TaxTMI 
TaxTMI 
2023 (1) TMI 515
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....ring the facts of the case relating to the addition sustained on account of provisions of section 194A of the Act. 4. Appellant craves leaves to add, to alter, to amend and to delete any other grounds at the time of hearing." 2. The first issue for our consideration is with regard to ground No.2, which reads as follows:- 2. "The order of the Hon'ble CIT(A)- NFAC, Delhi is against the Act and jurisdictional High Court decision in the case of M/s Swabhimani Souharda Credit Cooperative Ltd WP No 48414/2018 wherein is promulgated that cooperative registered under Souhard Act is also eligible for exemption u/s 80P of the Income Tax Act, 1961." 3. Facts of the case are that the assessee filed its ITR for AY. 2017-18 on 29.03.2018 showing total income of Rs.NIL after claiming deduction u/s 80P of the Income-tax Act,1961 ['the Act' for short] of Rs.35,41,970/-. Assessee is a Cooperative Society registered under Karnataka Souharda Sahakari Act, 1997. It is involved in business of providing credit facilities to its members in form of loans for business, housing etc. It also collects funds from its members. The ld. AO noted that as per Certificate filed by ....
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....n claim to be a cooperative Society in absence of registration with Cooperative Societies Act. It held that if creation of Cooperative Society under Cooperative Societies act is doubtful then claim of deduction u/s 80P cannot be allowed. * Decision of SMC Bench cannot be relied as it is contrary to decision and has not yet reached finality. 3.2 The AO has discussed judgment of Bangalore Tribunal in M/s Udaya Souharda Credit Cooperative Society Ltd vs ITO dated 17.08.2018 wherein it has been held that- * Without a proper registration under Cooperative Societies Act nobody can claim it to be a Cooperative Society as activities of a Cooperative Society are to be controlled under Cooperative Societies Act through Registrar of Cooperative Societies. * Both Souharda Cooperative and Cooperative Societies are different entities and benefit of Sec 80P can only be applied to a Cooperative Society registered under Karnataka Cooperative Societies Act. 3.3 The AO held that all the above judgments of Division Benches of the Tribunal are binding on him so he held that assessee is not a Cooperative Society and is not eligible for deduction u/s 80P of Act. Thus, ded....
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....is relatable; the Legislative Entries being only the fields of legislation need to be very broadly interpreted, is the settled position of constitutional jurisprudence vide UJAGAR PRINTS, ETC., vs. UNION OF INDIA, AIR 1989 SC 516; Chapter X of 1997 Act containing sec.67 enacts important co-operative principles that animate and brood through almost all the provisions of this Act; (ii) After noticing the statement and objects and reasons for introducing The Karnataka Suiharda Sahakara Bill, 1997 has the following as the Statement of Objects & Reasons and preamble to the Karnataka Co-operative Societies Act, 1959 and the Karnataka Souharda Sahakari Act, 1997, concluded as follows: "A perusal of these two preambles and various provisions of these two Acts leads one to an irresistible conclusion that both these Acts are cognate statutes that deal with co- operative societies, regardless of some difference in their nomenclature and functionality, the subject matter being the same; (e) the word 'co-operative' is defined by sec.2(d-2) of 1959 Act as under: "2(d-2): 'Co-operative' means a Co-operative registered under the Karnataka Souhard....
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....e principles; this apart, even sub-section (2) of sec.4 is heavily loaded with co-operative substance. In the above circumstances, these writ petitions succeed; a declaration is made to the effect that the entities registered under the Karnataka Souharda Sahakari Act, 1997 fit into the definition of "co-operative society" as enacted in sec.2(19) of the Income Tax Act, 1961 and therefore subject to all just exceptions, petitioners are entitled to stake their claim for the benefit of sec.80P of the said Act; a Writ of Certiorari issues quashing the impugned notice dated 30.03.2018 at Annexure-D in W.P.No.48414/2018; other legal consequences accordingly do follow. It is needless to mention that the other provisions of sec. 80P of 1961 Act and their effect on the claim of the petitioner-like-societies have been left to be addressed by the concerned authorities." 11. In the light of the decision of the Hon'ble Karnataka High Court, we are of the view that the assessee should be allowed deduction under section 80P(2)(a)(i) of the Act and the CIT(A) was justified in doing so. Except the ground that the Assessee was not a co-operative society entitled to deductio....
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....rdinate bench of Tribunal in the case of Kodangulur Town Co-operative Bank Ltd. in ITA Nos.527 to 529 & 526/Coch/2015 for the assessment years 2007-08, 2008-09 & 2010- 11, the Tribunal vide order dated 31.5.2018 has held as under:- "6. We have heard the rival submissions and perused the material on record. Originally this issue came up for consideration before this Tribunal in the case of Pinarayi Service Co-operative Bank Ltd. & others vs. ITO (152 ITD 90) wherein it was held as under: 42.1 We have heard both the parties. We find a similar issue came up for consideration of the Cochin Bench of Tribunal 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 d....
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....rative bank, a central cooperative bank and a primary co-operative bank: " 8.3 From the definition of Co-operative bank it is apparent that Cooperative bank means state co-operative bank, a Central Co-operative Bank and a Primary Co-operative bank. It is not the case of the revenue that the assessee is a state Co-operative bank or Central Co-operative bank. We have therefore to find whether the assessee is a primary Co-operative bank. 8.4 The Primary Co-operative bank is defined under section 5 clause (CCV) of Banking Regulation Act 1949 as under:- "(CCV)" primary co-operative bank" means a co-operative 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 capita l of such Co-operative societ....
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.... 8) To acquire movable and immovable assets for the functioning of the bank; 9) To collect deposits from members and customers under different deposit Schemes; 10) Marketing of the agricultural produce of the members, cooperating with government and Quasi government agencies; 11) To start branches and extension counters within its area of operation if necessary for the development of the bank; 12) To acquire and market industrial products for the benefit of the members; 13) To issue loans to members under hire purchase scheme for purchasing household articles, machinery, jeep, autorikshaw, 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 said 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 obje....
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.... the bank which do not permit admission of any other co-operative society as a member. 18. The assessee Co-operative bank is registered as a Primary Agricultural Credit Society, but as narrated above, it does not satisfy the criteria or conditions stipulated in the Banking Regulation Act, 1949. So it squarely falls under the operation of Subsection (4) of Section 80P of Income Tax Act, 1961. As such the assessee is not eligible for deduction u/s. 80P of the Income Tax Act, 1961. " 8.8 The deposits accepted are used by the Assessee co-operative society for lending or investment. This fact has not been denied. 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 co....
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....le to accept this contention. The petitioners are not the banking institutions coming under the purview of the Banking Regulation Act. They are the cooperative societies registered under the Act, and as such they are governed by the provisions of the Act passed by the State Legislature. Consequently, the State Government has control over them to the extent the Act permits. Major activities of the petitioners are to finance its members. For the purpose of financing its members, they borrow money from the financing agencies and repay the same. Merely because the petitioners-the co-operative societies in question-are required 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.....
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....ative 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 1/7/1995 without TDS under section 194A." 6.3 The Ld. AR further contended that in view of the above circular, the issue in dispute is to be decided in favour of the assessee 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....
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....paid by a co-operative society to any other co-operative society. In other words, by the 1968 amendment, the liability to deduct tax at source was not there in respect of co-operative societies. The payment of interest to members was not covered even at that time. (iii) By the next amendment, which came into effect from April 1, 1970, the income credited or paid in respect of deposits made with a co-operative society engaged in carrying on the business of banking including a co-operative land mortgage bank or cooperative land development bank was excluded from the liability to deduct tax at source. Therefore, we can take it that it was only from 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-operati....
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....e-tax 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. However, the requirement of deduction of tax at source will not apply in the case of interest on time deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative bank. Further, there will be no requirement of deduction of tax at source if the amount of interest does not exceed two thousand five hundred rupees in a financial year. The 'term of time deposits" has been defined 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 ....
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....endment provides for deduction of income-tax at source at the rates in force (at present, 10 per cent. in the case of resident noncorporate persons and 20 per cent. Plus surcharge thereon in the case of domestic companies) from payment of interest exceeding ten thousand rupees in a financial year on time deposits made on or after July 1, 1995, with a banking company or with a co-operative society engaged in carrying on the business of banking. The aforesaid limit of ten thousand rupees shall be computed with reference to the income credited or paid by a branch of the banking company or the co-operative society, as the case may be. The interest on 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." 50 As we have indicated earlier, sub-section (1) of section 194A imposes an obligation upon eve....
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.... 54. With effect from June 1, 2015, sub-section(3) of section 194A stands amended. Clause 42 of the Finance Bill, 2015, reads as follows: "42. In section 194A of the Income-tax Act, in sub-section (3), with effect from the 1st day of June, 2015, - (a) in clause (i), after the proviso, the following proviso shall be inserted namely:- 'Provided further that the amount referred to in the first proviso shall be computed with reference to the income credited or paid by the banking 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'. (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 i....
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....the co-operative banks tried to avail this exemption by making their depositors as members of different categories. This has led to dispute as to whether the cooperative banks, for which the specific provisions of tax deduction exist in the form of section 194A(1), section 194A(3)(viia)(b) and section 194A(3)(viia)(b) of the Act, can take the benefit of general exemption provided to all co-operative societies from deduction of tax on payment of interest to members. The matter has been carried to judicial forums and in some cases a view has been taken that the provisions of section 194A(3)(viia)(b) of the Act makes no distinction between members 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 pa....
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....vity, the note explaining the clauses goes one step further in making it clear that it was intended to have prospective effect from June 1, 2015. 65. Therefore our answer to the first substantial question of law would be in favour of the assessee." 6.5 Later on, this judgment was considered by the Chennai Bench of the Tribunal in the case of Coimbatore District Central Co-operative Bank Ltd. & Another vs. ITO (46 CCH 372) after taking note of the amendment made by the Parliament in Section 194A(3) of the Act by Finance Bill, 2015 with effect from 1,6.2015, it was held that the "express language of Section 194A does not indicate any retrospectivity, 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 l 31.05.2015. This judgment of Madras High Court was subsequently followed in the ass....