THE COMMISSIONER OF INCOME TAX vs. THE NATIONAL CO-OPERATIVE BANK LTD

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 21ST DAY OF JUNE 2016

PRESENT

THE HON’BLE MR.JUSTICE JAYANT PATEL AND THE HON’BLE MR.JUSTICE B.SREENIVASE GOWDA ITA No.604/2015 C/W ITA Nos.606/2015, 607/2015, 608/2015, 609/2015, 610/2015, 612/2015, 613/2015, 614/2015, 615/2015.

IN ITA NO.604/2015:

BETWEEN:

2 GANGANAGAR, BANGALORE-560 032

...APPELLANTS

(BY SRI.K.V.ARAVIND, ADVOCATE) AND:

THE NATIONAL CO-OPERATIVE BANK LTD BANASHANKARI 2ND STAGE BRANCH, BANGALORE PAN:BLRTO 3262A

...RESPONDENT

THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:08/05/2015 PASSED IN ITA NO.1402/BANG/2014, FOR THE ASSESSMENT YEAR 2011-2012 PRAYING TO FORMULATE THE SUSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN ITA NO. 1402/BANG/2014 DATED:08/05/2015 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX(TDS), CIRCLE-16(2), BENGALURU.

IN ITA NO.606/2015 BETWEEN:

3 4TH FLOOR, BELLARY ROAD, GANGANAGAR, BANGALORE-560 032

...APPELLANTS

(BY SRI.K.V.ARAVIND, ADVOCATE) AND:

THE NATIONAL CO-OPERATIVE BANK LTD GANDHI BAZAR BRANCH, BANGALORE PAN: BLRTO 3262A

...RESPONDENT

THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:08/05/2015 PASSED IN ITA NO.1404/BANG/2014, FOR THE ASSESSMENT YEAR 2011-2012 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN ITA NO.1404/BANG/2014 DATED:08/05/2015 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED

4 BY THE ASST. COMMISSIONER OF INCOME TAX(TDS), CIRCLE-16(2), BANGALORE.

IN ITA NO.607/2015 BETWEEN:

...APPELLANTS

(BY SRI.K.V.ARAVIND, ADVOCATE)

AND:

THE NATIONAL CO-OPERATIVE BANK LTD KORAMANGALA BRANCH, BANGALORE PAN:BLRTO 3262A

...RESPONDENT

5 THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:08/05/2015 PASSED IN ITA NO.1405/BANG/2014, FOR THE ASSESSMENT YEAR 2011-2012 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN ITA NO. 1405/BANG/2014 DATED:08/05/2015 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX(TDS), CIRCLE-16(2), BENGALURU.

IN ITA NO.608/2015 BETWEEN:

...APPELLANTS

(BY SRI.K.V.ARAVIND, ADVOCATE)

AND:

THE NATIONAL CO-OPERATIVE BANK LTD SADASHIVA NAGAR BRANCH,

BANGALORE PAN:BLRTO 3262A

...RESPONDENT

THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:08/05/2015 PASSED IN ITA NO. 1406/BANG/2014, FOR THE ASSESSMENT YEAR 2011-2012 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN ITA NO.1406/BANG/2014 DATED:08/05/2015 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX(TDS), CIRCLE-16(2), BENGALURU.

IN ITA NO.609/2015 BETWEEN:

...APPELLANTS

(BY SRI.K.V.ARAVIND, ADVOCATE)

AND:

THE NATIONAL CO-OPERATIVE BANK LTD VIJAYNAGAR BRANCH, BANGALORE PAN: BLTRO 3262A

...RESPONDENT

THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:08/05/2015 PASSED IN ITA NO.1407/BANG/2014, FOR THE ASSESSMENT YEAR 2011-2012 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN ITA NO.1407/BANG/2014 DATED:08/05/2015 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX (TDS), CIRCLE-16(2), BANGALORE.

8 IN ITA NO.610/2015 BETWEEN:

...APPELLANTS

(BY SRI.K.V.ARAVIND, ADVOCATE)

AND:

THE NATIONAL CO-OPERATIVE BANK LTD BANASHANKARI 2ND STAGE BRANCH, BANGALORE PAN: BLRTO 3262A

...RESPONDENT

THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:08/05/2015 PASSED IN C.O.NO.63/BANG/2014 IN ITA NO.1402/BANG/2014, FOR THE ASSESSMENT YEAR 2011-2012 PRAYING TO

9 FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN C.O.NO. 63/BANG/2014 IN ITA NO. 1402/BANG/2014 DATED: 08/05/2015 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX(TDS), CIRCLE-16(2), BANGALORE.

IN ITA NO.612/2015 BETWEEN:

...APPELLANTS

(BY SRI.K.V.ARAVIND, ADVOCATE)

10 AND:

THE NATIONAL CO-OPERATIVE BANK LTD GANDHI BAZAR BRANCH, BANGALORE PAN:BLRTO 3262A

...RESPONDENT

THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:08/05/2015 PASSED IN C.O. NO.65/BANG/2014 IN ITA NO. 1404/BANG/2014, FOR THE ASSESSMENT YEAR 2011-2012 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN C.O.NO. 65/BANG/2014 IN ITA NO. 1404/BANG/2014 DATED:08/05/2015 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX (TDS), CIRCLE- 16(2), BANGALORE.

IN ITA NO.613/2015 BETWEEN:

11 2. THE ASST.COMMISSIONER OF INCOME-TAX (TDS) CIRCLE-16(2) NO.59, HMT BHAVAN, 4TH FLOOR, BELLARY ROAD, GANGANAGAR, BANGALORE-560 032

...APPELLANTS

(BY SRI.K.V.ARAVIND, ADVOCATE)

AND:

THE NATIONAL CO-OPERATIVE BANK LTD KORAMANGALA BRANCH, BANGALORE PAN:BLRTO 3262A

...RESPONDENT

THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:08/05/2015 PASSED IN C.O.NO. 66/BANG/2014 IN ITA NO.1405/BANG/2014, FOR THE ASSESSMENT YEAR 2011-2012 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN C.O.NO. 66/BANG/2014 IN ITA NO. 1405/BANG/2014 DATED:08/05/2015 AND CONFIRM THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX (TDS), CIRCLE-16(2), BENGALURU.

IN ITA NO.614/2015

BETWEEN:

...APPELLANTS

(BY SRI.K.V.ARAVIND, ADVOCATE)

AND:

THE NATIONAL CO-OPERATIVE BANK LTD SADASHIVANAGAR BRANCH, BANGALORE PAN:BLRTO 3262A

...RESPONDENT

THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:08/05/2015 PASSED IN C.O.NO.

13 67/BANG/2014 IN ITA NO. 1406/BANG/2014, FOR THE ASSESSMENT YEAR 2011-2012 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN C.O.NO. 67/BANG/2014 IN ITA NO. 1406/BANG/2014 DATED:08/05/2015 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX(TDS), CIRCLE-16(2), BENGALURU.

IN ITA NO.615/2015 BETWEEN:

...APPELLANTS

(BY SRI.K.V.ARAVIND, ADVOCATE)

14 AND:

THE NATIONAL CO-OPERATIVE BANK LTD VIJAYANAGAR BRANCH, BANGALORE PAN:BLRTO 3262A

...RESPONDENT

THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:08/05/2015 PASSED IN C.O.NO. 68/BANG/2014 IN ITA NO.1407/BANG/2014, FOR THE ASSESSMENT YEAR 2011-2012 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BENGALURU IN C.O.NO. 68/BANG/2014 IN ITA NO. 1407/BANG/2014 DATED:08/05/2015 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX (TDS), CIRCLE- 16(2), BENGALURU.

THESE APPEALS COMING ON FOR ADMISSION THIS DAY, JAYANT PATEL J., DELIVERED THE FOLLOWING:

15 JUDGMENT

In all matters, the appellants-Revenue has preferred the appeals by raising following substantial questions of law: “1. Whether the Tribunal is right in law in relying on Circular No.9/2002 when the same has been quashed by the Hon. Mumbai High Court in the case of Jalgaon District Central Co-Operative Bank Ltd.,?

16 specific provisions in any case overrides the general provisions?”

17 (supra) dealt with identical issue and identical stand taken by the revenue and the Assessee in the case of co-operative society engaged in banking business and have upheld identical order of CIT(A). The relevant observations of the Tribunal in this regard were as follows:

“15. We have given a very careful consideration to the rival submissions. We are of the view that the submissions made by the learned counsel for the Assessee deserves to be accepted. As rightly contended by him Sec.194A(3)(i)(b) of the Act is a provision which mandates deduction of tax at source by a co-operative Society carrying on the business of banking, where the income in the form of interest which is paid by such society is in excess of ten thousand rupees. Sec.194A(3)(v) of the Act provides that tax need not be deducted at source where the income in the form of interest is credited or paid by a co-operative society to a member thereof or to any other co-operative society.

This provision therefore applies to all co-operative societies including co-operative society engaged in the business of banking. It is not

18 possible to exclude co-operative society engaged in the business of banking from the provisions of sec. 194A(3)(v) of the Act on the ground that the same is covered by the provisions of sec. 194A(3)(i)(b) of the Act. Sec.194A(3)(v) of the Act refers to payment by a co-operative society to a member and payment by a co-operative society to non- member continue to be governed by the provisions of Sec.194A(3)(i)(b) of the Act. Similarly U/s 194A(3)(viia)(b) interest on deposits other than time deposits even if the payment is made to a non-member by a co-operative society, the co- operative society need not deduct tax at source. Thus this section carves out another exception to Sec.194A(3)(i)(b) of the Act. We do not think that any of the above provisions can be called a general provision an other provision called specific provisions. Each provision over- lap and if read in the manner as indicated above, there is perfect harmony to the various provisions. We do not agree with the view expressed by the Pune ITAT SMC in the case of Bhagani

19 Nivedita Sahakari Bank Ltd(supra) when it says that co- operative society as mentioned in CL.(v) is a general species, whereas the other five categories of co-operative societies which are specifically refered to in other provisions are specific co- operative societies. The further conclusion in the said decision that the term ‘co-operative society’ in CL.(v) of S.194A(3) as to be interpreted as co-operative society other than co-operative bank, is again unsustainable. The law is well settled that by a process of interpretation one cannot add on words that are not found in the text of the statute. Such a course is permitted only when there is “causes omisus”. We do not think that the provisions of Sec.194A(3)(v) suffers from any causes omisus as has been interpreted by the ITAT Pune Bench SMC.

20 petitioners in that case were primary credit societies registered under the Kerala Co-operative Societies Act. In view of the specific provisions of Sec.194A(3)(viia) of the Act, they claimed that they need not deduct tax at source on interest paid. It was submitted by the petitioner that sub-s.194A(3)(v) deals with such income credited or paid by a co-operative society to a member whereas sub.s(3)(viia)(a) provides a total exemption to deposits with the primary credit society.

The Hon’ble Kerala High Court accepted their plea and in their judgment have observed that Sec.194A(3)(i) exemption limit of Rs.10,000/- to interest paid on time deposits with co-operative societies engaged in carrying on in business of banking is allowed but that does not mean that all co-operative societies who have credited or paid exceeding Rs.10,000/- are liable to deduct tax at source. The Court held that co-operative society engaged in carrying on business of banking and primary credit societies stand on different footing and belong to different

21 class. That does not mean that Sec.194A(3)(v) of the Act is applicable only to co-operative societies other than co-operative societies carrying on the business of banking as observed in para 37 of its judgment the Pune ITAT in the case of Bhagani Nivedita Sah Bank Ltd(supra). In fact in para 2 of Circular No.9 dated: 11.09.2002, the CBDT has very clearly laid down that co- operative societies carrying on banking business when it pays interest on deposits by its members need not deduct tax at source in view of the provisions of Sec.194A(3)(v) of the Act.

“Circular No.9 of 2002

“Sub: Tax deduction at source Under Section 194A of the Income Tax Act 1961- Applicability of the provisions in respect of income paid or credited to a member of co- operative bank – Reg.

11.09.2002 TDS 194A

Under Section 194A of the Income Tax Act, 1961, Tax is deductible at source from any payment of income by way of interest other than income by way of interest on securities. Clause (V) of Sub Section (3) of Section.194A exempts such income credited or paid by a co- operative society to a member thereof from the requirement of TDS.

On the other hand, clause(viia) of Sub Section(3) of Section 194A exempts from the requirement of TDS such income credited or paid in respect of deposits (other than time- deposits made on or after 1st July, 1995) with a co-operative society engaged in carrying on the business of banking.

23 co-operative bank on or after 1st July, 1995. The Board has considered the matter and it is clarified that a member of a co- operative bank shall receive interest on both time deposits and deposits other than time deposits with such co-operative bank without TDS Under Section 194A by virtue of exemption granted vide clause (v) of Sub Section (3) of the said section. The provisions of clause (viia) of the said Sub Section are applicable only in case of a non- member depositor of the co- operative bank, who shall receive interest only on deposits other than time deposits made on or after 1st July, 1995 without TDS Under Section 194A.

24 membership after registration in accordance with the bye-laws and rules. A member eligible for exemption Under Section 194A(3)(v) must have subscribed to and fully paid for at least one share of the co-operative bank, must be entitled to participate and vote in the General Body Meetings and/or Special General Body Meetings of the co-operative bank and must be entitled to receive share from the profits of the co-operative bank.

[F.No.275/106/2000-IT(B)] (2002) 177 CTR (St) 1” 18. It can be seen from para 2 of the Circular referred to above that the CBDT has very clearly laid down that co-operative societies carrying on banking business when it pays interest on deposits by its members need not deduct tax at source. The above interpretation of the provision by the CBDT which is in favour of the Assessee, in our view is binding on the tax authorities.

25 the case of the Bailhongal Uraban Co-op Bank Ltd Vs. JCIT order dated 28.08.2013, the Tribunal proceeded on the footing that the aforesaid Circular as been quashed by the Hon’ble Bombay High Court in the case of The Jalgaon District Central Co- Operative Bank Ltd. Vs. Union of India 265 ITR 423(Bom) and therefore choose to follow the decision rendered by Pune ITAT SMC in the case of Bhagani Nivedita Sahakari Bank Ltd(supra). In our view the Hon’ble Bombay High Court in the case of Jalgaon District Central Co-Operative Bank Ltds case was dealing with a case of challenge to para 3 of CBDT Circular No.9 dated: 11.09.2002 which tried to interpret the word “member” as given in Sec.194A(3)(v) of the Act. It is only that part of the Circular that had been quashed by the Hon’ble Bombay High Court and the other paragraphs of the Circular had no connection with the issue before the Hon’ble Bombay High Court. How could it be said that the entire Circular has been quashed by the Hon’ble Bombay High Court? In our view para 2

26 of the Circular still holds good and the conclusion of the ITAT Pune Bench in the case of the Bailhongal Uraban Co-op Bank Ltd(supra) are not factually correct.

Consequently, the conclusions drawn in the aforesaid decision also contrary to facts and hence cannot be considered as precedent.

27 vis Sec.194A(3)(v) of the Act. It is thus clear that the preponderance of judicial opinion on this issue is that co-operative societies carrying on banking business when it pays interest to its members on deposits need not deduct tax at source in view of the provisions of Sec.194A(3)(v) of the Act.

“In this appeal by the Revenue, the issue involved is for consideration whether the Co- operative Bank was required to deduct tax while paying interest to its members on time deposits under Section 194-A of the Income Tax Act.

29 2. The Ministry of Finance, Government of India vide Circular No.19/2015 in F.No.142/14/2015- TPL, has held that the Co-operative Banks are not required to deduct tax at source on time deposits of its members paid or credited on or before 1.7.2015. The relevant portion of the circular reads as under:

“42.5. In view of this, the provisions of the section 194A(3)(v) of the Income-Tax Act have been amended so as to expressly provide that the exemption provided from deduction of tax from payment of interest to members by a co-operative society under section 194A(3)(v) of the Income-Tax Act shall not apply to the payment of interest on time deposits by the co-operative banks to its members. As this amendment is effective from the prospective date of 1st June, 2015, the co-operative bank shall be required to deduct tax from the payment of interest on time deposits of its members, on or after the 1st June, 2015. Hence, a cooperative bank was not required to deduct tax from the payment of interest on time deposits of its members paid or credited before 1st June, 2015.”

31 of Rs.10,000/- was required to be deducted by the respondent-assessee in the present case which is a co- operative bank.

“………Hence, the Co-operative Bank was not required to deduct tax from the payment of interest on the time deposits of its members paid or credited before first June 2015’.

32 arise for further consideration. Hence, we find that no substantial questions of law would arise for consideration.

All appeals are dismissed.

Sd/- JUDGE

Sd/- JUDGE

Sk/-