TaxTMI 
TaxTMI 
TaxTMI 
2022 (7) TMI 1048
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.... (DCC Bank) is registered under the Tamil Nadu Co-operative Societies Act, 1983 and obtained license from the RBI to carry on banking activities under the Banking Regulation Act, 1949 and as such is like any other Schedule Bank. 4. The CIT(A) should have noted that for Co-operative Societies, Banking Regulation Act, 1949 does not apply. Only Central Co-operative society Act, 1912 or the particular State Government Act applies. The CIT(A) failed to appreciate the fact that the DCC Bank though registered as a Co-operative society but is engaged in the commercial activities viz. "business of banking", like any other Nationalized Banks. 5. The CIT(A) ought to have considered the fact that the State Government and the Registrar of Co-operative Societies appointed by the State are the main regulatory authorities for the "Co-operative Societies". 6. The CIT(A) ought to have considered the fact that the Tamil Nadu State Government and Reserve Bank of India controls the affairs of the "Co-operative Bank", namely the Dharmapuri District Central Co-operative Bank and not the Registrar of Co-operative Societies. 7. The CIT(A) should have noted that Section 40(a)(ia) is to be interprete....
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....s. 22(1) read with Section 56(6) of Banking Regulation Act, 1949. The statutory provisions provide for different effect to co-operative society and central district co-operative society engaged in the business of banking. Therefore, the assessee was obligated to deduct TDS on Time/Term deposits and the failure to do so would attract disallowance u/s. 40(a)(ia). The amendment brought in by Finance Act, 2015 was only to clear the doubt regarding the applicability of provisions of Sec. 194A(3)(v) to cooperative banks. Finally, disallowance of Rs. 3712.66 Lacs was made u/s. 40(a)(ia). Appellate Proceedings 4. Upon further appeal, Ld. CIT, relying upon the decision of Hon'ble High Court of Madras in the case of Coimbatore District central Cooperative Bank Ltd. Vs. ITO (65 Taxmann.com 1) as well as rationale behind bringing amendment w.e.f. 01.06.2015, directed Ld. AO to delete the said disallowance. Aggrieved, the revenue is in further appeal before us. Our findings and Adjudication 5. From the fact, it emerges is that the assessee is registered under Tamilnadu Cooperative Societies Act, 1983 and it has obtained license from RBI to carry out banking activities u/s. 22(1) read wi....
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....Exclusions under clause (i) of sub-section (3): 10. (i) Where the amount of income credited or paid or likely to be credited or paid during the financial year, by a banking company to which the Banking Regulation Act, 1949 applies, does not exceed Rs. 10,000/-, no liability under sub-section (1) arises. (ii) Where the amount of such income credited or paid or likely to be credited or paid during the financial year, by a co-operative society engaged in the business of banking does not exceed Rs. 10,000/-, there is no liability. (iii) Where the amount of income credited or paid or likely to be credited or paid during the financial year, on a deposit with the post office under any scheme framed by the Central Government and notified in this behalf exceeds Rs. 10,000/-, there is no liability under sub-section (1). (iv) Where the amount credited or paid or likely to be credited or paid during a financial year does not exceed Rs. 5,000/-, irrespective of who pays it, or to whom it is paid, no liability arises. 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 ....
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....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; (ii) to the income credited or paid in respect of deposits other than time deposits with a banking company to which the Banking Regulation Act, 1949 applies; (iii) to the income credited or paid in respect of deposits 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; (iv) to the income credited or paid in respect of deposits other than time deposits with a co-operative society other than a co-operative society or bank, namely, primary agricultural credit society, primary credit society, cooperative land mortgage bank and co-operative land development bank engaged in carrying on the business of banking. 16. There are also 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 incl....
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....king company or the co-operative society or the public company, as the case may be, where such banking company or the co-operative society or the public company has adopted core banking solutions;] (ii)** ** ** (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, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette; (iv) to such income credited or paid by a firm to a partner of the firm; (v) to such income credited or ....
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....c sector company [or scheduled bank]. [(xi) to any income by way of interest referred to in clause (23FC) of section 10.] [Explanation 1: For the purposes of clauses (i), (vii) and (viia), "time deposits" means deposits ([including] recurring deposits) repayable on the expiry of fixed periods. Explanation 2:[***]" 18. What is important for our discussion is to focus on certain expressions used in the various clauses and sub-clauses of sub-section (3) of Section 194A. The expressions that require our attention are (a) co-operative society; (b) co-operative bank; (c) co-operative society engaged in carrying on the business of banking; (d) primary agricultural credit society; (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 expres....
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....y; (p) society with unlimited liability; and (q) weaver's society. 24. If for a moment, we get back to the provisions of the Income-tax Act, 1961, we would find that Section 194A deals with the following types of co-operative institutions:-- (a) co-operative society; (b) co-operative bank; (c) co-operative society engaged in carrying on the business of banking; (d) primary agricultural credit society; (e) primary credit society; (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 coope....
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.... funds to be lent to its members for the purposes indicated in the definition. A financing bank is one which has as its principal object the lending of money to other registered societies. 30. What distinguishes a credit society from a financing bank as could be seen from the definitions of these expressions is that the distinction lies in the purpose for 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 would naturally cover a credit society as well as a financing bank at least insofar as the Tamil Nadu Act is concerned. 31. In....
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.... is not defined either in the Tamil Nadu Act or in the Multi-State Co-operative Societies Act or even in the Banking Regulation Act, 1949 is defined in Section 2 of the National Bank for Agriculture and Rural Development Act, 1981. In simple terms, a State land development bank is one which has as its principal object, the providing of long term 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 Co-operative Bank. No cooperative 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 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 co-operative societies, just as they apply to banking c....
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....e adjunct "bank". Interestingly, Sub-Section (1) of Section 7 of the Banking Regulation Act, 1949 (as amended in relation to cooperative society) 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 insofar as that Act is concerned, there is no distinction between a co-operative 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 cooperative society engaged in the business of banking, at least for the purpose of the Banking Regulation ....
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....in carrying on banking businesses. Therefore our answer to the second substantial question of law would 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 cooperative 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....
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....ties 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 1.4.71 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 1.4.71, 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 application of Section 194A was inserted with effect from 1.4.71. (vi) After nearly 20 years, the Government came up....
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....as restored. In fact, the next circular bearing No. 636 dated 31.8.92 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 had 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 before 1st October, 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 the business of banking (including a cooperative land mortgage bank or a co-operative land development bank), and (b) section 194H of the Income-tax Act, to provide that the deduction of income-tax at source from income by way of commission or brokerage will not be required to be made ....
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....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 upto 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 that any interpretation to sub-clauses (a) and (b) of clause (viia) and clause (v) of sub-section (3) of Section 194A should be in tune with the legislative intent in including certain things at times and excluding some of those things at other points of time and what is ultimately left at the crucial point of time with reference to the law that was in force in the relevant assessment year. 52. We have no difficulty in accep....
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....eed not deduct tax at source. 56. Similar views were taken by the Visakhapatnam Bench of the Tribunal in the Asstt. CIT v. Visakhapatnam Co-operative Bank Ltd. [2011] 13 taxmann.com 190/47 SOT 295 (Visakha.) and the Pune Bench of the Tribunal in Asstt. CIT v. Ozer Merchant Co-operative Bank Ltd. [2014] 41 taxmann.com 110/62 SOT 14 (URO) (Pune). 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. Jt. CIT [IT Appeal No. 85 (PN) of 2013, dated 28-8-2013] decided on 28.8.2013. 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 423/134 Taxman 1 (Bom.), wherein the Bombay High Court was concerned with Circular No. 9 of 2002, which made a distinction between the nominal members, associate members and sympathizer members. We are not concerned in this batch about the categorization of members. We are concerned about the distinction made between sub-clauses (a) and (b) of clause (viia) of sub-section (3). 58. The Revenue places reliance upon the decision of the Division Benc....
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....anking Regulation Act, 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 word "including" shall be substituted." 62. The relevant portion of the memorandum explaining the clauses in the Finance Bill reads as follows:-- "Section 194A(1) read with section 194A(3)(i) of the Act provide for deduction of tax on interest (other than interest on securities) over a specified threshold, i.e. Rs. 10,000/- for interest payment by banks, co-operative society engaged in banking business (cooperative bank) and post office and Rs. 5,000/- for payment of interest by other persons. Further, sub-section (3) of section 194A inter alia also provides for exemption from deduction of tax in re....
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....oning 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 cooperative societies formed for the benefit of small number of members. However, as mentioned earlier, a doubt has been created regarding the applicability of the specific provisions mandating deduction of tax from the payment of interest on time deposits by the co-operative banks to its members by claiming that general exemption provided is also applicable for payment of interest to member depositors. In view of this, it is proposed to amend the provisions of the section 194A of the Act to expressly provide from the prospective date of 1st June, 2015 that the exemption provided from deduction of tax from payment of interest to members by a co-operative society under section 194A(3)(v) of the Act shall not apply to the payment of int....