TaxTMI 
TaxTMI 
TaxTMI 
2015 (1) TMI 1406
X X X X Extracts X X X X
X X X X Extracts X X X X
....a) 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 of banking. It has obtained necessary license from Reserve Bank of India for carrying on its banking ope....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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) The AO in his Assessment Order has mentioned that in order to understand the legislative intent in this regard, it is necessary to refer to t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng 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 unknown to the exemption clause contained in section 194A(3) of the Income Tax Act, 1961. The issue at hand with Bombay High Court in the Jalagaon District Central Co-oper....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....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 paid/credited to any depositor during the year exceeds Rs. 10,000, the provisions of section 194A(1) shall apply and the co-operative society engaged in the banking business shall have to ded....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gislative 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 in the case of Bailhongal Urban Co-op Bank Ltd Vs. JCIT Range 1, Belgaum in ITA No.85/PNJ/2013 dated 28.08.2013 has upheld the decision of the Assessing Officer and the Commissioner of Income Tax (Appeals) in disallowing u/s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 194A and 273B in case of Additional commissioner of Income Tax Vs. Rajajinagar Co-operative Bank Ltd (2011) 5 Taxcorp (DT) 49901 (Karnataka). In this case also the honourable high court has direct mention regarding this issue in para No.10 of the judgement. "In the instant case, the assessee is a co-ope....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as 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, which reads as under:- "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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndia (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 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eral 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 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 IT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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. 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 m....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (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 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 afte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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) 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 app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dering 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 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 i....