TaxTMI 
TaxTMI 
2018 (10) TMI 1170
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....had claimed that it was saved by clauses (v) of Sub Section(3) to Section 194A of the Income Tax Act, 1961 (in short ''the Act''). This claim was not allowed by the lower authorities, giving rise to a demand of F1,81,15,612/- for assessment year 2012-13 and F2,39,57,192/- for assessment year 2013-2014 u/s.201 and 201(1A) of the Act. Ld. Assessing Officer and ld. Commissioner of Income Tax (Appeals) took a view that tax should be deducted at source on interest payment made by Co-operative Societies engaged in the business of banking to its members, once the amount exceeded Rupees ten thousand. For taking this view, reliance was placed on Sections 194A(3)(i) (b) and 194A(3) (viia) of the Act. Though the assessee relied on a decision of Bangalore Bench of the Tribunal in the case of the Bagalkot District Co-operative Bank vs. JCIT, (2014) Tax Corp (LJ) 3362, lower authorities chose to follow the decision of Panaji Bench of the Tribunal in the case of the Bailhogal Urban Co-operative Bank Ltd. vs. JCIT (ITA No.85/PN/2013). Reference to this Special Bench came about due to the cleavage of opinions between Bangalore Bench and Panaji Bench. Even the Chennai Bench in the case of The Coimba....
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....s at para 1 above is very same as the question of law, answered by the Hon'ble Jurisdictional High Court in the case of The Coimbatore District Central Co-operative Bank Ltd (supra). Para 2 of the judgment is reproduced hereunder:- 2. The assessee has come up with the above appeals, raising the following substantial question of law : "Whether a co-operative society, carrying on banking business with the approval of the Reserve Bank of India, is liable to deduct tax under section 194A of the Income-tax Act, 1961 on the interest paid to its members ?" In addition to the above, Hon'ble Jurisdictional High Court had framed one more substantial question of law, which read as under:- "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?'' What was held by their lordships at para 6 to 65 is reproduced hereunder:- ''6. In order to examine the substantial questions of law that have arisen for our consideration, it may be necessary to take note of the relevant statutory provisions at first. 7. Sub-section (1) of section 19....
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....Exclusions to the exclusions under clause (i) of sub-section (3) : 11. To the exclusions provided under sub-clauses (a) to (d) of clause (i) of sub-section (3), certain restrictions are imposed by two provisos. The first proviso was inserted by the Finance (No. 2) Act, 1996 with effect from October 1, 1996 and the second proviso was inserted with effect from June 1, 2015. By the first proviso, time deposits (i) either with a banking company to which the Banking Regulation Act, 1949 applies ; (ii) or to a co- operative society engaged in the business of banking ; (iii) or to 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 section 36 are to be computed with reference to the income credited or paid by a branch of a banking company or a co-operative society or a public company. 12. By the second proviso, the time deposits made with a banking company or with a co-operative society or deposits with a public company covered by the first proviso are directe....
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....o exclusions under clauses (viii), (ix), (x) and (xi), with which we are not fortunately concerned in this batch. But before parting with section 194A, we should take note of two important things, namely, (a) that the expression "time deposits" is defined in Explanation 1 to mean deposits including recurring deposits repayable on the expiry of fixed periods ; and (b) that the expression "co-operative bank" is defined in the Explanation under clause (v) to have the same meaning as assigned to it in Part V of the Banking Regulation Act, 1949. These two expressions assume significance, in the light of the questions that have arisen for consideration and hence we have taken note of the same. 17. For the purpose of easy reference, we extract herein below sub-section (3) of section 194A in entirety. "(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,....
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....pany or co-operative society carrying on the busi ness of insurance, or (f) such other institution, association or body or class of insti tutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Offi cial Gazette ; (iv) to such income credited or paid by a firm to a partner of the firm ; (v) to such income credited or paid by a co-operative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a cooperative society to any other co- operative society ; Explanation.-For the purposes of this clause, 'cooperative bank' shall have the same meaning as assigned to it in Part V of the Bank ing Regulation Act, 1949 (10 of 1949) ; (vi) to such income credited or paid in respect of deposits under any scheme framed by the Central Government and notified by it in this behalf in the Official Gazette ; (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, applies ....
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.... ; (e) primary credit society ; (f) co-operative land mortgage bank ; and (g) cooperative land development bank. 19. As we have stated earlier, the expression "co-operative bank" is defined in the Explanation under clause (v) of sub-section (3) to have the same meaning as assigned to it in Part V of the Banking Regulation Act, 1949. But the Explanation makes it clear that it is applicable only for the purpose of that clause, viz., clause (v). Therefore, we do not know whether the meaning assigned to the expression "co-operative bank" in Part V of the Banking Regulation Act, 1949 could be borrowed for the purpose of understanding the meaning of the same expression found in the clauses other than clause (v) of sub-section (3). 20. Section 2(19) of the Income-tax Act defines a "cooperative society" to mean a co-operative society registered under the Co-operative Societies Act, 1912 or under any other law for the time being in force in any State for the registration of co-operative societies. The expression "co-operative bank" is not defined in the Income-tax Act, 1961. 21. In so far as the State of Tamil Nadu is concerned, there are at least two enactments t....
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....ciety ; (f) co-operative land mortgage bank ; and (g) co-operative land development bank. 25. But the expression "co-operative bank" is defined in the Multi-State Co- operative Societies Act, 2002, under clause (f) of section 3 to mean a multi- State co-operative society which undertakes banking business. The expression "co-operative society" is defined in section 3(h) of the Multi-State Co-operative Societies Act, 2002, to mean a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State. 26. While the distinction sought to be made in clause (viia) of sub-section (3) of section 194A between (i) a primary agricultural credit society, a primary credit society, a cooperative land mortgage bank and a co-operative land development bank and (ii) other types of co-operative societies is understandable, the distinction sought to be made in the various clauses of sub-section (3) between a co-operative bank on the one hand and a co- operative society carrying on the business of banking on the other hand, is not clearly decipherable from the scheme of section 194A. Even if we take....
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.... which the money is lent by them. The distinction does not lie in the manner in which they invite or accept deposits. What is important for the purpose of section 194A is the acceptance of deposits and the payment of interest to the depositors. Therefore, for the purpose of section 194A, a credit society under the Tamil Nadu Co-operative Societies Act and the financing bank under the same Act stand on the same footing. They can be treated differently only in terms of the express provisions such as the one found in sub-clause (a) of clause (viia) of sub-section (3). Otherwise the expression "co-operative bank" which is neither defined in the Income-tax Act nor in the Tamil Nadu Societies Registration Act, 1975, would naturally cover a credit society as well as a financing bank at least insofar as the Tamil Nadu Act is concerned. 31. Interestingly, the Multi-State Co-operative Societies Act, 2002, does not deal with the expression "credit society" at all. It deals only with two expressions, namely, "co-operative bank" and "co-operative society". 32. Though the Explanation under clause (v) of subsection (3) limits the meaning of the expression "cooperative bank" borr....
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.... is one which has as its principal object, the providing of longterm advances for agricultural development. 37. The reason as to why we have been compelled to go after these definitions is the fact that the appellant/assessee happens to be the District Central Cooperative Bank. No co-operative society is entitled to use the word "bank", unless it happens to be a co-operative bank. This is made clear by clause (f) of section 56 of the Banking Regulation Act, 1949. As a matter of fact, the answer to the questions of law raised in these appeals could be found in section 56(f) of the Banking Regulation Act, 1949. Before we advert to clause (f) of section 56, we should bring on record one fact. 38. Section 56 of the Banking Regulation Act is actually a complete code in itself. Section 56 makes the provisions of the Banking Regulation Act, 1949, applicable to cooperative societies, just as they apply to banking companies, subject to certain modifications indicated in clauses (a) to (zl). By the provisions contained in clauses (a) to (zl), section 56 incorporates the amendments, the substantive provisions of the Act as well as the schedules thereto, in so far as their ap....
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....ty) comprises of two parts. The first part of section 7(1) states that no cooperative society other than a co-operative bank shall use the word "bank" as part of its name. The second part of section 7(1) states that 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 the words, namely, bank, banker or banking. 41. Therefore, section 7(1) of the Banking Regulation Act, 1949, settles at least one issue, namely, that in so far as that Act is concerned, there is no distinction between a cooperative bank and a co-operative society carrying on the business of banking. If a co-operative society carries on the business of banking, it should necessarily have the adjunct bank. Additionally, if a co-operative society does not carry on the business of banking, it should not use the adjunct bank. 42. Therefore there appears to be no distinction between a co-operative bank and a co-operative society engaged in the business of banking, at least for the purpose of the Banking Regulation Act, 1949. We have already seen from the provisions of the Tamil Nadu Co-operative Societies Act, 1983 that the said Act also....
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.... be that none of the State or Central enactments such as the Tamil Nadu Co-operative Societies Act, 1983, the Multi-State Co-operative Societies Act, 2002, the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949, and the National Bank for Agriculture and Rural Development Act, 1981, make any distinction between a co-operative society engaged in carrying on banking business and a co-operative bank. 46. Since there is a reference to the Co-operative Societies Act, 1912, in section 2(19) of the Act, we have also gone to the Co-operative Societies Act, 1912. It was a central legislation of the colonial past, which also does not define a co-operative bank. It only deals with co-operative societies registered under the Act. Therefore our answer to the second question may not undergo a change even if we make a reference to the Co-operative Societies Act, 1912, which in any case has no application to the societies registered in terms of the State enactments. Substantial question of law No. 1 : 47. Coming to the first substantial question that arises for consideration, Mr. J. Narayanasamy, learned senior standing counsel for the Department, submitted....
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....rative Societies Act, 1912, and the Multi-Unit Co-operative Societies Act, 1942, were debated after India attained independence and a cooperative move ment was already at the dawn in the State of Maharashtra where sugar cane was grown to a large extent. (v) Finding that the benefit granted by the 1970 amendment was applicable only to the incomes credited or paid in respect of deposits made with co-operative societies carrying on the business of banking, the Government came up with the next amendment with effect from April 1, 1971, to enlarge the scope of the benefit to members of co-operative soci eties irrespective of whether the society carried on banking business or not. In other words, by the amendment that came with effect from April 1, 1971, two sets of exemptions were granted, one was in respect of income credited or paid in respect of deposits made with a co-operative society carrying on the business of banking and the other was the income credited or paid by a co-operative society to a member or to any other society. To put it differently, one more category which was excluded from the appli cation of section 194A was inserted with effect from April 1, 1971. (vi) A....
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....months. It appears that representations poured in from several quarters, forcing the Government to come up with yet another amendment with effect from June 1, 1992. By this amendment, the position that prevailed prior to October 1, 1991, was restored. In fact, the next Circular bearing No. 636 dated August 31, 1992* explained the rationale for the restoration of the position on the following lines : "Modification of the provisions regarding deduction of tax at source : . . . 49.1. A large number of representations have been received from members of public, representative bodies and banks pointing out vari ous difficulties which had arisen on account of the operation of these provisions. Keeping in view these difficulties, the Act amends,- (a) section 194A of the Income-tax Act, to restore the position as obtaining before October 1, 1991, in relation to deduction of income- tax at source in the case of income 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 t....
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....e expression "time deposits" is defined to mean deposits, excluding recurring deposits, repayable on the expiry of fixed period. 46.3 The amendment will take effect from July 1, 1995." 50. Fortunately, the next amendment came only after 20 years in the Finance Act, 2015, with effect from June 1, 2015. We will take up the changes brought forth by the Finance Act, 2015, later, so that we could deal with the effect of these amendments and the contentions of the Revenue on the basis of these amendments. 51. Relying upon the various amendments that were introduced right from 1967 at least up to 1995, it is contended by the Revenue that the original intention of excluding the income credited or paid from the purview of the liability to deduct tax at source, was only to benefit the income credited or paid by a co-operative society to another society. The benefit was later extended to the deposits made with co-operative societies engaged in the business of banking. Subsequently, upon finding that unaccounted monies were deposited in co-operative societies, the benefit was withdrawn. Therefore it is contended by Mr. J. Narayanasamy, learned senior standing counsel....
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....ent courts coming to different conclusions. 55. In the Bagalkot District Central Co-operative Bank v. Joint CIT in I. T. A. No. 1572/Bang/2013 decided on May 30, 2014, the Bangalore Bench of the Tribunal came to the conclusion that the District Central Co-operative Bank in question was a co-operative society carrying on banking business and that therefore when it pays interest income to a member, both on time deposits and on deposits other than time deposits, the society need not deduct tax at source. 56. Similar views were taken by the Vishakapatnam Bench of the Tribunal in the Vishakapatnam Co-operative Bank in I. T. A. Nos. 5 and 19 of 2011 decided on August 29, 2011, and the Pune Bench of the Tribunal in Ozer Merchant Co-operative Bank in I. T. A. No. 1588/PN/2012, decided on October 30, 2013. 57. However, a contra view was expressed by the Panaji Bench in I. T. A. No. 85/PN/2013 in the case of Bailhongal Urban Co-operative Bank Ltd. v. Joint CIT decided on August 28, 2013. But the decision of the Panaji Bench was based upon the decision of the Bombay High Court in Jalgaon District Central Co-operative Bank Ltd. v. Union of India [2004] 265 ITR 423 (B....
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....utions.' (b) in clause (v), for the words 'paid by a co-operative society to a member thereof or', the words and brackets 'paid by a co-operative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a co-operative society' shall be sub stituted ; (c) after clause (v), the following Explanation shall be inserted, namely :- 'Explanation.-For the purposes of this clause, "cooperative bank" shall have the same meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949) ; (d) for clause (ix), the following clauses shall be substituted, namely : '(ix) to such income credited by way of interest on the compen sation amount awarded by the Motor Accidents Claims Tribunal ; (ixa) to such income paid by way of interest on the compensa tion 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 ;' (e) in Explanation 1 below clause (xi), for the word 'excluding',....
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....(viia)(b) of the Act makes no distinction between members and non-members of co-operative banks for the purposes of deduction of tax, hence, the co-operative banks are required to deduct tax on payment of interest on time deposit and cannot avoid the same by taking the plea of the general exemption provided under section 194A(3)(v) of the Act. This is because the specific provision of tax deduction provided under section 194A(3)(i)(b) and 194A(3)(viia)(b) of the Act for cooperative banks override the general exemption provided to all co-operative societies for non-deduction of tax from interest payment to members under section 194A(3)(v) of the Act. As there is no difference in the functioning of the cooperative banks and other commercial banks, the Finance Act, 2006, and Finance Act, 2007, amended the provisions of the Act to provide for co-operative banks a taxation regime which is similar to that for the other commercial banks. Therefore, there is no rationale for treating the cooperative banks differently from other commercial banks in the matter of deduction of tax and allowing them to avail the exemp tion meant for smaller credit co-operative societies formed for the....
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....araswat Co-operative Bank Ltd (supra) relied on by the ld. Departmental Representative, had strongly relied on its earlier decision in the case of The Bailhogal Urban Co-operative Bank Ltd (supra). This is clear from the following para in the order of the Tribunal in the case of Saraswat Co-operative Bank Ltd (supra). ''The Bailhongal Urban Co-op Bank Ltd v JCIT Range-1(ITA No.85/PNJ/2013,ITAT, Panaji Bench) dated 28-08-2013 In this case the appellant, a co-operative society engaged in business of the banking had paid interest on time deposits to its members without deducting tax u/s 194A. The AO applied the provisions of section 40(a)(ia) and disallowed the corresponding expenditure with the finding that the assessee was liable to deduct tax in view of specific clause (viia) of 194A(3). This stand has been upheld by HonIble ITAT with following observations: a) The AO categorically brought out material on record to prove that the assesse bank is covered by clauses 194A(3)(ib) as well as 194A(3) (viia)(b) which are specific in nature and the assessee cannot put forth its claim under 1 94A(3)(v) which is general in nature. b) As the assessee is coo....