Society Bank v. In The Order Under Appeal Before Us, The Tribunal Noticed That,During The Relevant Previous Year, The Assessee Had Paid Interest To

THE HON’BLE SRI JUSTICE RAMESH RANGANATHANAND THE HON’BLE SRI JUSTICE M.SATYANARAYANA MURTHY ITTA.NO.158 OF 2016 JUDGMENT: {Per the Hon’ble Sri Justice Ramesh Ranganathan} This appeal, under Section 260A of the Income Tax Act, 1961(“the Act” for brevity), is preferred by the revenue against the orderpassed by the Income Tax Appellate Tribunal, Hyderabad (Tribunal) inITA.No.1689 of 2013 dated 12.08.2015 for the assessment year 2011-12. The respondent-assessee is a society registered under theAndhra Pradesh Co-operative Societies Act, 1964. A survey, underSection 133 of the Act, was conducted on the assessee to verifywhether tax was being deducted at source on interest payments. Theassessing authority, on going through the bye-laws of the assessee-society, found a difference in the rights and privileges between regularmembers on the one hand, and associate and nominal members onthe other. He came to the conclusion that exemption under Section194A (3)(v) would apply only to regular members, and not toassociate/nominal members. The assessee carried the matter inappeal and the Commissioner of Income Tax (Appeals), following thedecision of the Bombay High Court in Jalgaon District Cooperative Society Bank v. Union of India[[1]], held that, since the CBDT circularNo.9/2002 dated 11.09.2002 which made a distinction betweenregular members on the one hand and the associate/nominal memberson the other for the purposes of deduction of tax at source on interestpayment under Section 194A(3)(v) of the Act was quashed, theassessment order should be set aside. Aggrieved thereby, therevenue carried the matter in appeal to the Tribunal. In the order under appeal before us, the Tribunal noticed that,during the relevant previous year, the assessee had paid interest to different categories of members, regular members, associate membersand nominal members; Section 194A(3)(v) of the Act made nodistinction between different categories of members, and merely usedthe word ‘member’; the Bombay High Court, in Jalgaon DistrictCooperative Society Bank[1], hadheld that the exemption granted to aco-operative society, under Section 194A(3)(v) of the Act, could not betaken away by making a distinction between duly registered membersand nominal members; the SLP preferred thereagainst was dismissedby the Supreme Court; the very same assessment order was subjectedto revision under Section 263 of the Act; the assessee had carried thesaid order in appeal in ITA.No.1070 of 2014; the Tribunal had, by itsorder dated 29.04.2015, examined the judgment of the Bombay HighCourt and the CBDT Circular No.9 of 2002 dated 11.09.2002, and hadset aside the revisional order passed by the Commissioner of IncomeTax under Section 263 of the Act; and, in such circumstances, nointerference was called for against the order passed by theCommissioner of Income Tax (Appeals). Before us, Sri K.Raji Reddy, learned Senior Standing Counselfor Income Tax, while fairly stating that the revenue had not preferredany appeal against the order passed by the Tribunal in ITA.No.1070 of2014 dated 29.04.2015, would, however, contend that the provisions ofthe Andhra Pradesh Co-operative Societies Act and the bye-laws ofthe society make a clear distinction between regular members on theone hand, and nominal and associate members on the other; while theobligation cast on the society, under Section 194A(1) of the Act, is todeduct tax on payment of interest, an exception is carved out underSection 194A(3) of the Act; an exemption provision must be strictlyconstrued; clause (v) thereunder must be read in conjunction with theprovisions of the Andhra Pradesh Co-operative Societies Act, and thebye-laws of the society; and as the provision, in effect, restrictsexemption only to regular members, the Tribunal had erred inextending the benefit of exemption even to associate and nominal members. members. We must express our inability to agree. As has been held bythe Bombay High Court, in Jalgaon District Cooperative SocietyBank[1], the rights and privileges of a registered member under theprovisions of the State Co-operative Societies Act, and the obligationsof a co-operative society under Section 194A(3)(v) of the Act aredistinct and different; what is required to be examined is whether theexemption granted to a co-operative society under Section 194A(3)(v)of the Act can be taken away by creating a distinction between a dulyregistered member and a nominal member; the notification issued bythe CBDT is in the form of a circular with regard to rights and privilegesof a duly registered member; the CBDT could not usurp the power ofParliament while exercising jurisdiction under Section 119 of the Act; itcould not exercise wider powers, than the powers vested in it; theCBDT circular was not legal; and the SLP preferred thereagainst bythe revenue was not admitted by the Supreme Court in its order inSLP.Nos.12601 and 12602 of 2004 dated 07.07.2004. While Section 194A(1) of the Act requires tax to be deducted atsource at the time of credit of interest to the account of a payee, or atthe time of payment thereof in cash, Section 194A(3) of the Act makesthe provisions of Section 194A(1) of the Act inapplicable to certaincategories. By clause (v) thereunder, the provisions of Section194A(1) of the Act has been made inapplicable to interest payment bya co-operative society, other than a co-operative bank, to a memberthereof. It is not in dispute that the respondent-assessee is a co-operative society, and is not a co-operative bank. The exemptiongranted under clause (v), from deducting tax at source, is for paymentmade by a co-operative society to a “member”. The said provisionmakes no distinction between regular members on the one hand, andassociate/nominal members on the other. Section 194A(1) of the Actis not attracted to payment of interest by a co-operative society to all itsmembers, whatever be the category they may fall under. The CBDT circular, on which the revenue placed reliance upon, goes far beyondthe scope of Section 194(A(3)(v) of the Act and has, in any event,already been quashed by the Bombay High Court. The revenuecannot, therefore, place reliance thereupon. What is required to begiven effect to, by the authorities under the Act, are only the provisionsof the Act. The benefit of exemption under the Act cannot be denied toan assessee placing reliance upon any other State enactment or thebye-laws of a co-operative society. The order under appeal does not give rise to any substantialquestion of law necessitating interference in proceedings underSection 260A of the Act. The appeal fails and is, accordingly,dismissed. There shall be no order as to costs. Miscellaneouspetitions, if any, pending shall stand dismissed. ______________________________ (RAMESH RANGANATHAN, J) ___________________________________ (M.SATYANARAYANA MURTHY, J) 15[th] July 2016RRB [1]265 ITR 423