TaxTMI 
TaxTMI 
2018 (5) TMI 1794
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....sing Officer u/s. 40(a)(ia) of the Act for failure to deduct tax at source from the interest payments to its members and non-members by invoking the specific provisions of sec. 194A of the Act. 4. The Ld. DR submitted that the assessee is a co-operative society registered under the Kerala Co-operative Societies Act, 1969 and is listed as a scheduled bank for conducting banking business under Banking Regulations Act, 1949 after obtaining license from RBI. Therefore, it is governed by the RBI rules to commence and carry on banking business. Further, it was submitted that the judgments of the Jurisdictional High Court in the case of Moolamattom Electricity Board Employees' Co-operative Bank Ltd. & others (238 ITR 630) and ITO and another vs. Thodupuzha Urban Co-operative Bank Ltd. and another (264 ITR 36) are not applicable to the facts of this case as the assessees therein are not governed by the RBI rules. 4.1 The Ld. DR relied on the order of the ITAT Panaji Bench in the case of The Belgaum Industrial Co-operative Bank Ltd. vs. JCIT in ITA No. 358/PNJ/2014 dated 15/01/2015. The Ld. DR also relied on the order of the Delhi Bench of the Tribunal in the case of Noida Commercial ....
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....on to a separate subject and make provision for it, presumption is that a subsequent general enactment is not intended to interfere with the special provision unless it manifests that intention very clearly. The maxim has been frequently applied to solve apparent conflicts between provisions of the same statute or of different statutes and applying of said maxim to the instant case, the argument that section 194A(3)(v) absolves the assessee from deducting TDS, cannot be accepted. The Ld. DR submitted that since section 194A(3)(i)(b) of the Act was not brought to the notice of the Bench while passing order in Kashipur Urban Cooperative Bank Ltd. vs. ITO (ITA No.5329/D/2013 for the assessment year 2012-13) cannot be called a good law and it was a per incuriam order and so cannot be called a valid precedent to bind the Tribunal. The Ld. DR submitted that reliance on CBDT circular (supra) cannot be countenanced because it is a trite law that CBDT circular cannot over-ride the prescription of statute passed by the parliament and there is no quarrel that assessee is a co-operative society engaged in banking business and the exemption for deducting tax at source for payment of interest is....
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....ribunal in the case of Karivelloor Service Co-operative Bank Ltd. vs. ITO in I.T.A. No. 311/Coch/2012 vide order dated 22-03-2013 wherein it was held as under: "11. We have considered the rival submissions on either side and also perused the material available on record. In the case of Kadachira Service Co-operative Bank Ltd. (supra), this Tribunal found that the taxpayers were not carrying on any banking activity and, therefore, they are agricultural cooperative societies. In view of the specific provisions exempting the agricultural co-operative societies from deduction of tax in respect of agricultural co-operative societies this Tribunal found that section 194A(3)(viia) is not applicable to agricultural co-operative societies. In this case, it appears that the taxpayer was accepting deposits and maintaining savings bank account and current bank account. The taxpayer is providing cheque facilities to its customers. Apart from this, the taxpayer is engaged in the business of purchase and sale of cement, hardware, medicine and home appliances. The loan appears to have been given on pledging of gold jewellery and mortgage of land. In view of the admitted fact that the taxp....
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....rative society, other than a primary agricultural credit society- (1) The primary object or principal business of which is transaction of banking business: (2) the paid-up share capital and reserves of which are not less than one lakh of rupees: and (3) the bye-laws of which do not permit admission of any other co-operative society as a member: Provided that this sub-clause shall not apply to the admission of a co-operative bank as a member by reason of such co-operative bank subscribing to the share capital of such Co-operative society out of funds provided by the State Government „for the purpose" 8.5 From the aforesaid definition, it is apparent that if the co-operative society complied with all the three conditions; firstly that the primary object or principle business transacted by it is a banking business, secondly, the paid up share capital and reserve of which are 1 lakh or more and thirdly, by laws of the co-operative society do not permit admission of any other co-operative society as a member, it will be regarded to be primary co-operative bank. If co-operative society does not fulfill any of the conditions, it cannot be regarded....
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....orikshaw, car etc. 14) To accept deposits from primary non-agricultural co-operative societies. Out of these, only four objects (i.e. clause no. 2,4,5 and 10) are related to agriculture or agricultural operations. So from the bye-laws of the bank it cannot be aid that the primary object or principal business of the bank is to provide financial accommodation to its members for agricultural purposes or for the purposes connected with agricultural activities. 8.7 On the basis of these objects whether it can be said that the primary object or principal business of the Assessee is transaction of banking business? Banking business has been defined u/s 5(b) of the Banking Regulation Act in the following manner : " banking" means the accepting, for the purpose of lending or in vestment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise." From the said definition it is clear that banking means accepting deposit of money from the public which is repayable on demand or otherwise and withdrawal of these deposits by cheque, draft, order or otherwise and these deposits are acc....
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..... Even out of the deposits so received, the loans have been given to the members of the society in accordance with the objects as enumerated above. Thus, in our opinion, condition no. 1 stands satisfied and it cannot be said that the Assessee society was not carrying on banking business as it was accepting deposits from the persons who have no voting right. So far as the second condition is concerned, there is no dispute that the paid up share capital and reserves in the case of the Assessee is more than Rs. 1 lac. Therefore, the Assessee satisfies the second condition. 8.9 Thus, we notice that all the three conditions in the case of the assessee for becoming primary cooperative bank stand complied with. 8.10 We have gone through the decision of the Hyderabad bench of this Tribunal in the case of The Citizen Cooperative Society vs. Addl. CIT, 41 305 (Hyd). We notice that this decision is applicable to the facts of the case before us. In that decision, under para 23 the Tribunal has given a finding that the Assessee is carrying on banking business and for all practical purposes it acts like a co-operative bank. The Society is governed by the Banking Regulations Act....
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....to advance loans to their members, they do not cease to be co-operative societies governed by the Act nor can they be treated as banking companies. It is also not possible to hold that these activities of the petitioners amount to "banking" as contemplated under the Banking Regulation Act, 1949, inasmuch as these co-operative societies are not established for the purpose of doing "banking" as defined in section 5(b) of the Banking Regulation Act, 1949." This decision, in our opinion, is not applicable to the case before us because the provisions of Sec. 80P(2)(a)(i), as we have already held in the preceding paragraphs, are applicable to a co-operative society which is engaged in carrying on banking business facilities to its members if it is not a co-operative bank. We have also gone through the decision of this Bench in the case of DCIT vs. Jayalakshmi Mahila Vividodeshagala Souharda Sahakari Ltd. in ITA No. 1 to 3/PNJ/2012 dt. 30.3.2012 (supra). While discussing this issue, after analysing the aims and objects of the co-operative society under para 12 of its order, this Tribunal has held as under : "12.From the aforesaid objects, it is apparent that none of the ....
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.... which is binding on the Revenue as held by the Supreme Court in the case of K.P. Varghese vs. ITO (131 ITR 597). 6.4 Further, it was noticed that in the case of ACIT vs. Visakhapatnam Cooperative Ltd. (47 SOT 295), it was held that the assessee being a cooperative bank is exempt from TDS provisions as far as the payment of interest was to its own members. Recently, the Madras High Court in the case of Coimbatore District Central Co-operative Bank Ltd. vs. ITO (382 ITR 266) had an occasion to go into the provisions of sec. 194A of the I.T. Act which is similar to the issue before us. In that case, after elaborate discussion, the High Court opined as under: "45 The second substantial question of law that we have framed for consideration is as to whether there exists a substantial or marked difference between a co-operative society engaged in carrying on banking business and a co-operative bank and if so, under which category the appellant would fall. The answer is too obvious in view of the foregoing discussion. Except the provisions of sub-clause (b) of clause (i), subclause (a) of clause (iii) and sub-clauses (a) and (b) of cause (viia) of subsection (3) of section 194....
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....m April 1, 1970, that the income credited or paid in respect of deposits made with co-operative societies engaged in banking business, became exempt from liability to deduct tax at source. (iv) The reason perhaps as to why the benefit was sought to be extended to the deposits made in co-operative societies carrying on the business of banking was that the colonial acts namely, the Cooperative Societies Act, 1912 and the Multi-Unit Co-operative Societies Act, 1942 were debated after India attained independence and a co-operative movement was already at the dawn in the State of Maharashtra where sugarcane 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 societies 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, on....
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....to mean deposits, excluding recurring deposits, repayable on the expiry of fixed periods. Thus, interest on savings bank accounts and recurring deposit accounts is not subject to deduction of tax at source." 48. The amendment inserted with effect from October, 1, 1991, appears to have drawn flak within a few 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 various 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 rel....
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....n time deposits made 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, will not be subject to the requirement of deduction of income-tax at source. The 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." 52. As we have indicated earlier, sub-section (1) of section 194A imposes an obligation upon every person. Even individuals and Hindu undivided families are covered by the proviso subject to certain conditions. Therefore the exclusions found in sub-section (3) are naturally to be construed stricto sensu. 53. But unfortunately, if a taxing statute and an exclusion clause contained in the taxing statute are to be construed strictly, the provisions themselves should make it clear as to who are the persons who are to be charged or exempted and what are the circumstances under which they are charged or excluded. Though the legislative intent appears to be to deal with four different types of co-operative societies, the categorization ....
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....lic company has adopted core banking solutions'. (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 substituted; (c) after clause (v), the following Explanation shall be inserted, namely :- 'Explanation.- For the purposes of this clause, "co-operative 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 compensation amount awarded by the Motor Accidents Claims Tribunal; (ixa) to such income paid by way of interest on the compensation 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', the w....
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....s 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 co-operative 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 functioning of the co-operative 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 co-operative banks differently from other commercial banks in the matter of deduction of tax and allowing them to avail the exemption meant for smaller credit co-operative societies formed for the benefit of small number of members. However, as mentioned earlier,....
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....ctivity, therefore, the assessee cannot escape the liability from deduction of tax at source from 1.6.2015. The Madras High Court clarified that before 1.6.2015, the assessee was not expected to deduct tax on the interest paid to its members. Accordingly, the question was answered in favour of assessee. In. view of this judgment of Madras High Court, according to the Ld. counsel, the assessee need not deduct tax in respect of interest paid till 31.05.2015. This judgment of Madras High Court was subsequently followed in the assesse's own case by judgment dated 29.10.2015. The Madras High Court considered an identical issue in assessee's own case in TC(A) No.588/2015 & others Madras High Court, after considering the amendment made in Section 194A of the Act by Finance Bill, 2015 with effect from 01.06.2015, found that the express language of Section 194A (3) clearly indicates that the exemption provided for deduction of tax from the payment of interest to the members by a co-operative society under Section 194A(3)(v) of the Act shall not apply to payment of interest on any deposit by the cooperative banks to its members with effect from 01.06.2015. The Madras High Court found....