MOOLAMATTOM ELECTRICITY BOARD EMPLOYEES' COOPERATIVE BANK LTD.: IN RE VS MOOLAMATTOM ELECTRICITY BOARD EMPLOYEES' COOPERATIVE BANK LTD.: IN RE
2001 P T D 84
[238 I T R 630]
[Kerala High Court‑(India)]
Before P. Shanmugam, J
In re: MOOLAMATTOM ELECTRICITY BOARD EMPLOYEES COOPERATIVE BANK LTD. and others
O.P. Nos. 12927, 14931, 15432, 16389 and 17082 of 1997, decided on 10/07/1998.
(a) Income‑tax‑‑‑
‑‑‑‑Deduction of tax at source‑‑‑Cooperative society‑‑‑Exemption from liability to deduct tax at‑source‑‑‑Scope of subsection (3) of S. 194A‑‑ Cooperative society is entitled to exemption‑‑Indian Income Tax Act, 1961, Ss.2 & 194A.
Section 194A of the Income Tax Act, 1961, provides that any person who is responsible for paying any income by way of interest other than income by way of interest on securities, shall at the time of credit of such income or payment thereafter deduct income‑tax thereon at the rates in force. Subsection (3) of section 194A sets out certain, categories of persons who are exempted from section 194A. Income credited or paid to institutions like Life Insurance Corporation, Unit Trust of India or cooperative society carrying on business of insurance are exempted. The exemption clause in reference to the cooperative society, calls for a liberal interpretation. If one were to go by the plain meaning of the cooperative society as defined under the Income‑tax Act, the provisions of subsection (1) of section 194A do not apply to a primary credit society. If the definition as set out in the Banking Regulation Act under section 56 were to be applied, there should have to be a further investigation as to the eligibility. Resort to a different provision of another Act may be relevant in the absence of a definition or of a technical nature. For the purpose of understanding the "cooperative‑ society" the meaning that can be given is only as per the definition under section 2(19) of the Income‑tax Act and not otherwise. They are not controlled or governed by the Reserve Bank of India and they are registered and are bound by the provisions of the Cooperative Societies Act. Hence, cooperative societies are exempted and are not liable to make deduction of tax at source.
(b) Interpretation of statutes‑‑‑
‑‑‑‑Provision for exemption‑‑‑Liberal interpretation‑‑‑Resort to different provision of another Act.
Alikunju (P.), M.A. Nazeer Cashew Industries v. CIT (1987) 166 ITR 804 (Ker.); Broach Dist. Cooperative Cotton Sales, Ginning and Pressing Society Ltd. v. CIT (1989) 177 ITR 418 (SC); CIT v. Bagyalakshmi & Co. (1965) 55 ITR 660 (SC) and CIT v. Shaan Finance (P.) Ltd. (1998) 231 ITR 308 (SC) ref.
Raveendranatha Menon and N.R.K. Nair for Petitioners.
JUDGMENT
P. SHANMUGAM, J.‑‑‑The petitioners are primary credit societies registered under the Kerala Cooperative Societies act. They have challenged the notices issued by the Income‑tax Officer in reference to tax deduction on interest other than interest on securities required under section 194A of the Income Tax Act, 1961 (hereinafter referred to as "the Act").
The impugned notice proceeded on the basis that the cooperative societies would be governed by section 194A of the Act for the purpose of deduction of tax at source from the interest paid or credited on deposits and their failure to deduct tax at source amounts to violation of the provisions of the Income‑tax Act. The cooperative societies have taken up the stand that they are exempted under section 194A and they are not coming within the purview of the said section. Therefore, the question for consideration is whether the petitioner‑cooperative societies are liable to deduct tax on interest paid or credited at source as required. Section 194A of the Act obliges any person who is responsible for paying any income by way of interest other than income by way of interest on securities, shall at the time of credit of such income or payment thereafter deduct income‑tax thereon at the rates. Subsection (3) of section 194A sets out certain categories of persons who are exempted from section 194A.
Income credited or paid to institutions like LIC, Unit Trust of India or cooperative society carrying on business of insurance are exempted. Subsection (3)(v) of section 194A, which is relevant for the purpose, is extracted below:
"(3) The provisions of subsection (1) shall not apply‑‑...
(v) to such income credited or paid by a cooperative society to a member thereof or to any other cooperative society."
Subsection (3)(viia) reads as follows:
"(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 cooperative 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 cooperative society, other than a cooperative society or bank referred to in sub‑clause (a), engaged in carrying on the business or banking."
"Cooperative society" has been defined under section 2(19) of the Income‑tax Act, as follows:
" 'cooperative society' means a cooperative society registered under the Cooperative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of cooperative societies."
The case of the petitioners is that for the purpose of understanding the expression "cooperative society" one need not go beyond the definition given under the Income‑tax Act. According to section 2(19), it means a cooperative society registered under The Cooperative Societies Act. The petitioners satisfy this definition.
It is further submitted that subsection (3)((v) deals with such income credited or paid by a cooperative society to a member, whereas subsection (3)(viia)(a) provides a total exemption to deposits with the primary credit society. The petitioners are primary credit societies and, therefore, there is exemption towards deduction in respect of income credited :)r paid for the deposits. Their claim of exemption is reinforced and made clear, by a reading of subsection (3)(viia)(b) wherein deposits with the primary credit society referred in sub‑clause (a) engaged in carrying on the business activity are exempted. It is their further submission that, sub section (3)(viia) has been substituted by the Finance Act, 1995, with effect from July 1, 1995, which is as follows:
"(vii) to such income credited or paid in respect of deposits with a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act), or with a cooperative society engaged in carrying on the business of banking (including a cooperative land mortgage bank or a cooperative land development bank). "
The petitioners who are cooperative societies engaged in carrying on banking business, were made liable for deduction and got such income credited or paid in respect of deposits. By the amendment, substituting in the present form, the primary cooperative societies are excluded and exempted from deduction and the intention of the Legislature is evident.
For these reasons, the petitioners seek for quashing of notices as one without jurisdiction. On behalf of the respondents, an additional statement has been filed. According to them, a cooperative society doing banking business is governed by the Banking Regulation Act which is a special enactment and, therefore, definition obtained in the Banking Regulation Act will govern the petitioners. As per the definition under the said Act, primary credit society whose paid up capital and reserve being more than Rs.1,00,000 would cease to be a primary credit society and they would become primary cooperative bank. Therefore, they would not come within the saving clause of section 194A(3)(viia)(a) of the Income‑tax Act. The provision under subsection (3)(i) of section 194A is available only if the amount does' not exceed Rs.2,500 and under the proviso the figure is fixed at Rs.10,000. So, if the amounts exceed the limit prescribed, cooperative societies are bound to deduct the tax at source.
In CIT v. Shaan Finance Company (P.) Ltd. (1998) 231 ITR 308, it was held by the Supreme Court that in interpreting a fiscal statute, the Court cannot proceed to make good the deficiencies if there are any. The Court must interpret statute as it stands and in case of doubt, in a manner favourable to the taxpayer. The Supreme Court in Broach District Cooperative Cotton Sales Ginning and Pressing Society Ltd. v. CIT (1989) 177 ITR 418, held that the object of section 81(i) (dealing with the income of cooperative societies) was to encourage and promote the growth of cooperative societies, and consequently a liberal construction must be given to the operation of that provision. A Division Bench of this Court in P. Alikunju, M.A. Nazeer Cashew Industries v. CIT (1987) 166 ITR 804, held that a provision for exemption or relief in a fiscal statute should be construed liberally and in favour of the assessee.
If one were to go by the plain meaning of the cooperative society as defined under the Income‑tax Act, the provisions of subsection (1) of 194A do not apply to a primary credit society. If the definition as set out in the Banking Regulation Act under section 56 were to be applied there should have to be a further investigation as to the eligibility within section 56 (ccvi) wherein it is stated that for the purposes of primary credit society three conditions are to be fulfilled. (1) The primary object or which is the transaction of banking business; (2) The paid‑up share capital and reserves of which are less than one lakh of rupees; (3) The bye‑laws of which do not permit admission of any other cooperative society as a member. In case of dispute as to the primary object 'of the society, it has to be determined by the Reserve Bank of India. Clause (ccvii) states that "cooperative society" shall have the meaning assigned to it in the National Bank for Agricultural and Rural Development Act, 1981. Section 3 of the Banking Regulation Act excludes the provisions of the said Act to a primary agricultural credit society, cooperative land mortgage bank and any other cooperative society except in the manner and to the extent specified in Part V. The position as it stood before the substitution of the clause by the Finance Act, 1996, was to the effect that all cooperative societies engaged in carrying on the business of banking were given the exemption. It is now confined to certain cooperative societies not engaged in carrying on the business of banking. On a plain reading of subsection (3)(viia) of the Act read with section 2(19) of the Act, there is total exemption and that is fortified by subsection (3)(viia)(b). Hence, there is no scope for the argument that the primary cooperative societies are not exempted. That would be .reading something not found in the Income‑tax Act, but could only be stretching the definition found under the Banking Regulation Act. Resort to a different provision of another Act may be relevant in the absence of a definition or of a technical nature. For the purpose of understanding the "cooperative society" the meaning that can be given is only as per the definition under section 2(19) of the Income‑tax Act and not otherwise.
The contention that subsection (3)(i) exemption limit has been increased to Rs.10,000 to time deposits with cooperative societies engaged in carrying on business of banking, would have to be reconciled and if so done, then all cooperative societies who have credited or paid exceeding Rs.10,000 are liable for deduction cannot be accepted. Firstly, the proviso deals only with the time deposit and secondly the expression used is "the cooperative society engaged in carrying on business of banking". There may be many cooperative societies that may come under subsection (3)(viia)(b). The proviso could be referable only to those cooperative societies and cannot be to primary credit societies to which class the petitioners belong.
The contention of learned senior counsel for the Revenue referring to the Supreme Court decision in CIT v. Bagyalakshmi & Co. (1965) 55 ITR 660, to the effect that except where there is specific provision of the Income- tax Act which derogates from any other statutory law or personal law, .the provision will have to be considered in the light of the relevant branches of law. This judgment, in my view, may not apply to the facts of this case. Here there is a specific provision defining cooperative society. Secondly, in that case, the registration of a firm was cancelled on the ground the partnership deed did not specify the correct shares. The Supreme Court held that the partition did not affect in any way their relationship with the other partners, qua the partnership, or the validity or genuineness of the partnership and held that the Commissioner was wrong, in cancelling the registration. The exemption clause in reference to the cooperative society, calls for a liberal interpretation. That part, a plain interpretation of the relevant clauses would go to show that there is a clear exemption in favour of a primary credit society. It may not be possible or open for the Revenue to dissect and find out the object of the primary credit society and share limit of the primary credit society so as to classify them as cooperative bank and remove them out of the purview of the exemption clause. That is a matter to be decided under the Banking Regulation Act. As rightly contended by the petitioners, they are not controlled or governed by the Reserve Bank of India and they are registered and are bound by the provisions of the Cooperative Societies Act.
For all these reasons, I hold that the initiation of the notices on the premises that the cooperative societies cannot be exempted and are liable to make deductions are illegal and cannot be sustained, and the respondents have proceeded without authority or jurisdiction.
The original petitions are accordingly allowed
M.B.A./132/FC
Petition allowed.