The Belgaum Dist. Central Co. Opp. Bank., Belgaum v. Commissioner of Income tax, (Appeals), Belgaum

ITA 378/PAN/2013 | 2010-2011
Pronouncement Date: 14-11-2014 | Result: Dismissed

Appeal Details

RSA Number 37824114 RSA 2013
Assessee PAN AAAAB0839M
Bench Panaji
Appeal Number ITA 378/PAN/2013
Duration Of Justice 11 month(s) 10 day(s)
Appellant The Belgaum Dist. Central Co. Opp. Bank., Belgaum
Respondent Commissioner of Income tax, (Appeals), Belgaum
Appeal Type Income Tax Appeal
Pronouncement Date 14-11-2014
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 14-11-2014
Date Of Final Hearing 16-10-2014
Next Hearing Date 16-10-2014
Assessment Year 2010-2011
Appeal Filed On 04-12-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH PANAJI BEFORE S/SHRI P.K.BANSAL (AM) AND D.T.GARASIA (JM) I.T.A. NO.324/PNJ/2013 : ASSESSMENT YEAR 2010 - 201 1 ACIT CIRCLE - 2 BELGAUM. VS. THE BELGAUM DISTRICT CENTRAL CO.OP. BANK LTD. OLD P.B. ROAD NEAR CENTRAL BUS STAND BELGAUM. PA NO.AAAAB 0839 M APPELLANT RESPONDENT I.T.A. NO.378/PNJ/2013: ASSESSMENT YEAR 2010 - 2011 C.O. NO.56/PNJ/2013 (ARISING OUT OF ITA NO. 324/PNJ/2013: ASSESSMENT YEAR 2010 - 2011) THE BELGAUM DISTRICT CENTRAL CO.OP. BANK LTD. OLD P.B. ROAD NEAR CENTRAL BUS STAND BELGAUM. PA NO.AAAAB 0839 M VS. ACIT CIRCLE - 2 BELGAUM APPELLANT/CROSS OBJECTOR RESPONDENT FOR THE ASSESSEE : SHRI A.A. KULKARNI FOR THE REVENUE : SHRI NISHANT K. DATE OF HEARING: 16.10 .2014 DATE OF PRONOUNCEMENT: 14 /11/2014 ORDER PER D.T.GARASIA JM THE CROSS APPEAL S FILED BY THE REVENUE AND ASSESSEE ARE DIRECTED AGAINST ORDER 5.9.2013 OF LD CIT(A) BELGAUM FOR THE ASSESSMENT YEAR 2010 - 2011 IN THE MATTER OF ASSESSMENT UNDER SE CTION 143(3) OF THE I.T.ACT 1961 . 2. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION IN SUPPORT OF THE ORDER OF LD CIT(A) AGAINST THE APPEAL FILED BY THE REVENUE. 3 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CO - OPERATIVE BANK ENGAGED IN CARRYING ON THE BUSINESS OF BANKING. IT HAD OBTAINED NECESSARY LICENSE FROM THE RESERVE 2 BANK OF INDIA FOR CARRYING ON ITS BANKING OPERATIONS AS A DISTRICT CENTRAL CO - OPERATIVE BANK. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 29.9.20 10 DECLARING TOTAL INCOME OF RS.13 78 82 700/ - . THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT DETERMINING THE TAXABLE INCOME OF RS.64 63 35 343/ - INTER ALIA MAKING THE FOLLOWING DISALLOWANCES: I) INTEREST ON TERM DEPOSIT IN EXCESS OF RS.10 000/ - U/S.40(A)(IA) :RS.22 65 75 356/ - II) INT. ON RECEIVABLE ON LOANS & INVESTMENT BUT NOT CREDITED TO : RS.27 58 64 367/ - P&L ACCOUNT III) DIVIDEND INCOME CLAIMED AS EXEMPT : RS. 60 12 920/ - 4 . BEING AGGRIEVED BY THE ASSESSMENT ORDER THE ASSESSEE FILED APPEAL BEFORE LD CIT(A) WHO PARTLY ALLOWED THE APPEAL. HENCE BOTH THE SIDES ARE IN APPEAL BEFORE US. 5 . THE ASSESSEE IN ITS APPEAL HAS RAISED TWO GROUNDS AS UNDER: 1. THE LD CIT(A) HAS ERRED IN DISALLOWING THE INTEREST PAID ON TERM DEPOSITS IN EXCESS OF RS.10 000/ - WITHOUT MAKING TDS THEREBY ADDING RS.22 65 75 356/ - TO INCOME THOUGH THE SAME IS CLAIMED AS EXEMPT U/S.194A(V) BEING INTEREST PAID TO MEMBERS. 2. T HE LD CIT(A HAS ERRED IN DISALLOWING DIVIDEND INCOME OF RS.60 12 920/ - THOUGH THE SAME IS CLAIMED AS EXEMPT U/S.80P(2)(D). 6 . APROPOS FIRST ISSUE TAKEN BY THE ASSESSEE FACTS ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD PAID INTEREST ON TERM DEPOSIT IN EXCESS OF RS.10 000/ - WITHOUT MAKING TDS AND THE TOTAL INTEREST SO PAID OF RS.22 65 75 356/ - IS LIABLE TO BE DISALLOWED U/S. 40(A)(IA) OF THE ACT. THE ASSESSING OFFICER HELD THAT AS S ESSEE BANK C ANNOT CLAIM EXEMPTION FROM MAKING TDS ON INTEREST PAID TO THE MEMBERS AS PER PROVISIONS OF SECTION 194A(3)(V) AS THESE PROVISIONS ARE GENERAL IN NATURE WHEREAS THE PROVISIONS CONTAINED IN SECTION 194A(3)(I) & (VIIA) ARE SPECIFIC IN NATURE AND IT IS WELL ESTABLISHED PRINCIPLE OF INTERPRETATION THAT THE SPECIFIC PROVISIONS ALWAYS OVERRIDE THE GENERAL PROVISIONS. IN SUPPORT OF THIS THE AO RELIED ON THE JUDGEMENT OF ITAT PUNE IN THE CASE OF BHAGINI NIVEDITA SAHAKARA BANK LTD VS. ACI (2003) 87 ITD 569. THE MATTER CARRIED TO LD CIT(A) AND LD CIT(A) CONFIRMED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: 5.1.3 IT IS AN UNDISPUTED FACT THAT THE APPELLANT HAS PAID INTEREST ON TERM TO THE TUNE OF RS.226575356/ - TO DEPOSITORS WITHOUT DEDUCTING TAX AT SOUR APPELLANT CON TENDED THAT THE PROVISIONS OF TD S A RE NOT ATTRACTED IN VIEW OF CLAUSE (V) OF SUB - SECTION (3) OF SECTION 194A AS THE INTEREST PAYMENTS TO THE EXTENT OF RS 22 65 75 356/ - HAVE BEEN MADE TO THE MEMBERS OF THE BANK. IN THIS REGARD 3 THE AO HAS INTERPRETED WOR D CO - OPERATIVE SOCIETY AS EMPL OYED IN SEC.194A(3)V) TO MEAN CO - OPERATIVE SO OTHER THAN CO - OPERATIVE BANK AS DECIDED BY THE TAT PUNE BENCH I N BHAGANI NIVEDT SAHAKARI BAN K LTD V. ACIT 87 TO 569 WHEREIN THE HONBLE I TAT HAS HELD THAT THE TERM COOPERATIVE SOCIETY MENTIONED IN SECTION 194A(3)(V) TO BE INTERPRETED AS CO - OPERATIVE SOC{ET OTHER THAN CO - OPERATIVE BANK. THUS THE AO DISALLOWED THE ENTIRE INTEREST PAYMENTS E XCEEDING RS.20 000/ - MADE TO THE MEMBERS AND NON - MEMBERS BY THE APPELLANT BANK FOR THE REASONS MENTIONED ABOVE. 51.4 ON GOING THROUG H THE PROVISIONS OF SECTION 194A (3) IT IS SEEN THAT THE ASSESSING OFFICER IS JUSTIFIED IN DISALLOWING THE INTEREST PAY MENTS ABOVE THE THRESHOLD LIMIT OF RS.10 000/ - PAID TO THE DEPOSITORS AS THE APPELLANT BANK HAD FAILED TO DEDUCT TAX AT SOURCE THEREBY RENDERING ITSELF LIABLE FOR DISALLOWANCE UNDER SECTION 40(A )(IA) OF THE IT. ACT 1961. THE SUBMISSIONS OF THE APPELLANT ARE NOT ACCEPTABLE IN VIEW OF THE DECISION OF HONBL E PUNE ITAT IN THE CASE OF B HAGANI NIVEDITA SAHAKARI BANK LTD CITED SUPRA WHEREIN IT IS CLEARLY HELD THAT SECTION 194A(3) (VIA)(B) MAKES NO DISTINCTION BETWEEN MEMBERS AND NON - MEMBERS OF CO - OPERATIVE BANK FOR PURPOSE OF DEDUCTION OF TAX AT SOURCE ON INTEREST ON TIME DEPOSITS PAID/ CREDITED AND THEREFORE CO - OPERATIVE BANK WOULD BE LIABL E TO DEDUCT TAX AT SOURCE UNDER SECTION 194A (1) ON INTEREST ON TIME DEPOSITS PAID/CREDIT TO ITS DEPOSITO RS IT SUCH INTEREST AMOUNT EXCEEDED THE LIMIT PRESC RIBED IN PROVISO TO SECTION 194A (3}(I}. FURTHER THE HONBE KERALA HIGH COURT IN THE CASE OF MOOTAMATTOM CLECTRICITY BOARD EMPLOYEES CO - OP BANK LTD 238 ITR 630 HAS MADE A CLEAR DISTINCTION BETWEEN PRIM ARY CREDIT SOCIETY AND A COOP SOCIETY ENGAGED IN BANKING BUSINESS. THUS SECTION 194A DEA L S WITH CO - OP SOCIETIES ENGAGED IN THE BUSINESS OF BANKING CO - OPERATIVE SOCIETIES ENGAGED IN PROVIDING CREDIT FACILITIES TO THE MEMBERS ETC. AS HAS BEEN RIGHTLY H ELD BY THE ASSESSING OFFICER THAT THE MOMENT THE AMOUNT PAID/CREDITED TO ANY DEPOSITOR DURING THE YEAR EXCEEDS R S.10 000 THE PROVISIONS OF SECTION 194A(1) SHALL APPLY AND THE CO - OPERATIVE SOCIETY ENGAGED IN THE BANKING BUSINESS SHALL HAVE TO DEDUCT TA X ON SUCH PAYMENTS. FROM THE FACTS OF THE CASE IT IS SEEN THAT THE ASSESSING OFFICER CATEGORICALLY BROUGHT OUT THE MATERIAL ON RECORD TO PROVE THAT THE APPELLANT BANK IS COVERED BY THE PROVISIONS OF SUB - CLAUSE (B) OF CLAUSE (I) OF SEC.194A(3) AS WELL AS THE PROVISIONS OF CLAUSE (VIIA) OF SEC.194A(3) WHICH ARE SPECIFIC IN NATURE AND THE APPELLANT CANNOT PUT FORTH ITS CLAIM UNDER SECTION 194(3)(V) WHICH ARE GENERAL IN NATURE. AS THE APPELLANT IS CO - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING IT IS COVERED UNDER THESE SPECIFIC CLAUSES AND AS HAS BEEN HELD BY THE HONBLE I TAT PUN E BENCH PUNE IN BH AGANI N I VEDITA SAHAKARI BANK LTD V. ACIT (2003)87 LTD 569 THAT THE TERM CO - OP SOCIETY IN SUB - CLAUSE (V) TO BE INTERPRETED AS CO - OP SOCIETY OT HER THAN COOPERATIVE BANK THE APPELLANT IS LIABLE FOR TDS PROVISIONS UNDER SECTION 194A. 5.1.5 THE APPELLANTS ARGUMENT THAT CLAUSE(V) TO SEC.194A(3) MAY BE TAKEN AS APPLYING TO MEMBERS AND OTHER CLAUSES TO THE SAID SECTION MAY BE TAKEN TO APPLY TO N ON MEMBERS IS WITHOUT ANY BASIS IN AS MUCH AS CLAUSES (I) AND (VIIA) APP L Y TO BOTH THE MEMBERS AS WELL AS NON MEMBERS. WHERE EVER THE LEGISLATURE INTENDS TO APPLY A PARTICULAR PROVISION TO MEMBER OR TO A NON MEMBER IT HAS DONE SO EXPRESSLY. 51.6 NOW COMING TO THE CIRCULAR NO.9 OF 2002 ISSUED BY THE CBDT RELIED UPON BY THE APPELLANT THE BOARD VIDE SAID CIRCULAR HAD SOUGHT TO INTERPRET THE DEFINITION OF WORD MEMBER CL ARIFYING THAT THE WORD MEMBER DOES NOT INCLUDE WORD NOMINAL 4 MEMBER. IT WAS H ELD BY THE BOMBAY HIGH COURT IN THE CASE OF JALGAON DISTRICT CENTRAL CO - OP BANK LTD & NR V. UNION OF INDIA 265 1W 423 (BORN) THAT THE BOARD HAS NO POWER TO INTERPRET THE P ROVISIONS OF LAW BY WAY OF CIRCULAR. THE ISSUE AT HAND OF THE BOMBAY HIGH COURT WAS TH E DEFINITION OF THE WORD MEMBER AS APPEARING IN CLAUSE (V) OF SECTION 194(3) AND THE POWERS OF THE CENTRAL BOARD OF DIRECT TAXES TO ISSUE CIRCULARS U/S 119 WHICH WOULD OVERRIDE OR DETRACT FROM THE PROVISIONS OF THE INCOME TAX ACT THE CIRCULAR NO.9 OF 2002 DATED 11 - 09 - 2002 ISSUED BY THE CBDT HAS BEEN QUASHED AND SET ASIDE BY THE HONBLE H IGH COURT. 5.1 .7 THEREFORE THE CIRCULAR NO.9 OF 2002 DATED 11 - 09 - 2002 ISSUED BY THE DOPT DOES NOT HEL P THE CASE OF THE APPELLANT . THE APPELLANTS RELIANCE ON THE SAID CIRC ULAR FOUND TO BE ILL - FOUNDED. 5 . 1.8 IN ORDER TO UNDERSTAND THE LEGISLATIVE INTENT IN THIS REGARD IT S NECESSARY REFER TO THE EXPL ANATORY NOTES TO FINANCE (NO 2) ACT 1991 & GI VEN IN THE CIRCULAR NO. 6 DATED 19 - 12 - 1991 WHICH AMONG OTHERS PROVIDES THAT WITH A VIEW TO IMPROVING TA X COMPLIAN CE SEC 194A OF THE ACT HAS BEEN AMENDED TO SECURE DEDUCTION OF TAX AT SOUR CE FROM INTEREST ON TIME DEPOSITS WITH THE AFORESAID BANKING COM PANI E S AND CO - OPERATIVE SOCIETIES ENG AGED IN CARR YING ON THE BUSINESS OF BANKING . THIS CIRCULAR OF THE CBDT EXPLAINS IN NO UNCERTAIN TERMS THAT THE INTENTION OF THE LEGISL ATURE IN AMENDMENT OF SECTION 194A I NTER A L IA WAS TO SECURE DEDUCTION OF T AX AT SOURCE FROM INTEREST ON TIME DEPOSITS WITH THE BANKING COMPANIES AND COO PERATIVE SOCIETIES ENGAGED IN CARRYING ON THE BUSINESS OF BANKING . THE APPELLANT BEING A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING IS LIABLE TO MAKE TDS U/S 194A. 51.9 N VIEW OF THE ABOVE DISCUSSION AND TAKING INTO CONSIDERATION THE VARIOUS REASONS GIVEN BY THE ASSESSING OFFICER THE DISALLOWANCE MADE UNDER SECTION 40(A)(IA) AMOUNTING TO RS.22 65 75 356/ - IS CONFIRMED. 7 . AT THE TIME OF HEARING LD COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THIS TRIBUNAL HAS DEALT WIT H SIMILAR ISSUE IN THE CASE OF THE BAILHONGAL URBAN CO - OP. BANK LTD VS JCIT (ITA NO.85/PNJ/2013) FOR A.Y. 2009 - 2010 WHEREIN THE HONBLE KARNATAKA HIGH COURT HAS STAY ED THE ABOVE ORDER FOR ONE WEEK THEREFORE HE REQUESTED NOT TO HEAR THE APPEAL. LD A.R. SUBMITTED THAT THIS TRIBUNAL IN THE CASE OF THE BAILHONGAL URBAN CO - OP. BANK LTD(SUPRA) HAS TAKEN A VIEW TH AT CO - OPERATIVE BANK IS EXMPT FOR DEDUCTION OF TAX AS PER S ECTION 194A OF THE ACT. HE SUBMITTED THAT SIMILARLY THE ITAT BANGALORE BENCH HAS TAKEN A VIEW THAT THE COOPERATIVE BANK HAS NOT TO DEDUCT TAX AT SOURCE HENCE APPEAL OF THE ASSESSEE WAS ALLOWED. THE TRIBUNAL HAS DISCUSSED THE ISSUE IN DETAIL. THEREFORE ITAT BANGALORE BENCH IS IN FAVOUR OF THE ASSESEE. HE SUBMITTED THAT SIMILARLY PUNE BENCH OF ITAT IN THE CASE OF ACIT VS. THE OZER MERCHANT CO - OPERATIVE BANK LTD(ITA NO.1588/PN/2012) HELD THAT NO TDS HAS TO BE MADE BY THE CO - OP BANK. HE REFERRED TO THE DECISION OF ITAT PANAJI BENCH IN ITA NO.18/PNJ/2005 FOR A.Y. 2002 - 03 THE COMBINATION OF 5 SHRI SATISH CHANDRA AND SHRI V.K.GUPTA HAS TAKEN THE VIEW THAT NO TDS IS REQUIRED TO BE MADE. HE REFERRED TO THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT URBAN CO - OPERATIVE BANK FEDERATION VS UNION OF INDIA (SPECIAL CIVIL APPLICATION NOS.11209 OF 2002 & 1465 OF 2003 DATED 12 2012 WHEREIN CIRCULAR ISSUED BY CBDT WAS CHALLENGED AND THE HONBLE HIGH COURT HAS HELD THAT AS PER SECTION 194A(3)(V) THE EXEMPTION IS APPLICABLE NOT ONLY TO CERTAIN MEMBERS BUT ALSO THE MEMBER ELIGIBLE FOR EXEMPTION U/S.194A IS ALSO NOT LIABLE FOR TDS. LD A.R. SUBMITTED THAT THIS ISSUE IS COVERED BY THE VARIOUS DECISIONS OF THE TRIBUNAL THEREFORE APPEAL M AY BE ALLOWED. 8 . LD D.R. ON THE OTHER HAND RELIED UPON THE ORDER OF THE AUTHORITIES BELOW AS WELL AS THE DECISION OF THIS TRIBUNAL IN THE CASE OF SARASWAT CO - OPERATIVE BANK LTD VS. ITO (ITA NOS.233 TO 236/PNJ/2014). MOREOVER HE HAS ALSO RELIED UPON TH E DECISION OF THIS TRIBUNAL IN THE CASE OF THE BAILHONGAL URBAN CO - OP. BANK LTD(SUPRA). 9 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD OF THE CASE. THE SHORT QUESTION BEFORE US FOR ADJUDICATION WHETHER OR NOT THE ASSESSEE CO - OPERATIVE BAN K ENGAGED IN THE BANKING BUSINESS IS LIABLE FOR TDS OR NOT. WE FIND THAT THE ASSESSEES CASE FALLS UNDER THE AMBIT OF SUB - CLAUSE (B) OF CLAUSE (I) OF SUB - SECTION(3) OF SECTION 194A AND HENCE TDS PROVISIONS ARE ATTRACTED. AS PER THE SAID PROVISIONS OF S UB - CLAUSE (B) OF CLAUSE (I) OF SECTION 194A(3) OF THE INCOME TAX ACT 1961 ANY CO - OPERATIVE SOCIETY WHICH IS ENGAGED IN THE BUSINESS OF BANKING SHALL HAVE TO DEDUCT TAX ON INTEREST PAID OR PAYABLE TO ANY PERSON ON TIM E DEPOSITS I F THE AMOUNTS OF SAID INT EREST EXCEEDS RS.10 000/ - . THE STATUS OF THE ASSESSEE IS CO - OPERATIVE BANK VIS - A - VIS OTHER CO - OPERATIVE SOCIETIES. THIS HAS BECOME IMPORTANT DUE TO THE FACT THAT THE ASSESSEE HAD CLAIMED TO BE AN ORDINARY CO - OPERATIVE SOCIETY WITHIN THE MEANING OF CLAUSE (V) OF SECTION 194A(3) OF THE ACT. THE CO - OPERATIVE SOCIETY INCLUDES DIFFERENT TYPES OF CO - OPERATIVE SOCIETY IN DIFFERENT TYPE OF ACTIVITIES. WHEREVER THE REFERENCE IS MADE TO ANY CO - OPERATIVE SOCIETY THE INCOME TAX ACT 1961 HAS CLEARLY DISTINGUISHED AND SPECIFIED THE TYPE OF CO - OPERATIVE SOCIETY BASED ON THE TYPE OF ACTIVITY CARRIED OUT. SUCH A DISTINCTION WAS REQUIRED AS THE LEGISLATION INTENDS TO EXTEND DIFFERENT BENEFITS TO DIFFERENT TYPES OF CO - OPERATIVE SO CIETIES THROUGH THE INCOME TAX A CT. TH E ASSESSEE CLAIMED THE BENEFIT OF SECTION S 36(1)(VIIA) 269 SS AND 269T ON THE GROUND THAT IT IS A CO - OPERATIVE BANK BUT FOR AVAILING EXEMPTION FROM TDS UNDER SECTION 194A IT IS CLAIMING ITSELF AS AN ORDINARY CO - OPERATIVE SOCIETY WITHIN THE MEANING OF S ECTION 194A(3)(V) OF THE ACT. WE FIND THAT THIS DISTINGUISHES THE CO - OPERATIVE SOCIETY AND THE COOPERATIVE SOCIETY CARRYING ON BUSINESS OF BANKING. THE HONBLE KERALA HIGH COURT IN THE CASE OF MOOLAMATOM ELECTRICITY BOARD EMPLOYEES CO - OPERATIVE BANK LTD. 238 ITR 630 HAS 6 DISTINGUISHED THIS. WE ALSO RELY UPON THE DECISION OF HONBLE JURISDICTIONAL KARANATAKA HIGH COURT IN THE CASE OF CIT VS. YESHWANTHPUR CREDIT CO - OPERATIVE SOCIETY LIMITED IN INCOME TAX APPEAL NO.2372012 WHEREIN THE HONBLE HIGH COURT H AS INTERPRETED THE CO - OPERATIVE BANK BY OBSERVING AS UNDER: NATURE CO - OPERATIVE SOCIETY REGISTERED UNDER BANKING REGULATION ACT 1949 CO - OPERATIVE SOCIETY REGISTERED UNDER KARNATAKA CO - OPERATIVE SOCIETY ACT 1959 REGISTRATION UNDER THE BANKING REGULATIO N ACT 1949 AND CO - OPERATIVE SOCIETIES ACT 1959 CO - OPERATIVE SOCIETIES ACT 1959 NATURE OF BUSINESS 1. AS DEFINED IN SECTION 6 OF BANKING. REGULATION ACT. 2. CAN OPEN SAVINGS BANK ACCOUNT CURRENT ACCOUNT OVERDRAFT ACCOUNT CASH CREDIT ACCOUNT ISSUE LETTER OF CREDIT DISCOUNTING BILLS.. OF EXCHANGE ISSUE CHEQUES DEMAND DRAFTS (DD) PAY ORDERS GIFT CHEQUES LOCKERS BANK GUARANTEES ETC. 3. CO - OPERATIVE BANKS CAN ACT AS CLEARING AGENT FOR CHEQUES DDS PAY - ORDERS AND OTHER FORMS. 4. BANKS ARE BOUND TO FOLLOW THE RULES REGULATIONS AND DIRECTIONS ISSUED BY RESERVE BANK OF INDIA (RBI) 1. AS PER THE BYE LAWS OF THE COOPERATIVE SOCIETY. 2. SOCIETY CANNOT OPEN SAVINGS BANK ACCOUNT CURRENT ACCOUNT ISSUE LETTER OF CREDIT DISCOUNTING BILLS OF EXCHANGE IS SUE CHEQUE DEMAND DRAFTS PAY ORDERS GIFT C HEQUES LOCKERS BANK GUARANTEES ETC. 3. SOCIETY CANNOT ACT CLEARING AGENT FOR CHEQUES DDS PAY ORDERS AND OTHER FORMS. 4. SOCIETY ARE BOUND BY RULES AND REGULATIONS AS SPECIFIED BY IN THE CO - OPERATIVE SOCIETIES ACT. FILING OF RETURNS . CO - OPERATIVE BANKS. HAVE TO SUBMIT ANNUAL RETURN TO RBI EVERY YEAR SOCIETY HAS TO SUBMIT THE ANNUAL RETURN TO REGISTRAR OF SOCIETIES. INSPECTION RBI HAS THE POWER TO INSPECT ACCOUNTS AND OVER ALL FUNCTIONING OF THE BANK REGISTRAR HAS THE POWER TO INSPECT ACCOUNTS AND OVER ALL FUNCTIONING OF THE BANK. PART V OF THE PART V PART V OF THE BANKING REGULATION ACT IS APPLICABLE TO CO - OPERATIVE BANK PART V OF THE BANKING REGULATION ACT IS NOT APPLICABLE TO CO - OPERATIVE BANKS. USE OF WORDS THE WORD BANK BANKER BANKING CAN BE USED BY A CO - OPERATIVE BANK. THE WORD BANK BANKER BANKING CANNOT BE USED BY A CO - OPERATIVE SOCIETY 7 10 . WE FIND ALSO SUPPORT FROM THE DECISION OF HONBLE HIGH COURT WHEREIN IT HAS BEEN HELD AS UNDER: IF A CO - OPERATIVE BANK IS EXCLUSIVELY CARRYING BANKING BUSINESS THEN THE INCOME DERIVED FROM THE SAID BUSINESS CANNOT BE DEDUCTED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. THE SAID INCOME IS LIABLE FOR TAX. A CO - OPERATIVE BANK AS DEFINE D UNDER THE BANKING REGULATION ACT INCLUDES THE PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO - OPERATIVE AGRICULTURAL RURAL DEVELOPMENT BANK. THE LEGISLATURE DID NOT WANT TO DENY THE SAID BENEFIT TO A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY C OOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. THEY DID NOT WANT TO EXTEND THE SAID BENEFIT TO A CO - OPERATIVE BANK WHICH IS EXCLUSIVELY CARRYING ON BANKING BUSINESS I.E. THE PURPORT OF THE AMENDMENT. IF THE ASSESSEE IS NOT A CO - OPERATIVE BANK CARRYIN G ON EXCLUSIVELY BANKING BUSINESS AND IF IT DOES NOT POSSESS A LICENSE FROM THE RESERVE BANK OF INDIA TO CARRY ON BUSINESS THEN IT IS NOT A CO - OPERATIVE BANK. IT IS A CO - OPERATIVE SOCIETY WHICH ALSO CARRIES ON THE BUSINESS OF LENDING MONEY TO ITS MEMBERS WHICH IS COVERED UNDER SECTION 80P(2)(A)(I) I.E. CARRYING ON THE BUSINESS OF BANKING FOR PROVIDING CREDIT FACILITATES TO ITS MEMBERS. THE OBJECT OF THE AFORESAID AMENDMENT IS NOT TO EXCLUDE THE BENEFIT EXTENDED UNDER SECTION 80P(I) TO THE SOCIETY. 11 . I N THE ABOVE JUDGEMENT HONBLE HIGH COURT HAS HELD THAT THE CO - OPERATIVE BANK AND CO - OPERATIVE SOCIETY IS DIFFERENT ENTITY AND THEY ARE ON DIFFERENT FOOTING. WE ALSO RELY UPON THE CLARIFICATION MADE BY CBDT IN THIS REGARD WHICH READS AS UNDER: NO. 133/0 6/2007 - TPL GOVERNMENT OF INDIA MINIS TR Y OF FINANCE DEPARTMENT OF RESERVES CENTRAL BOARD OF DIRECT TAXES NEW DELHI THE 9TH MAY 2007 TO SHRI. 0. P. GUPTA SECRETARY THE DELHI CO - OP. URBAN T& C SOCIETY LTD. 31/64 BHIKAM SINGH COLONY VISHWAS NAGAR D ELH I - 110032 SIR SUBJECT: CLARIFICATION REGARDING ADMISSIBILIT Y OF DEDUCTION UNDER SEC. 80P OF INCOME - TAX ACT 1961 1. PLEASE REFER TO YOUR LETTER NO. DCUS/30688/2007 DATED 28.3.2007 ADDRESSED TO CHAIRMAN CENTRAL BOARD OF DIRECT TAXES ON THE ABOVE CITED SUBJECT. 2. IN THIS REGARD I HAVE BEEN DIRECTED TO STATE THAT SUB - SECTION(4) OF SECTION 80P PROVIDES THAT DEDUCTION UNDER THE SAID SECTION SHALL NOT BE AVAILABLE TO ANY CO - 8 OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. FOR THE PURPOSES OF THE SAID SUB - SECTION COOPERATIVE BANK SHALL HAVE THE MEANING ASSIGNED TO IT IN FART V OF THE BANK ING REGULATION ACT 1949. 3. IN PART V OF THE BANKING REGULATION ACT CO - OPERATIVE BANK MEANS A STATE CO - OPERATIVE BANK A CENTRAL CO - OPERATIVE BANK AND A PRIMARY CO - OPERATIVE BANK AND A PRIMARY CO - OPERATIVE BANK. 4. THUS IF THE DELHI CO - OP. URB AN T&C SOCIETY LTD. DOES NOT FALL WITHIN THE MEANING OF CO - OPERATIVE BANK AS DEFINED IN PAN V OF THE BANKING REGULATION ACT 1949 SUB - SECTION (4) OF SECTION 801 WILL NOT APPLY IN ITS CASE. 5. THESE ISSUES WITH THE APPROVAL OF CHAIRMAN CENTRAL BO ARD OF DIRECT TAXES. YOURS SINCERELY SD/ - (SOBHAN KOT) UNDER SECRETARY TO THE GOVT OF INDIA 12 . FROM THE JUDGEMENTS OF HONBLE JURISDICTIONAL KARNATAKA HIGH COURT IN THE CASE OF YESHWANTHPUR CREDIT CO - OPERATIVE SOCIETY LIMITED(SUPRA) AND HONBLE KE RALA HIGH COURT IN THE CASE OF MOOLAMATOM ELECTRICITY BOARD EMPLOYEES CO - OPERATIVE BANK LTD (SUPRA) WE ARE OF THE VIEW THAT THE CO - OPERATIVE SOCIETY AND CO - OPERATIVE SOCIETY CA RRYING ON BUSINESS OF BANKING ARE ON DIFFERENT FOOTING. THE AO HAS ALSO REFERRE D THE EXPLANATORY NOTE S TO FINANCE (NO.2) ACT 1991 GIVEN IN THE CIRCULAR NO.621 DATED 19.12.1991 WHICH AMONG OTHERS PROVIDES THAT WITH A VIEW TO IMPROVING TAX COMPLIANCE SECTION 194A OF THE 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 . SINCE THE ASSESSEE BANK IS COVERED BY THE PROVISIONS OF SAID CLAUSE (B) OF CLAUSE (I) OF SECTION 194A(3) AS WELL AS PROVISIONS OF CLAUSE (A) OF SAID SECTION WHICH ARE SPECIFIC IN NATURE WE HOLD THAT THE ASSESSEE IS NOT ENTITLED FOR BENEFIT BY ARGUING THAT SECTION 194A(3) IS SPECIFIC IN NATURE. WE FIND THAT WHEREVER THERE IS SPECIFIC PROVISION IT OVERRIDE THE GENE RAL PROVISION. FOR THIS PROPOSITION WE RELY UPON THE DECISION OF THE JURISDICTIONAL KARNATAKA HIGH COURT IN THE CASE OF M.L.VASUDEVA MURTHY AND SONS AND OTHERS VS.JOINT COMMISSIONER OF AGRICULTURAL INCOME TAX 198 ITR 426(KAR). THE HONBLE SUPREME COURT IN THE CASE OF SOUTH INDIAN CORPN. (P) LTD. VS. SECRETARY BOARD OF REVENUE AIR 1964 SC 207 HAS HELD 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 AP PLY THEREFORE WE ARE OF THE VIEW THAT IN THIS CASE ASSESSEES CASE IS COVERED BY 9 THE PROVISIONS OF CLAUSE (I) AND (VA) WHICH ARE THE GENERAL PROVISIONS OF CLAUSE (V) OF SECTION 194A (3) OF THE ACT. WE REPRODUCE THE SECTION FOR THE SAKE OF CONVENIENCE WHICH READS AS UNDER: SECTION : 194A.: INTEREST OTHER THAN INTEREST ON SECURITIES (1) ANY PERSON NOT BEING AN INDIVIDUAL OR A HINDU PAYING TO A RESIDENT ANY INCOME BY WAY OF INTEREST SECURITIES SHALL AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE WHICHEVER IS EARLIER DEDUCT INCOME TAX THEREON AT THE RATES IN FORCE (2).... (3) THE P ROVISIONS OF S U B - SECTION(1) SHALL NOT APPLY - WHERE THE AMOUNT OF SUCH INCOME OR AS THE CASE MAY BE THE AGGREGATE OF THE AMOUNT OF SUCH INCOME CREDITED OR PAID OR LIKELY TO BE CREDITED OR PAID DURING THE FINANCIAL YEAR BY THE PERSON REFERRED TO I SUBSECTI ON (1) TO THE ACCOUNT OF OR TO THE PAYEE DOES NOT EXCEED (A) TEN THOUSAND RUPEES WHERE THE PAYER IS A BANKING COMPANY I WHICH THE BANKING REGULATION ACT 1949 (10 OF 1949) APPLIES (INCLUDING ANY BANK OR BANKING INSTITUTION REFERRED TO IN SECTION 51 OF THAT 4CR); (B) TEN THOUSAND RUPEES WHERE THE PAYER IS A CO - OPERATIVE SOCIE TY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING; (C ) TEN THOUSAND RUPEES ON ANY DEPOSIT WITH POST OFFICE UNDER ANY SCHEME FRAMED BY THE CENTRAL GOVERNMENT AND NOT(FLED BY IT IN THIS BEHALF AND (D) FIVE THOUSAND RUPEES IN ANY OTHER CASE: (II)T O (IV) ........ ( TO SUCH INCOME CREDITED OR PAID BY A CO - OPERATIVE SOCIETY TO A MEMBER THEREOF OR TO ANY OTHER CO - OPERATIVE SOCIETY; (VI ) & (VII ) .......... (VIIA) TO SUCH INCOME CREDITE D 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 COOPERATIVE 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; 13 . WE FIND THAT SIMILAR ISSUE HAS BEEN DEALT WITH IN DETAIL IN THE CASE OF SARASWATI CO - OP E RATIVE BANK LTD (SUPRA) WHEREIN IT HAS BEEN HELD AS UNDER: 10 LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE THE HONBLE HIGH COURT HAS INTERPRETED THE DIFFERENCE BETWEEN CO - OPERATIVE BANK AND CO - OPERATIVE SOCIETY. THE CO - OPERATIVE BANK AND CO - OPER ATIVE SOCIETY IS ALSO INTERPRETED IN THE CASE OF BHAGANI NIVEDITA SAHAKARI BANK LTD. VS. ACIT (2003) 87 ITD 567 WHERE IN IT IS HELD THAT CO - OPERATIVE SOCIETY MENTIONED IN SECTION 194A(3)(V) SHOULD BE INTERPRETED AS CO - OPERATIVE SOCIETY OTHER THAN CO - OPE RATIVE BANK. WE FIND THAT THE ITAT PUNE BENCH HAS INTERPRETED THE WORD CO - OPERATIVE AND CO - OPERATIVE SOCIETY AND FURTHER THE HONBLE KERALA HIGH COURT IN THE CASE OF MOOLAMATTOM ELECTRICITY BOARD EMPLOYEES CO - OPERATIVE BANK LTD. 630 HAS MADE A CLEAR DIS TINCTION BETWEEN PRIMARY CREDIT SOCIETY AND A CO - OPERATIVE SOCIETY ENGAGED IN BANKING BUSINESS. SECTION 194A DEALT WITH CO - OPERATIVE SOCIETY ENGAGED IN BUSINESS AS BANKING. WE FIND THAT THE ASSESSEE BANK IS COVERED BY THE PROVISIONS OF SUB - CLAUSE (B) OF CLAUSE (I) OF SEC.194A(3) AS WELL AS THE PROVISIONS OF CLAUSE (VIIA) OF SECTION 194(3)A WHICH ARE SPECIFIC IN NATURE AND 194(3)(V) WHICH ARE GENERAL IN NATURE. WE FIND THAT THE HONBLE KERALA HIGH COURT IN THE CASE OF ITO& ORS. VS. THODUPUZHA URBAN CO - OPERATIVE BANK AND OTHERS HAVE FILED THE WRIT BEFORE THE HONBLE KERALA HIGH COURT WHEREIN THE HONBLE HIGH COURT HAS HELD AS UNDER: THE INCOME TAX DEPARTMENT HAS COME UP WITH THIS APPEAL AGAINST THE JUDGMENT IN O.P. NO. 17082/1997.(THODUPUZHA URBAN CO - OPERATIVE BANK LTD. IN [1999]238 ITR630(KER). THAT PETITION WAS FILED BY FIVE CO - OPERATIVE SOCIETIES WHEN THEY WERE FACED WITH A NOTI CE FROM THE APPELLANT TO DEDUCT THE INCOME - TAX OUT OF THE INTEREST PAID BY THEM ON TIME DEPOSITS IN RESPECT OF EVERY PAYMENT EXCEEDING RS. 10 000 AT THE RELEVANT POINT OF TIME. THE LEARNED SINGLE JUDGE AS PER THE IMPUGNED JUDGMENT QUASHED THE NOTICES HO LDING THAT GOING BY THE PROVISIONS CONTAINED IN SECTION 194A(3)(VIIA)(A) OF THE INCOME TAX ACT FOR SHORT THE ACT THE WRIT PETITIONERS WERE NOT LIABLE TO DEDUCT INCOME - TAX AT SOURCE IN RESPECT OF THE INTEREST SO PAID AS SUB - SECTION (3) EXEMPTS THEM FRO M THE COVERAGE OF SUB - SECTION (1) OF SECTION 194A OF THE ACT. AGGRIEVED BY THE JUDGMENT THIS APPEAL IS FILED ONLY AGAINST THE 4TH PETITIONER IN O.P. NO. 17082/1997 (SEE[199]238 ITR 630) NAMELY THE THODUPUZHA URBAN CO - OPERATIVE BANK LTD. NO. 394 THOD UPUZHA IDUKKI DISTRICT REPRESENTED BY THE SECRETARY. SUB - SECTION 3 OF SECTION 194A OF THE ACT MAKES IT CLEAR THAT 'THE PROVISIONS OF SUB - SECTION (1) SHALL NOT APPLY' IN RESPECT OF SEVERAL SITUATIONS MENTIONED UNDER THAT CLAUSE. ADMITTEDLY SUB - SEC TION (1) OF SECTION 194A CAST THE LIABILITY ON ALL THOSE INSTITUTIONS OTHER THAN INDIVIDUALS AND HINDU UNDIVIDED FAMILY TO DEDUCT INCOME - TAX AT SOURCE WHEN SUCH INSTITUTIONS PAY INTEREST ON DEPOSITS EXCEEDING THE PRESCRIBED LIMIT. SUB - SECTION (3)(VIIA) RE ADS AS FOLLOWS : SUB - SECTION 3 OF SECTION 194A OF THE ACT MAKES IT CLEAR THAT 'THE PROVISIONS OF SUB - SECTION (1) SHALL NOT APPLY' IN RESPECT OF SEVERAL SITUATIONS MENTIONED UNDER THAT CLAUSE. ADMITTEDLY SUB - SECTION (1) OF SECTION 194A CAST THE LIABILITY ON ALL THOSE INSTITUTIONS OTHER THAN INDIVIDUALS AND HINDU UNDIVIDED FAMILY TO DEDUCT INCOME - TAX AT SOURCE WHEN SUCH INSTITUTIONS PAY INTEREST ON DEPOSITS EXCEEDING THE PRESCRIBED LIMIT. SUB - SECTION (3)(VIIA) READS AS FOLLOWS : '(3) THE PROVISIONS OF SUB - SECTION (1) SHALL NOT APPLY (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 DE VELOPMENT BANK; 11 (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;' THE RESULT WILL BE THAT INTEREST PAID ON TIME DEPOSITS BY 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 WILL BE COVERED BY SUB - SECTION (1) AND THEREFORE WILL B E LIABLE TO DEDUCT INCOME - TAX. THE APPELLANT DOES NOT HAVE A CASE BEFORE US THAT THE 4TH PETITIONER THE FIRST RESPONDENT HEREIN DOES NOT COME WITHIN ANY OF THE TYPES OF CO - OPERATIVE SOCIETIES MADE MENTION OF IN SUB - CLAUSE (A) OF CLAUSE (VIIA) OF SUB - S ECTION (3) OF SECTION 194A OF THE ACT. THEREFORE IRRESPECTIVE OF WHETHER IT IS A TIME DEPOSIT OR ANY OTHER TYPE OF DEPOSIT THE 4TH PETITIONER FIRST RESPONDENT WILL NOT BE LIABLE TO DEDUCT INCOME - TAX AS SUCH SOCIETY IS UNDER SUB - SECTION (3) TAKEN OUT OF THE PURVIEW OF SECTION 194A(1) OF THE ACT. THEREFORE THE WRIT APPEAL FAILS DISMISSED. W.A. NO. 2270 OF 1998: A READING OF THE IMPUGNED JUDGMENT DISCLOSES THAT THE WRIT PETITIONER THE FIRST RESPONDENT WAS CONCEDE TO BE AN AGRICULTURAL CO - OPERATIVE S OCIETY. CONSEQUENTLY IT COMES WITHIN THE PURVIEW OF CLAUSE (VIIA)(A) OF SUB - SECTION (3) OF SECTION 194A OF THE INCOME - TAX ACT 1961. NATURALLY THE FIRST RESPONDENT - SOCIETY WILL NOT BE LIABLE IN TERMS OF SUB - SECTION (1) OF SECTION 194A. THE WRIT APPEAL FA ILS DISMISSED. FROM THIS ABOVE WE ARE OF THE VIEW THAT THE HONBLE HIGH COURT HAS INTERPRETED SECTION 194(V) AND 194(VA) OF SECTION 194A(3). NOW COMING TO CIRCULAR NO. 9/2002 ISSUED BY THE CBDT WHICH IS RELIED UPON THE ASSESSEE. THE SAID CIRCULA R SOUGHT TO INTERPRET THE DEFINITION OF MEMBER CLARIFIED THAT THE MEMBER DOES NOT INCLUDE THE NOMINAL MEMBER. IT WAS HELD BY THE BOMBAY HIGH COURT IN THE CASE OF JALGAON DISTRICT CENTRAL CO - OPERATIVE BANK LTD. & ANORS. VS. UNION OF INDIA 265 ITR 423 THAT THE BOARD HAS NO POWER TO INTERPRET THE PROVISIONS OF LAW BY WAY OF CIRCULAR. THE ISSUE IN HAND OF HONBLE BOMBAY HIGH COURT WAS THE DEFINITION OF WORD MEMBER AS APPEARING IN CLAUSE - (V)OF SECTION 194A(3) AND POWER OF CENTRAL BOARD OF DIRECT TAX T O ISSUE CIRCULAR U/S 119 WHICH WOULD OVERRIDE OR DETRACT FROM THE PROVISIONS OF INCOME TAX ACT. THE CIRCULAR NO.9/2002 DATED 11.9.2002 ISSUED BY CBDT HAS BEEN QUASHED AND SET ASIDE BY HONBLE BOMBAY HIGH COURT. THEREFORE CIRCULAR NO.9/2002 DATED 11.09. 2002 ISSUED BY CBDT DOES NOT HELP TO THE CASE OF THE ASSESSEE. THE ASSESSEE RELIED UPON THE SAID CIRCULAR IS ILL FOUNDED. THE QUESTION BEFORE THE HONBLE BOMBAY HIGH COURT WAS NOT WHETHER A CO - OPERATIVE BANK NOT ENTITLE TO DEDUCTION OF TAX ON INTEREST P AID ON THE DEPOSITS WITH IT. TO UNDERSTAND THE LEGISLATIVE AMENDMENT IN THIS REGARD QUERY WHEREIN IN THE BUDGETS SPEECH OF FINANCE MINISTER AND HIS OBJECT FOR SUGGESTING TDS TO SUCH DEPOSIT IN FOLLOWING WORDS TO ENABLE THE GOVERNMENT TO IDENTIFY INCOME EARNERS MOST OF WHOM WOULD NOT OTHERWISE DECLARE THEIR INCOME OR WOULD NOT DECLARE THEIR FULL INCOME I PROPOSE TO EXTEND THE SCHEME OF TAX DEDUCTION AT SOURCE TO COVER NEW AREAS OF PAYMENTS IN THE NATURE OF COMMISSIONS INTEREST PAID BY BANKS ON TIME DEPOSITS AND WITHDRAWALS FROM THE NATIONAL SAVINGS SCHEME. TO MINIMISE THE INCONVENIENCE FOR SMALL DEPOSITORS TAX WILL BE DEDUCTED AT SOURCE ONLY IN RESPECT OF PAYMENTS IN EXCESS OF RS.2500 PER YEAR. THOSE R ECEIVING PAYMENTS IN EXCESS OF THE 12 LIMIT BUT NOT HAVING TAXABLE INCOME WILL HAVE THE FACILITY OF COLLECTING PAYMENT WITH NO TAX DEDUCTION BY FILING A DECLARATION IN THE PRESCRIBED MANNER. SUCH PROVISION RELATES TO TDS INTRODUCED BY FINANCE ACT. 1991. INVITED CONSIDERATION CRITICISM FROM TAXPAYERS BANKERS ABOVE INCONVENIENCE AND DIFFICULTY IN IMPLEMENTATION OF THIS PROVISIONS. THE FINANCE MINISTER IN HIS BUDGET SPEECH IN 1992 EXPRESSED THAT THE SYSTEM OF TAX DEDUCTION AT SOURCE IS A USEFUL TOOL AND ONE OF THE WELL RECOGNISED METHODS OF ENFORCING TAX COMPLIANCE IN MANY COUNTRIES. HOWEVER A HARASSED FINANCE MINISTER HAS TO BE SENSITIVE TO THE OPINIONS OF HONOURABLE MEMBERS OF PARLIAMENT EVEN WHEN THEY DIFFER FROM HIS OWN CONVICTIONS. HE ACCORDING LY WITHDRAWN THE PROVISION RELATING TO DEDUCTION AT SOURCE IN RESPECT OF INTEREST ON TERM DEPOSIT WITH THE BANK AND COMMISSION W.E.F. JUNE 1992 . ACCORDINGLY FINANCE ACT 1992 SUBSTITUTED A NEW CLAUSE (VII) W.E.F. 1 ST JUNE 1992 SUB - SECTION 3 OF SEC TION 194A FOR CLAUSE (VII) AND SOMEONE AS EARLIER INTRODUCED BY FINANCE NO.2 ACT W.E.F. 1 ST OCTOBER 1991. THIS AMENDMENT WAS MADE TO RESTORE THE POSITION AS WAS BEFORE 1 ST OCTOBER 1991 IN RELATION TO DEDUCT TAX AT SOURCE IN THE CASE OF INCOME CREDITE D OR PAID IN RESPECT OF DEPOSIT WITH A BANK COMPANY TO WHICH BANKING REGULATION ACT 1940 APPLIES OR WITH A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING INCLUDING CO - OPERATIVE LAND MORTGAGE BANK OR CO - OPERATIVE LAND DEVELOPMENT BANK THIS WAS BROUGHT INTO W.E.F. 1.4.1992. FINANCE ACT 1995 W.E.F. 1 ST JULY 1995 AGAIN WITHDRAWN THE EXEMPTION FOR INTEREST ON TIME DEPOSIT PAYABLE BY BANK. THE AMENDMENT SECTION 194A NOW PROVIDES FOR DEDUCTION OF TAX AT SOURCE AT THE RATE IN FORCE FROM PAYMENT FOR INTEREST EXCEEDING RS.10 000/ - IN A FINANCIAL YEAR ON TIME DEPOSITS MADE ON OR AFTER 1 ST JULY 1995 WITH A BANKING COMPANY OR WITH A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON BUSINESS OF BANKING. THE AFORE SAID LIMIT OF RS.10 000/ - SHALL BE COMPUTED WITH REFERENCE TO THE INCOME CREDITED OR PAID BY BRANCH OF BANKING COMPANY OR CO - OPERATIVE SOCIETY AS THE CASE MAY BE. THE INTEREST ON TIME DEPOSIT MADE WITH A PRIMARY AGRICULTURAL SOCIETY OR A CREDIT SOCIETY OR A CO - OPERATIVE LAND MORTGAGE BANK OR A CO - OPERATIVE LAND DEVELOPMENT BANK WILL NOT BE SUBJECT TO REQUIREMENT OF DEDUCTION OF TAX AT SOURCE. REFERENCE IN THIS CONNECTION MAY BE MADE TO CIRCULAR NO. 715 DATED 18 TH AUGUST 1995 AND EXPLANATORY CIRCULAR NO. 717 DATED 14 TH AUGUST 1995. THE FINANCE ACT 2001 BY AMENDMENT IN PROVISION TO SUB - SECTION (3) OF SECTION 194 HAS OMITTED THE PROVISION THEREIN PROVIDING THE SPECIFIC LIMIT OF RS.10 000/ - IN RESPECT OF TIME DEPOSIT MADE WITH BANKING COMPANY WITH RE SERVATION THAT OVERALL LIMIT OF RS. 5 000/ - PROVIDED IN MAIN PORTION OF SUB - SECTION 3 WOULD APPLY TO SUCH DEPOSIT W.E.F. 19 TH JUNE 2001. FROM THIS ABOVE INTENTION OF LEGISLATURE WE ARE OF THE VIEW THAT IT IS CLEAR THAT ASSESSEE COMPANY A CO - OPERATIVE S OCIETY CARRYING ON A BUSINESS OF BANKING IS LIABLE TO MAKE TDS U/S. 194A. LEARNED AR HAS RELIED UPON THE DEC ISION OF INCOME TAX TRIBUNAL B ANG A LORE BENCH IN THE CASE OF BAGALKOT DISTRICT CENTRAL CO - OP. BANK VS. JOINT COMMISSIONER OF INCOME TAX IN ITA NO.1572/BANG/2013 WHEREIN THE TRIBUNAL HAS INTERPRETED THE SECTION 194A(3)(V) WHICH GRANTS AN EXEMPTION FROM TDS TO SUCH INCOME CREDITED OR PAID BY THE CO - OPERATIVE SOCIETY. THEY HAVE INTERPRETED THE WORD MEMBER MENTIONED IN SECTION 194A(3)(V) OF TH E ACT. THE TRIBUNAL HAS ALSO RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT AND THE CIRCULAR ISSUED BY CBDT AND THEY RELIED UPON CIRCULAR ISSUED BY CBDT FOLLOWING THE JUDGEMENT OF JALGAON DISTRICT CENTRAL CO - OPERATIVE BANK LTD. & ANORS. VS. UNION OF INDIA THEY WERE OF THE OPINION THAT THE CO - OPERATIVE BANK ARE NOT SUBJECT TO TDS UNDER 194A. 13 WE DO NOT AGREE WITH THE FINDING OF ITAT TRIBUNAL AS HONBLE KERALA HIGH COURT HAS OCCASIONED TO INTERPRET SECTION194A(3)(V) AND 194A(3) (VA) OF THE ACT. THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF ITO & ORS. VS. THODUPUZHA URBAN CO - OPERATIVE BANK WHEREIN THEY HAVE CLEARLY DEFINED AND INTERPRETED THE SECTION IT APPEARS THAT THE BANK DID NOT CONSIDER THE PROVISION OF SECTIO N 194A(VIIA). THEREFORE WHEN THERE IS A SPECIFIC PROVISION GENERAL PROVISION CANNOT BE APPLIED IN THE CASE OF THE ASSESSEE OTHERWISE THE PROVISION OF SECTION 194A (VIIA) WILL BECOME REDUNDANT. THE SECTION CANNOT BE READ IN THIS MANNER. FOR THE SAKE O F CLARITY WE HAVE ANALYSE THE SECTION 194A(3)(V) AND (VIIA) WHICH READ AS UNDER: (3) THE PROVISIONS OF SUB - SECTION (1) SHALL NOT APPLY - (I) 5 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 PAY EE DOES NOT EXCEED 6 TEN THOUSAND RUPEES................. (V) TO SUCH INCOME CREDITED OR PAID BY A CO - OPERATIVE SOCIETY 5 TO A MEMBER THEREOF OR] TO ANY OTHER CO - OPERATIVE SOCIETY; (VIIA) TO SUCH INCOME CREDITED OR PAID IN RESPECT OF - (A) DEPOSIT 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 1 ST 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 THE TDS ON TIME DEPOSITS IS DEALT IN CLAUSES (VII) & (VIIA) OF 194A (3) WHICH ARE EXTRACTED BELOW: (3) THE PROVISIONS OF SUB - SECTION (1) SHALL NOT APPLY (VII) : TO SUCH INCOME CREDITED OR PAID IN RESPECT OF DEPOSITS (OTHER THAN TIME DEPOSITS MADE ON OR AFTER THE 1ST DAY OF JULY 1995) WITH A BANKING COMPANY TO WHICH THE BANKING REG ULATION 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 [EMPHASIZED] FROM A PLAIN READING OF ABOVE CLAUSES IT IS CLEAR THAT WHILE CLAUSE (VII) DEALS WITH INTEREST PAYMENT BY A BANKING COMPANY THE CLAUSE (VIIA) DEALS WITH INTEREST PAYMENT BY A CERTAIN CATEGORY COOPERATIVE SOCIETIES INCLUDING A COOPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING. IT IS ALSO CLEAR THAT AS REGARDS A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING THERE IS NO EXEMPTION FOR THE INTEREST PAYMENTS IN RESPECT OF TIME DEPOSITS MADE ON OR AFTER 01 - 07 - 1995. FURTHER 194A(3)(I) LAYS DOWN MONETARY LIMITS UP TO WHICH IS THERE IS NO REQUIREMENT OF TDS. THE SAID MONETARY LIMITS ARE DIFFERENT FOR DIFFERENT CATEGORY OF PAYERS. THE SAID CLAUSE IS REPRODUCED BELOW FOR THE SAKE OF CLARITY: 14 194A(3) 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 CREDI TED 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 (A) TEN THOUSAND RUPEES WHERE THE PAYER IS A BANKING COMPANY TO WHICH THE BANKING REGULATION ACT 1949 (10 OF 194 9) APPLIES (INCLUDING ANY BANK OR BANKING INSTITUTION REFERRED TO IN SECTION 51 OF THAT ACT); (B) TEN THOUSAND RUPEES WHERE THE PAYER IS A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING [EMPHASIZED] (C) TEN THOUSAND RUPEES ON ANY DEPOSIT WITH POST OFFICE UNDER ANY SCHEME FRAMED BY THE CENTRAL GOVERNMENT AND NOTIFIED BY IT IN THIS BEHALF; AND (D) FIVE THOUSAND RUPEES IN ANY OTHER CASE]:] FROM THE ABOVE IT IS CLEAR THAT IN CASE OF A PAYER WHICH IS A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING THE MONETARY LIMIT PRESCRIBED IS RS 10000/ - . ONCE THE INTEREST PAYMENT EXCEEDS THAT AMOUNT THE TDS IS TO BE MADE. NEITHER IN CLAUSE (VIIA) NOR IN CLAUSE (I) THERE IS ANYTHING TO RESTRICT THEIR AP PLICABILITY ONLY TO NON - MEMBERS AND THEREFORE THEY APPLY TO ALL DEPOSITORS. GOING BY THE ABOVE UNDERSTANDING THE CO - OP BANK IS REQUIRED U/S 194A(1) TO MAKE TDS FROM THE INTEREST PAID TO ALL DEPOSITORS. HOWEVER CO - OP BANK HOLDS THE VIEW THAT CLAUSE (VI IA) APPLIES ONLY TO NON - MEMBERS AND NOT TO THE MEMBERS. HOWEVER ON PERUSAL OF CLAUSE (VIIA) NOTHING IN IT TO RESTRICT ITS APPLICATION ONLY TO NON - MEMBERS. THE STAND TAKEN BY CO - OP BANK IS THAT THE INTEREST PAID TO MEMBERS IS EXEMPTED IN CLAUSE(V). THE APPELLANT IS PLACING RELIANCE ON CIRCULAR NO 9 OF 2002 IN ITS SUPPORT. IN THIS SCENARIO THE MOOT QUESTION FOR CONSIDERATION IS: WHETHER IN RESPECT OF INTEREST PAID ON TIME DEPOSITS BY A CO - OP BANK THE CLAUSE(V) WHICH DEALS WITH COOPERATIVE SOCIETIES WILL APPLY OR THE CLAUSE (VIIA) WHICH MENTIONS SPECIFICALLY A CO - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING FINDS APPLICATION? 2. LEGISLATIVE HISTORY OF TDS ON INTEREST: A. THE FINANCE ACT 1968 INSERTED CLAUSE (V) IN 194A(3) TO EXEMPT INT EREST PAID BY ON CO - OP SOCIETY TO ANOTHER CO - OP SOCIETY FROM TDS PURVIEW. B. THE FINANCE ACT 1970 INSERTED CLAUSE (VII) IN SECTION 194A(3) WHICH FOR THE FIRST TIME CREATED A NEW TYPE OF CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING AS DISTINCT FROM THE COOPERATIVE SOCIETY AS ENVISAGED IN CLAUSE (V). BY THIS AMENDMENT A SPECIFIC SPECIE CALLED A COOPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING WAS CARVED OUT OF THE GENUS COOPERATIVE SOCIETY MENTION ED IN CLAUSE (V). THE SCOPE OF THE ABOVE AMENDMENT IS EXPLAINED IN CIRCULAR NO 42 DATED 20 - 06 - 1970 WHOSE RELEVANT PORTION IS EXTRACTED BELOW: 15 I AM DIRECTED TO INVITE A REFERENCE TO THE BOARDS CIRCULAR NO. 22/68 - IT(B) [F.NO. 12/23/68 - IT(B)] DATED 28 - 3 /13 - 5 - 1968 AND TO SAY THAT THE FINANCE ACT OF 1970 HAS MADE AN IMPORTANT CHANGE IN SECTION 194A BY INSERTING A NEW CLAUSE (VII) IN SUB - SECTION (3) OF THAT SECTION. AS PER THIS CLAUSE THE PROVISIONS OF SECTION 194A ARE NOT APPLICABLE TO INCOME BY WAY OF INTEREST CREDITED OR PAID IN RESPECT OF DEPOSITS WITH A BANKING COMPANY TO WHICH THE BANKING REGULATION ACT 1949 APPLIES (INCLUDING ANY BANK OR BANKING INSTITUTION REFERRED TO IN SECTION 51 OF THAT ACT) OR WITH A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING (INCLUDING A CO - OPERATIVE LAND MORTGAGE BANK OR A CO - OPERATIVE LAND DEVELOPMENT BANK). ALL SUCH BANKING INSTITUTIONS ARE THEREFORE NO LONGER REQUIRED TO DEDUCT TAX FROM INTEREST PAID OR CREDITED TO THE ACCOUNTS OF A RESIDENT DE POSITOR. (EMPHASIZED) FROM THE ABOVE CIRCULAR IT IS VERY CLEAR THAT BY VIRTUE CLAUSE(VII) A CO - OP BANK IS EXEMPTED FROM MAKING TDS. C. THE FINANCE ACT 1971 WHICH INSERTED THE WORDS (TO A MEMBER THEREOF OR) IN CLAUSE (V) AND THE SAID AMENDMENT WAS DI RECTED ONLY AT THE GENERAL CO - OPERATIVE SOCIETY AND NOT AT THE SPECIFIC GENE I.E COOPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING. D. THE STAND OF APPELLANT IS THAT EVEN AFTER INSERTION OF SPECIFIC CLAUSE(VII) THE GENERAL CLAUSE(V) WILL CONTINUE TO APPLY TO THE COOPERATIVE BANKS. IF THAT STAND IS ACCEPTED THE COOPERATIVE BANKS WERE REQUIRED TO DEDUCT TAX FROM INTEREST PAID TO DEPOSITORS WHO ARE NOT ITS MEMBERS RENDERING CLAUSE (VII) REDUNDANT. E. THE BY FINANCE ACT 1991 FOR THE FIRST TIME INTRODUCED TDS ON TIME DEPOSITS BY SUBSTITUTING ABOVE MENTIONED CLAUSE (VII) WITH TWO SEPARATE CLAUSES (VII) & (VIIA). WHILE CLAUSE (VII) APPLIED TO BANKING COMPANIES CLAUSE (VIIA) APPLIED TO SPECIALLY CREATED CATEGORY OF COOPERATIVE SOCIET IES. THIS REAFFIRMS THE DECISION OF LEGISLATURE TO APPLY A SPECIFIC CLAUSE TO THE SPECIFIC GENRE COOPERATIVE SOCIETIES WHICH WERE EARLIER CARVED OUT OF THE GENUS AS ENVISAGED IN GENERAL CLAUSE(V). THE EFFECT OF ABOVE AMENDMENT WAS EXPLAINED BY THE CBDT IN CIRCULAR NO 617 DATED 22 - 11 - 1991 WHERE IN IT IS CLARIFIED THAT: THE EFFECT OF THE AFORESAID CHANGE IS THAT INCOME - TAX SHALL NOW BE DEDUCTIBLE AT SOURCE FROM THE INTEREST INCOME ON THE DEPOSITS WITH. (I) A BANKING COMPANY OR CII) A CO - OPERATIVE SOC IETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING OTHER THAN A CO - OPERATIVE LAND MORTGAGE BANK A CO - OPERATIVE LAND DEVELOPMENT BANK PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CREDIT SOCIETY (EMPHASIZED) THE ABOVE CIRCULAR CLEARLY STATES THAT IT WAS ONLY BY INTRODUCTION OF CLAUSE (VIIA) A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING WAS BROUGHT UNDER THE PURVIEW OF TDS ON TIME DEPOSITS. THE TDS ON TIME DEPOSITS WAS WITHDRAWN VERY NEXT YEAR B Y WAY OF SUBSTITUTING ABOVE MENTIONED CLAUSES (VII) & (VIIA) WITH A COMBINED CLAUSE (VII) AND STATUS QUO ANTE WAS RESTORED. F. THE FINANCE ACT 1995 INSERTED CLAUSES (VII) & (VIIA) WHICH LAY DOWN THAT THE EXEMPTION AS ENVISAGED IN 194A(3) IS NOT AVAILAB LE IN RESPECT OF TIME DEPOSITS MADE ON OR AFTER 01 - 07 - 1995 WITH A BANKING COMPANY AND A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING. 16 THIS POSITION OF LAW HAS BEEN EXPLAINED IN THE EXPLANATORY NOTES TO FINANCE ACT 1995 CONTAINED IN CBDT CIRC ULAR NO. 717 DATED 14 - 8 - 1995 AS UNDER. PARA 46.2: THE (FINANCE )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. (EMPHASIZED) THE ABOVE EXPLANATORY NOTE LEAVES NO DOUBT WHATSOEVER ABOUT THE APPLICABILITY OF CLAUSE (VIIA) TO A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING. 3.PRINCIPLE OF GENERALIA SPECIALIBUS NON DEROGANT THE HONBLE JURISDICTION HIGH COURT IN M.L.VASUDEVA MURTHY & SONS VS. JT. COMMISSIONER OF AG IT 65 TAXMAN 185(KAR) HAS OBSERVED THAT A SPECIALPROVISION NORMALLY EXCLUDES THE OPERATION OF A GENERAL PROVISION . THE HONBLE SUPREME COURT IN THE CASE OF SOUTH INDIAN CORPN. (P) LTD. VS. SECRETARY BOARD OF REVENUE AIR 1964 SC 207 HAS HELD 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 THEREFORE IN TERMS CLAUSE (V) WHICH IS GENERAL IN NATURE WILL NOT APPLY TO THE CO - OP BANK. THE PROVISIONS OF SECTION 194A (1)(VIIA) IS CLEARLY APPLICABLE AND THEREFORE THE ASSESSEE HAS TO DEDUCT T.D.S. ON INCOME CRE DITED OR PAID IN RESPECT OF DEPOSITS EXCEPT WHICH FALLS UNDER THAT PROVISIONS. WE THEREFORE DISMISS THE APPEAL OF THE ASSESSEE. 14 . IN CONSISTENT WITH OUR DECISION WE DISMISS THE ASSESSEES FIRST ISSUE BY UPHOLDING THE DECISIONS OF THE REVENUE AUTHORI TIES. 15 . THE SECOND ISSUE RELATES TO DISALLOWANCE OF DIVIDEND INCOME OF RS.60 12 920/ CLAIMED B Y THE ASSESSEE AS EXEMPT U/S.80P (2)(D) OF THE ACT. 16 . THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CREDITED GROSS DIVIDEND RECEIPTS OF RS. 60 12 920/ - TO THE P&L ACCOUNT AND CLAIMED THE SAID INCOME AS EXEMPT FROM TAX IN THE STATEMENT OF COMPUTATION OF INCOME. THE ASSESSEE DID NOT GIVE ANY REASON FOR CLAIMING THE DIVIDEND INCOME OF RS. 60 12 920/ - AS EXEMPT. AS PER THE PROVISION OF SEC. 80P (4) WERE INSERTE D W.E.F. 01.03.2007 I.E. FROM AY 2007 - 08 WHICH STATE THAT THE PROVISIONS OF SEC. 80P SHALL NOT APPLY IN RELATION TO ANY COOPERATIVE BANK. THUS AS PER THE LAW A CO - OPERATIVE BANK S HALL NOT GET ANY DEDUCTION U/S 8 OP. BEFORE THE AO T HE AUTHORISED REPRESENTATIVE HAS CONTENDED THAT THESE DIVIDENDS RECEIVED FROM ANOTHER CO - OPERATIVE SOCIETY ARE EXEMPT U/S 80P(2)(D). THE AO WAS OF THE VIEW THAT SINCE THE ASSESSEE IS A CO - OPERATIVE BANK IN VIEW OF THE OVERRIDING PROVISIONS OF SEC. ( 4) DEDUCTION U/S 80 P IS NOT AVAILABLE TO THE ASSESSEE 17 AND FOR THAT REASON IT IS NOT ENTITLED TO ANY DEDUCTION OF DIVIDEND INCOME F ROM ITS GROSS TOTAL INCOME U/S 80 P(2)(D). THE AO OBSERVED THAT THE ASSESSEE HAD WITHOUT ANY BASIS CLAIMED THE DIVIDEND INCOME OF RS. 60 12 920/ - WAS EXEMPT FROM TAX AND ACCORDINGLY HE TAXED T HE INCOME OF RS. 60 12 920/ - AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL LD CIT (A) CONFIRMED THE AOS ACTION. 17 . DURING THE COURSE OF HEARING LD A.R. HAS NOT GIVEN ANY SUBMISSION O N THIS ISSUE. THEREFORE WE ARE OF THE VIEW THAT BOTH THE REVENUE AUTHORITIES ARE JUSTIFIED IN HOLDING THAT PROVISIONS OF SECTION 80 - P(4) IS NOT APPLICABLE TO CO - OPERATIVE BANK. THEREFORE THE ADDITION OF RS. 60 12 920/ - IS CONFIRMED. 18 . THE REVENUE IN ITS APPEAL IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN DELETING THE ADDITION OF RS.27 58 64 367/ - ON ACCOUNT OF ACCRUED INTEREST ON LOANS. 19 . FACTS ARE THAT THE AO NOTICED THAT ASSESSEE BANK WAS FOLLOWING HYBRID SYSTEM OR MIXED SYSTEM OF ACCOUNTING TO CO MPUTE THE NET INCOME FROM THE BANKING BUSINESS BUT THE AO OBSERVED THAT THE AUDIT REPORT IN FORM NO.3CD AT COLUMN NO.11(A) HIGHLIGHTS THIS POINT AS MERCANTILE SYSTEM. IN VIEW OF THIS THE ASSESSEE WAS ASKED TO CLARIFY ON THE METHOD OF ACCOUNTING. IN RE PLY THERETO ASSESSEE SUBMITTED THAT AS PER RBI GUIDELINES THE ASSESSEE WAS NOT FOLLOWING THE ACCRUAL SYSTEM OF ACCOUNTING IN RESPECT OF STANDARD ASSETS BAD AND DOUBTFUL ASSETS. HOWEVER THE AO REJECTED THE CONTENTION OF THE ASSESSEE AND DISALLOWED THE ADDITION OF RS.27 58 64 357/ - . ON APPEAL LD CIT(A) FOLLOWING THE JUDGEMENT OF HONBLE APEX COURT IN THE CASE OF UCO BANK VS CIT 237 ITR 889(SC) DELETED THE DISALLOWANCE MADE BY THE AO. HENCE THIS APPEAL BY THE REVENUE. 20 . AFTER HEARING BOTH THE SIDES WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF UCO BANK (SUPRA) WHEREIN THE HONBLE APEX COURT HAS HELD THAT INTEREST ACCRUED ON STICKY ADVANCES WHICH WAS NOT BROUGHT IN PROFIT AND LOSS ACCOUNT BUT TA KEN TO SEPARATE SUSPENSE ACCOUNT SHOULD BE ADDED AS INCOME ONLY WHEN ACTUALLY RECEIVED WHICH IS IN THE CASE OF THE ASSESSEE. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF UCO BANK (SUPRA) WE UPHOLD THE ORDER OF L D CIT(A) IN DELETING THE ADDITION OF RS. RS.27 58 64 357/ - . 2 1 . THE CROSS OBJECTION OF THE ASSESSEE IS IN SUPPORT OF THE ORDER OF LD CIT(A) IN RESPECT OF DELETION OF RS.27 58 64 357/ - ON ACCOUNT OF ACCRUED INTEREST ON LOANS. SINCE WE HAVE UPHOLD THE ORDE R OF LD CIT(A) ON THIS ISSUE THE CROSS OBJECTION IS RENDERED INFRUCTUOUS . 18 22 . IN THE RESULT APPEAL FILED BY THE ASSESSEE AND REVENUE ARE DISMISSED. THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALSO DISMISSED. PRONOUNC ED IN THE OPEN COURT ON 14 /11/2014 SD/ - SD/ - (P.K.BANSAL) (D.T.GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED PANAJI 14 /11/2014 B.K.PARIDA SR. PS COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE : THE BELGAUM DISTRICT CENTRAL CO.OP. BANK LTD. OLD P.B. ROAD NEAR CENTRAL BUS STAND BELGAUM. 2. THE REVENUE: ACIT CIRCLE - 2 BELGAUM. 3. THE CIT BELGAUM 4. THE CIT(A) BELGAUM 5. DR PANAJI BENCH 6 . GUARD FILE. TRUE COPY// BY ORDER ASST. REGISTRAR ITAT PANAJI