TaxTMI 
TaxTMI 
2016 (1) TMI 370
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....to the above substantial question of law, one more substantial question of law also arises for consideration, namely, ''Whether there is any distinction between a cooperative bank and a co-operative society carrying on banking business and if so, under which category the appellant would fall?'' 4. Heard Mr.K.Ravi, learned counsel for the appellants and Mr.J.Narayanasamy, learned senior standing counsel for the respondent. Brief Facts:- 5. The facts in brief out of which the above appeals arise are as follows:- (a) The appellant is registered as a co-operative society, in terms of the provisions of the Tamil Nadu co-operative Societies Act, 1983. The appellant is carrying on the business of banking with 30 branches including the head office in the district of Coimbatore. (b) A survey was conducted in the business premises of the appellant on 14.11.2013, followed by a hearing in which the Deputy Commissioner of Income Tax, TDS Circle, Coimbatore called for branch-wise details of deposits attracting TDS provisions for the financial years 2007-08 to 2013-14. The appellant/assessee was asked to submit the details by 16.12.2013. (....
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....for paying any income by way of interest (other than income by way of interest on securities) to a resident, to deduct income tax thereon at the rates in force. Such deduction should be made at the time of credit of such income to the account of the payee or at the time of payment in cash or by the issue of cheque or draft or by any other mode. 8. The proviso to sub-section (1) of Section 194A makes it obligatory for even individuals and Hindu Undivided Family members to deduct tax at source, if the contingencies stated in the proviso arise. Since we are not concerned in this batch with such contingencies, we do not deal with the proviso. 9. Having indicated in sub-section (1), persons who are responsible to deduct tax at source, the circumstances under which tax is to be deducted at source and the taxable events in sub-section (1), the provisions of Section 194A proceed to list out the exclusions or exceptions under sub-section (3). Subsection (3) contains about eleven clauses, under which the items that are excluded from the application of sub-section (1) are listed. In simple terms, such exclusions under sub-section (3) of Section 194A could be understood as follows:- E....
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....ing solutions. Exclusions under clause (iii) of sub-section (3): 13. The liability to deduct tax at source imposed under sub-section (1) will not apply to the incomes credited or paid (i) to a banking company to which the Banking Regulation Act, 1949 applies; (ii) to a co-operative society engaged in the business of banking including a co-operative land mortgage bank; (iii) to a financial corporation established by or under a State or Central Act; (iv) to the Life Insurance Corporation; (v) to the Unit Trust of India; (vi) to any company or co-operative society carrying on the business of insurance; (vii) to such other institution which the Central Government may by notification indicate. Exclusions under clauses (iv) and (vi): 14. The liability to deduct tax at source will not arise in respect of an income credited or paid by a firm to a partner. It will also not apply to such income credited or paid in respect of deposits under any scheme framed by the Central Government and notified in this behalf. Exclusions under clauses (v), (vii) and (viia): 15. The obligation imposed under sub-section (1) will also not arise in respect of the following:- (i) incom....
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....co-operative society engaged in carrying on the business of banking; (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.] Provided that in respect of the income credited or paid in respect of - (a) time deposits with 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); or (b) time deposits with a co-operative society engaged in carrying on the business of banking; (c) deposits with a public company which is formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes and which is eligible for deduction under clause (viii) of sub-section (1) of section 36 [***],[***] the aforesaid amount shall be computed with reference to the income credited or paid by a branch of the banking company or the co-operative society or the public company, as the case may be; [Provided ....
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....y 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 cooperative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking;] (viii) to such income credited or paid by the Central Government under any provision of this Act or the Indian Income-tax Act, 1922 (11 of 1922), or the Estate Duty Act, 1953 (34 of 1953), or the Wealth-tax Act, 1957 (27 of 1957), or the Gift-tax Act, 1958 (18 of 1958), or the Super Profits Tax Act, 1963 (14 of 1963), or the Companies (Profits) Surtax Act, 1964 (7 of 1964), or the Interest-tax Act, 1974 (45 of 1974); (ix) to such income credited by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal; (ixa) to such income paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income paid during the financial year does not exceed fifty thousand rupees;] [(x) to ....
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....rative society which is federal in nature or which is national in character, it is called a multi-State co-operative society and the same is registered under the Central enactment viz., Multi-State Co-operative Societies Act, 2002. 22. Since the expression "co-operative society" is defined in Section 2(19) of the Income Tax Act, 1961, it is neither necessary nor warranting for us to go to the definition of the same expression either in the Tamil Nadu Co-operative Societies Act, 1983 or in the Multi-State Co-operative Societies Act, 2002. On the contrary, we may have to refer to these enactments to see what a co-operative bank is, in view of the limitation imposed in the explanation under clause (v) of sub-section (3) of Section 194A. 23. Our tale of woes is compounded by the fact that even the Tamil Nadu Co-operative Societies Act does not define the expression "co-operative bank". The Tamil Nadu Co-operative Societies Act, 1983 under which the appellant/assessee has been incorporated defines the following expressions:- (a) agricultural producers marketing society; (b) agricultural services co-operative society; (c) apex society; (d) centra....
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....ve Societies Act does not define a cooperative bank, though it defines the expression "credit society" and "financing bank", a co-operative society carrying on the business of banking registered in terms of the Tamil Nadu Act could fall naturally only under any of these categories, namely, credit society or financing bank. Therefore it is necessary to take note of the definition of the expressions "credit society" and "financing bank". The expression "credit society" is defined in Section 2(13) of the Tamil Nadu Co-operative Societies Act, 1983 as follows:- "credit society" means a registered society which has as its principal object the raising of funds to be lent to its members for the purposes of agriculture, animal husbandry, pisciculture (including fish catching), apiculture, sericulture, petty trade, cottage and small scale industries including farm based industries, purchase of implements or raw materials, construction, purchase or repair of dwelling houses, discharge of prior debts, meeting ceremonial or educational expenses, purchase of domestic and other requirements or for such other purposes as the Government may, by notification specify in this behalf." 28.....
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.... the Banking Regulation Act, 1949 defines the four expressions found in sub-clause (a) of clause (viia) of sub-section 3. Section 56 defines the expressions "primary agricultural credit society", "primary co-operative bank" and "primary credit society". After defining these three expressions in great detail under clauses (cciv), (ccv) and (ccvi), the Banking Regulation Act, 1949 adopts the meanings given to certain other expressions such as central co-operative bank, primary rural credit society and State co-operative bank, as found in National Bank for Agriculture and Rural Development Act, 1981. 33. Therefore in our trail we will now have to go to the National Bank for Agriculture and Rural Development Act. 34. The expression "central co-operative bank" is defined in Section 2(d) of National Bank for Agriculture and Rural Development Act, 1981 to mean the principal co-operative society in a district, the primary object of which is to finance all other co-operative societies in that district. Therefore the geographical limitations are imposed upon a co-operative society which comes within the meaning of the expression "central co-operative bank" by virtue of the definition f....
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.... the method and form in which Section 7 will apply to co-operative societies. Section 56(f) which substitutes Section 7 of the Banking Regulation Act, 1949, for the purpose of its application to co-operative societies, is extracted as follows:- "[(f) for section 7, the following section shall be substituted, namely:- "7. Use of words "bank", "banker" or "banking".--(1) No co-operative society other than a co-operative bank shall use as part of its name or in connection with its business any of the words "bank", "banker" or "banking", and no co-operative society shall carry on the business of banking in India unless it uses as part of its name at least one of such words. (2) Nothing in this section apply to-- (a) a primary credit society, or (b) a co-operative society formed for the protection of the mutual interest of co-operative banks or cooperative land mortgage banks, or (c) any co-operative society, not being a primary credit society, formed by the employees of-- (i) a banking company or the State Bank of India or a corresponding new bank or a subsidiary bank of such banking company, State Bank of India or a corres....
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....es that the expressions "agricultural operations", "central co-operative bank, '"co-operative society" "crops, "marketing of crops", "pisciculture", "regional rural bank" and "State co-operative bank" shall have the meaning assigned to them by National Bank for Agriculture and Rural Development Act, 1981 and that the expressions "co-operative bank", "co-operative credit society", "primary agricultural credit society" and "primary co-operative bank" would have the same meaning as assigned to them in Part-V of the Banking Regulation Act, 1949. 43. Therefore the conclusion that is irresistible is that none of these enactments either Central or State, make a clear distinction between a cooperative society engaged in carrying on banking business and a co-operative bank other than those credit societies and land development or land mortgage banks. Questions raised in this batch: 44. Having considered the various statutory provisions, if we get back to the case on hand, it is seen that we are called upon to answer two substantial questions of law. We shall take up the second one first. 45. The second substantial question of law that we have framed for consideration is as to wh....
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.... (i) Under Finance Act No.2 of 1967, Section 194A was amended with retrospective effect from 1.4.67 to exclude any income credited or paid to a banking company to which the Banking Regulation Act, 1949 apply, including a co-operative society engaged in carrying on the business of banking as well as co-operative land mortgage bank. In other words, income tax was not deductible at source if the recipient of such income was a bank or co-operative society engaged in banking. (ii) Under the Finance Act of 1968, which came into effect from 1.4.68, clause (v) was inserted, so as to exclude the income credited or paid by a cooperative society to any other co-operative society. In other words, by the 1968 amendment, the liability to deduct tax at source was not there in respect of co-operative societies, if the income referred to therein had been paid or credited to other co-operative societies. The payment of interest to members was not covered even at that time. (iii)By the next amendment, which came into effect from 1.4.70, the income credited or paid in respect of deposits made with a co-operative society engaged in carrying on the business of banking including a co-o....
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.... 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 s.51 of that Act) or with co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a cooperative land development bank). 55.1. Instances have come to notice of the unaccounted incomes being deposited in banks in one's own name or benami. Interest on such deposits is not likely to be declared in IT returns. 55.2. With a view to improving tax compliance, s.194A of the IT Act 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 carrying on the business of banking. However, the requirement of deduction of tax at source will not apply in the case of interest on time 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. Further, there will be no requirement of deduction of tax at source if the amount of interest does not exceed two thousand fi....
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.... 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 banking company to which the Banking Regulation Act, 1949 applies or with a co-operative society engaged in carrying on the business of banking is exempt from the requirement of deduction of income-tax at source. 46.2. The Act amends section 194A of the Income-tax Act, relating to deduction of income-tax at source from interest other than interest on securities in the case of residents. The amendment provides for deduction of income-tax at source at the rates in force (at present, 10 per cent in the case of resident non-corporate persons and 20 per cent plus surcharge thereon in the case of domestic companies) from payment of interest exceeding ten thousand rupees in a financial year on time deposits made on or after 1st July, 1995 with a banking company or with a co-operative society engaged in carrying on the business of banking. The aforesaid limit of ten thousand rupees shall be computed with reference to the income credited or paid by a branch of the banking company or the cooperative society, as the case may be. The i....
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....re to be charged or exempted and what are the circumstances under which they are charged or excluded. Though the legislative intent appears to be to deal with four different types of cooperative societies, the categorisation appears to have been made by the various sub-sections and clauses of Section 194A without defining each one of those categories. The four categories of co-operative 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 banks; and (d) primary agricultural credit society, primary credit society, co-operative land mortgage bank and co-operative land development bank. 54. 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 Rural Development Act, 1981, there is some difficulty in identifying the co-operative societies that fall under the category of "co-operative societies enga....
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.... credit cooperative society. Since it was a question of fact, the Kerala High Court relegated the parties for appropriate adjudication before the departmental authorities after producing necessary certificates. 60. That leaves us with one last issue, namely, as to whether the conflict of opinion between the Tribunals and High Courts was confined only to quasijudicial and judicial bodies or as to whether there was a confusion even in the minds of the legislature. The answer to this question can be found in the manner in which an amendment has been brought forth with effect from 1.6.2015 and the memorandum explaining the clauses. 61. With effect from 1.6.2015, sub-section (3) of Section 194A stands amended. Clause 42 of Finance Bill, 2015 reads as follows:- "42. In section 194A of the Income-tax Act, in subsection (3), with effect from the 1st day of June, 2015,-- (a) in clause (i), after the proviso, the following proviso shall be inserted, namely:- "Provided further that the amount referred to in the first proviso shall be computed with reference to the income credited or paid by the banking company or the co-operative society or the public company, as the c....
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....iness 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)(b) and 194A(3)(viia)(b), co-operative bank is required to deduct tax from interest payment on time deposits if the amount of such payment exceeds specified threshold of Rs. 10,000/-. However, as the provisions of section 194A(3)(v) of the Act provide a general exemption from making tax deduction from payment of interest by all co-operative societies to its members, the co-operative banks tried to avail this exemption by making their depositors as members of different categories. This has led to dispute as to whether the co-operative banks, for which the specific provisions of tax deduction exist in the form of section 194A(1), section 194A(3)(i)(b) and section 194A(3)(viia)(b) of the Act, can take the benefit of general exemption provided to all co-operative societies from deduction of tax on payment of interest to members. The matter has been carried to judicial forums and in some cases a view has been taken that the provisions of section 194A(3)(viia)(b) of....