, Bijapur Range, Bijapur ITA No 1572/Bang/2013 dt 30.05.2014. 4. The learned Commissioner of Income Tax (Appeals), Belgaum and Assessing Officer have erred in making disallowance u/s 40(a)(ia) on the amounts paid rather than on amount payable - as held in CIT Vs ....
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....s of appeal No. 1 to 4 and the reasoning relating to the disallowance made by the Assessing Officer under section 40(a)(ia) of Rs. 70,52,023/- have been discussed by the Assessing Officer in very detail in his assessment order. Briefly, the facts and reasons given by the Assessing Officer in his order are as under: (i) The appellant is a co-operative society engaged in carrying on banking business and the assessee bank's case clearly falls under the ambit of sub-clause (b) of clause (c) of subsection (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,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 amount of said interest exceeds Rs. 10,000/-. The A.O has distinguished the status of the appellant assessee as co-operative bank vis a vis other co-operative societies as this became imperative due to the fact that the assessee had claimed to be an ordinary co-operative society within the meaning of clause (v) of Sec.194A(3). The A.O has further dwelled on thi....
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....(2002) 254 ITR 627 Del.) Reliance has also been placed by the A.O on the decision of the jurisdictional Karnataka High Court in the case of M. L. Vasudeva Murthy & Sons vs. it. Commissioner of Agricultural Income Tax (1992) 198 TR 426. 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 the 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. Respectfully following the ratio of the above case laws including that of the Supreme Court, the AD has concluded that the assessee's case is covered by the specific provision in clause (i) & (viia), rather than the general proi5ions of clause (v) of Sec.194A(3). While coming to this conclusion, the Assessing Officer has relied on the decision ITAT, Pune Bench, Pune in Shagani Nivedita Sahakari bank Ltd v ACIT (2003) 87 ITD 569 wherein, it has been heard that the term 'co-op society' in sub-clause (v) to be interpreted as 'co-op society other than co-operative bank and further the provisions which are specific in nature over ride the provisions ....
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....r disallowed a sum of Rs. 2,11,39,6211- under section 40(a)(ia) of the IT. Act, 1961. 5.2.3 It san undisputed fact that the appellant has paid interest on term deposits to the tune of Rs. 70,52,023/- to depositors without deducting tax at source. The appellant contended that the provisions of TDS are not attracted in view of clause-(v) of subsection (3) of section 194A as the interest payments to the extent of Rs. 70,52,023/- have been made to the members of the bank. In this regard, the AC has interpreted the word 'co-operative society' as employed in sec. 1944(3)(v) to mean co-operative society other than co-operative bank as decided by the TAT, Pune Bench, in Shagani Nivedita Sahakari bank Ltd v. ACT 81 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 co-operative bank. Thus, the AO disallowed the entire interest payments exceeding Rs. 10,000/- made to the members and non-members by the appellant bank for the reasons mentioned above. 5.2.4 On going through the provisions of section 194A(3), it is seen that the Assessing Officer is justified....
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.... 5.2.5 The appellant's argument that clause(v) to sec.194A(3) may be taken as applying to members and other clauses to the said section may be taken to apply to non members is without any basis ii as much as clauses (i) and (viia) apply to both the members as well as non members. Where ever the legislature intends to apply a particular provision to member or to a member, it has done so expressly. 5.2.6 Now coming to the circular No.9 of 2002 issued by the CBDT relied upon by the appellant, the Board vide said circular had sought to interpret the definition of word member' claying that the word 'member' does not include word 'nominal member'. It was held by the Bombay Nigh Court in the case of Jalgaon District Central Co-op Bank Ltd & Mr v. Union of India 265 ITR 423 (Born), 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 ....
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....ct the tax at source. The Assessing Officer has not made any attempt to verify if the payee members had declared the tax on impugned amount in the return of income, therefore the Assessing Officer is without jurisdiction. The learned AR submitted that the Department cannot be permitted to calculate the tax on the same income twice. Moreover, u/s. 190 of the Act which says that the tax should be payable by deduction or collection at source or by advance payment or by payment u/s. 192(1A) of the Act. Sec. 191 of the Act prescribes that in the event there is a failure on the part of the deductor to deduct tax at source on payments made to the assessee, then the primary liability to pay tax on such income rests on the assessee and the assessee shall pay the tax directly. When the assessee failed to pay tax on such income which was earlier subjected to TDS, the deductor can be held to be an assessee in default u/s. 201(1) of the Act. Section 201(1) of the Act provides that in the event of failure to deduct tax at source on payments which ought to have been subjected to TDS, the deductor shall be held to be an assessee in default. However, sec. 201(1) cannot be read in isolation but has ....
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....tional Taxation v. Maersk Co. Ltd. reported in 334 ITR 79 (FB). Learned AR further submitted that impugned order passed u/s. 201(1) of the Act holding the assessee as an assessee in default in respect of the interest income paid to member depositors are not in accordance with law and required to be set aside. 6. Learned DR has relied upon the orders of Revenue Authorities. 7. We have heard rival contentions of both the parties and looking to the facts and circumstances of the case, we find that the assessee is liable to deduct the tax at source on the term deposit of members of the cooperative societies as per the provisions of sec. 194A(3)(viia)(b) of the Act. Section 194A(3)(viia)(b) deals with cooperative societies engaged in the business of banking. If the amount paid or credited to any depositor during the year exceeds Rs. 10,000/-, the provisions of sec. 194A(1) of the Act shall apply to the cooperative society engaged in the banking business shall have to deduct tax on such payment. From the facts of the case, it is seen that the ITO has categorically brought out the material on record to prove that the assessee bank is covered by the provisions of sub-clause(b) of cla....
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....tive Societies Act, 1959 Nature of business 1. As defined in Section 6 of Banking. Regulation Act. 2. Can open, savings bank account, current account, overdraft account, cash credit account, issue letter of credit, discounting bills. of exchange, issue cheques, demand drafts (DD), Pay orders, Gift cheques, lockers, bank guarantees etc. 3. Co-operative Banks can act as clearing agent for cheques, DDs, pay -orders and other forms. 4. Banks are bound to follow the rules, regulations and directions issued by Reserve Bank of India (RBI) 1. As per the bye laws of the cooperative society. 2. Society cannot open savings bank account, current account, issue letter of credit, discounting bills of exchange, issue cheque, demand drafts, pay orders, gift cheques, lockers, bank guarantees etc. 3. Society cannot act clearing agent, for cheques, DDs, pay orders and other forms. 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 an....
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....d Co-operative and Co-operative Society and further the Hon'ble Kerala High Court in the case of Moolamattom Electricity Board Employees Co-operative Bank Ltd. 630 has made a clear distinction between primary credit society and a co-operative society engaged in banking business. Section 194A dealt with Co-operative Society engaged in business as banking. We find that the assessee bank is covered by the provisions of sub-clause (b) of clause (i) of Sec.194A(3) as well as the provisions of clause (viia) of Section 194(3)A which are specific in nature and 194(3)(v) which are general in nature. We find that the Hon'ble Kerala High Court in the case of ITO& Ors. vs. Thodupuzha Urban Co-operative Bank and others have filed the writ before the Hon'ble Kerala High Court, wherein the Hon'ble High Court has held as under: "The Income Tax Department has come up with this appeal against the judgment in O.P. No. 17082/1997.(Thodupuzha Urban Co-operative Bank Ltd., In [1999]238 ITR630(Ker). That petition was filed by five co-operative Societies, when they were faced with a notice from the appellant to deduct the income-tax out of the interest paid by them on time deposits, in ....
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.... by sub-section (1), and therefore, will be liable to deduct income-tax. The appellant does not have a case before us that the 4th petitioner, the first respondent herein, does not come within any of the types of co-operative societies made mention of in sub-clause (a) of clause (viia) of sub-section (3) of section 194A of the Act. Therefore, irrespective of Whether it is a time deposit or any other type of deposit, the 4th petitioner, first respondent will not be liable to deduct income-tax, as such society is under sub-section (3) taken out of the purview of section 194A(1) of the Act. Therefore, the writ appeal fails, dismissed. W.A. No. 2270 of 1998: A reading of the impugned judgment discloses that the writ petitioner, the first respondent, was concede to be an agricultural co-operative society. Consequently, it comes within the purview of clause (viia)(a) of sub-section (3) of section 194A of the Income-tax Act, 1961. Naturally, the first respondent-society will not be liable in terms of sub-section (1) of section 194A. The writ appeal fails, dismissed. From this above we are of the view that the Hon'ble High Court has interpreted section 194(v) and 194(va) of....
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....sed methods of enforcing tax compliance in many countries. However, a harassed Finance Minister has to be sensitive to the opinions of Honourable Members of Parliament even when they differ from his own convictions." He accordingly withdrawn the provision relating to deduction at source in respect of interest on term deposit with the bank and commission w.e.f., June 1992. Accordingly, Finance Act 1992 substituted a new Clause (vii) w.e.f., 1st June, 1992, sub-section 3 of Section 194A for clause (vii) and someone as earlier introduced by Finance No.2 Act w.e.f., 1st October, 1991. This amendment was made to restore the position as was before 1st October, 1991 in relation to deduct tax at source in the case of income credited or paid in respect of deposit with a bank company to which banking regulation Act 1940 applies or with a co-operative society engaged in carrying on the business of banking, "including co-operative land mortgage bank or co-operative land development bank" This was brought into w.e.f., 1.4.1992. Finance Act 1995 w.e.f., 1st July 1995 again withdrawn the exemption for interest on time deposit payable by bank. The amendment Section 194A now provides for dedu....
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....erative Bank, wherein they have clearly defined and interpreted the Section it appears that the bank did not consider the provision of section 194A(viia). Therefore, when there is a specific provision, general provision cannot be applied in the case of the assessee otherwise the provision of section 194A (viia) will become redundant. The section cannot be read in this manner. For the sake of clarity, we have analyse the Section 194A(3)(v) and (viia) which read as under: "(3) The provisions of sub- section (1) shall not apply- (i) 5 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 6 ten thousand rupees................. (v) to such income credited or paid by a co- operative society 5 to a member thereof or] to any other co- operative society; (viia) to such income credited or paid in respect of,- (a) deposit with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land developmen....
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....any bank or banking institution, referred to in section 51 of that Act); (b) ten thousand rupees, where the payer is a co-operative society engaged in carrying on the business of banking [emphasized] (c) ten thousand rupees, on any deposit with post office under any scheme framed by the Central Government and notified by it in this behalf; and (d) five thousand rupees in any other case]:] From the above it is clear that, in case of a payer which is a cooperative society engaged in the business of banking, the monetary limit prescribed is Rs. 10000/-. Once the interest payment exceeds that amount the TDS is to be made. Neither in clause (viia) nor in clause (i) there is anything to restrict their applicability only to non-members and therefore they apply to all depositors. Going by the above understanding, the co-op bank is required u/s 194A(1) to make TDS from the interest paid to all depositors. However co-op bank holds the view that clause (viia) applies only to non-members and not to the members. However, on perusal of clause (viia), nothing in it to restrict its application only to non-members. The stand taken by co-op bank is that the interest paid to members is....
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....ociety and not at the specific gene i.e cooperative society engaged in carrying on the business of banking. d. The stand of appellant is that, even after insertion of specific clause(vii), the general clause(v) will continue to apply to the cooperative banks. If that stand is accepted, the cooperative banks were required to deduct tax from interest paid to depositors who are not its members, rendering clause (vii) redundant. e. The by Finance Act 1991, for the first time introduced TDS on time deposits by substituting above mentioned clause (vii) with two separate clauses (vii) & (viia). While clause (vii) applied to banking companies, clause (viia) applied to specially created category of cooperative societies. This reaffirms the decision of legislature to apply a specific clause to the specific genre cooperative societies, which were earlier carved out of the genus as envisaged in general clause(v). The effect of above amendment was explained by the CBDT in Circular no. 617 dated 22-11-1991 where in it is clarified that: The effect of the aforesaid change is that income-tax shall now be deductible at source from the interest income on the deposits with. (i) a banking ....
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....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. We therefore, dismiss the appeal of the assessee." 8. By respectfully following the above decision, we hold that the assessee has paid interest more than Rs. 10,000/- to each of depositors, therefore, assessee is liable to deduct tax at source and the assessee is deemed to be default. 9. Learned AR has relied upon the decision of Hon'ble Allahabad High Court in the case of Jagaran Prakashan Vs. DCIT (TDS) reported in 345 ITR 288 wherein the Hon'ble High Court has interpreted the provisions of sec. 4, 190, 191 & 201 of the Act. We have gone through the decision of the Hon'ble High Court and we find that the Hon'ble High Court has passed this order in a writ petition, therefore they have not laid down any law, hence, this judgment will not helpful to the assessee. The learned AR has relied upon a decision of ITAT Agra Bench in the case of Allahabad Bank v. ITO in I.T.A.No. 448 to 454/Agra/2011 and he submitted that as per the above judgment, it is the duty ....
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.... banking business to deduct TDS, will not apply. The said provision exempting operation of section 194A (3) is limited to the extent of the income being paid by the payee to the extent of Rs. 10,000/- and no further. Reliance placed by the learned Counsel for the petitioner on sub-clause (v) of clause (iii) of sub-section (3) of section 194A is misplaced. The said sub-clause (v) would only apply to such income credited or paid by a co-operative society to a member thereof or to any other co-operative society. Sub-clause (viia) (a) and (b) lays down the specific categories of the banks which are exempted from deducting TDS. The income accrued on the deposits other than the time deposits made after 1st day of July, 1995 is not exempted from deducting the TDS by urban co-operative Bank. Subclause (viia) (a) does not include urban co-operative Bank and sub clause (b) of clause (viia) limits the exemption to deposits other than the time deposits. 6. It is a settled proposition of law that various sub-sections in a provision have to be read in harmony. A head on collision between subsections of the same provision has to be avoided. They cannot be read in a manner which would render on....