B. B. Vagyani, J.
1. Rule. Rule made returnable forthwith. With consent of parties, taken up for final hearing forthwith.
2. The Maharashtra Co-operative Societies Act was enacted with a view to provide for orderly development of the co-operative movement in the State of Maharashtra in accordance with the relevant directive principles of State policy enunciated in the Constitution of India. The application of the principles of cooperation has made it possible for a society composed of comparatively poor and weak men to give its members some of the advantages ordinarily obtainable only to the rich and strong. The co-operation is not a merely business but a combination of business and a spirit of service.
3. The petitioner No. 1 is a Central Bank within the meaning of Section 2(6) of the Maharashtra Co-operative Societies Act, the object of which includes creation of funds to be advanced in the form of loans to other societies such as agricultural, co-operative and multipurpose co-operative societies.
4. Section 194A of the Income Tax Act, 1961 deals with interest other than interest on securities. Sub-section (1) of Section 194A mandates deduction of income tax at source in respect of the income by way of interest whereas Sub-section (3) of Section 194A engrafts an exception to the applicability of the provisions of Sub-section (1). Section 194A(3)(v) grants an exemption from T.D.S. to such income credited or paid by the co-operative society to a member thereof or to any other co-operative society. Clause (v) of Sub-section (3) of Section 194-A is very lucid and clear in its terms which suggests that the provisions relating to T.D.S. are inapplicable to the income credited or paid by the co-operative society to the member thereof. The word 'Member' used in this provision is without any words of limitation.
5. The expression 'Member' is defined in Section 2(19) of the Maharashtra Co-operative Societies Act, 1960. The said definition of Member includes nominal, associate, or sympathizer member also.
6. Under Circular No. 9 of 2002 issued by the CBDT, it is an accepted fact that the provisions of T.D.S. are not enforceable in respect of interest paid by the co-operative society/bank to its members or co-operative societies. But T.D.S. is to be deducted from the interest paid to the non-members. The CBDT in its Circular No. 9 of 2002 dated 11th September 2002, has made it clear that the exemption is available only to such members who have joined in application for the registration of co-operative society and those who are admitted to the membership after registration in accordance with the bye-laws and rules. The members eligible for exemption under Section 194-A(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 general body meeting or special general body meeting of the co-operative bank and must be entitled to receive share from the profits of the co-operative bank. Acting upon the aforesaid circular, the consequential orders are issued by the Income Tax authorities.
7. According to the petitioner, the CBDT cannot issue a Circular which is contrary to the provisions of Section 194-A (3)(v) of the Income Tax Act, 1961. The circular issued by the CBDT deprives the exemption granted by the central enactment and, therefore, the said circular is bad in law and liable to be quashed and set aside. The petitioner has challenged the circular issued by CBDT. The CBDT has issued the circular by virtue of Section 119 of the Income Tax Act, 1961. The petitioner has found fault with the authority of CBDT. The power which has been assumed by CBDT, does not in fact springs from Section 119 of the Income Tax Act, 1961. No doubt, Section 119 of the Act empowers the CBDT to issue instructions to the subordinate authorities for proper administration of the Act. Having aggrieved by the impugned circular, the petitioner has filed this writ petition under Article 226 read with 227 of the Constitution of India and thereby challenged the validity of the impugned circular (Exh.A) and the competency of CBDT.
8. Similar challenge to the said circular is also given by the petitioner in Writ Petition No. 2261 of 2003. The petitioner therein is an Income Tax Consultant of Jalgaon.
9. In response to the notice, one S. Y. Jawale, Income Tax Officer, Ward 2(3), Jalgaon has filed affidavit in reply on behalf of the respondents. It is stated in the affidavit that the definition of 'Member' does not include nominal member. It is denied that the CBDT has no authority to issue circular under challenge. It is further stated in the affidavit in reply that the CBDT, while issuing the impugned circular, has acted within its ambit by virtue of Section 119 of the Income Tax Act, 1961. It is stated in the affidavit in reply that the interim stay granted by the Gujarat High Court to the impugned Circular has been subsequently vacated on 13-1-2003 and, therefore, the petition filed by the petitioner is liable to be dismissed with costs.
10. We heard Shri P. M. Shah, learned Senior Counsel for the petitioner in Writ Petition No. 563 of 2003, Shri A. G. Talhar, learned counsel for the petitioner in Writ Petition No. 2261 of 2003, Shri Patil, learned AGP for the State of Maharashtra and Shri V. D. Sonwane, learned Additional Standing Counsel for the Union of India, at length.
11. The circular No. 9 of 2002 dated 11-9-2002 issued by the CBDT is challenged in both the writ petitions. Identical question is raised in both the writ petitions and, therefore, by common judgment, both the writ petitions are disposed of.
12. Shri Shah, learned Senior Counsel, during the course of submissions, highlighted following points :
(1) The definition of 'Member' as envisaged in Section 2(19) of the Maharashtra Co-operative Societies Act, 1960 also includes nominal member, associate member and sympathizer member.
(2) Section 119 of the Income Tax Act, 1961 empowers CBDT to issue only administrative instructions to subordinate Income Tax authorities for proper administration of the provisions of the Income Tax Act, 1961.
(3) The CBDT does not have any authority in law to withdraw the exemption granted by the Parliamentary legislation, as contemplated under Section 194-A(3)(v) of the Act to the Cooperative society.
13. Shri Shah, learned Senior Counsel submitted that Parliamentary legislation in the form of Section 194-A(3)(v) of the Income Tax Act, 1961 cannot be allowed to be defeated or frustrated by administrative instructions. The circular under challenge, according to Shri Shah, learned Senior Counsel, is directly in conflict with Section 194-A(3)(v) of the Income Tax Act, 1961. According to him, the CBDT is not empowered in law to withdraw the exemption granted under the law without there being any authority of law. He further submitted that the power of CBDT under the provisions of Section 119 of the Income Tax Act, 1961 only allows to issue such orders, instructions and directions to subordinate Income Tax authorities for proper administration of the provisions of Income Tax Act and such authorities are expected to observe and follow such orders, instructions and directions of CBDT. Therefore, the impugned circular is liable to be quashed and set aside.
14. In order to buttress his submissions, learned Senior Counsel Shri Shah has relied upon following cases :
(1) Banque Nationale De Paris v. Commissioner of Income Tax, 1999 IT R. 237 518. (2) K. K. Adhikari v. T. G. Kulkarni, 1980 CTJ 241 (3) The Commissioner of Income Tax, Nasik v. Varangaon Co-operative Fruit and Agricultural Produce Sale Society Ltd. Varangaon, Income Tax Application No. 20 of 1987 decided on 26th July, 1990 and (4) U. P. Co-op. Cane Union Federation Ltd. Lucknow v. Commissioner of Income Tax, Lucknow, : [1999]237ITR574(SC) .
15. The learned Additional Standing Counsel Shri Sonwane for Union of India has argued that the CBDT, by virtue of Section 119 of the Income Tax Act, 1961, can certainly clarify by circular who are the beneficiaries under Section 194-A(3)(v) of the Income Tax Act, 1961. He submitted that the nominal member of a co-operative society has no right to vote and he cannot even participate in a general body meeting. According to him, the nominal member does not get rights and privileges of a duly qualified member. For this purpose, he mainly relied upon Sub-section (2) of Section 24 of the Maharashtra Cooperative Societies Act, 1960. He finally submits that the challenge to the impugned circular issued by the CBDT is devoid of any force and, therefore, both the writ petitions are liable to be rejected.
16. We gave anxious consideration to the rival submissions made at the Bar. The expression 'Member' is not defined in the Income Tax Act, 1961. A co-operative society has to be established under the provisions of law made by the State Legislature. The definition of expression 'Member' is given under Section 2(19) of the Maharashtra Co-operative Societies Act, 1960. As per the definition, 'Member' means a person joining an application for registration of a co-operative society, which is subsequently registered or a person duly admitted to membership of a society after registration and includes a nominal, associate or sympathizer member.
17. In case of M/s U. P. Co-op. Cane Union Federation Ltd., Lucknow (cited supra), the Supreme Court has held that the expression 'Member' is not defined in the Income Tax Act. Since the Co-operative society has to be established under the provisions of law made by the State Legislature in that regard, the expression 'Member' in Section 80-P(2)(a)(i) must, therefore, be construed in the context of the provisions of law enacted by the State Legislature under which the co-operative society claiming exemption has been formed. The Supreme Court has further observed that it is necessary to construe the expression 'Member' in Section 80-P(2)(a)(i) of the Act in the light of the definition of 'Member' given under Section 2(n) of the U. P. Co-operative Societies Act, 1965.
18. The definition of 'Member' given in Section 2(19) of the MaharashtraCo-operative Societies Act, 1960 takes within its sweep even a nominal member,associate member and sympathizer member. There is no distinction madebetween duly registered member and nominal, associate and sympathizermember.
19. In the case of K. K. Adhikari (cited supra), Division Bench of this Court has held that the definition of a Member under Section 2(19) of the Maharashtra Co-operative Societies Act, 1960 includes a nominal member or a sympathiser member. It is further held that notwithstanding the fact that a nominal member does not enjoy all the rights and privileges which are available to an ordinary member, his status is that of a member as defined in Section 2(19) of the Act.
20. Division Bench of this Court in the case of The Commissioner of Income Tax, Nasik (cited supra) has also taken similar view that the definition of 'Member' under Section 2(19) (a) of the Maharashtra Co-operative Societies Act, 1960 includes a nominal member. It is further held by the Division Bench that there is nothing in Section 80-P(2)(iii) of the Income Tax Act to the contrary.
21. The reliance on Sub-section (2) of Section 24 of the Maharashtra Cooperative Societies Act, 1960 by Shri Sonwane, learned Additional Standing Counsel for Union of India is misconceived. The question for consideration is not with regard to what are the rights and privileges of duly registered member and a nominal, associate or sympathizer member. The question that falls for consideration is as to whether the exemption granted to the co-operative societies in the matter of T.D.S. can be taken away by making distinction between duly registered member and a nominal member. Section 194-A(3)(v) of the Income Tax Act, 1961 does not contemplate such a distinction.
22. The rights and privileges of a duly registered member under the Maharashtra Co-operative Societies Act, 1960 and the rights and privileges of a co-operative society under Section 194-A(3)(v) of the Income Tax Act, 1961 are two distinct things. We are not called upon to decide what are the rights and privileges of a nominal member, in the light of the provisions contained in Section 24(2) of the Maharashtra Co-operative Societies Act, 1960. We are concerned with as to whether the exemption granted to the co-operative society under Section 194-A(3)(v) can be taken away by creating a distinction between duly registered member and a nominal member, which is unknown to the exemption clause contained in Section 194-A(3)(v) of the Income Tax Act, 1961.
23. The impugned Notification issued by CBDT, which is in the form of clarification with regard to rights and privileges of a duly registered member and nominal member is outside the scope of Section 119 of the Income Tax Act, 1961. No doubt, Section 119 of the Income Tax Act, 1961 generates some power in CBDT. But the power so generated by virtue of Section 119 is required to be utilized in a prescribed manner. CBDT is empowered to issue only administrative instructions to the subordinate authorities for the purpose of proper administration and enforcement of the provisions of the Income Tax Act, 1961. Under the garb of Section 119 of the Income Tax Act, 1961, CBDT has crossed its authority. What is not contemplated in exemption clause under Section 194-A(3)(v) of the Income Tax Act, 1961 cannot be imported to deprive the exemption granted to co-operative society by issuing the impugned circular. By impugned circular, the co-operative society cannot be deprived of its right of exemption given under Income Tax Act, 1961. The CBDT has over-stepped its authority and has issued the impugned circular directly in conflict with the provisions contained in Section 194-A(3)(v) of the Income Tax Act, 1961. Section 119 of the Income Tax Act, 1961 does not at all support the action of CBDT.
24. The Division Bench of this Court, in the case of Banque Nationale DeParis (cited supra), has ruled out that CBDT cannot issue a circular under Section119 of the Act, which would override or detract from the provisions of theIncome Tax Act, 1961. CBDT can legitimately issue administrative instructionsor orders by exercising powers under Section 119 of the Income Tax Act, 1961.However, by virtue of Section 119 of the Act, the CBDT is not at all permitted tooverride or withdraw the exemption clause under Section 194-A(3)(v) of theIncome Tax Act, 1961. Assumption of such powers in CBDT by virtue of Section 119 of the Income Tax Act, 1961 would really amount to bestowing powers ondelegated authority even to amend the provisions of the Income Tax Act, 1961enacted by the Parliament.
25. Having examined the validity of the impugned circular from all angles, we are of the clear opinion that CBDT has no authority to make a crack in the exemption clause contained in Section 194-A(3)(v) of the Income Tax Act, 1961 by issuing the impugned circular. The CBDT cannot usurp the powers of Parliament by virtue of Section 119 of the Income Tax Act, 1961. The CBDT, under the garb of Section 119 of the Income Tax Act, 1961, cannot exercise wider powers than the powers bestowed on it. The CBDT has no power to introduce a substantial change or alteration in the provisions of the Income Tax Act, 1961 by importing the ideas unknown to the Income Tax Act, 1961. The impugned circular, therefore, does not stand to the legal test.
26. In the result, both the writ petitions are allowed. The impugned circular No. 9 of 2002 dated 11-9-2002 (F. No. 275/106/2000/IT (B) Annexure-A) is quashed and set aside. Similarly, the letter issued by the Income Tax Officer, Jalgaon, Ward No. 2(3) (No. JAL/ITO/2(3)/TDS/194/2000-03 dated 9-10-2002 Annexure B) is also quashed and set aside. Rule made absolute in the above terms.