1. These are 10 appeals of the assessee co-operative bank pertaining to its various branches directed against the orders passed by the learned CIT(A), Pune relatable to financial years 1997-98 and 1998-99. Since the issue involved is the same and facts are identical, therefore, these are being disposed off by this common order for the sake of convenience.
2. In all these cases, the assessee has raised the following common grounds :
"1. In the facts and circumstances of the case, the ld. CIT(A) I, Pune, has erred in holding that the income from interest payable/paid to the members of the co-operative bank is liable for TDS if it exceeds the limit stated in section 194A(3).
2. In the facts and circumstances of the case, the ld. CIT(A)-I, Pune has erred in disallowing assessee’s claim that the provision of section 194A(3)(v ) is a specific provision. The distinction between members and non-members is possible under clause (v) as well as clause (viia)( b) of section 194A(3).
3. In the facts and circumstances of the case, the ld. CIT(A)-I, Pune has erred in not giving the benefit of interpretation which is more beneficial to the assessee as laid down by the Hon’ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC).
4. In the facts and circumstances of the case, the ld. CIT(A)-I was not justified in overlooking the treatment given by CCIT Mumbai where the benefit of clause (v) of section 194A(3) is extended to members’ deposit."
3. The facts are that the assessee had credited/paid certain amount by way of interest to the accounts of members/nominal members on their fixed (time) deposits without deduction of tax therefrom for which show cause notice was issued to the assessee and in response thereto it was argued before the Assessing Officer that the bank is not liable to deduct tax on such interest payments to the members/nominal members. The bank is a co-operative society within the meaning of section 2(19) of the Act. As per the circular No. 72 dated 6-1-1972 issued by the CBDT the Bank need not deduct tax at source from interest payable on fixed (time) deposits with them. The income of a bank is exempt under section 80P. Therefore, it is not correct to interpret that for the purposes of section 80P a co-operative bank is a co-operative society whereas for the purposes of section 194A it is not a co-operative society (sic.). Reliance was placed on the decisions reported in Associated Cement Co. Ltd. v. Commissioner Of Income-Tax. [1994] 210 ITR 69 (Bom.), CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC), CIT v. Karamchand Thapar & Bros. (P.) Ltd. [1989] 176 ITR 535 1 (SC). After considering but rejecting the submissions of the assessee, the Assessing Officer created a demand under section 201(1) and charged also interest under section 201(1A) of the Act. Against this action of the Assessing Officer, the assessee took up the matter in appeal.
4. Before the learned CIT(A) the assessee has reiterated the same arguments as advanced before the Assessing Officer. The learned CIT(A) while considering but partly accepting the submissions of the assessee though upheld the action of the Assessing Officer for creating demand under section 201(1) as well as charging of interest under section 201(1A), yet, has directed the Assessing Officer as under :
"Wherever the tax deduction was required and wherever such payees have actually been charged to tax or who have actually paid the tax, in such circumstances the amount of tax should not be recovered from the appellant. Similarly, where declarations under form 15H are received by the co-operative bank, the Assessing Officer is directed not to recover tax and interest under section 201(1A) in such cases. As a corollary also, it follows that interest which is compensatory interest chargeable under section 201/201(1A) of the Act should be charged only upto the date of actual payment of tax by the payees, and NOT for the period thereafter.
The Assessing Officer is directed to recover the amount i.e. tax as well as interest subject to the above mentioned restrictions. It must be said at the end that the income from interest payable or paid to the members of a co-operative bank is liable for the TDS if it exceeds the limit as mentioned under proviso to sub-clause (I) of section 194A(3) of the Act."
Still aggrieved, the assessee is in further appeal but has challenged the action of ld. CIT(A) to the extent of upholding order of Assessing Officer with reference to creating of demand under section 201(1) and interest under section 201(1A) only.
5. While reiterating the submissions as made before the lower authorities it was contended for deletion of the impugned demands. It was next submitted that primarily assessee is a co-operative society registered under relevant provisions of law and section 194A(3)(v) clearly exempts interest income from deduction of tax at source from such income to its members on fixed deposits also. So it was not liable to deduct tax at source from the interest income of the members. Reliance was placed on the Board’s circular No. 72 dated 6-1-1972 with the plea that the said circular is still in force as the same has not been withdrawn and placing further reliance on Associated Cement Co. Ltd.’s case (supra), Bombay Cloth Syndicate v. Commissioner Of Income-Tax. [1995] 214 ITR 2101 (Bom.), Royal Calcutta Turf Club v. Dy. CIT [2001] 76 ITD 237 (Cal.), CIT v. U.P. Co-operative Federation Ltd. [1989] 176 ITR 4352 (SC) pleaded for deletion of the demand. It was further contended by making reference to a flow chart of application of section 194A placed in the paper book at page 53 that provisions of deduction of tax at source so far as the assessee is concerned, are not attracted on interest to members on their fixed deposits. It was next submitted that while applying the ratio of the decision as reported in Moolamattom Electricity Board Employees’ Co-operative Bank Ltd. v. ITO [1999] 238 ITR 6303 (Ker.), authorities below have not looked into the authority in its entirety which is on a different point and as per said authority also, liberal inter-operation is called for with reference to co-operative society. So relying upon the decision of the Hon’ble Supreme Court as reported in U.P. Co-operative Federation Ltd.’s case (supra) and considering the provisions in its entirety an argument was advanced to emphasize that assessee does not come within the purview of deductibility of tax at source being a co-operative society, so far as interest on fixed deposit to a member is concerned, because assessee is firstly a co-operative society registered under the Maharashtra Co-operative Societies Act, 1960 and it cannot be held to be liable for deduction of tax at source when there is clear exemption in this regard even if it exceeds the limit, as contained in proviso to section 194A(3), as per provisions of section 194A(3)(v) of the Act. It was thus pleaded for deletion of the impugned demand.
6. The learned D.R. in the written submissions filed and in oral arguments has submitted that the assessee is a co-operative society engaged in the business of banking section 194A is a new provision inserted by the Finance (No. 2) Act, 1967 w.e.f. 1st August, 1967. Since then till date there were several omissions, insertions and amendments in the said section. Basically section 194A was brought on the statute to deduct tax by the assessees other than individuals and HUF on the interest paid other than interest on securities and as per existing provisions, sub-section (1), of the Act has made it mandatory to deduct tax on the payment of interest other than the interest on securities except if payment is to be made by an individual or a HUF. However, in subsequent sub-section, clauses and sub-clauses exemptions have been provided wherein an assessee was not required to deduct the tax as per the provisions of sub-section (1) to section 194A of the Income-tax Act.
The sub-section (3) of section 194A provides as under :
"The provisions of sub-section (1) shall not apply—
(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) | ** | ** | ** |
The provisions of this clause shall have effect as if for the words "two thousand five hundred rupees", the words "ten thousand rupees" had been substituted and the aforesaid amount shall be computed with reference to the income credited or paid by a branch of the banking company or the co-operative society, or the public company as the case may be;]
7. Thus, sub-clause (b ) of proviso of sub-section (3) to section 194A specifies that if any person has made time deposits with a co-operative society engaged in carrying on business of banking and the said society has credited or paid interest upto 10,000 rupees then the said co-operative society is not required to deduct the tax on interest on time deposits.
8. It means that if any person, whether a member, a nominal member or non-member of co-operative society, which is engaged in carrying on the business of banking makes any time deposits with the said society and if on that time deposit the interest paid or payable is more than Rs. 10,000, in that case the said co-operative society is under obligation to deduct the tax as per the provisions of sub-section (1) of section 194A of the Income-tax Act. It is to be mentioned that in sub-clause (b) of the said Proviso the Legislature has specifically made liable the co-operative society which is engaged in carrying on the business of banking to deduct the tax and not any other category of co-operative society.
9. However, clause (v ) of sub-section (3) to section 194A specifies that the provisions of sub-section (1) of section 194A shall not be applied to such income credited or paid by a co-operative society to a member thereof or to any other co-operative society. Here it is submitted that sub-clause (b) of Proviso and clause (v) are not contradictory to each other because sub-clause (b) of Proviso is specific in the nature. It is well settled that a specific provision will override a general provision. The clause (v) is general in nature. Although clause (v) has not excluded specifically the co-operative societies engaged in the business of banking but sub-clause (b) of the proviso is very specific and it has been categorically brought on the statute that any co-operative society, which is engaged in the business of banking will have to deduct tax on interest paid or payable to any person on the time deposits if the amount of the said interest is more than Rs. 10,000.
10. Clause (viia ) of sub-section (3) to section 194A reads as under :
"the provisions of sub-section (1) to section 194A of the Income-tax Act shall not apply 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."
11. Thus, sub-clause (a ) of clause (viia) has specifically excluded certain categories of banks and credit societies for deduction of interest paid or payable by them these are :
(1)A primary agricultural credit society
(2)A primary credit society
(3)A co-operative land mortgage bank
(4)A co-operative land development bank.
The sub-clause (b) of clause (viia) has exempted a co-operative society carrying on banking business from the deduction of tax on interest paid or payable on the deposits, other than time deposits. It means a co-operative society engaged in carrying on the business of banking is not required to deduct the tax on the deposits other than the time deposits, e.g. Saving deposits, recurring deposits, etc. The said society was also not liable to deduct the tax on time deposits made before the 1st day of July, 1995. However, as per sub-clause (b) of clause (viia), it was mandatory on the part of a co-operative society engaged in carrying on the business of banking to deduct tax on interest paid/payable on all the time deposits made on or after the 1st day of July, 1995, if the amount of said interest is more than Rs. 10,000.
12. Attention is invited to circular No. 717 dated 14-8-1995 issued by the CBDT in F.A. 1995. Explanatory Notes on provisions relating to Direct Taxes reported in 215 ITR Statute 70 and relevant page 104. The paras 46.1 and 46.2 reads as under :
PARA 46.1
On account of provisions contained in clause (vii) of sub-section (3) of section 194A income credited or paid in respect of deposits with a banking company to which Banking Regulation Act, 1949 applies or with a co-operative society engaged in carrying on the business of banking is exempted from the requirement of deduction of income-tax at source.
PARA 46.2
Act amends section 194A of the Income-tax Act relating to deduction of income-tax at source from interest other than interest on securities in the case of residents. The amendment provides for deduction of income-tax at source at the rate in force from payment of interest exceeding ten thousand rupees in a financial year on time deposits made on or after 1st of July, 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 income credited or paid by the branch or 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 primary credit society or co-operative land mortgage bank or 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 a fixed period. The amendment will take effect from the 1st of July, 1995.
Thus, the intention of the Legislature is clear and the Board has clarified the obligation of co-operative societies engaged in the business of banking in the above circular.
13. It is to be mentioned that earlier the banking co-operative societies as well as other banks were not required to deduct tax on time deposits. However, instances came to light of the non-accounted incomes being deposited in the banks in one’s own name or in benami deposits. Interest on such deposits is not likely to be declared in the income-tax returns. Thus, keeping in view the above facts and to improve tax compliance section 194A, the Income-tax Act was 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.
14. The main thrust of the assessee’s counsel was on the provision of clause (v) of sub-section (3) of section 194A. His main contention was that the act has provided exemption from deducting tax by the co-operative societies on the interest paid to its members.
15. However, as mentioned above the clause (v) of sub-section (3) is general in nature while the provisions of sub-clause (b) of proviso to sub-section (3) as well as the provisions of clause (viia) are specific in nature wherein a banking co-operative society is liable to deduct tax on the interest paid or payable on time deposits if the amount of interest is more than Rs. 10,000, irrespective of the person to whom the interest is paid. There are a number of judicial pronouncements wherein it has been held that a special provision overruled a general provision. For this proposition reliance is placed on Kirloskar Pneumatic Co. Ltd. v. Commissioner of Surtax [1994] 210 ITR 4851 (Bom.), CIT v. Indian Molasses Co. (P.) Ltd. [1989] 176 ITR 4732 (Cal.), Commissioner Of Income-Tax v. Mahanagar Telephone Nigam Ltd. [2002] 254 ITR 627 (Del.) and Bhagya Wanti Devi v. Commissioner Of Income-Tax [1994] 210 ITR 687 (Raj.). Reliance is also placed on the decision of Karnataka High Court reported in M.L. Vasudeva Murthy & Sons v. Joint Commissioner of Agricultural Income-tax [1992] 198 ITR 426. On this page the observation of the Supreme Court has been mentioned in the case of South Indian Corpn. (P.) Ltd. v. Secretary, Board of Revenue AIR 1964 SC 207. The Supreme Court pointed out that a special provision should be given to the extent of its scope leaving the general provision to control cases where the special provision does not apply.
16. Thus, to say that in view of clause (v) of sub-section (3) the banking co-operative societies are not required to deduct tax on interest paid to its members on the time deposits is not correct because the said clause is general in nature.
17. Further, the learned counsel has placed reliance on the letters issued by the CCIT, Mumbai. In this regard it is to be mentioned that the opinion expressed by the CCIT, Mumbai cannot be considered as instructions or a circular and that may be a personal opinion is not what at all. Some specific societies had approached the CCIT, Mumbai for his opinion on the issue and that opinion cannot be said to be applied in the absence of approval of circular from CBDT.
18. The learned counsel has placed reliance on circular No. 72, para 88 issued by the CBDT on 6-1-1972. Basically this circular is on explanatory notes on Finance (No. 2) Act, 1971. His main contention was that the said circular has not been withdrawn by the CBDT and hence is still in force. In this regard it is to be submitted that once there were certain amendments or insertions in section 194A after Finance Act, 1971, the said circular will automatically become redundant and no more operative.
19. The learned counsel has placed reliance on various decisions of the Supreme Court but none of the decisions is directly on the issue involved and hence not relevant.
20. Thus, in view of the above, it is submitted that a co-operative society carrying on the banking business is liable to deduct tax on time deposits if the tax payable is more than Rs. 10,000. If the tax has not been deducted the assessee has to be treated as a defaulter and consequential action will take place. The Assessing Officer was justified in creating a demand and levying under section 201/201(1A) of the Income-tax Act for the default committed by the assessee under section 194A. It has been held by the Delhi High Court in Commissioner Of Income-Tax v. Prem Nath Motors (Pvt.) Ltd. [2002] 253 ITR 705 that if the assessee has committed the default in not deducting the tax or short deduction of tax the charging of interest under section 201(1A) is mandatory.
21. At the first early stage the CIT(A) has discussed the issue in detail and he was of the opinion that the co-operative society has committed a default under section 194A and hence the Assessing Officer was justified in levying interest under section 201/201(1A) of the Income-tax Act.
22. It is further mentioned that assessee’s counsel himself submitted that for subsequent years the bank has started deducting the tax on time deposits if the interest paid or payable is more than Rs. 10,000 in the case of all the persons including the members of the banking society. This shows that for earlier years the assessee has committed the default by not deducting the tax. Thus it was concluded to confirm the order of the learned CIT(A).
23. To counter the submissions of the learned D.R., Shri Sharad A. Vaze, C.A. submitted that the said letter of CCIT, Bombay was on the official letter-head. So opinion given in the said letter cannot be said to be his personal opinion and moreover, the assessee is not concerned with the indoor-management and presumption could validly be that the CCIT is the competent person to give his opinion on the clarification sought and the assessee could bonafidely act not to deduct tax at sources on the strength of the clarification given by him. So far as subsequent act of the assessee in deduction of the tax at source is concerned, it cannot be taken that it has accepted the liability but the same was done as an abundant precaution. So far as clause (viia) of sub-section (3) of section 194A is concerned, the same relates to co-operative society and not a co-operative bank, which is clear, even as per circular No. 717 dated 14-3-1995. Therefore, assessee cannot be held to be liable to deduct tax at source in view of provisions of section 194A and demand created under section 201(1) and interest charged under section 201(1A) is liable to be deleted. It was urged for deletion of the same.
24. I have carefully considered the submissions of the representative of the bank and that of the department, gone through the relevant provisions of law as well as case law cited and circulars referred. It is seen that the Assessing Officer referred to provisions of section 194A(3)(viia)( b) and held that where the interest is paid/credited to its Members by a co-operative society, engaged in carrying on the business of banking in respect of time deposits, if such amount exceeds the limit prescribed, is not exempt and is required to deduct the tax at source on such amount at the rates prescribed. The assessee on the other hand argued that although it is engaged in the business of banking, the assessee is registered as a co-operative society within the meaning of section 2(19) of the Act, therefore, it is not required to deduct any tax at source in respect of income credited or paid by it to its members or nominal members as per sub-clause (v) of section 194A(3) of the Act. It is therefore, necessary to consider in detail as to which of these provisions are applicable/should prevail. For this purpose, following analysis is necessary.
25. The provisions of section 194A have been brought on statute so as to recover the tax on interest, other than the interest on securities, in advance in respect of interest paid by persons other than individuals and HUFs. It is also seen that the income by way of interest from Co-operative Societies is covered under the provisions of section 80L of the Act for deduction allowable thereunder. Therefore, wherever the tax deduction at source is required under the provisions of section 194A adequate deductions are made to the extent of the limit as prescribed. Further the income earned by the co-operative societies from the other co-operative societies is exempt under the provisions of section 80P of the Act. Accordingly, it is also seen that wherever such interest is payable to a co-operative society the tax is not required to be deducted at source and such specific exemptions have been made. This clearly spells the purpose or intention of the legislation in bringing on statute the provisions under section 194A of the Act. On this background, therefore, one has to view the provisions under sub-clause (3), which generally spell out exemptions from the above-mentioned main rule.
26. It is noticed from perusal of section 194A that wherever the term ‘co-operative society’ is used intending thereby to include a co-operative society engaged in carrying on the business of banking (for brief, co-operative Bank), it is so specifically mentioned. In other words, wherever the provision applies to a co-operative Bank, there is specific mention to that effect. In all other places, it can be inferred that the term ‘co-operative society’ does not include co-operative Banks. This kind of presumption is required to be made because, as demonstrated by the Assessing Officer and as it shall be seen in succeeding paras, there arises a conflict between two provisions viz. sub-section (v) and sub-clause (viia), if such interpretation is not adopted.
27. On one hand, clause (v ) exempts income from interest in general paid by the Co-operative Societies to its members from tax deduction at source, which also can be interpreted to include income by way of interest even on deposits i.e. time deposits or otherwise and it also indicates that, generally speaking, co-operative society would include primary agricultural credit society;
primary credit society;
co-operative land mortgage bank;
co-operative land development bank;
co-operative society engaged in carrying on the business of banking.
Whereas, clause (viia) exempts income from interest on deposits with the five specific types of societies as mentioned above from deducting the tax at source. Here, deposit could be any deposit i.e. time deposit or otherwise. So also, income could be payable to anybody i.e. members as well as non-members. Thus, where the income by way of interest is payable to the members under sub-clause (viia)( a), the above mentioned four specific categories of co-operative societies would be exempt from responsibility of TDS under section 194A(3)(v) as well as under section 194A(viia)( a) also which means, the same deduction is provided under two sub-clauses of the same sub-section of the Act in which case one of the two is rendered redundant or superfluous.
28. In this case there is a contrast/contradiction between the provisions of proviso to sub-clause (b) and the provisions of sub-clause (v). As per sub-clause (b) under the proviso to section 194A(3)(i), a Co-operative Society engaged in carrying on the business of banking is required to deduct tax at source in respect of time deposits where the amount of interest paid exceeds Rs. 10,000. This requirement is irrespective of the fact whether the interest is paid to members or non-members of such co-operative banks. In case the contention of the assessee is to be accepted then the above mentioned proviso will also be rendered redundant.
29. Similarly, under sub-clause (viiia)(b ), the payment of income by way of interest by a Co-operative Society other than Co-operative Bank in respect of deposits other than time deposits made by the members are exempt from tax deduction at source. Once again, the income from interest on deposits other than time deposits given by Co-operative Societies other than Co-operative Banks to its members are clearly exempt from tax deduction at source under clause (v) of sub-section (3) also. Thus exemption from TDS is available once again in respect of income from interest on other than time deposits with Co-operative Society other than Co-operative Bank under the two sub-clauses of a sub-section provided in the Act. This will render one of the provisions redundant or superfluous. Now this is possible only, if as claimed by the assessee’s counsel while interpreting the clause (co-operative society) as mentioned in clause (v) was supposed to include even Co-operative Bank and other five Co-operative institutions as mentioned above. If on the contrary it is held that the five above mentioned categories of Co-operative Societies were not to be included in the term ‘Co-operative Society’ as argued by the learned counsel for the assessee in clause (v) of the Act, then, this kind of result is avoided. In other words, the interpretation suggested by the representative of the assessee can result into rendering two provisions of the Act to be redundant or superfluous.
30. Further it can be seen that, the Co-operative Society as mentioned in sub-clause (v) is a general species, whereas the other five categories of Co-operative Societies which are specifically referred to in different other provisions are specific Co-operative Societies, meaning thereby, they are specific species. It is a settled principle of interpretation that when a conflict occurs between a specific provision of the law vis-a-vis the general provision of the law, then, precedence will have to be given to the specific provision of the law so as to override the effect of the general provision of the law and reference in this regard can be made to the decision in Kirloskar Pneumatic Co. Ltd.’s case (supra), Indian Molasses Co. (P.) Ltd.’s case (supra), Mahanagar Telephone Nigam Ltd.’s case (supra) and Bhagya Wanti Devi’s case (supra) besides Karnataka High Court decision reported in M.L. Vasudeva Murthy & Sons’ case (supra) where observation of the Supreme Court has been mentioned in the case of South Indian Corpn. (P.) Ltd. (supra). The Hon’ble Supreme Court has held that the special provision should be given to the extent of its scope leaving the general provision to control cases where the special provision does not apply. Keeping this principle in view, while interpreting particular provision, a co-operative society in clause (v) if it comes in conflict with the other provisions of the Act, then the interpretation of the term co-operative society will have to be suitably amended. Now this conflict can be considered as under :
"The income from interest referred to in sub-clause (v ) is any interest paid to members whereas the interest payable as contemplated under sub-clause (viia)(b ) is interest on deposits other than term deposits, which means, by implication, that the interest on term deposits payable by the co-operative Bank to its members is liable to be subjected to tax deduction at source. The interest on term deposits, as per provisions of sub-clause (viia)(b ) is liable to TDS equally for members as well as non-members, whereas the same is declared to be exempt under sub-clause (v) if the interpretation of the representative of the assessee were to be accepted. Thus, it results into direct conflict between sub-clause (v) and sub-clause (viia)(b ) of the sub-section (3) of section 194A of the Act in order to remedy this conflict between two provisions it will have to be considered in such a way that the specific provision as mentioned under sub-clause (viia)( b) will have to be given precedence over application of sub-clause (v) so that the conflict is removed."
31. Therefore, in view of the above it becomes necessary that the term Co-operative Society in sub-clause (v) be interpreted as Co-operative Society other than Co-operative Bank.
32. This point can further be considered from another angle. Sub-clause (viia)(b ) has been introduced w.e.f. 1-7-1995 whereas sub-clause (v ) was already in existence. The need for introduction of sub-clause (viia)( b) was merely for the purpose of effecting the tax deduction at source from the interest on fixed deposits with the Co-operative Banks. This was necessitated because interest earned from fixed deposit with banks other than Co-operative Banks was subjected to deduction at source. Now, on examination of the nature of income, it is clear that the interest from fixed deposits is chargeable to tax as income if it exceeds the limit as laid down under section 80L of the Act. For this purpose, there is no distinction regarding the source of receipt of such interest i.e. irrespective of whether it is received from Co-operative Banks or other banks, it is chargeable to tax. There was, therefore, an existing mischief in the provision of law. On one hand, the deposits made with the banks other than Co-operative Banks were subjected to treatment of TDS and on the other hand, the deposits with Co-operative Banks were not subjected to treatment by TDS whereas Co-operative Banks and other banks are otherwise at par in respect of taxability of income from banking transactions. In order to remove this mischief, sub-clauses (a) and (b) under clause ( viia) has been introduced. Therefore, following the rule of interpretation in Heyden’s case it is necessary that the interpretation attributed to the word Co-operative Society in sub-clause (v) should be so made that the purpose of this remedy must be achieved. This is possible if, and only if, the interpretation of the term Co-operative Society under sub-clause (v) is to exclude the five categories as mentioned above which are specifically dealt with in the new provisions of sub-clause (viia).
33. It is also necessary to refer to the explanatory notes to Finance (No. 2) Act, 1971 given in the circular No. 621 dated 19-12-1991 which have been cited by the Assessing Officer in his representation during the appellate proceedings and were taken note of and considered by the learned CIT(A). These notes form contemporaneous evidence so as to indicate the intention of legislation. This is important because when two provisions in the context of the same object oppose each other, it is necessary to adopt interpretation, which will give effect to the intention of legislation. This is also called as purposive interpretation of statutes.
34. Considering the abovementioned facts, it must be seen that after all the intention of provisions of section 194A is to collect tax by way of tax deduction at source for which this specific section was introduced. And, if the interpretation as suggested by the representative of the assessee were to be accepted, such purpose would be defeated. Coming to the observations of the arguments raised by the learned counsel for the assessee, it can be stated in brief, one by one that unless as claimed by the representative of the assessee, the provisions under section 194A(3)(v) are NOT specific because although it deals with exemption in respect of interest payable to members, by implication, the same is contemplated in respect of time deposits under clauses (viia)( a) and (viia)( b) of the Act. Therefore, reference to ‘members’ of Co-operative Society is not only talked about in provisions of section (v) it is also referred elsewhere, therefore, provisions of sub-clause (v) are of general nature and NOT specific as claimed by the assessee. On the contrary, the mention regarding to Co-operative Banks and other for specific categories are made only wherever that has been relevant. Therefore, it is other way round i.e. the term Co-operative Society in clause (v) is general in nature and the provisions of section (viia) are specific in nature.
35. Further, the representative of the assessee states that as far as TDS in respect of interest on members and non-members are concerned, such distinction should be read from the plain provisions of the law inasmuch as, for members, sub-clause (v) shall apply, whereas for non-members sub-clause (i) of sub-section (3) shall apply. This contention is self-defeating inasmuch as the income by way of interest on deposit is chargeable to tax in respect of members and non-members if it exceeds the limit as laid down under section 80L. Similarly, if such income is within the limits as mentioned under section 80L it will be exempt for both the members as well as the non-members. This being so, the legislation cannot be said to have intended to give a different treatment for members and non-members when the end result and the treatment be given to the income is contemplated to be the same. From this point of view, the interpretation suggested by the representative of the assessee is absurd.
36. So far as Assessing Officers as well as assessee’s reliance on Kerala High Court’s decision is concerned, it is seen that the interpretation of the relevant provision came up for consideration before the Kerala High Court in the case of Moolamattom Electricity Board Employees’ Co-operative Bank Ltd. (supra), where liability of primary credit society for TDS under section 194A was the subject matter and while making a reference to Supreme Court decision in CIT v. Shaan Finance (P.) Ltd. [1998] 231 ITR 308 1 and Broach District Co-operative Cotton Sales, Ginning & Pressing Society Ltd. v. CIT [1989] 177 ITR 418 2 as well as P. Alikunju, M.A Nazeer Cashew Industries v. Commissioner Of Income-Tax [1987] 166 ITR 8043 (Ker.) made a clear distinction between primary credit society and a Co-operative Society engaged in carrying on business of the banking, it was held as under :
"The position as it stood before the amendment of section 194A by the Finance Act, 1996 was to the effect that all co-operative societies engaged in carrying on the business of banking were given the exemption. It is now confined to certain co-operative societies and not engaged in carrying on business of banking. On a plain reading of sub-section (3)(viia) of section 194A, r/w section 2(19), there is total exemption and that is fortified by sub-section (3)(viia)( b). Hence there is no scope for the argument that the primary co-operative societies are not exempted. That would be reading something not found in the Income-tax Act, but could only be stretching the definition found under the Banking Regulation Act. Resort to different provision of another Act may be relevant in the absence of a definition or of a technical nature. For the purpose of understanding the "co-operative society" the meaning that can be given is only as per the definition under section 2(19) and not otherwise. The contention that sub-section 3(i) exemption limit has been increased to Rs. 10,000 to time deposits with co-operative societies engaged in carrying on business of banking, would have to be reconciled and if so done, then all co-operative societies who have credited or paid exceeding Rs. 10,000 are liable for deduction cannot be accepted. Firstly, the provision deals only with the time deposit and secondly, the expression used is "the co-operative society engaged in carrying on business of banking". There may be many co-operative societies that may come under sub-section (3)(viia)( b). The proviso could be referable only to those co-operative societies and cannot be to primary credit societies to which class the petitioners belong. The exemption clause in reference to co-operative societies calls for a liberal interpretation. That apart, a plain interpretation of the relevant clauses would go to show that there is a clear exemption in favour of a primary credit society. It may not be possible or open for the Revenue to dissect and find out the object of the primary credit society and share limit of the primary credit society so as to classify them as co-operative bank and remove them out of the purview of exemption clause."
37. So it is amply clear as per Hon’ble High Court of Kerala that the exemption under section 194A(3)(viia)( b) is available to primary credit co-operative society and said society cannot be classified or equated with the co-operative society engaged in the banking business to which provisions of deduction of tax at source are applicable. No other case law has been cited by the assessee in its favour and the ratio of the decision is found to be favouring the case of the revenue than the assessee. As per Hon’ble Bombay High Court in the case of CIT v. Smt. Godavaridevi Saraf [1978] 113 ITR 589 solitary decision even of other High Court is binding on the Tribunal. Relevant head-notes are as under :
"Penalty—Penalty order set aside by Tribunal in view of decision of High Court of another state holding section 140A(3) ultra vires of article 19(1)(f) of Constitution - law declared by High Court in a state is binding on Tribunal in another State Appellate Tribunal did not go into constitutionality of provision of Income-tax Act - it only decided the case in accordance with decision of High Court - Income-tax Act, 1961 section 140A(3)."
38. Since Hon’ble High Court of Kerala has given clear interpretation favouring the department, so if viewed from this angle, exemption as claimed by the assessee from deductibility of tax at source with respect to interest on time deposits paid/credited by a Co-operative Bank to its members cannot be to be available to the assessee. As provision has specifically been incorporated with effect from 1-7-1995 in order to bring the interest income on fixed deposits by Co-operative Banks and no distinction has been carved out to treat members and non-members differently, therefore, same comes within the purview of deductibility of tax at source. Moreover this being neither a charging nor penal provision and that apart, it cannot be taken as a case of two interpretations of one provision even as found from close scrutiny of relevant provision, therefore, ratio of the decision in this regard cannot be said to be applicable to the present case.
39. So far as plea of the assessee with regard to letter dated 13th January, 1998 issued by Dy. CIT(HQ) Co-ordination, Bombay on the letterhead of CCIT to the Chairman of the Maharashtra Urban Co-operative Banks Federation Ltd. Mumbai, for non-deduction of tax at source by co-operative bank is concerned, the same reads as under :
"Sub : TDS on interest on Deposits - section 194A(3)(v ) of Income-tax Act, 1961 :
Please refer to your letter F. No. 10-03-97 on the above subject.
In view of the provisions of section 194A(3)(v) the Urban Co-operative Banks registered under concerned State Co-operative Act are exempted in respect of TDS on interest credited or paid by co-operative society to a member thereof or to any other co-operative society."
40. As appears from the contents of this letter, it does not give clarification with regard to interest on time deposit (but on deposits only) or about the provisions of section 194A(3)(viia) of the Act. Therefore, the plea of the assessee in this regard is found to be not acceptable and case law cited in this regard in view of given facts is distinguishable which too cannot be said to be applicable.
41. As regards the other letter dated 4th March, 1998 addressed to General Manager, Mahesh Sahakari Bank Ltd., is concerned, same also does not talk about the interest on time deposits or the provisions of section 194A(3)(viia) of the Act and otherwise also nothing has been shown about clarification sought by said bank so, it too is of no consequence so far as the present assessee is concerned.
42. Therefore, in view of totality of the facts and circumstances of the present case, various courts decisions and in the light of the discussions as held above, I, am of the considered view that the co-operative bank is liable to deduct tax at source under section 194A(1) on the interest on time deposits paid/credited to its members, if such interest amount exceeds the limit prescribed in the proviso to section 194A(3)(i), at the rates prescribed. Since there was short deduction/non-deduction of tax at source, on the amount of interest on time deposits of the members of the co-operative bank exceeding the limit prescribed, therefore, the action of the authorities below in creating/upholding demands under section 201(1) and interest under section 201(1A) of the Act is justified which is upheld. As such the appeals of the assessee are dismissed.
43. As a result all the appeals of the assessee are dismissed.
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