TaxTMI 
TaxTMI 
2014 (10) TMI 860
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....llant. 2. The Ld CIT(A) erred in holding that appellant was liable to deduct tax at source u/s.194A of the Act in respect of interest paid on term deposits to members, without properly appreciating and interpreting (inter alia) s. 194A(3) of the Act which specifically provides that the appellant is not required to deduct tax at source on such payments. 3. The Ld CIT(A) failed to appreciate that the issue was decided in favour of appellant by several judgments of the Hon‟ble High Courts, and by the ITAT also. He erred in not following the ratio of the judgments of the High Court; and failed to appreciate that even where two views are possible, view in favour of the assessee is to be preferred. 4. Without prejudice to the above, the Id. CIT(A) erred in holding that the appellant is in default and in confirming orders/directions u/s.201(1) and 201(1A) of the Act. 5.Without prejudice, the ld CIT(A) erred in holding that appellant is liable to pay tax without appreciating that the burden/onus of providing loss to the revenue is on the revenue; and needs to be satisfied as a condition precedent before passing orders u/s 201. He erred in holding that judgments of the hon....
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....4A(3)(v) to mean co-operative society other than co-operative bank as decided by the ITAT, Pune Bench, in Bhagani Nivedita Sahakari bank Ltd v ACIT 87 ITD 569 wherein, the Hon‟ble ITAT has held that the term „co-operative society‟ mentioned in section 194A(3)(v) to be interpreted as co-operative society other than cooperative bank. Thus, the ITO passed an order u/s 201(1)/(1A) and calculated the amount payable at Rs. 45,24,614/-; Rs. 30,99,074/- u/s 201(1) and Rs. 14,25,540/- u/s201(1A). 6.1 On going through the provisions of section 194A9(3), it is seen that the ITO is justified in passing an order u/s 201(1)/(1A) and calculating the amount payable at Rs. 45,24,614/-, Rs. 30,99,074/- u/s 201(1) and Rs. 14,25,540/- u/s. 201(1A). The submission of the appellant are not acceptable in view of the decision of Hon‟ble Pune ITAT in the case of Bhagani Nivedita Sahakari bank Ltd cited supra wherein, it is clearly held that section 194A(3)(viia)(b) makes no distinction between members and non-members of co-operative bank for purpose of deduction of tax at source on interest on time deposits paid/credited and therefore, co-operative bank would be liable to deduct ....
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....p Bank Ltd & Anr v. Union of India 265 ErR 423 (Bom), 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 No.9 of 2002 dated 11-09-2002 issued by the CBDT has been quashed and set aside by the Hon‟ble High Court. Therefore, the circular No.9 of 2002 dated 11-09-2002 issued by the CBDT does not help the case of the appellant. The appellant‟s reliance on the said circular is found to be ill founded. Similarly, the appellant‟s reliance on the decisions of the High Court in the cases of Jalgaon District Co-op Bank 265 ITR 423, supra as well as in the case of the Gujarat Urban Co-operative Bank Federation do not help the case of the appellant as in both the cases the decision is same as discussed above. 6.4 In order to understand the legislative intent in this regard, it is necessary to refer to the explanatory notes to Finance (No. 2....
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....ice under any section if the assessee has appeared in any proceeding co-operated in any inquiry relating to an assessment or reassessment. The action of ITO is in conformity with the legal position on the issue. Therefore, the grounds of appeals pertaining the jurisdiction of the ITO are dismissed. 8. The appellant has also contended that when the recipients of interest amount in its case have paid the taxes on interest income, the appellant deductor can not be asked to pay the TOS amount u/s 201(1)(1A) and it has relied on some decided cases in this context. The contention of the appellant is not acceptable in as much as the appellant has not been able to furnish the proof of recipients of interest amount having paid the tax on interest amounts as was the case in the case of Hindustan Coca Cola 293 ITR 293. The appellant has also contended that as per the judgements of some ITATs, the onus of proving the payments of tax by the deductees is on the ITO is impractical in the case of banks where the number of recipients of interest would run into thousands and the ITO would not be able to accomplish the seemingly impossible task. Secondly, such an exercise would be futile in bank&#....
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....c finding of the Hon‟ble Bombay High Court on page 425 of the report (265 ITR), where the Court notes: "... it is an accepted fact that the provisions of tax deducted at source are not enforceable in respect of interest paid by the cooperative society/bank to its members Hon‟ble High Court has expressly referred to "bank" in the above holding. 3. We further note that the Department preferred an appeal against this decision before the Hon‟ble Supreme Court. The Hon‟ble Supreme Court dismissed the Departments appeal by order dated 7.7.2004. Therefore, the above holding of the High Court has not been confirmed by Hon‟ble Supreme Court also. Based on the above decision, the Gujarat High Court has also decided the issue in favour of the assessee in Special Civil Application 1465/2003 decided in June 2012. In light of the above, we respectfully submit that there is no obligation on us to deduct tax at source on payment of interest to our members. We also rely on the decision/reasoning of Hon‟ble Bangalore Bench decision in the case of Bagalkot District Co-op Bank and Basaveshwara Coop Bank, being ITA 1572/Blr/2013 and ITA 275/Blr/2012 respectively. ....
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.... 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 (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 ....
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....ding 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 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 spe....
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....ioner 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" 4. Judicial pronouncements The courts have examined the issue of applicability of TDS provisions to the interest paid by a cooperative society engaged in the business of banking. Moolamattom Electricity Board Employees‟ Co-op Bank Ltd. [1999] 106 TAXMAN 242(KER.) The Hon‟ble High court had concluded that the said TDS provisions do not apply to primary co-operative societies and they are specifically exempt under clause (viia)(a). While deciding so, the Hon‟ble Court, had interalia, observed as under: "The position as it stood before the substitution of the clause by the Finance Act, 1995, 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 cert....
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....ions of the law so as to override the effect of the general provision of the law. Therefore in 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 "co-operative society" would have to be suitably amended. Therefore, it is necessary that the term co-operative society in clause (v) be interpreted as co-operative society other than co-operative bank. d) Clause (viia)(b) was introduced with effect from 1-7-1995 whereas clause (v) was already in existence. The need for introduction of clause (viia) (b) was merely for the purpose of effecting the tax deduction at source from the interest on fixed deposits with the cooperative banks. e) Exemption as claimed by the assessee from TDS with respect to interest on time deposits paid/ credited by a co-operative bank to its members could not be available to the assessee. As provision had 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, same comes withi....
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....in Bhagani Nivedita Sahakari Bank Ltd case, the term "cooperative society" in clause 194A(3)(v) is to be interpreted as "cooperative society other than cooperative bank c) The argument that clause 194A(3)(v) may be taken as applying to members and other clauses applicable to non-members, is without any basis in as much as clauses 1 94A(3)(ib) as well as 1 94A(3) (viia)(b) apply to both members as well as non-members. d) Where ever the legislature intends to apply particular provision to member or to a non-member, it has done so expressly. The above categorical observations of Hon‟ble ITAT are squarely applicable to the case on hand. ACIT v Visakhapatnam Co-Operative Bank Ltd [2011] 47 SOT 295 (Vizag) Ozer Merchant Co-op Bank Ltd- ITA no 1588/PN/2012 In these cases the AOs had made disallowance under section 40(a)(ia) of the Act, as the assessee had failed to deduct tax at source u/s 194A on the interest paid on deposits to members. The assessee claimed that the said interest was paid only to members and it being a cooperative society, there was no requirement of TDS in view of clause Sec.194A (3) (v). The CIT (A) & Hon‟ble ITAT have accepted the stand of the as....
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....r, 2002 [F. No. 275/106/ 2000/IT(B)- Annexure A] is quashed and set aside. Similarly, the letter issued by the ITO, Jalgaon, Ward No. 2(3) [No. Jal/ITO/2(3)/TDS/194 /2000-03, dated 9th October, 2002-Annexure B] is also quashed and set aside. Rule made absolute in the above terms." From the above it is dear that the Hon‟ble Court has set aside and quashed the CBDT Circular in its entirety and not read down or modified the circular. Therefore that circular is no longer in existence and hence no portion of it can be relied upon. 5. Conclusion In view of the above discussion, it is pleaded to dismiss the appeal on the point and declare that in respect of interest on time deposits by a co-operative bank clause (viia) is applicable and not the clause (v) and TDS was required to be done. 2.6. We have heard the rival contention of both the parties, it is undisputed fact that assessee has paid interest on term deposit to Rs. 18,39,0031/- to depositor without deducting the tax at source. The assessee contended that the provisions of TDS are not attracted in view of clause (v) of sub-section (3) of section 194A as the interest payments to the extent of Rs. 1,83,90,031/- have....
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....heque, demand drafts, pay orders, gift cheques, lockers, bank guarantees etc. 3. Society cannot act clearing agent, for cheques, act as clearing agent for cheques, DDs, pay -orders and other forms. 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 and over all functioning of the Bank Registrar has the power to inspect accounts and over all functioning of the bank. Part V of the Part V Part V of the Banking Regulation Act is applicable to co-operative bank Part V of the Banking Regulation Act is not applicable to co-operative banks. Use of words The word „bank‟ „banker‟, „banking‟ can be used by a co-operative bank The word „bank‟ „banker‟, „banking cannot be used by a co-operative society Moreover, we find that in the said judgment the Hon‟ble High Court has held as under: "If a Co-operative Ba....
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....la 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 respect of every payment exceeding Rs. 10,000, at the relevant point of time. The learned single judge as per the impugned judgment, quashed the notices holding that going by the provisions contained in section 194A(3)(viia)(a) of the Income Tax Act, for short "the Act" ,the writ petitioners were not liable to deduct income-tax at source in respect of the interest so paid, as sub-section (3) exempts them from the coverage of sub-section (1) of section 194A of the Act. Aggrieved by the judgment, this appeal is filed only against the 4th petitioner in O.P. No. 17082/1997 (see[199]238 ITR 630), namely, the Thodupuzha Urban ....
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....ismissed. 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 Section 194A(3). Now coming to Circular No. 9/2002, issued by the CBDT, which is relied upon the assessee. The said circular sought to interpret the definition of "member" clarified that the member does not include the nominal member. It was held by the Bombay High Court in the case of Jalgaon District Central Co-operative Bank Ltd. & Anors. vs. Union of India 265 ITR 423, that the Board has no power to interpret the provisions of law by way of circular. The issue in hand of Hon‟ble Bombay High Court was the definition of word "member" as appearing in clause-(v)of Section 194A(3) and power of Central Board of Dire....
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.... 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 deduction of tax at source at the rate in force from payment for interest exceeding Rs. 10,000/-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 business of banking. The aforesaid limit of Rs. 10,000/- shall be computed with reference to the income credited or paid by branch of banking company or Co-operative Society as the case may be. The interest on time deposit made with a primary agricultural society or a credit society or a co-operative land mortgage bank or a Co-operative land development bank will not be subject to requ....
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....he 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 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 TDS on time deposits is dealt in clauses (vii) & (viia) of 194A (3) which are extracted below: (3) The provisions of sub-section (1) shall not apply (vii) : to such income credited or paid in respect of deposits (other than time deposits made on or after the 1st day of July, 1995) with a banking company to which the Banking Regulation Act, 1949 (10 of 1949) ap....
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.... 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 exempted in clause(v). The appellant is placing reliance on Circular no 9 of 2002 in its support. In this scenario, the moot question for consideration is: Whether, in respect of interest paid on time deposits by a co-op bank, the clause(v) which deals with cooperative societies will apply or the clause (viia) which mentions specifically „a co-operative society engaged in the business of banking‟ finds application? 2. Legislative history of TDS on interest: a. The Finance act 1968, inserted clause (v) in 194A(3) to exempt interest paid by on co-op society to another co-op society from TDS ....
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....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 company, or cii) a co-operative society engaged in carrying on the business of banking, other than a co-operative land mortgage bank, a co-operative land development bank, primary agricultural credit society or a primary credit society (emphasized) The above circular clearly states that, it was only by introduction of clause (viia), a cooperative society engaged in the business of banking was brought under the purview of TDS on time deposits. The TDS on time deposits was withdrawn very next year by way of substituting above mentioned clauses (vii) & (viia) with a combined clause (vii) and status qu....