Case Law Details
Sections Involved 194A (1) r.w. 194A (3) clause (b) & (v), 2 (19)- Definition of Co-operative Society
Contentions of Assessee:
Assessee being a co-operative society, registered under Cooperative Societies Act, contended that, there was no obligation upon the it to deduct tax at source on the payments made to members (Interest on deposits made by members) and accordingly the demand u/s 201(1)/201(1A) could not have been raised. (Even CIT-(A) also confirmed the AO’s statement and thereby assessee forced to appeal before ITAT.)
Contentions/View of Revenue
The AO on spot verification of assessee place noted that, the assessee has not deducted TDS on term deposits. AO brought this fact to the notice of assessee and called for explanations.
Assessee submitted that, the provision of section 194A does not apply to it, since it has got exemption from TDS compliance as per section 194A (3) (v). The AO ignored the explanations, and directed to pay.
The constentions of AO was mainly based on Bhagani Nivedita Sah. Bank Ltd. vs Assistant Commissioner (2003 87 ITD 569) Punewherein the support of section 194A (3) (b) was taken, the section at that time read as
(i) 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 [two thousand five hundred rupees:] Thus, the exemption was granted to the tax deductors that if interest paid or payable does not exceed Rs. 2,500* the person responsible was not required to deduct that tax under Section 194A(1). The proviso below Sub-section (3), which was, inserted w.e.f. 1-10-1996 reads as under :
[Provided that in respect of income credited or paid in respect of-
(a)** ** **
(b) time deposits with a co-operative society engaged in carrying on the business of banking;
(c)** ** **
“
*Now Rs. 10000/-
Decision by ITAT
We have heard the rival submissions and perused the material available on record. On a consideration thereof, we find that as far as the applicability of the relevant provision is considered, the Co-ordinate Bench in the case of Kashipur Urban Co-operative Bank Limited vs. ITO relying upon the decision rendered by the Co-ordinate Bench at Vishakhapatnam in ACIT vs Visakhapatnam Cooperative Bank Ltd. in ITA Nos. 5 & 9/2011 (VIZAG.) Bench has held that the assessee was not obliged to deduct TDS on the interest paid on time deposits u/s 194A of the Act. The relevant discussion extracted by the Co-ordinate Bench is reproduced hereunder:-
“We have carefully considered the arguments of the assessee and also the decision rendered by ld. CIT(A). Section 194A(3) of the Act prescribes the monetary limits and also a list of payments which are exempt from the requirement of complying with the provisions of TDS prescribed under sub-section (1) of that section. Clause (v) of section 194A(3), on which reliance was placed by the assessee, reads as under:
“To such income credited or paid by a cooperative society to a member thereof or to any other cooperative society. On a plain reading of the section 194A(3)(v), we notice that the said section provides blanket exemption to the interest paid by any cooperative society to its members. The term “Cooperative Society” has been defined u/s 2(19) of the Act as under:
“Cooperative Society” means a cooperative society registered under the Cooperative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of cooperative societies.”
It can be seen that neither sec. 2(19) nor sec. 194A(3) makes any discrimination between the cooperative societies carrying on banking business and other cooperative societies. However, as per sec. 194A(3), the said exemption is available only to the interest payments made to its members or to any other cooperative society. In the instant case, it is the claim of the assessee that all the interest payments have been made only to its members. In that case, the assessee is squarely covered by the exemption provided u/s 194A(3)(v) of the Act. Accordingly we find no reason with the decision of ld. CIT(A) on this issue.”
It is also seen that the Co-ordinate Bench vide its decision dated 30.05.2014 in Bagalkot District Central Co-op. Bank (cited supra) has taken an identical view in the said decision. Wherein the decision of the Pune Bench in Bhagani Nivedita Sah.Bank Ltd. (cited supra) has been taken into consideration. For ready-reference, we extract the relevant portion for the said order which would address the objection of the AO also which have been upheld by the CIT(A) and relied upon by the Ld. Sr. DR:-
“In the case decided by ITAT Panaji Bench in ITA NO.85/PN/2013 for AY 09-10 in the case of the Bailhongal Uraban Co- op Bank Ltd. (supra) order dated 28.8.2013, the tribunal proceeded on the footing that the aforesaid circular has been quashed by the Hon’ble Bombay High Court in the case of the Jalgaon District Central Co-operative Bank Ltd. (supra) and therefore chose to follow the decision rendered by Pune ITAT SMC in the case of Bhagani Nivedita Sahakari Bank Ltd. (supra). In our view the Hon’ble Bombay High Court in the case of Jalgaon District Central Co-operative Bank Ltd. ‘s case (supra) was dealing with a case of challenge to para- 3 of CBDT Circular No.9 dated 11.9.2002 which tried to interpret the word “member” as ‘given in Sec. 194A(3)(v) of the Act. It is only that part of the circular that had been quashed by the Hon’ble Bombay High Court and the other paragraphs of the Circular had no connection with the issue before the Hon’ble Bombay High Court. How could it be said that the entire circular has been quashed by the Hon’ble Bombay High Court? In our view para-2 of the Circular still holds good and the conclusion of the ITAT Pune Bench in the case of the Bailhongal Uraban Co-op Bank Ltd. (supra) are not factually correct. Consequently, the conclusions drawn in the aforesaid decision also contrary to facts and hence cannot be considered as precedent.
The learned counsel for the assessee has brought to our notice that the ITAT Vishakapatnam Bench in the case of the Asstt. CIT v. Visakhapatnam Co-operative Bank Ltd. [2011] 47 SOT 295/13 taxmann.com 190 has held that co- operative societies carrying on banking business when it pays interest to its members on deposits it need not deduct tax at source in view of the provisions of Sec. 194A(3)(v) of the Act. Similar view has also been expressed by the PlU1e Bench of the IT AT in the case of Asstt. CIT v. Ozer Merchant Co- operative Bank Ltd. [2014] 62 SOT 14/41 taxmann.com 110. We may add that in both these decisions the discussion did not turn on the interpretation of Sec. 194A(3)(i)(b) of the Act vis-a-vis Sec.194A(3)(v) of the Act. It is thus clear that the preponderance of judicial opinion on this issue is that co- operative societies carrying on banking business when it pays interest to its members on deposits need not deduct tax at source in view of the provisions of Sec. 194A(3)(v) of the Act.
For the reasons given above, we hold that the assessee which is a co-operative society carrying on banking business when it pays interest income to a member both on time deposits and on deposits other than time deposits with such co- operative society need not deduct tax at source under section 194A by virtue of the exemption granted vide clause (v) of sub-section (3) of the said section.”
In view of the above, we find that the issue has to be decided in favour of the assessee following the judicial precedent cited. Considering the factual matrix, it is seen that the record shows that the assessee through its Branch Manager has filed written submissions on 07.05.2013 claiming that every taxpayer is a member of Almora Urban Co-operative Bank Ltd. These facts need verification. The legal issue having been decided in favour of the assessee, on facts we restore the issue back to the file of the AO for this limited purpose. Accordingly the impugned order is set aside and the matter is restored for this limited purpose.
In the result the appeal of the assessee is allowed for statistical purpose
Analysis:
Section 194A (3) (b) Imposes duty on a co-operative society engaged in banking to deduct TDS where amount exceeds Rs. 10,000/-, whereas section 194A (3) (v) grants specific exemption to cooperative societies where payment made by it to members or to another co-operative society. The contention of department is that, as per 194A (3) (b) A banking company is required to do TDS even though the payments are made to members exceeding Rs.10, 000/- 194A (3)(v) is a general exemption offered to co-operative society (defined in section 2 (19) of the Act).
On analysis we can safely conclude that clause (b) of section 194A (3) does not speak of payments to members while 194A (3) (v) specifically has the mention of payment to member. As per the Rulings of Apex Court where there arise any conflict between two provisions, the specific one shall prevail over general provision. To my mind there has been no conflicts, since the payment to member is specifically provided in clause (v) whereas payment to others is taken care by clause (b) of 194A (3).
As per my view, The Apex court has ruled out that, the Tax status should be interpreted by words only, and hence the interpretation to be applied should not be logical interpretation
There are various pronouncements, supporting the revenue as well holding up the arguments of assessee. (for citations please ref the order)
