JUDGMENT - VAGYANI B.B., J.:---Rule. Rule made returnable forthwith. 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 principle of co-operation 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 194-A of the Income Tax Act, 1961 deals with interest other than interest on securities. Sub-section (1) of section 194-A mandates deduction of income tax at source in respect of the income by way of interest whereas sub-section (3) of section 194-A engrafts an exception to the applicability of the provisions of sub-section (1). Section 194-A(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

Click Here to Read the rest of this document