TaxTMI 
TaxTMI 
2015 (4) TMI 1250
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 212, 213, 214 & 215/Mds/2015, I.T.A. Nos.3042, 3043, 3044, 3045, 3046, 3047 & 3048/Mds/2014 S.P. Nos.223, 224, 225, 226, 227, 228 & 229/Mds/2015, I.T.A. Nos.2523, 2524, 2525, 2526, 2527, 2528 & 2529/Mds/2014 S.P. Nos.237, 238, 239, 240, 241, 242 & 243/Mds/2015, I.T.A. Nos.3035, 3036, 3037, 3038, 3039, 3040 & 3041/Mds/2014 S.P. Nos.244, 245, 246, 247, 248, 249 & 250/Mds/2015, I.T.A. Nos.2452, 2453, 2454, 2455, 2456, 2457 & 2458/Mds/2014 S.P. Nos.251, 252, 253, 254, 255, 256 & 257/Mds/2015, I.T.A. Nos.2459, 2460, 2461, 2462, 2463, 2464 & 2465/Mds/2014 S.P. Nos.258, 259, 260, 261, 262, 263 & 264/Mds/2015, I.T.A. Nos.185, 186, 187, 188, 189, 190 & 191/Mds/2015 S.P. Nos.265, 266, 267, 268, 269, 270 & 271/Mds/2015, I.T.A. Nos.192, 193, 194, 195, 196, 197 & 198/Mds/2015 S.P. Nos.272, 273, 274, 275, 276, 277 & 278/Mds/2015, I.T.A. Nos.2496, 2497, 2498, 2499, 2500, 2501 & 2502/Mds/2014 S.P. Nos.279, 280, 281, 282, 283, 284 & 285/Mds/2015, I.T.A. Nos.2516, 2517, 2518, 2519, 2520, 2521 & 2522/Mds/2014 ORDER PER BENCH: All the Stay Petitions and connected appeals of the assessees are directed against the respective orders of the Commissioner of Income Tax (App....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny other co-operative society. According to Ld. counsel, the Bangalore Bench of this Tribunal found that Section 194A(3)(v) of the Act applies to all co-operative societies, including co-operative societies engaged in the business of banking. 4. The Ld. counsel further submitted that the co-operative societies engaged in the business of banking cannot be excluded from the provisions of Section 194A(3)(v) of the Act. The Bangalore Bench of this Tribunal referring to Section 194A(3)(i)(b) of the Act, found that payment by a co-operative society to a member and payment by a co-operative society to a non-member would be continued to be governed by the provisions of Section 194A(3)(v) of the Act. The Bangalore Bench further found that Section 194A(3)(viiab) of the Act refers to payment of interest on deposits other than time deposit, even if the payment is made to a nonmember by a co-operative society. Accordingly, the Bangalore Bench found that when a co-operative society is carrying on the business of banking and pays interest to its members both on time deposit and deposits other than time deposit, such a co-operative society need not deduct tax at source as provided in 194A(1) of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o-operative societies, which claim themselves carrying on the business of banking, have any transaction with nonmembers, the Ld. counsel clarified that all the transactions of the assessee-co-operative societies are only with members and no transaction was made with non-members. 8. In view of the above, the Ld. counsel for the assessees submitted that the assessees are not liable to deduct tax with regard to payment of interest on deposits made by their members, therefore, the orders of the lower authorities treating the assessees as assessee in default under Sections 201 & 201(1A) of the Act , are not justified. 9. On the contrary, Shri S. Das Gupta, the Ld. Departmental Representative, submitted that the framers of the law in their wisdom, intended to classify the co-operative society, which is engaged itself in the business of banking, and other co-operative society which are not engaged in the business of banking. Accordingly, under Section 194A(3)(i)(b) of the Act, the law makers introduced a provision for deduction of tax when the payment exceeds Rs. 10,000/- by a co-operative society carrying on the business of banking. However, sub-clause (v) of Section 194A(3) of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g Officer. 11. We have considered the rival submissions on either side and perused the relevant material on record. Admittedly, all the assessees are registered as co-operative societies under the Cooperative societies Act and they are carrying on business in banking. The question arises for consideration is when a cooperative society engaged itself in the business of banking, whether it is liable to deduct tax on the income/interest paid to depositors/ members? Before going to the question, we have to examine the legislative history of Section 194A which provides for deduction of tax on payment of interest other than securities. It is also necessary to examine the provisions of Section 80P of the Act, which provides for exemption of income of the co-operative societies. For the purpose of convenience, we are reproducing Section 80P of the Act, which reads as follows:- 80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her than those specified in clause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities as does not exceed,-- (i) where such co-operative society is a consumers' cooperative society, 2one hundred thousand rupees ; and (ii) in any other case, twenty thousand rupees. Explanation.--In this clause, "consumers' co-operative society" means a society for the benefit of the consumers; (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income ; (e) in respect of any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income; (f) in the case of a co-operative society, not being a housing society or an urban consumers' society or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power, where the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rative bank other than primary agricultural credit society or a primary co-operative agricultural and rural development bank. The word "co-operative bank" is defined in Part V of the Banking Regular Act, 1949. In fact, Explanation (a) to Section 80P(4) says that the meaning of "co-operative bank" shall have the meaning assigned in Part V of the Banking Regulation Act. We have carefully gone through the provisions of Banking Regular Act. Section 56 of the Banking Regulation Act which defines "cooperative bank" as follows:- "co-operative bank" means a state co-operative bank, a central co-operative bank and a primary co-operative bank. In this case, the assessee is a state co-operative bank. Therefore, under Section 80P(4) of the Act, the assessee is not eligible for deduction under Section 80P in respect of income from banking business with effect from 1.4.2007. 12. Now coming to Section 194A of the Act, it reads as follows:- 194A. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall at the time of credit of such ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and registered in India with the main object of carrying on the business of providing long-term finance for constructions or purchase of houses in India 1for 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 ; (iii) to such income credited or paid to-- (a) any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank), or (b) any financial corporation established by or under a Central, State or Provincial Act, or (c) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or (d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or (e) any company or co-operative society carrying on the business of insurance, or (f) such other institution, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ublic sector company 6or scheduled bank ; Explanation 1. For the purposes of clauses (i), (vii) and (viia), "time deposits" means deposits (excluding recurring deposits) repayable on the expiry of fixed periods. (4) The person responsible for making the payment referred to in sub-section (1) may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year. 13. This Section was introduced in the statute book by Finance (No.2) Act, 1967 with effect from 1.4.1967, which provides for deduction of tax on payment of interest other than individual or Hindu Undivided Family, to a resident at the time of crediting income or payment. By Finance Act, 1975 with effect from 1.4.1975, sub-section (3) of Section 194A was substituted. The Central Board of Direct Taxes, while explaining the scope and effect of the amendment which was introduced in Section 194A(3), has clarified as follows in Circular No.621 dated 19.12.1991, reported in 195 ITR (Statutes) 154:- "55. Section 194A of the Income....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ged in carrying on business of banking. The CBDT has also clarified that the requirement of deduction of tax at source will not apply in case of interest on time deposit with primary agricultural credit society or primary credit society or co-operative land mortgage bank. From this, it is obvious that the requirement of deduction of tax with effect from 1.4.1975 is only in respect of interest paid by a banking company, and co-operative society engaged in carrying on the business of banking, on the time deposit only. However, the interest on Savings Bank account or Recurring Deposit accounts are not subjected to deduction of tax at source. The Parliament, by Finance Act, 1996 with effect from 1.10.1996, introduced a proviso to Section 194A(3)(i) of the Act. While explaining the scope and effect of the proviso to Section 194A(3)(i) of the Act, the CBDT has clarified as follows in Circular No.717 dated 14.08.1995, reported in (1995) 215 ITR (Statutes) 70:- "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 wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dited or paid by a co-operative society to a member or any other co-operative society, tax need not be deducted. Section 194A(3)(v) of the Act does not refer to a cooperative society carrying on the business of banking. It simply says that "income paid or credited by a co-operative society". Therefore, the provisions of Section 194A(3)(v) may not be applicable to a co-operative society which carries on the banking business, since the co-operative society which carries on banking business is differently treated by the Parliament in Section 194A(3)(i)(b) of the Act. 16. Now coming to Section 194A(3)(viia) which also provides for non-deduction of tax at the time of credit or payment by the primary agricultural credit society, co-operative society. Section 193A(3)(viia)(b) clearly says that the deposit other than time deposit with a co-operative society engaged in carrying on business of banking is not subjected to deduction of tax. In fact, the CBDT, while clarifying the scope and effect of Section 194A(3) as substituted by Finance Act, 1975 explains the same. Therefore, what was excluded in Section 194A(3)(viia)(b) is time deposit made with co-operative society engaged in carrying....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n carrying on the business of banking. 2. Representations have been received in the Board seeking clarification as to whether a member of a co-operative bank may receive without TDS interest on time deposit made with the co-operative bank on or after 1st July, 1995. The Board has considered the matter and it is clarified that a member of a co-operative bank shall receive interest on both time deposits and deposits other than time deposits with such co-operative bank without TDS under section 194A by virtue of the exemption granted vide clause (v) of sub-section (3) of the said section. The provisions of clause (viia) of the said sub-section are applicable only in case of a non-member depositor of the co-operative bank, who shall receive interest only on deposits other than time deposits made on or after 1st July, 1995 without TDS under section 194A. 3. A question has also been raised as to whether normal members, associate members and sympathizer members are also covered by the exemption under section 194A(3)(v). It is hereby clarified that the exemption is available only to such members who have joined in application for the registration of the co-operative socie....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... .... .... .... .... .... .... .... .... .... ........ .... .... .... .... ... .... ... .... .... ... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ... .... ... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ... .. 25. Having examined the validity of the impugned circular from all angles, we are of the clear opinion that Central Board of Direct Taxes has no authority to make a crack in the exemption clause contained in section 193A(3)(v) of the Income Tax Act, 1961, by issuing the impugned circular, the Central Board of Direct Taxes cannot usurp the powers of Parliament by virtue of section 119 of the Income-tax Act, 1961. The Central Board of Direct Taxes, under the garb of section 119 of the Income-tax Act, 1961, cannot exercise wider powers than the powers bestowed on it. The Central Board of Direct Taxes has no power to introduce a substantial change or alteration in the provisions of the Income-tax Act, 1961, by importing the ideas unknown to the Income-tax Act, 1961. The impugned circular, therefore, does not stand to the legal test. 26. In the result, both the writ petitions are allowed. The impu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Bangalore Bench of this Tribunal has not considered the legislative history of co-operative societies and the scheme of Income-tax Act in respect of co-operative societies in Section 80P and 194A of the Act and the circular issued by the CBDT in Circular No.621 dated 19.12.1991 and Circular No.717 dated 14.8.1995. Moreover, the judgment of the Apex Court in Asst. Director of Inspection (Investigation) v. Kum. A.B. Shanthi (2002) 255 ITR 258 was also not considered by the Bangalore Bench. Therefore, this Bench is of the considered opinion that the decision of the Bombay Bench of the Tribunal in The Bagalkot District Central Co-op. Bank (supra) is per incuriam for the reason that it has not considered the circular issued by the CBDT in Circular No.621 dated 19.12.1991 and Circular No.717 dated 14.8.1995 and legislative history of Section 80P and 194A of the Act. 21. The Kerala High Court in Moolamattom Electricity Board Employees' Co-operative Bank Ltd. In re (1999) 238 ITR 630 considered the identical issue and observed as follows at pages 633 and 634 of ITR:- ".......The position as it stood before the substitution of the clause by the Finance Act, 1996, was to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re, it is not a conflicting decision of co-ordinate Bench. In fact, the Bangalore Bench of this Tribunal has not considered the earlier circulars of the CBDT which in fact explain the scope of Section 194A of the Act as amended. Probably, attention of the Bangalore Bench of this Tribunal might not have been drawn to the circulars issued by the CBDT in Circular No.621 and Circular No.717. Therefore, it may not be necessary to refer the matter to Special Bench. 22. The Apex Court in ADI v. Kum. A.B. Shanthi (2002) 255 ITR 258 had an occasion to consider the judgment of the Constitution Bench in S.K. Dutta, ITO v. Lawrence Singh Ingty (1968) 68 ITR 272 and observed as follows at page 263 as follows:- "A Constitution Bench of this court in S.K. Dutta, ITO v. Lawrence Singh Ingty (1968) 68 ITR 272 held (page 275): "It is not in dispute that taxation laws must also pass the test of article 14. That has been laid down by this court in Moopil Nair v. State of Kerala [1961] 3 SCR 77. But as observed by this court in East India Tobacco Co. v. State of Andhra Pradesh [1963] 1 SCR 404, 409 in deciding whether the taxation law is discriminatory or not it is necessary to bea....