The Marathwada Urban Bank Co-Op.association Limited v. The Income Tax Officer,District Beeddistrict Beed

(1) IN THE HIGH COURT OF JUDICATURE OF BOMBAYBENCH AT AURANGABAD WRIT PETITION NO. 4935 OF 2003 The Marathwada Urban Bank Co-op.Association Limited,through its Secretary ..PETITIONER VERSUS (2) W.P. No. 9.The Income Tax Officer,District BeedDistrict Beed 10.The Income Tax Officer,District OsmanabadDistrict Osmanabad 11.The Income Tax Officer,District AurangabadDistrict Aurangabad 12.Additional CommissionerIncome Tax,Income Tax, Office of Commissioner ofIncome Tax, AurangabadIncome Tax, Aurangabad 13.The State of Maharashtra ..RESPONDENTS Mr Atul R. Kale, Advocate holding for Mr A.R. Joshi for petitioner;Mr Alok Sharma, Asstt. Solicitor General for respondents no.1 to 12;Mr S.B. Pulkundwar, A.G.P. for respondent no.13 CORAM : S.V. GANGAPURWALA & N.W. SAMBRE, JJ. DATE : 21st April, 2014 ORAL JUDGMENT (Per S.V. Gangapurwala, J.) The petitioner impugns the Circular dated 23.10.2003, issued by respondent no.3, thereby directing deduction of tax at source on the deposits. 2.Mr Kale, the learned Counsel for the petitioner strenuously contends that the Circular is not in consonance with the provisions of section 194A of the Income Tax Act, 1961. The Commissioner of Income Tax, by administrative instructions, cannot issue Circulars which are (3) W.P. No. contrary to the statutory provisions. According to the learned Counsel, taxing statute will have to be construed strictly as per its literal interpretation. Section 194A (3) (b) of the Income Tax Act, 1961 exempts the urban co-operative societies from deducting TDS in the income credited to the account holders. According to the learned Counsel, even section 194A (3) (iii) (v) exempts a co-operative society from deducting TDS from income credited, or paid by a co-operative society to a member thereof, or to any other co-operative society. In view of said specific provision, the impugned Circular could not have been issued. Reliance placed by the respondents on section 194A (3) (viia) is misplaced and not in consonance with the rules of interpretation. The leaned Counsel relies on the judgment of the Apex Court in the case of Mathuram Agrawal vs. State of Madhya Pradesh, reported in AIR 2000 SC 109. 3.Mr Sharma, the learned Asstt. Solicitor General submits that the Commissioner of Income Tax, vide the impugned Circular has only clarified the legal position as covered under section 194A of the Income Tax Act. Section 194A (3) (viia) is clear and specific. The exemption is given to the co-operative societies carrying on banking business as specified in said clause (viia) and not to any other Banks. The exemption also is given to deposits other than the time deposits. The income accrued, i.e. the interest paid by urban co-operative Bank on a time deposit is not exempted from the operation of provisions of section 194A (4) W.P. No. (1) of the Income Tax Act. 4.We have gone through the said provision and the impugned Circular. Section 194A mandates that any person other than an individual or a Hindu Undivided family responsible for paying any income by way of interest other than income by way of interest on securities at the time of credit of such income to the account of the payee, to deduct income tax thereon at the rates in force. By virtue of sub-section (3) of section 194A, exception is carved out. The further proviso to section 194A (3) clarifies the situation as to how the income and the limits of the income as detailed in section 194 (3) is to be construed. (4) W.P. No. (1) of the Income Tax Act. 4.We have gone through the said provision and the impugned Circular. Section 194A mandates that any person other than an individual or a Hindu Undivided family responsible for paying any income by way of interest other than income by way of interest on securities at the time of credit of such income to the account of the payee, to deduct income tax thereon at the rates in force. By virtue of sub-section (3) of section 194A, exception is carved out. The further proviso to section 194A (3) clarifies the situation as to how the income and the limits of the income as detailed in section 194 (3) is to be construed. 5.Section 194A (3) deals with exemptions. It lays down that upto an amount of Rs.10,000/- where the payee is a co-operative society engaged in carrying on the business of banking, the provisions of section 194A , requiring the said co-operative society doing a banking business to deduct TDS, will not apply. The said provision exempting operation of section 194A (3) is limited to the extent of the income being paid by the payee to the extent of Rs.10,000/- and no further. Reliance placed by the learned Counsel for the petitioner on sub-clause (v) of clause (iii) of sub-section (3) of section 194A is misplaced. The said sub-clause (v) would only apply to such income credited or paid by a co-operative society to a member thereof or to any other co-operative society. Sub-clause (5) W.P. No. (viia) (a) and (b) lays down the specific categories of the banks which are exempted from deducting TDS. The income accrued on the deposits other than the time deposits made after 1st day of July, 1995 is not exempted from deducting the TDS by urban co-operative Bank. Sub-clause (viia) (a) does not include urban co-operative Bank and sub clause (b) of clause (viia) limits the exemption to deposits other than the time deposits. 6.It is a settled proposition of law that various sub-sections in a provision have to be read in harmony. A head on collision between sub-sections of the same provision has to be avoided. They cannot be read in a manner which would render one provision superfluous or a dead letter. Reading clause (viia) and clause (v) conjointly and in harmony, the only irresistible conclusion that can be drawn is that interest above Rs.10,000/- credited on time deposits by urban co-operative Bank in the account of the payee would be liable for deduction of the tax at source, meaning thereby that an interest credited below Rs.10,000/- by urban co-operative Bank will not be liable for the tax deducted at source. Even the learned Asstt. Solicitor General conceded to the position that for amount below Rs.10,000/-, TDS is not required to be deducted by the urban co-operative Bank. (6) W.P. No. 7.The Circular impugned does not clarify the aforesaid aspect. The Circular will have to be read in a manner that if the amount more than Rs.10,000/- is credited as an interest on time deposits, then the urban co-operative Bank is liable to deduct the TDS as is laid down in said provisions of section 194A and that urban co-operative Bank is not liable to deduct TDS if the interest accrued on time deposits is less than Rs.10,000/-. 8.Writ Petition accordingly is disposed of. Rule discharged. No costs. (N.W. SAMBRE, J.) (S.V. GANGAPURWALA, J.) amj/wp4935.03