TaxTMI 
TaxTMI 
2025 (11) TMI 231
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....022, 8943/2023, 10465/2022, 10480/2022, 10498/2022, 10692/2022, 10697/2022, 10699/2022, 10705/2022, 10717/2022, 10719/2022, 10720/2022, 10721/2022, 10722/2022, 10731/2022, 10735/2022, 10738/2022, 10741/2022, 10744/2022, 10747/2022, 10787/2022, 10799/2022, 10810/2022, 10818/2022, 10828/2022, 10831/2022, 10845/2022, 10855/2022, 10891/2022, 10936/2022, 10937/2022, 10968/2022, 10967/2022, 11001/2022, 11009/2022, 11035/2022, 11042/2022, 11058/2022, 11072/2022, 11087/2022, 11092/2022, 11096/2022, 11117/2022, 11130/2022, 11135/2022, 11138/2022, 11144/2022, 11143/2022, 11149/2022, 11150/2022, 11165/2022, 11171/2022, 11187/2022, 11184/2022, 11186/2022, 11194/2022, 11203/2022, 11224/2022, 11232/2022, 11248/2022, 11247/2022, 11262/2022, 11260/2022, 11263/2022, 11271/2022, 11272/2022, 11273/2022, 11286/2022, 11301/2022, 11309/2022, 11316/2022, 11332/2022, 11323/2022, 11325/2022, 11326/2022, 11327/2022, 11335/2022, 11342/2022, 11355/2022, 11366/2022, 11371/2022, 11373/2022, 11381/2022, 11407/2022, 11415/2022, 11420/2022, 11441/2022, 11440/2022, 11450/2022, 11446/2022, 11445/2022, 11458/2022, 11467/2022, 11478/2022, 11480/2022, 11489/2022, 11487/2022, 11507/2022, 11530/2022, 11544/2022, 11....
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....provisions of the Kerala Co-operative Societies Act, 1969 and are classified as Primary Agricultural Credit Societies under the said Act and the Rules. In all these cases, the challenge is raised against the Constitutional validity of the proviso to section 194A(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act), by which, a restriction was imposed, based on the gross receipts or turnover of the Societies, in the matter of exemption from the obligation to make TDS from the income as the interests on deposits. 2. The brief facts which are required to examine the issues involved in these writ petitions are as follows: As mentioned above, all these petitioners are Primary Agricultural Credit Societies, which are mainly engaged in the business of providing financial assistance to their members, for agricultural purposes. Section 194A deals with the liability to make deduction of tax at source (TDS) in respect of certain transactions and sub-section (1) thereof imposes a liability upon any person not being an individual or a Hindu undivided family, to deduct such amount as may be prescribed, from the income paid to any person by way of interest, other than the income....
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....nfrastructure to meet the safety requirements for keeping huge amounts of cash and hence, on that reason also, the deposits will have to be with the Kerala State Co-operative Bank. The petitioner is receiving interest for such deposits from the Kerala Bank and it also amounts to income by way of interest, which is liable to be deducted from the income while assessing tax for the respective Societies, in the light of Section 80P(2)(d) of the Income Tax Act. Thus, there is no tax liability upon such income as per the above provision. 4.2. Moreover, as per clauses (v) and (via) of Section 194A(3) (v) and, it is stipulated that the obligation to deduct any amount as TDS in respect of the income received or credited as interest shall not be applicable to the petitioners. However, the newly introduced proviso to sub section 194A(3), imposes a condition that, in respect of a Society, whose total sales or gross receipts or turn over exceeds Rs.50 Crores. Due to the same, the exemption from making deduction is made not applicable to the petitioner and hence, the petitioners are compelled to deduct amounts towards TDS, despite the fact that, there is no tax liability upon them, as far as ....
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....f the return is furnished for the relevant year. Therefore, in order to ensure that, the amount receivable to the Department is collected, and there is no evasion of tax, it is lawful for the Central Government to incorporate appropriate conditions in the statute and the proviso referred to above, was as part of the same. According to the Department, the said proviso does not impose any new liability upon the petitioners and the parties can get the refund of the amount, upon filing returns with the necessary documents. In such circumstances, they sought dismissal of these writ petitions. 6. Heard Sri. A. Kumar, the learned Senior Counsel, Dr. K.P. Pradeep, Sri. M.M. Monaye, Sri. K.S. Hariharan Nair, and Sri. Jojo C.A, the learned counsel appearing for the petitioners, Sri. B.G. Hareendranath and Sri. Thomas Abraham appearing for the Kerala Bank, Sri. Mohammed Rafiq, the learned Special Government Pleader (Taxes) for the State of Kerala and Sri. Christopher Abraham, the learned Standing Counsel for the Income Tax Department. 7. The main contention raised by the petitioners against the validity of the proviso to Section 194A(3) is that, the same is liable to be struck down as i....
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....ne the relevant statutory provisions which are as follows: a) Section 80P(1) and 2(d) of the Income Tax Act contemplates as follows: "80P. Deduction in respect of income of co-operative societies (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. 80P2(d): The sums referred to in sub-section (1) shall be the following, namely:- in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income" "b) Section 80AC. Deduction not to be allowed unless return furnished Where in computing the total income of an assessee of any previous year relevant to the assessment year commencing on or after- (i) the 1st day of April, 2006 but before the 1st day of April, 2018, any deduction is admissible under section 80-IA or section 80-IAB or section 80-IB or....
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.... the 1st day of July, 1995) with 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. (viia). to such income credited or paid in respect of,- (a) 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; (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;] [Provided that a co-operative society referred to in clause (v) or clause (viia) shall be liable to deduct income-tax in accordance with the provisions of sub-section (1), if - (a) the total sales, gross receipts or turnover of the co-operative society exceeds fifty crore rupees during the financial year immediately preceding the financial year in which the interest referred to in sub-section (1) is credited or paid; and (b) the amount of interest, or the aggregate of the amounts of such inter....
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....latter, on the ground that the legislature is presumed not to have intended an excess of jurisdiction. 12. The Privy Council in Shell Company of Australia v. Federal Commissioner of Taxation [(1931 AC 275 (298)], it was observed that, "unless it becomes clear beyond reasonable doubt that, the legislation in question transgresses the limits laid down by the organic law of the Constitution, it must be allowed to stand as the true expression of national will". After referring to the aforesaid observations of the Privy Council, it was observed by the Hon'ble Supreme Court Smt. P. Laxmi Devi's case (supra) that, if two views are possible, one making the provision in the statute constitutional, and the other making it as unconstitutional, the former should be preferred. It was further observed therein that, the court must therefore make every effort to uphold the Constitutional validity of a statute, even if that requires the statutory provisions a strained meaning, or narrower or wider meaning than what appears on the face of it. It is only when all efforts to do so fail, should the court declare the same as unconstitutional. 13. As far as the petitioners are concerned, th....
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....islative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicit ously expressed than in Morey v. Doud [354 US 457 : 1 L Ed 2d 1485 (1957)] where Frankfurter, J., said in his inimitable style:" 16. One of the main contentions raised by the petitioners is that, as far as the income received by them by way of interest on deposits is concerned, the same is not taxable as there is an exemption contemplated under section 80P(2)(d) of the Act. According to the petitioners, since the income, which is the subject matter of these litigations, is not at all taxable, imposing a condition to collect TDS in respect of such income, is illegal and it amounts to an arbitrary action on the part of the State. To substantiate these contentions, the petitioners are relying upon the observations made by the Hon'ble Supreme Court in Eli Lilly's case (supra) where it was observed by the Hon'ble Supreme Court as follows: "75. To answer the contention herein we need to examine briefly the scheme of the 1961 Act. Section 4 is the charging section. Under Section 4(1), total income for t....
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....d statutory provisions and the benefit is confined to getting the said amount deducted from the taxable income. This makes a crucial distinction and therefore, the principles laid down by the Hon'ble Supreme Court in the above decision, cannot be made applicable to these cases. 18. Yet another contention raised by the petitioners regarding the unreasonable classification, is that, by introducing a ceiling of Rs 50 crores of turnover, a sub-classification was created among the Societies, which are otherwise equally placed. Therefore, it amounts to violation of Art.14 of the Constitution of India, it was contended. However, while considering the aforesaid question, the crucial aspect to be noticed is that, as far as the criteria of Rs.50 crores is concerned, the same cannot be treated as an unreasonable classification. This is particularly because, the liability to pay income tax itself is based on the income received by the assessee and the scheme of Act itself is to apply different rates of tax upon different groups, which are created based on the income they receive. Thus, the classification based on the total income or the taxable income, forms the basic structure of the I....
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....not be disputed that if the Act infringes the provisions of Article 14 of the Constitution, it must be struck down as unconstitutional. For the purpose of these cases, we shall assume that the State Legislature had the necessary competence to enact the law, though the petitioners have seriously challenged such a competence. The guarantee of equal protection of the laws must extend even to taxing statutes. It has not been contended otherwise. It does not mean that every person should be taxed equally. But it does mean that if property of the same character has to be taxed, the taxation must be by the same standard, so that the burden of taxation may fall equally on all persons holding that kind and extent of property. If the taxation, generally speaking, imposes a similar burden on everyone with reference to that particular kind and extent of property, on the same basis of taxation, the law shall not be open to attack on the ground of inequality, even though the result of the taxation may be that the total burden on different persons may be unequal. *Hence, if the legislature has classified persons or properties into different categories, which are subjected to different ra....
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....titioners have also raised a contention with regard to the limited scope of the proviso, when it comes to the question of real purpose and scope of the main provision. 21. To consider the said question, it is necessary to examine the principles that relate to the interpretation of a proviso and its applicability to the main provision. The petitioners brought the attention of this court to the observations in foreign decisions such as, West Derby Union v. Metropolitan Life Assurance Company [1897 AC 647 (HL)] and Jennings v. Kelly [1940 AC 206], where it was observed that, a proviso to a section cannot be used to import into the enacting part, something which is not there, but where the enacting part is susceptible to several possible meanings, it may be controlled by proviso. Thus, it was contended that, the real purpose of the proviso is to act as an optional addenda to the enactment with the sole object of explaining the real intendment of the statutory provision, as held in Swedish Match AB and Another v. Securities and Exchange Board and Another [(2004) 11 SCC 641]. 22. The aforesaid question was elaborately considered by a three judges bench of the Honourable Supreme Cou....
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....to: "........ A proviso ordinarily is but a proviso, although the golden rule is to read the whole section, inclusive of the proviso, in such manner that they mutually throw light on each other and result in a harmonious construction." 24. Similarly, in the said decision, the following observations in Hiralal Rattanlal v State of U.P [(1973) 1 SCC 216)] were also referred to: "Ordinarily a proviso to a section is intended to take out a part of the main section for special treatment. It is not expected to enlarge the scope of the main section. But cases have arisen in which this Court has held that despite the fact that a provision is called proviso, it is really a separate provision and the so-called proviso has substantially altered the main section." 25. Thus, after referring to a number of precedents and principles, the purposes of a proviso were summed up in paragraph 43 of S. Sundaram Pillai's case (supra), in the manner as follows: "43. We need not multiply authorities after authorities on this point because the legal position seems to be clearly and manifestly well established. To sum up, a proviso may serve four different purposes: ....
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....re, in the absence of any such prohibition upon the legislature, a proviso that was intentionally brought by the legislature to make substantial changes in the main section, cannot be interfered with, merely because of the reason that, it is a proviso. To be precise, in such circumstances, it has to be treated as part of the main provision, and the interference could be made only if the other tests to determine the Constitutionality viz, lack of legislative competence, violative of Part III of the Constitution, manifest arbitrariness etc, are satisfied. 28. When the proviso to section 194A(3) is examined in that perspective, it can be seen that, the said proviso was subsequently introduced by way of an amendment as per Finance Act, 2020, bringing in, some conditions restricting the operation of the main provision. Thus, it is evident that it was intended to alter the scope of the main provision i.e sub-section (3) of the Section 194A, and in the light of the principles referred to above, the same cannot be interfered with, merely because it is a proviso. 29. Of course, as pointed by the learned Special Government Pleader, the clause (v) of sub-section (3) of Section 194A of t....
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....dard by which the sufficiency of the differentia which form a valid basis for classification may be measured, has been repeatedly stated by the Courts. If it rests on a difference which bears a fair and just relation to the object for which it is proposed, it is constitutional. To put it differently, the means must have nexus with the ends. Even so, a large latitude is allowed to the State for classification upon a reasonable basis and what is reasonable is a question of practical details and a variety of factors which the Court will be reluctant and perhaps ill-equipped to investigate. In this imperfect world perfection even in grouping is an ambition hardly ever accomplished. In this context, we have to remember the relationship between the legislative and judicial departments of Government in the determination of the validity of classification. Of course, in the last analysis Courts possess the power to pronounce on the constitutionality of the acts of the other branches whether a classification is based upon substantial differences or is arbitrary, fanciful and consequently illegal. At the same time, the question of classification is primarily for legislative judgment and ordin....
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....way as per the proviso. According to the petitioners, such a stipulation is arbitrary and amounts to manifest arbitrariness and hence interference is required. It was also pointed out that, as far as Co-operative sector is concerned, it is entitled to the Constitutional protection as per the various provisions in the Constitution of India. It was pointed out that such special protection was extended to the said sector, considering the huge economic impact that can be created by the Cooperative movement to the economy as a whole and the rural economy in particular. The observations of the Honourable Supreme Court in Shayara Bano v. Union of India [(2017) 9 SCC 1] were also relied on, in which the manifest arbitrariness was accepted as a valid ground for the challenge against a statutory provision. 32. However, the crucial aspect to be noticed in this regard is that, the difficulties highlighted by the petitioners, in the matter of compulsory nature of the deposits and matters incidental thereto, are not on account of any stipulations in the Income Tax Act itself, but those are due to the consequences of the provisions in the Kerala Co-operative Societies Act, and the orders issue....
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....ed to have the knowledge and expertise in the matters of consequence of each provision in every statute and when they are making a law with particular stipulations, they deemed to have taken note of such difficulties. 34. It was also contended by the petitioners that, the petitioners are eligible to be provided with the benefits that are contemplated under section 194A (3) (iii) (a) of the Income Tax Act. The said provision reads as follows: "194A(3)(iii)(a)": The provision of sub-section (1) shall not apply- xxx xxx xxx xxx xxx (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 and mortgage bank)" However, I am not inclined to accept the said contention as well. This is because, going by the said provision, it can be seen that, what is contemplated therein, is with respect to the banking companies to which the Banking Regulation Act, 1949 applies or any co-operative society engaged in the business of banking, including a co-operative land mortgage bank. Evidently....