TaxTMI 
TaxTMI 
2015 (4) TMI 802
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....t the said interest was paid only to its members and it being a cooperative society is not required to deduct tax at source as per the provisions of sec. 194A(3)(v) of Income Tax Act, 1961. 3. The Ld. CIT(A) erred in not appreciating that sec. 194A(3)(v) is a specific provision granting exemption to a cooperative society such as the assessee from provision of deducting tax at source on deposits. 4. The Ld. CIT(A) erred in not appreciating that the assessee even though a cooperative society is required to deduct tax at source u/s. 194A of the Act since it is carrying on banking business. 5. The Ld. CIT(A) failed to appreciate that the assessee being a cooperative society is entitled to all benefits contemplated and provided under the Act such as exemption u/s. 194A(3)(v) of the Income Tax Act, 1961 and clauses (i), (v), (viia) and (viia)(b) of sec. 194A(3) of Income Tax Act, 1961 are independent sections having different objects. 6. The Ld. CIT(A) failed to appreciate that neither sec. 2(19) of the Act defining a cooperative society nor sec. 194A(3)(v) make any distinction between the cooperative societies carrying on banking business and other cooperative societies. ....
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.... (2008) 87 ITD 569. 4. The matter was carried to the learned CIT(A) and the learned CIT(A) has dismissed the appeal of the assessee by observing as under:- "I have carefully considered the facts of the case, submissions made by the assessee and also perused the assessment order. The only ground of appeal raised by the appellants regarding disallowance made u/s 40(a)(ia) in respect of interest paid on term deposit in excess of Rs. 10,000/- without making TDS u/s 194A amounting to Rs. 2,11,39,621/-, However at the time of appellate hearing, the appellant's representative did not press for ground No.5 regarding disallowance of the claim of the appellant for reducing the amount of Rs. 54,27,000/- from the net profit on account of amount transferred from NPA reserve. My observations and findings on the issues are as under:- 5.1 DSALLOWANCEOFINTERESTPA)D ON TERM DEPOSIT NSDFR5.1QDDD- WITHOUT MAKING TDS: The facts leading to the grounds 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. 22,11,39,621/- have been discussed by the Assessing Officer in very detail in his assessment order. Briefly, th....
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....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 currying on the business of banking". (iii) Since the appellant bank is covered by the provisions of sub-clause (b) of clause (i) of Section 194A (3) as well as the provisions of clause (viia) of the said section which are specific in nature, the appellant cannot put forth its claim under section 194(3)(v) which are general in nature. As the appellant is a co-operative society engaged in the business of banking, it is covered under these aforesaid specific clauses. As per AD the-re are a number of judicial pronouncements wherein it has been held that a specific provision override a general provision. For this purpose reliance has been placed by the AD on Kirloskar Pneumatic Co. Ltd. Vs. Commissioner of Surtax (1994) 210 ITR 485 (Born) and CIT vs. Mahanagar Telephone Nigam Ltd. (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 ITR 426. The Hon'....
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....ich would override or detract from the provisions of the Income Tax Act. Nowhere in the above decision, was the applicability of the provisions of sub-clause (v} to the co-operative societies engaged in the business of banking discussed specifically. Therefore, the said decision does not help the case of the appellant. After discussing various aspects of the issue as discussed above, the AD has to the conclusion that the assessee has failed to deduct tax at source from interest on the deposits exceeding Rs. 10,000/- and therefore, the provisions of section 40(a)(ia) of the income Tax Act, 1961 are squarely applicable in its case. Accordingly, the entire expenditure of Rs. 2,11,39,621/- claimed by the assessee towards interest payments exceeding Rs. 10,000/- on term deposits to individual members as well as non-members has been disallowed by the Assessing Officer. 5.2.2 In view of the above, the Assessing Officer 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. 2,11,39621/- to depositors without deducting tax at source. The appellant conte....
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....ociety engaged in the banking business shall have to deduct tax on such payments. From the facts of the case, it is seen that the Assessing Officer categorically brought out the material on record to prove that the appellant 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 Sec.194A(3) which are specific in nature and the appellant cannot put forth its claim under section 194(3)(v) which are general in nature. As the appellant is co-operative society engaged in the business of banking, it is covered under these specific clauses and as has been held by the Hon'ble TAT, Pune Bench, Pune in Bhagani Nvedita Sahakari bank Ltd v. ACIT (2003) 87 ITD 569 that the term co-op society' in sub-clause (v) to be interpreted as co-op society other than co-operative bank, the appellant is liable for TDS provisions under section 194A. 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 member....
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....f Income tax (Appeals) in disallowing u/s. 40(a)(ia) of the Act the interest amount paid by the assessee Co-operative Bank on term deposit in excess of Rs. 10,000/- without making TD5 u/s. 194A(3)(i) and not allowing assessee's contention that it was riot liable to deduct tax at source by virtue of the provisions of section 194A(3)(v) of the I.T.Act. 5.2.10 in view of the above discussion and taking into consideration the various reasons given by the Assessing Officer, the disallowance made under section 40(a)(ia) amounting to Rs. 2,11,39,621/- is confirmed. 6. In the result, the appeal is dismissed." 5. Learned AR submitted that the Assessing Officer should have to verify whether the interest income is shown by the member depositor in his return of income or not and if the depositor has already paid the taxes, then the assessee cannot be deemed to be default for deduct 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....
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....sponsibility of the Assessing Officer if the assessee has not deducted the TDS and the deductee has not shown in his return of income, then and only then the assessee can be held in default. The assessee held to be in default even on amount which might actually be exempt in the hands of the payee under any provisions of the Act. Once an amount is exempt in the hands of the assessee, the question of deduction of tax at source does not arise. The learned AR submitted that in this case assessee has already submitted the certificate obtained from the assessee, which proves that the payee have already discharged their tax liability on the impugned interest income. Learned AR relied upon the decision of Hon'ble Allahabad High Court in the case of Jagaran Prakashan v. DCIT (TDS) reported in 345 ITR 288 and the decision of Hon'ble Uttarakhand High Court in the case of DIT, International 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 asi....
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....age 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; We find that the Co-operative is also interpreted by the Hon'ble jurisdictional Karnataka High Court, wherein in the case of CIT vs. Yeshwanthpur Credit Co-operative Society Limited in ITA No. 237/2012, wherein the Hon'ble High Court has interpreted the Co-operative Bank by observing as under:- Nature Co-operative society registered under Banking Regulation Act, 1949 Co-operative Society registered under Karnataka CO-operative Society Act, 1959 Registration Under the Banking Regulation Act, 1949 and Co-operative Societies Act, 1959 Co-operative 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 guarante....
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....tive society which also carries on the business of lending money to its members which is covered under Section 80P(2)(a)(i) i.e., carrying on the business of banking for providing credit facilitates to its members. The object of the aforesaid amendment is not to exclude the benefit extended under Section 80P(i) to the society." 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 than Co-operative Bank. We find that the ITAT Pune Bench has interpreted the word 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....
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....ch 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 in sub-clause (a), engaged in carrying on the business of banking will be covered 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, irr....
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....uction 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 Rs. 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 deduction at source is a useful tool and one of the well recognised 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 commis....
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...., 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 High Court in the case of ITO & Ors. vs. Thodupuzha Urban Co-operative 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 can....
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....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 Act, 1949 (10 of 1949) applies (including 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 (....
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....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 society 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 deposit....
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....d) 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 special provision 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 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 in these assessment years has paid....
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....vision and the impugned Circular. Section 194A mandates that any person other than an individual or a Hindu Undivided family responsible for paying any income by way of interest other than income by way of interest on securities at the time of credit of such income to the account of the payee, to deduct income tax thereon at the rates in force. By virtue of sub-section (3) of section 194A, exception is carved out. The further proviso to section 194A (3) clarifies the situation as to how the income and the limits of the income as detailed in section 194 (3) is to be construed. 5. Section 194A (3) deals with exemptions. It lays down that upto an amount of Rs. 10,000/- where the payee is a co-operative society engaged in carrying on the business of banking, the provisions of section 194A , requiring the said co-operative society doing a 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 mispl....