Tca v. The Income Tax Officer

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR.JUSTICE V.RAMASUBRAMANIANAND THE HONOURABLE MR.JUSTICE T.MATHIVANAN M/S.THE COIMBATORE DISTRICT CENTRAL CO OPERATIVE BANK LTD(MADATHUKULAM BRANCH) PALANI MAIN RDMADATHUKULAM UDUMALPET COIMBATORE 642 113 M/S THE COIMBATORE DISTRICT CENTRAL CO OPERATIVE BANK LTD (TIRUPUR BRANCH) 90 KUMARAN RD TIRUPUR 641 601 ... Appellant in TCAs.595,596,597,598,599,600,601 of 2015 M/S.THE COIMBATORE DISTRICT CENTRAL CO-OPERATIVE BANK LTD (GANDIMANAGAR BRANCH ) HUDCO COLONY PEELAMEDU COIMBATORE 641 004 THE COIMBATORE DISTRICT CENTRAL COOPERATIVE BANK LTD (METTUPALAYAM BRANCH) 20/152 K.K.NAGARKARAMADAI ROAD METTUPALAYAM COIMBATORE - 641 301. M/S THE COIMBATORE DISTRICT CENTRAL CO OPERATIVE BANK LTD(PERUR BRANCH) 15 THEN KAILASAR ST PERUR CBE 641 010 https://hcservices.ecourts.gov.in/hcservices/ M/S.THE COIMBATORE DISTRICT CENTRAL CO OPERATIVE BANK LTD (AVINASHI BRANCH) 42 K.P. COMPLEX CHEYUR ROAD AVINASHI-641 654.... Appellant in TCAs.623,624,625,626,627,628,629 of 2015 M/S THE COIMBATORE DISTRICT CENTRAL COOPERATIVE BANK LTD (SULUR BRANCH) 13A RAIWAY FEEDER RDSULUR COIMBATORE - 641402 ... Appellant in TCAs.630,631,632,633,634,635,636 of 2015 M/S. THE COIMBATORE DISTRICT CENTRAL COOPERATIVE BANK LTD (UDUMALAI BRANCH) NO.81 PASUPATHY MUDHARLIAR STREET UDUMALPET - 642 216. M/S THE COIMBATORE DISTRICT CENTRAL CO OPERATIVE BANK LTD (ANNUR BRANCH) 149 DHARMAR KOVIL ST ANNUR 641 653 ... Appellant in TCAs.647,648,649,650,651,652,653 of 2015 M/S THE COIMBATORE DISTRICT CENTRAL CO OERATIVE BANK LTD 425 DR.NANJAPPA RD CBE 641 018 M/S. THE COIMBATORE DISTRICT CENTRAL COOPERATIVE BANK LTD (KOTUR BRANCH) NO.229-230 KAMARAJ ROAD KOTTUR - 642 114. THE COIMBATORE DISTRICT CENTRAL CO OPERATIVE BANK LTD (KURICHI BRANCH) S.B. TOWERS SUNDARAPURAM COIMBATORE-641 024. https://hcservices.ecourts.gov.in/hcservices/ M/S. THE COIMBATTORE DISTRICT CENTRAL CO-OPERATIVE BANK LTD (PALLADAM BRANCH) 16 N.G.R. ROAD PALLADAM 641 664 M/S.THE COIMBATORE DISTRICT CENTRAL CO OPERATIVE BANK LTD (KAVUNDAMPALAYAM BRANCH) 81 PASUPATHY MUDHALIAR ST UDUMALPET 642 216 ... Appellant in TCAs.682,683,684,685,686,687,688 of 2015 M/S. THE COIMBATORE DISTRICT CENTRAL CO-OPERATIVE BANK LTD (SINGANALLUR BRANCH) 170 KAMARAJAR ROAD VARADHARAJAPURAM COIMBATORE- 641 015. ... Appellant in TCAs.744,745,746,747,748,749,750 of 2015 M/S. THE COIMBATORE DISTRICT CENTRAL CO OPERATIVE BANK LTD. (PERIANAICKAM PALAYAM BRANCH) 1 RAILWAY FEEDER ROAD PERIANAICKAN PALAYAM COIMBATORE 641 020. M/S.THE COIMBATORE DISTRICT CENTRAL CO-OPERATIVE BANK LTD (ANAIMALAI BRANCH) 63A VALAMURUGAN COMPLEX POLLACHI ROAD ANAIMALAI 642 104 ... Appellant in TCAs.969,970,971,972,973,974,975 of 2015 M/S. THE COIMBATORE DISTRICT CENTRAL CO-OPRATIVE BANK LTD. (PETHAPPAMPATTI BRANCH) NO.6/135 DHARAPURAM MAIN ROAD PETHAPPAMPATTI - 642 205. The Income Tax OfficerTDS Ward-I(5)Coimbatore PRAYER : Memorandum of Grounds of Tax Case Appeals under section260A of the Income Tax Act 1961 against the Orders of the IncomeTax Appellate Tribunal, Chennai 'B' 'A' 'C' Benches. https://hcservices.ecourts.gov.in/hcservices/ M/S. THE COIMBATORE DISTRICT CENTRAL CO OPERATIVE BANK LTD. (PERIANAICKAM PALAYAM BRANCH) 1 RAILWAY FEEDER ROAD PERIANAICKAN PALAYAM COIMBATORE 641 020. M/S.THE COIMBATORE DISTRICT CENTRAL CO-OPERATIVE BANK LTD (ANAIMALAI BRANCH) 63A VALAMURUGAN COMPLEX POLLACHI ROAD ANAIMALAI 642 104 ... Appellant in TCAs.969,970,971,972,973,974,975 of 2015 M/S. THE COIMBATORE DISTRICT CENTRAL CO-OPRATIVE BANK LTD. (PETHAPPAMPATTI BRANCH) NO.6/135 DHARAPURAM MAIN ROAD PETHAPPAMPATTI - 642 205. The Income Tax OfficerTDS Ward-I(5)Coimbatore PRAYER : Memorandum of Grounds of Tax Case Appeals under section260A of the Income Tax Act 1961 against the Orders of the IncomeTax Appellate Tribunal, Chennai 'B' 'A' 'C' Benches. https://hcservices.ecourts.gov.in/hcservices/ TC(A) NO969/15 to976/15 to975/15 982/15DATED20.05.201520.05.2015ITA NO.3051/MDS/14 to 3058/MDS/14 to 3057/MDS/143064/MDS/14AGAINST THECommissioner ofCommissioner ofORDER OF THEIncome TaxIncome Tax(Appeals)-II,(Appeals)-II,CoimbatoreCoimbatoreDATED27.10.201427.10.2014ORDER IN327/14-15 to334/14-15 toAPPEAL NO.333/14-15340/14-15AGAINST THEIncome TaxIncome TaxORDER OF THE Officer TDSOfficer TDS Ward-I(5),Ward-I(5),CoimbatoreCoimbatoreDATED30.03.201430.03.2014PAN/TAN NOSCMBT 04809ACMBT 04817BASSESSMENT2008-09 to2008-09 to YEAR2014-152014-15For Appellants: Mr.K.RaviFor Respondent:Mr.J.NarayanasamySenior Standing CounselJUDGMENT(Judgment of the Court was delivered by V.RAMASUBRAMANIAN, J.) All these appeals are by the branch offices of one assessee,namely, The Coimbatore District Central Co-operative BankLimited , filed under Section 260A of the Income Tax Act, 1961. 2. The assessee has come up with the above appeals, raisingthe following substantial question of law:-''Whether a co-operative society,carrying on banking business with theapproval of the Reserve Bank of India, isliable to deduct tax under Section 194A ofthe Income Tax Act, 1961 on the interestpaid to its members?'' 3. We are of the considered view that in addition to theabove substantial question of law, one more substantial questionof law also arises for consideration, namely, https://hcservices.ecourts.gov.in/hcservices/ ''Whether there is any distinctionbetween a co-operative bank and a co-operative society carrying on bankingbusiness and if so, under which category theappellant would fall?'' 4. Heard Mr.K.Ravi, learned counsel for the appellants andMr.J.Narayanasamy, learned senior standing counsel for therespondent. Brief Facts:- 5. The facts in brief out of which the above appeals ariseare as follows:- (a) The appellant is registered as a co-operative society,in terms of the provisions of the Tamil Nadu co-operativeSocieties Act, 1983. The appellant is carrying on the businessof banking with 30 branches including the head office in thedistrict of Coimbatore. (b) A survey was conducted in the business premises of theappellant on 14.11.2013, followed by a hearing in which theDeputy Commissioner of Income Tax, TDS Circle, Coimbatore calledfor branch-wise details of deposits attracting TDS provisionsfor the financial years 2007-08 to 2013-14. Theappellant/assessee was asked to submit the details by16.12.2013. (c) Since the appellant did not furnish the details, theassessing officer, TDS circle issued summons under Section 131(1A) of the Act. It was followed by separate pro-rata demands.Thereafter the Income Tax Officer, TDS, Coimbatore passed ordersunder Section 201(1) and 201(1A). Orders in respect of eachassessment year were passed on the same date, but individually.By the said orders, the Income Tax Officer directed theappellant to pay the amount quantified in each of those years. (c) Since the appellant did not furnish the details, theassessing officer, TDS circle issued summons under Section 131(1A) of the Act. It was followed by separate pro-rata demands.Thereafter the Income Tax Officer, TDS, Coimbatore passed ordersunder Section 201(1) and 201(1A). Orders in respect of eachassessment year were passed on the same date, but individually.By the said orders, the Income Tax Officer directed theappellant to pay the amount quantified in each of those years. (d) The appellant filed statutory appeals before theCommissioner of Income Tax (Appeals-II), Coimbatore. The appealswere partly allowed by separate orders. By those orders, theappellate Commissioner held that the demand made by the IncomeTax Officer even in respect of the deposits which did not exceedRs.10,000/- was not proper. (e) Aggrieved by the disallowed portion of their appeals,the appellant filed second appeals before the Income TaxAppellate Tribunal. The Tribunal, by common orders passed in abatch of cases, partly allowed the appeals, setting aside theorders of the lower authorities, remanding the matter back tothe assessing officer for the limited purpose of verifying the https://hcservices.ecourts.gov.in/hcservices/ nature of the deposits on which interest was paid. In otherwords, the Tribunal found that there was no segregation of timedeposits and recurring deposits by the assessing officer. Thissegregation was necessary in view of the fact that the interestpaid on time deposits attracts liability to deduct tax atsource, if it exceeds Rs.10,000/- and the interest paid onrecurring deposits and savings bank account, does not attractthe liability to deduct tax at source. (f) Not satisfied with the common orders passed by theTribunal, in the manner aforesaid, the assessee has come up withthese appeals contending that even in respect of time deposits,irrespective of the quantum of interest paid, the co-operativesocieties like the appellant are not obliged to deduct tax atsource for the assessment years in question. Relevant Statutory provisions:- 6. In order to examine the substantial questions of law thathave arisen for our consideration, it may be necessary to takenote of the relevant statutory provisions at first. 7. Sub-section (1) of Section 194A makes it obligatory forany person (except individuals and Hindu Undivided Familymembers) who is responsible for paying any income by way ofinterest (other than income by way of interest on securities) toa resident, to deduct income tax thereon at the rates in force.Such deduction should be made at the time of credit of suchincome to the account of the payee or at the time of payment incash or by the issue of cheque or draft or by any other mode. 8. The proviso to sub-section (1) of Section 194A makes itobligatory for even individuals and Hindu Undivided Familymembers to deduct tax at source, if the contingencies stated inthe proviso arise. Since we are not concerned in this batchwith such contingencies, we do not deal with the proviso. 9. Having indicated in sub-section (1), persons who areresponsible to deduct tax at source, the circumstances underwhich tax is to be deducted at source and the taxable events insub-section (1), the provisions of Section 194A proceed to listout the exclusions or exceptions under sub-section (3). Sub-section (3) contains about eleven clauses, under which the itemsthat are excluded from the application of sub-section (1) arelisted. In simple terms, such exclusions under sub-section (3)of Section 194A could be understood as follows:- Exclusions under clause (i) of sub-section (3): 10. (i) Where the amount of income credited or paid orlikely to be credited or paid during the financial year, by abanking company to which the Banking Regulation Act, 1949 https://hcservices.ecourts.gov.in/hcservices/ applies, does not exceed Rs.10,000/-, no liability under sub-section (1) arises. Exclusions under clause (i) of sub-section (3): 10. (i) Where the amount of income credited or paid orlikely to be credited or paid during the financial year, by abanking company to which the Banking Regulation Act, 1949 https://hcservices.ecourts.gov.in/hcservices/ applies, does not exceed Rs.10,000/-, no liability under sub-section (1) arises. (ii) Where the amount of such income credited or paid orlikely to be credited or paid during the financial year, by aco-operative society engaged in the business of banking does notexceed Rs.10,000/-, there is no liability. (iii) Where the amount of income credited or paid or likelyto be credited or paid during the financial year, on a depositwith the post office under any scheme framed by the CentralGovernment and notified in this behalf exceeds Rs.10,000/-,there is no liability under sub-section (1). (iv) Where the amount credited or paid or likely to becredited or paid during a financial year does not exceedRs.5,000/-, irrespective of who pays it, or to whom it is paid,no liability arises. Exclusions to the exclusions under clause (i) of sub-section (3):11. To the exclusions provided under sub-clauses (a) to (d)of clause (i) of sub-section (3), certain restrictions areimposed by two provisos. The first proviso was inserted byFinance (No.2) Act, 1996 with effect from 1.10.1996 and thesecond proviso was inserted with effect from 1.6.2015. By thefirst proviso, time deposits (i) either with a banking companyto which the Banking Regulation Act, 1949 applies; (ii) or to aco-operative society engaged in the business of banking; (iii)or to deposits with a public company which is formed andregistered in India with the main object of carrying on thebusiness of providing long term finance, for construction orpurchase of houses in India for residential purposes and whichis eligible for deduction under Section 36 are to be computedwith reference to the income credited or paid by a branch of abanking company or a co-operative society or a public company. 12. By the second proviso, the time deposits made with abanking company or with a co-operative society or deposits witha public company covered by the first proviso are directed to becomputed with reference to the income credited or paid by allbranches in favour of the assessee, if such banking company orco-operative society or the public company had adopted corebanking solutions. Exclusions under clause (iii) of sub-section (3): 13. The liability to deduct tax at source imposed under sub-section (1) will not apply to the incomes credited or paid (i)to a banking company to which the Banking Regulation Act, 1949applies; (ii) to a co-operative society engaged in the businessof banking including a co-operative land mortgage bank; (iii) toa financial corporation established by or under a State orCentral Act; (iv) to the Life Insurance Corporation; (v) to theUnit Trust of India; (vi) to any company or co-operative society https://hcservices.ecourts.gov.in/hcservices/ carrying on the business of insurance; (vii) to such otherinstitution which the Central Government may by notificationindicate. Exclusions under clauses (iv) and (vi): 14. The liability to deduct tax at source will not arise inrespect of an income credited or paid by a firm to a partner. Itwill also not apply to such income credited or paid in respectof deposits under any scheme framed by the Central Governmentand notified in this behalf. Exclusions under clauses (v), (vii) and (viia): 15. The obligation imposed under sub-section (1) will alsonot arise in respect of the following:- (i) income credited or paid by a co-operative society otherthan a co-operative bank to a member thereof or to such incomecredited or paid by a co-operative society to any other co-operative society; Exclusions under clauses (iv) and (vi): 14. The liability to deduct tax at source will not arise inrespect of an income credited or paid by a firm to a partner. Itwill also not apply to such income credited or paid in respectof deposits under any scheme framed by the Central Governmentand notified in this behalf. Exclusions under clauses (v), (vii) and (viia): 15. The obligation imposed under sub-section (1) will alsonot arise in respect of the following:- (i) income credited or paid by a co-operative society otherthan a co-operative bank to a member thereof or to such incomecredited or paid by a co-operative society to any other co-operative society; (ii) to the income credited or paid in respect of depositsother than time deposits with a banking company to which theBanking Regulation Act, 1949 applies; (iii) to the income credited or paid in respect of depositswith a primary agricultural credit society or a primary creditsociety or a co-operative land mortgage bank or a co-operativeland development bank; (iv) to the income credited or paid in respect of depositsother than time deposits with a co-operative society other thana co-operative society or bank, namely, primary agriculturalcredit society, primary credit society, co-operative landmortgage bank and co-operative land development bank engaged incarrying on the business of banking. 16. There are also exclusions under clauses (viii), (ix),(x) and (xi), with which we are not fortunately concerned inthis batch. But before parting with Section 194A, we should takenote of two important things, namely, (a) that the expression''time deposits'' is defined in Explanation-1 to mean depositsincluding recurring deposits repayable on the expiry of fixedperiods; and (b) that the expression “co-operative bank” isdefined in the explanation under clause (v) to have the samemeaning as assigned to it in Part-V of the Banking RegulationAct, 1949. These two expressions assume significance, in thelight of the questions that have arisen for consideration andhence we have taken note of the same. 17. For the purpose of easy reference, we extract hereinbelow sub-section (3) of Section 194A in entirety.“(3) The provisions of sub-section (1) shallnot apply - https://hcservices.ecourts.gov.in/hcservices/ (i) where the amount of such income or, asthe case may be, the aggregate of theamounts of such income credited or paid orlikely to be credited or paid during thefinancial year by the person referred to insubsection (1) to the account of, or to, thepayee, [does not exceed - (a) ten thousand rupees, where the payer isa banking company to which the BankingRegulation Act, 1949 (10 of 1949) applies(including any bank or banking institution,referred to in section 51 of that Act); (b) ten thousand rupees, where the payer isa co-operative society engaged in carryingon the business of banking; (c) ten thousand rupees, on any deposit withpost office under any scheme framed by theCentral Government and notified by it inthis behalf; and (d) five thousand rupees in any other case.]Provided that in respect of the incomecredited or paid in respect of – (a) time deposits with a banking company towhich the Banking Regulation Act, 1949 (10of 1949) applies (including any bank orbanking institution referred to in section51 of that Act); or (b) time deposits with a co-operativesociety engaged in carrying on the businessof banking; (c) deposits with a public company which isformed and registered in India with the mainobject of carrying on the business ofproviding long-term finance for constructionor purchase of houses in India forresidential purposes and which is eligiblefor deduction under clause (viii) of sub-section (1) of section 36 [***],[***] theaforesaid amount shall be computed withreference to the income credited or paid bya branch of the banking company or the co-operative society or the public company, asthe case may be; (b) time deposits with a co-operativesociety engaged in carrying on the businessof banking; (c) deposits with a public company which isformed and registered in India with the mainobject of carrying on the business ofproviding long-term finance for constructionor purchase of houses in India forresidential purposes and which is eligiblefor deduction under clause (viii) of sub-section (1) of section 36 [***],[***] theaforesaid amount shall be computed withreference to the income credited or paid bya branch of the banking company or the co-operative society or the public company, asthe case may be; [Provided further that the amount referredto in the first proviso shall be computedwith reference to the income credited orpaid by the banking company or the co-operative society or the public company, asthe case may be, where such banking companyor the co-operative society or the publiccompany has adopted core banking solutions;] (ii)[***]; (iii) to such income credited or paid to – (a) any banking company to which the BankingRegulation Act, 1949 (10 of 1949), applies,or any co-operative society engaged incarrying on the business of banking(including a co-operative land mortgagebank), or (b) any financial corporation established byor under a Central, State or Provincial Act,or (c) the Life Insurance Corporation of Indiaestablished under the Life InsuranceCorporation Act, 1956 (31 of 1956), or (d) the Unit Trust of India establishedunder the Unit Trust of India Act, 1963 (52of 1963), or (e) any company or co-operative societycarrying on the business of insurance, or (f) such other institution, association orbody or class of institutions, associationsor bodies which the Central Government may,for reasons to be recorded in writing,notify in this behalf in the OfficialGazette;(iv) to such income credited or paid by afirm to a partner of the firm; (v) to such income credited or [paid by aco-operative society (other than a co-operative bank) to a member thereof or tosuch income credited or paid by a co-operative society] to any other co-operativesociety; [Explanation.--For the purposes of this https://hcservices.ecourts.gov.in/hcservices/ clause, "co-operative bank" shall have thesame meaning as assigned to it in Part V ofthe Banking Regulation Act, 1949 (10 of1949);] (vi) to such income credited or paid inrespect of deposits under any scheme framedby the Central Government and notified by itin this behalf in the Official Gazette; (vii) to such income credited or paid inrespect of deposits (other than timedeposits made on or after the 1st day ofJuly, 1995) with a banking company to whichthe Banking Regulation Act, 1949 (10 of1949) applies (including any bank or bankinginstitution referred to in section 51 ofthat Act); (viia) to such income credited or paid inrespect of, - (a) deposits with a primary agriculturalcredit society or a primary credit societyor a co-operative land mortgage bank or aco-operative land development bank; (b) deposits (other than time deposits madeon or after the 1st day of July, 1995) witha co-operative society, other than a co-operative society or bank referred to insub-clause (a), engaged in carrying on thebusiness of banking;] (viii) to such income credited or paid bythe Central Government under any provisionof this Act or the Indian Income-tax Act,1922 (11 of 1922), or the Estate Duty Act,1953 (34 of 1953), or the Wealth-tax Act,1957 (27 of 1957), or the Gift-tax Act, 1958(18 of 1958), or the Super Profits Tax Act,1963 (14 of 1963), or the Companies(Profits) Surtax Act, 1964 (7 of 1964), orthe Interest-tax Act, 1974 (45 of 1974); (ix) to such income credited by way ofinterest on the compensation amount awardedby the Motor Accidents Claims Tribunal; (b) deposits (other than time deposits madeon or after the 1st day of July, 1995) witha co-operative society, other than a co-operative society or bank referred to insub-clause (a), engaged in carrying on thebusiness of banking;] (viii) to such income credited or paid bythe Central Government under any provisionof this Act or the Indian Income-tax Act,1922 (11 of 1922), or the Estate Duty Act,1953 (34 of 1953), or the Wealth-tax Act,1957 (27 of 1957), or the Gift-tax Act, 1958(18 of 1958), or the Super Profits Tax Act,1963 (14 of 1963), or the Companies(Profits) Surtax Act, 1964 (7 of 1964), orthe Interest-tax Act, 1974 (45 of 1974); (ix) to such income credited by way ofinterest on the compensation amount awardedby the Motor Accidents Claims Tribunal; (ixa) to such income paid by way of intereston the compensation amount awarded by theMotor Accidents Claims Tribunal where the https://hcservices.ecourts.gov.in/hcservices/ amount of such income or, as the case maybe, the aggregate of the amounts of suchincome paid during the financial year doesnot exceed fifty thousand rupees;] [(x) to such income which is paid or payableby an infrastructure capital company orinfrastructure capital fund or a publicsector company [or scheduled bank] inrelation to a zero coupon bond issued on orafter the 1st day of June, 2005 by suchcompany or fund or public sector company [orscheduled bank]. [(xi) to any income by way of interestreferred to in clause (23FC) of section 10.][Explanation 1: For the purposes of clauses(i), (vii) and (viia), “time deposits” meansdeposits ([including] recurring deposits)repayable on the expiry of fixed periods. Explanation 2:[***]” 18. What is important for our discussion is to focus oncertain expressions used in the various clauses and sub-clausesof sub-section (3) of Section 194A. The expressions thatrequire our attention are (a) co-operative society; (b) co-operative bank; (c) co-operative society engaged in carrying onthe business of banking; (d) primary agricultural creditsociety; (e) primary credit society; (f) co-operative landmortgage bank; and (g) co-operative land development bank. 19. As we have stated earlier, the expression “co-operativebank” is defined in the explanation under clause (v) of sub-section (3) to have the same meaning as assigned to it in Part-Vof the Banking Regulation Act, 1949. But the explanation makesit clear that it is applicable only for the purpose of thatclause viz., clause (v). Therefore we do not know whether themeaning assigned to the expression “co-operative bank” in Part-V of the Banking Regulation Act, 1949 could be borrowed for thepurpose of understanding the meaning of the same expressionfound in the clauses other than clause (v) of sub-section (3). 20. Section 2(19) of the Income Tax Act defines a “co-operative society” to mean a co-operative society registeredunder the co-operative Societies Act, 1912 or under any otherlaw for the time being in force in any State for theregistration of co-operative societies. The expression “co-operative bank” is not defined in the Income Tax Act, 1961. https://hcservices.ecourts.gov.in/hcservices/ 21. Insofar as the State of Tamil Nadu is concerned, thereare at least two enactments that govern the functioning of co-operative societies. The co-operative societies which functiononly within the geographical limits of the State of Tamil Naduare registered under the Tamil Nadu Co-operative Societies Act,1983. But if there is a co-operative society which is federal innature or which is national in character, it is called a multi-State co-operative society and the same is registered under theCentral enactment viz., Multi-State Co-operative Societies Act,2002. https://hcservices.ecourts.gov.in/hcservices/ 21. Insofar as the State of Tamil Nadu is concerned, thereare at least two enactments that govern the functioning of co-operative societies. The co-operative societies which functiononly within the geographical limits of the State of Tamil Naduare registered under the Tamil Nadu Co-operative Societies Act,1983. But if there is a co-operative society which is federal innature or which is national in character, it is called a multi-State co-operative society and the same is registered under theCentral enactment viz., Multi-State Co-operative Societies Act,2002. 22. Since the expression “co-operative society” is definedin Section 2(19) of the Income Tax Act, 1961, it is neithernecessary nor warranting for us to go to the definition of thesame expression either in the Tamil Nadu Co-operative SocietiesAct, 1983 or in the Multi-State Co-operative Societies Act,2002. On the contrary, we may have to refer to these enactmentsto see what a co-operative bank is, in view of the limitationimposed in the explanation under clause (v) of sub-section (3)of Section 194A. 23. Our tale of woes is compounded by the fact that even theTamil Nadu Co-operative Societies Act does not define theexpression “co-operative bank”. The Tamil Nadu Co-operativeSocieties Act, 1983 under which the appellant/assessee has beenincorporated defines the following expressions:-(a) agricultural producers marketing society;(b) agricultural services co-operative society;(c) apex society;(d) central society;(e) consumer society;(f) co-operative union;(g) credit society;(h) financing bank;(i) milk producers society;(j) oil-seeds growers society;(k) primary society;(l) registered society;(m) self relying society;(n) scheduled co-operative society;(o) society with limited liability;(p) society with un-limited liability; and(q) weaver's society. 24. If for a moment, we get back to the provisions of theIncome Tax Act, 1961, we would find that Section 194A deals withthe following types of co-operative institutions:- (a) co-operative society;(b) co-operative bank; (c) co-operative society engaged in carrying on the https://hcservices.ecourts.gov.in/hcservices/ business of banking; (d) primary agricultural credit society; (e) primary credit society; (f) co-operative land mortgage bank; and (g) co-operative land development bank. 25. But the expression “co-operative bank” is defined in theMulti-State Co-operative Societies Act, 2002 under clause (f) ofSection 3 to mean a multi-State co-operative society whichundertakes banking business. The expression “co-operativesociety” is defined in Section 3(h) of the Multi-State Co-operative Societies Act, 2002 to mean a society registered ordeemed to be registered under any law relating to co-operativesocieties for the time being in force in any State. 26. While the distinction sought to be made in clause (viia)of sub-section (3) of Section 194A between (i) a primaryagricultural credit society, a primary credit society, a co-operative land mortgage bank and a co-operative land developmentbank and (ii) other types of co-operative societies isunderstandable, the distinction sought to be made in the variousclauses of sub-section (3) between a co-operative bank on theone hand and a co-operative society carrying on the business ofbanking on the other hand, is not clearly decipherable from thescheme of Section 194A. Even if we take external aid toconstruction, by borrowing from the provisions of the Tamil NaduCo-operative Societies Act, 1983 and the Multi-State Co-operative Societies Act, 2002, no such distinction between a co-operative bank and a co-operative society carrying on thebusiness of banking could be made out. 27. Since the Tamil Nadu Co-operative Societies Act does notdefine a co-operative bank, though it defines the expression“credit society” and “financing bank”, a co-operative societycarrying on the business of banking registered in terms of theTamil Nadu Act could fall naturally only under any of thesecategories, namely, credit society or financing bank. Thereforeit is necessary to take note of the definition of theexpressions “credit society” and “financing bank”. Theexpression “credit society” is defined in Section 2(13) of theTamil Nadu Co-operative Societies Act, 1983 as follows:-“credit society” means a registered societywhich has as its principal object theraising of funds to be lent to its membersfor the purposes of agriculture, animalhusbandry, pisciculture (including fishcatching), apiculture, sericulture, pettytrade, cottage and small scale industriesincluding farm based industries, purchase ofimplements or raw materials, construction, purchase or repair of dwelling houses,discharge of prior debts, meeting ceremonialor educational expenses, purchase ofdomestic and other requirements or for suchother purposes as the Government may, bynotification specify in this behalf.” 28. The expression “financing bank” is defined in Section 2(14) of the Tamil Nadu Co-operative Societies Act, 1983 asfollows:-“financing bank” means a registered societywhich has as its principal objects thelending of money to other registeredsocieties.” 29. A careful look at the above definitions would show thatthere is a very thin line of demarcation between the two. Acredit society is one which has as its principal object theraising of funds to be lent to its members for the purposesindicated in the definition. A financing bank is one which hasas its principal object the lending of money to other registeredsocieties. 30. What distinguishes a credit society from a financingbank as could be seen from the definitions of these expressionsis that the distinction lies in the purpose for which the moneyis lent by them. The distinction does not lie in the manner inwhich they invite or accept deposits. What is important for thepurpose of Section 194A is the acceptance of deposits and thepayment of interest to the depositors. Therefore, for thepurpose of Section 194A, a credit society under the Tamil NaduCo-operative Societies Act and the financing bank under the sameAct stand on the same footing. They can be treated differentlyonly in terms of the express provisions such as the one found insub-clause (a) of clause (viia) of sub-section (3). Otherwisethe expression “co-operative bank” which is neither defined inthe Income Tax Act nor in the Tamil Nadu Societies RegistrationAct would naturally cover a credit society as well as afinancing bank at least insofar as the Tamil Nadu Act isconcerned. 31. Interestingly, the Multi-State Co-operative SocietiesAct, 2002 does not deal with the expression “credit society” atall. It deals only with two expressions, namely, “co-operativebank” and “co-operative society”. 32. Though the explanation under clause (v) of sub-section(3) limits the meaning of the expression “co-operative bank”borrowed from Part-V of the Banking Regulation Act, 1949 toclause (v) alone, we would nevertheless take note of the said https://hcservices.ecourts.gov.in/hcservices/ 31. Interestingly, the Multi-State Co-operative SocietiesAct, 2002 does not deal with the expression “credit society” atall. It deals only with two expressions, namely, “co-operativebank” and “co-operative society”. 32. Though the explanation under clause (v) of sub-section(3) limits the meaning of the expression “co-operative bank”borrowed from Part-V of the Banking Regulation Act, 1949 toclause (v) alone, we would nevertheless take note of the said https://hcservices.ecourts.gov.in/hcservices/ definition to see if the same could be of any assistance. Theexpression “co-operative bank” is defined in Section 56(c) ofthe Banking Regulation Act, 1949 to mean a state co-operativebank, a central co-operative bank and a primary co-operativebank. Interestingly, Section 56 of the Banking Regulation Act,1949 defines the four expressions found in sub-clause (a) ofclause (viia) of sub-section 3. Section 56 defines theexpressions “primary agricultural credit society”, “primary co-operative bank” and “primary credit society”. After definingthese three expressions in great detail under clauses (cciv),(ccv) and (ccvi), the Banking Regulation Act, 1949 adopts themeanings given to certain other expressions such as central co-operative bank, primary rural credit society and State co-operative bank, as found in National Bank for Agriculture andRural Development Act, 1981. 33. Therefore in our trail we will now have to go to theNational Bank for Agriculture and Rural Development Act. 34. The expression “central co-operative bank” is defined inSection 2(d) of National Bank for Agriculture and RuralDevelopment Act, 1981 to mean the principal co-operative societyin a district, the primary object of which is to finance allother co-operative societies in that district. Therefore thegeographical limitations are imposed upon a co-operative societywhich comes within the meaning of the expression “central co-operative bank” by virtue of the definition found in Section 2(d) of the National Bank for Agriculture and Rural DevelopmentAct, 1981 to which a reference and reliance is made in Section56(ccvii) of the Banking Regulation Act, 1949. 35. Section 2(n) of the National Bank for Agriculture andRural Development Act, 1981 defines a primary rural creditsociety also. Since we are not concerned with such a society inthis batch, we shall skip the same. 36. The expression “State land development bank”, which isnot defined either in the Tamil Nadu Act or in the Multi-StateCo-operative Societies Act or even in the Banking RegulationAct, 1949 is defined in Section 2(v) of the National Bank forAgriculture and Rural Development Act, 1981. In simple terms, aState land development bank is one which has as its principalobject, the providing of long term advances for agriculturaldevelopment. 37. The reason as to why we have been compelled to go afterthese definitions is the fact that the appellant/assesseehappens to be the District Central Co-operative Bank. No co-operative society is entitled to use the word “bank”, unless ithappens to be a co-operative bank. This is made clear by clause https://hcservices.ecourts.gov.in/hcservices/ (f) of Section 56 of the Banking Regulation Act, 1949. As amatter of fact, the answer to the questions of law raised inthese appeals could be found in Section 56(f) of the BankingRegulation Act, 1949. Before we advert to clause (f) of Section56, we should bring on record one fact. 37. The reason as to why we have been compelled to go afterthese definitions is the fact that the appellant/assesseehappens to be the District Central Co-operative Bank. No co-operative society is entitled to use the word “bank”, unless ithappens to be a co-operative bank. This is made clear by clause https://hcservices.ecourts.gov.in/hcservices/ (f) of Section 56 of the Banking Regulation Act, 1949. As amatter of fact, the answer to the questions of law raised inthese appeals could be found in Section 56(f) of the BankingRegulation Act, 1949. Before we advert to clause (f) of Section56, we should bring on record one fact. 38. Section 56 of the Banking Regulation Act is actually acomplete code in itself. Section 56 makes the provisions of theBanking Regulation Act, 1949 applicable to co-operativesocieties, just as they apply to banking companies, subject tocertain modifications indicated in clauses (a) to (zl). By theprovisions contained in clauses (a) to (zl), Section 56incorporates the amendments, the substantive provisions of theAct as well as the schedules thereto, insofar as theirapplication to co-operative societies are concerned. One of theprovisions of the Banking Regulation Act, 1949 relates to theentitlement or obligation of companies carrying on the businessof banking, to the use of the words bank, banker, banking orbanking company. This is covered by Section 7 of the BankingRegulation Act, 1949. 39. Insofar as the application of Section 7 of the Act toco-operative societies is concerned, clause (f) of Section 56provides the method and form in which Section 7 will apply toco-operative societies. Section 56(f) which substitutes Section7 of the Banking Regulation Act, 1949, for the purpose of itsapplication to co-operative societies, is extracted as follows:- “[(f) for section 7, the following sectionshall be substituted, namely:-“7. Use of words “bank”, “banker” or“banking”.--(1) No co-operative societyother than a co-operative bank shall use aspart of its name or in connection with itsbusiness any of the words “bank”, “banker”or “banking”, and no co-operative societyshall carry on the business of banking inIndia unless it uses as part of its name atleast one of such words.(2) Nothing in this section apply to--(a) a primary credit society, or(b) a co-operative society formed for theprotection of the mutual interest of co-operative banks or co-operative landmortgage banks, or(c) any co-operative society, not being aprimary credit society, formed by theemployees of--(i)a banking company or the State Bank ofIndia or a corresponding new bank or asubsidiary bank of such banking https://hcservices.ecourts.gov.in/hcservices/ company, State Bank of India or acorresponding new bank, or(ii)a co-operative bank or a primarycredit society or a co-operative landmortgage bank,insofar as the word “bank”, “banker” or“banking” appears as part of the name of theemployer bank, or as the case may be, of thebank whose subsidiary the employer bank is.]” 40. Therefore Section 7 of the Banking Regulation Act, 1949in its application to the co-operative societies, as per Section56(f), makes it obligatory for a co-operative society carryingon the business of banking in India, to use the adjunct “bank”.Interestingly, sub-section (1) of Section 7 of the BankingRegulation Act, 1949 (as amended in relation to co-operativesociety) comprises of two parts. The first part of Section 7(1)states that no co-operative society other than a co-operativebank shall use the word “bank” as part of its name. The secondpart of Section 7(1) states that no co-operative society shallcarry on the business of banking in India unless it uses as partof its name at least one of the words, namely, bank, banker orbanking. 40. Therefore Section 7 of the Banking Regulation Act, 1949in its application to the co-operative societies, as per Section56(f), makes it obligatory for a co-operative society carryingon the business of banking in India, to use the adjunct “bank”.Interestingly, sub-section (1) of Section 7 of the BankingRegulation Act, 1949 (as amended in relation to co-operativesociety) comprises of two parts. The first part of Section 7(1)states that no co-operative society other than a co-operativebank shall use the word “bank” as part of its name. The secondpart of Section 7(1) states that no co-operative society shallcarry on the business of banking in India unless it uses as partof its name at least one of the words, namely, bank, banker orbanking. 41. Therefore Section 7(1) of the Banking Regulation Act,1949 settles at least one issue, namely, that insofar as thatAct is concerned, there is no distinction between a co-operativebank and a co-operative society carrying on the business ofbanking. If a co-operative society carries on the business ofbanking, it should necessarily have the adjunct bank.Additionally, if a co-operative society does not carry on thebusiness of banking, it should not use the adjunct bank. 42. Therefore there appears to be no distinction between aco-operative bank and a co-operative society engaged in thebusiness of banking, at least for the purpose of the BankingRegulation Act, 1949. We have already seen from the provisionsof the Tamil Nadu Co-operative Societies Act, 1983 that the saidAct also does not distinguish between a co-operative societycarrying on the banking business and a co-operative bank, thoughit distinguishes between a credit society and a financing bank.The fact that we have no alternative except to look into theprovisions of the Banking Regulation Act, 1949 and the NationalBank for Agriculture and Rural Development Act, 1981 is alsofortified by two clauses in sub-section (2) of the Reserve Bankof India Act, 1934. In clauses (h) and (i) of Section 2, theReserve Bank of India Act, 1934 states that the expressions“agricultural operations”, “central co-operative bank, ‘”co-operative society” “crops, “marketing of crops”, “pisciculture”, https://hcservices.ecourts.gov.in/hcservices/ “regional rural bank” and “State co-operative bank” shall havethe meaning assigned to them by National Bank for Agricultureand Rural Development Act, 1981 and that the expressions “co-operative bank”, “co-operative credit society”, “primaryagricultural credit society” and “primary co-operative bank”would have the same meaning as assigned to them in Part-V of theBanking Regulation Act, 1949. 43. Therefore the conclusion that is irresistible is thatnone of these enactments either Central or State, make a cleardistinction between a co-operative society engaged in carryingon banking business and a co-operative bank other than thosecredit societies and land development or land mortgage banks. Questions raised in this batch: 44. Having considered the various statutory provisions, ifwe get back to the case on hand, it is seen that we are calledupon to answer two substantial questions of law. We shall takeup the second one first. 43. Therefore the conclusion that is irresistible is thatnone of these enactments either Central or State, make a cleardistinction between a co-operative society engaged in carryingon banking business and a co-operative bank other than thosecredit societies and land development or land mortgage banks. Questions raised in this batch: 44. Having considered the various statutory provisions, ifwe get back to the case on hand, it is seen that we are calledupon to answer two substantial questions of law. We shall takeup the second one first. 45. The second substantial question of law that we haveframed for consideration is as to whether there exists asubstantial or marked difference between a co-ope