TaxTMI 
TaxTMI 
2015 (1) TMI 1406
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.... allowable expense and disallowed the deduction u/s 40(a)(ia) of the Income Tax 1961 which is opposed to law and precedent in the following Cases with similar facts: (i) Bombay High court in case of Jalagaon DCC Bank (265 ITR 423) (ii) I.T.A.T. Bench of Vishakapatnam (iii) Gujarat High court in case of Gujrat Urban Co-operative Bank Federation V/s Union of India dated 12.06.2012 (iv) Karnataka High court in case of Additional commissioner of Income Tax Vs. Rajajinagar Co-operative Bank Ltd (2011) 5 Taxcorp (DT) 49901 (Karnataka) (v) Supreme court in the case of Commissioner of Income tax Vs. Vegetable Products Ltd [1973] 88 ITR 192 [SC] 3. The learned Commissioner of Income Tax(Appeals), Belgaum has erred in misinterpreting the 194A(3)(v) which specifically carves out an exception to 194A(1) on interest paid by a Co-Operative Society to its members. This view was taken in the case of Jalagaon DCC Bank Case and Clarification issued by the DBDT in Circular No.9/2002 dated 11-9-2002. 3. The short facts of the case are that the assessee is a co-operative bank and engaged in the business o....
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....e meaning of clause (v) of Sec 194A(3). The AO has further dwelled on this issue and has stated that the word 'co-operative society' is an omnibus word which includes different types of co-operative societies engaged in different types of activities. Where ever a reference is made to any co-operative society, the Income Tax Act, 1961 has clearly distinguished and specified the type of co-operative society based on the type of activity carried out. Such a distinction was required as the Legislature intends to extent different benefits to different types of co-operative societies through the Income Tax Act. Thus, as per Assessing Officer, the appellant is claiming benefit of sections 36(1)(vva), 269SS and 269T on the ground that it is a 'co-op bank' but for availing exemption from TDS under section 194A, it is claiming itself as an ordinary 'co-operative society within the meaning of 194A(3)(v). While distinguishing between ordinary co operative society and the cooperative society carrying on business of banking, the AO has relied on the decision of Kerala High Court in the case of Moolamatom Electricity Board Employees Co-operative Bank Ltd (1999) 238 ITR 630. (ii) T....
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....r than co-operative bank and further the provisions which are specific in nature over ride the provisions which are specific in nature. (iv) The Assessing Officer has further observed that in the provisions of section 194A(3)(i) only the nature of the 'player' has been defined in the respective sub-clause and the proviso thereof which includes the appellant co-operative bank. Since the appellant being the 'prayer' is squarely covered under sub-clause (b) of clause (i) of Sec 194A(3) and the provisions of said clause are squarely applicable to any payee i.e member, non-member, co-op society urban co-op bank etc are all covered under the ambit of clause (i) of section 194A(3), who ever receives interest from the appellant. (v) Regarding the heavily relied upon decision in the case of Jalgaon District Co-operative Bank Ltd & Anr Vs. Union of India (2004) 265 ITR 423 by the appellant, the AO has mentioned that in the said case, the Hon'ble High Court was concerned with as to whether the exemption granted to the Co-operative Society u/s194A clause(3)(v) can be taken away by creating a distinction between duly registered member and nominal member which is unk....
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....by rendering itself liable for disallowance under section 40(a)(ia) of the I.T Act, 1961. The submissions of the appellant are not acceptable in view of the decision of Hon'ble Pune I.T.A.T. in the case of Bhagiani Nivedita Sahakari bank Ltd cited supra, wherein, it is clearly held that section 194A(3)(vii)(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 tax at source under section 194A(1) on interest on time deposits paid/credit to its deposits, if such interest amount exceeded the limit prescribed in proviso to section 194A(3)(i). Further, the Hon'ble Kerala High Court in the case of Moolamatom Electricity Board Employees Co-op Bank Ltd 238 ITR 630 has made a clear distinction between primary credit society and a co-operative society engaged in banking business. Thus, section 194A deals with co-op societies engaged in the business of banking, co-operative societies engaged in providing credit facilities to the members, etc. As has been rightly held by the Assessing Officer that the moment the amount pa....
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....r 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. 5.2.8 In order to understand the legislative intent in this regard, it is necessary to refer to the explanatory notes to Finance (No.2) Act, 1991 given in the circular No.621 dated 19-12-1991 which among others, provides that "With a view to improving tax compliance, Sec 194A of the 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" This Circular of the CBDT explains in no uncertain terms that the intention of the legislature in amendment of Section 194A, inter alia was to secure deduction of tax at source from interest on time deposits with the banking companies and co-operative societies engaged in carrying on the business of banking. The appellant being a co-operative society engaged in carrying on the business of banking is liable to make TDS u/s194A. 5.2.9 In a recently delivered judgment, the Hon'ble I.T.A.T. Panaji Bench, Panaji ....
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....he Act, which is not at all called for and not as per the intention of the law. In this case also, as per the section Assessee should make the TDS where interest is paid on time deposits to non-members. 3. The clause (v) of the sub section(3) of 194A is specific and not general. It is well settled that, what is not contemplated in the exemption clause cannot be imported to deprive the exemption granted to the co-operatives. 4. Honourable Vishakapatnam Bench of I.T.A.T. has decided the same issue in favour of the assessee, mentioning 'Co-operative bank is a Co-operative society and not liable to deduct tax at source as per the provisions of Sec 194A(3)(v)'. The copy of the judgement is enclosed herewith for your perusal and kind consideration. 5. The decision of the Honourable Bombay High Court in Jalgaon DCC Bank's Case (265 ITR 423) is again reiterated by the Gujarat High Court in the case of Gujarat Urban Co-operative Bank Federation V/s. Union of India dated 12.06.2012. 6. Our jurisdictional honourable High court of Karnataka had an occasion to consider the issue of levying a penalty under Section. 271C read with section 1....
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.... we are of the view that the issue is now controversy that the assessee has paid interest on term deposits to the members/depositors without deducting the TDS under Section. 194A of the Act. The assessee contended that the provisions of TDS are not attracted in view of sub section(3)(v) of section 194A of the Act as interest payment to that extent has been made to members of bank. We find that in the case of Shreee Basaveshwar Co-operative Bank in ITA No. 344/PNJ/204 for the assessment years 2011-12 vide order dated 05-01-2015, wherein we find that the assessee is required to deduct a tax at source in respect of time deposits in excess of Rs. 10,000/- interest payment to members of the assessee bank. We have already held that the co-operative bank and co-operative society both are different and independent. The co-operative bank was registered under the Banking Regulations Act 1949. The co-operative society was registered under the Karnataka Co-operative Societies Act 1959 only. Therefore, we are of the view that TDS is required to be made on time deposit on interest payment after 01-07-1995. We have already dealt with this issue in detail in para 2.6 of the said tribunal order, wh....
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...., 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 guarantees etc. 3. Co-operative Banks can act as clearing agent for cheques, DDs, pay -orders and other forms. 4. Banks are bound to follow the rules, regulations and directions issued by Reserve Bank of India (RBI) 1. As per the bye laws of the cooperative society. 2. Society cannot open savings bank account, current account, issue letter of credit, discounting bills of exchange, issue cheque, demand drafts, pay orders, gift cheques, lockers, bank guarantees etc. 3. Society cannot act clearing agent, for cheques, 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....
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....ttom 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 banking. We find that the assessee 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 Section 194A(3) which are specific in nature and 194A(3)(v) which are general in nature. We find that the Hon'ble Kerala 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 ....
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....refore, 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, irrespective of Whether it is a time deposit or any other type of deposit, the 4th petitioner, first respondent will not be liable to deduct income-tax, as such society is under sub-section (3) taken out of the purview of section 194A(1) of the Act. Therefore, the writ appeal fails, dismissed. 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 sub- section (v) and(viia)(a) of....
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....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 commission w.e.f., June 1992. Accordingly, Finance Act 1992 substituted a new Clause (vii) w.e.f., 1st June, 1992, sub-section 3 of Section 194A for clause (vii) and someone as earlier introduced by Finance No.2 Act w.e.f., 1st October, 1991. This amendment was made to restore 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 1949 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. Th....
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....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 Bench did not consider the provision of section 194A(3)(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(3)(viia) will become redundant. The section cannot be read in this manner. For the sake of clarity, we have analyse the Section 194A(3)(v) and (viia) which read as under: " (3) The provisions of sub- section (1) shall not apply- (i) 5 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 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....
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....ncial 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 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) t....
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....red 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 specially created category of cooperative societies. This reaffirms the decision of ....