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Facts
The assessee, a cooperative bank, conducted a TDS survey which identified cases of non-deduction of TDS on interest paid to other cooperative societies and to a government-run temple. The Assessing Officer raised a demand, which was partly confirmed by the CIT(A). The assessee filed an appeal before the Tribunal.
Held
The Tribunal held that Section 194A(3)(v) of the Income Tax Act, 1961, exempts interest payments made by a cooperative society to another cooperative society from TDS, regardless of amendments. It also held that interest paid to the government-run Jagan Nath Temple is exempt from TDS as per Notification SO 3489.
Key Issues
Whether interest paid by a cooperative bank to other cooperative societies and to a government-run temple is liable for TDS under Section 194A of the Income Tax Act, 1961.
Sections Cited
253, 250, 201(1), 201(1A), 246A, 194A, 194A(3)(v), 194A(3)(i)(b), 194A(3)(viia), 194A(3)(iii)(F)
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आयकर अपीलीय अिधकरण,च"ीगढ़ "ायपीठ “ए” , च"ीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH HEARING THROUGH: HYBRID MODE "ी िव"म िसंह यादव, लेखा सद" एवं "ी परेश म. जोशी, "ाियक सद" BEFORE: SHRI. VIKRAM SINGH YADAV, AM &SHRI. PARESH M. JOSHI, JM आयकर अपील सं./ T0 127/Chd/2020 िनधा"रण वष" / Assessment Year : 2016-17 TO 2018-19 The HP State Cooperative Bank Ltd. बनाम The ITO (TDS) Near Chawgan Nahan, Sirmour, Solan Himachal Pradesh-173001 "ायी लेखा सं./PAN NO: PTLT11473A अपीलाथ"/Appellant ""थ"/Respondent िनधा"रती की ओर से/Assessee by : Shri Sachin Doger, C.A राज" की ओर से/ Revenue by : Shri Vivek Vardhan, Addl. CIT, Sr. DR सुनवाई की तारीख/Date of Hearing : 16/01/2025 उदघोषणा की तारीख/Date of Pronouncement : 27/02/2025 आदेश/Order PER PARESH M. JOSHI, J.M. :
This is an appeal filed by the Assessee under section 253 of the Income Tax Act, 1961 (hereinafter referred to as the Act for sake of convenience and ease) before this Tribunal. The assesseee is aggrieved by the common order bearing number ITBA/APL/M/250/2019- 20/1021304437(1) dt. 25/11/2019 of CIT(A) Shimla, H.P. passed u/s 250 of the Act which is hereinafter referred to as the “impugned order”. The relevant assessment year is 2016-17 and the corresponding previous year period is from 01/04/2015 to 31/03/2016.
At the outset the Registry has pointed out that the above appeals are barred by limitation by 02 days.
2 3. After considering the condonation application filed by the assessee in all the above appeals, we condone the delay for which sufficient cause is shown, and admit all the appeals for adjudication.
Since the issues involved in all the above appeals are common and were heard together so they are being disposed off by this consolidated order. With the consent of both the parties we take up Appeal No. 125/Chd/2020 for A.Y 2016-17 as a lead case.
Factual Matrix 4. 4.1 The assessee is a Cooperative Society registered under the Himachal Pradesh Co-operative Societies Act, 1968 and it is engaged in the business of banking.
4.2 That a TDS survey was conducted by the Income Tax Department on 12/10/2018 at Nahan Branch of the Assessee bank in State of Himachal Pradesh.
That all the records of ‘interest paid’ on term deposit were called 4.3 and very few cases of “NON DEDUCTION OF TAX AT SOURCE” were pointed out by the survey team and that a show cause notice in this regard was issued by the Income Tax Department to the assessee bank.
4.4 That by an order dt. 09/01/2019 for A.Y. 2016-17 passed under section 201(1) / 201(1A) of the Act an amount of Rs. 1,16,830/- (Rs. 88273 3 under section 201(1) + Rs. 28,557/- under section 201(1A)) was quantified / assessed leading to a demand by the Income Tax Department upon the assessee bank.
4.5 That the assesse being aggrieved by the aforesaid order dt.
09/01/2019 preferred a first appeal before Ld. CIT(A) u/s 246A of the Act and by “impugned order” the aforesaid demand was partly confirmed and the assessee bank appeal was partly allowed.
4.6 That the Assessee being aggrieved by the “impugned order” has preferred present second appeal before us and has raised following grounds of appeal in Form 36 against the “impugned order” which are as follows:
The learned Commissioner of Income Tax (Appeals) has erred on facts andin law in upholding that the interest paid by the assessee co-operative bank to its members & other co-operative societies as liable to TDS u/s 194A and consequently erred in upholding ITO(TDS)'s action of levyingtax and interest on such cases. The learned CIT(A) failed in appreciating the scheme and logic behind sec.l94A and 2. the correct legal position in this behalf. 3. The exemption provided under section 19iA(3)(v) of the Act with regard to deduction of tax at source from interest payment by a cooperative society to another cooperative society existed before the amendment made by the Finance Act 2015 and continued to apply even after the amendment. As per provisions of section 194A(3)(v), Appellant Co-operative Bank is not required to 4. deduct Tax from the payment of interest on time deposit of other being a co-operative society. 5. Further in terms of section 194A(3)(i)(c) no tax is deductible on interest payment to any undertaking or body incl. society wholly financed by Govt. This squarely cover the payment of interest made to Jagan Nath Temple which is under administrativecontrol of State Govt. This submission was dulymade before the Id CTT( A), However, in his order the Ld CIT(A) has stated that no such submission was made, which is not correct.
The above grounds are independent and without prejudice to one another. 6. 4 The appellant prays to add, amend, alter, and forego any of the above grounds at 7. the time of hearing.
Record of Hearing 5.1 The hearing in the matter took place before this Tribunal on 16/01/2023 when the Ld. AR for an on behalf of the assessee society bank appeared and placed on record of this Tribunal a brief submission containing page 1 to 4 and two decision of ITAT one of Chandigarh Bench and other of Pune Bench. It was interalia contended that “impugned order” is illegal, bad in law and not proper and that the same deserves to be set aside. It was submitted that assessee bank in first appeal was granted partial relief for some of individual deductee cases by remanding back these such cases to Ld. ITO TDS for verification and in some of the deductee cases (mainly Cooperative Society assessee) the Ld. CIT(A) confirmed the demand.
5.2 That demand confirmed by the Ld. CIT(A) was mainly confirmed on two parameters:
(a) Now deduction of TDS on interest paid by the assessee co-operative bank to other co-operative societies by invoking of section 194A(3)(i)(b) and 194A(3)(viia)
And (b) denying the provisions of section 194 A(3)(v).
5 * Non deduction of TDS on interest paid by the assessee co-operative bank to Government run temple.
5.3 It is contended before us that additionsare made by invoking section 194A(3)(i)(b) and 194A(3)(viia)(b) and denying the provisions of Section 194A(3)(v). The Ld. CIT(A) in para 5.1.2 (page 9) of the impugned order has stated that “there is no rational for treating the co-operative banks differently from other commercial banks in the matter of deduction of tax and allowing them to avail the exemptions meant for smaller credit co-operative societies formed for the benefits of small number of members”. However while doing so, the CIT(A) did not considered the assessee submission that these deductee co-operative societies does not fall in specific section 194A 3(i)(b) or 194A (viia)(b). Rather this is a case of “payment of interest” by a co-operative society to “Another Co- operative Society” which squarely falls in TDS exempted payment u/s 194A(3)(v). That this exemption is still intact even after the amendment made by the Finance Act, 2015. That as per the Finance Act following amendment was made in Section 194A.
In Section 194A of the Act, in sub section (3), with effect from the 1st day of June 2015, in clause (v), for the words paid by a co-operative society to a member thereof or the words and brackets” paid by a co- operative society (other than a co-operative bank) to a member thereof 6 or to such income credited or paid by a co-operative society” shall be substituted.
Thus the clause (v) of sub section (3) of Section 194A before amendment and after amendment stood as under:
Section 194A(3)(v) before amendment Section 194A(3)(v) after amendment To such income credited or paid by a To such income credited or paid by a co- cooperative society to a member thereof operative society (other than a co- or to any other co-operative society operative bank) to member thereof or To such income credited or paid by a co- operative society to any other co- operative society.
From the above analysis of pre amendment status and post amended status of 194A(3)(v) it is clear that the following words “such income credited or paid by a co-operative society to any other co- operative society” still falls u/s 194A(3)(v) and therefore the assessee cooperative society was not required to deduct tax u/s 194A on such interest payment to another co-operative society.
5.4 Reliance was placed by AR on the following judgments / orders of ITAT Chandigarh Benches decisions which are as under:
(i) Punjab State Cooperative Bank Ltd. Chandigarh Vs. ITO(TDSII) Chandigarh in dt. 01/07/2016 wherein the following was held 7 “Therefore in view of the above discussion it is held that the appellant, a cooperative society is not required to deduct tax from the payment of interest on time deposit to its members being cooperative societies.” ““On reading the memorandum of Finance Bill, 2015, it" is clear that the exemption provided under section 194A(3)(v) of the Act with regard to deduction of tax at source from interest payment bya cooperative society to another cooperative society existed before the amendment, and continue to apply to the cooperative bank even after the amendment. It was made further clear that such exemption to cooperative bank is available only when the depositor is a cooperative society"
5.5 On another similar case, the Hon'ble DIVISION bench of this tribunal in case of The Income Tax Officer(TDS)-l, Ludhiana Vs. The Ludhiana Central Cooperative Bank Ltd., Income Tax Appellate TribunalDIVISION BENCH-Chandigarh 29.11.2016 again upheld this position of law citing the above case law of Punjab State Co-op Bank In Concluding para 8 of order the hon'ble bench held that:
The facts in the present case, we find are identical to that in the case of The Punjab State Coop Bank Ltd., Chandigarh (supra) as in this case the assessee being a cooperative society has paid interest without deducting tax at source to other cooperative societies. Since the I.T.A.T., Chandigarh Bench has in the impugned case held that the assessee would enjoy immunity from deduction of tax at source under the provisions of section 194A(3)(v) o f the Act on such payments of interest i.e. from one cooperative society to another cooperative society, the decision rendered therein would squarely apply in the present case following which we uphold the order of the CIT (Appeals) in holding that the assessee is not an assessee in default under section 201(1) of the Act and consequently interest under section 201(1A) of the Act also cannot be levied Similar view were held by Hon'ble ITAT Pune bench A", in case of Abhyudaya Co-op. Bank Ltd VS/ The Income Tax Officer (TDS), 05.04.2018. Thus in view of above submission, we are to submit that as per provisions of section 194A(3)(v), the appellant Co-operative Bank is not required to deduct tax from the payment of interest on time deposit of other being a co-operative society and any demand raised on contrary view needs to be deleted.
8 5.6 With regard to interest paid to “Jagan Nath Temple Nahan” it was submitted that the said Temple is runed by State Government only and as such interest is also not subject to TDS as per Notification SO 3489 dt. 22/10/1970 under section 194A(3)(iii)(F) which includes “ any undertaking or body including a society registered under the societies Registration Act, 1860 (21 of 1860) financed wholly by the Government”.
5.7 Per contra the Ld. DR has gone by the impugned order and has stated that there is no legal infirmity in it and that the same should be not be disturbed.
6 Observations, findings and conclusions 6.1 We now examine the legality validity and proprietary of the impugned order basis records of the case.
6.2 We have perused the records of the case and have examined the rival contentions we are of the considered view that by virtue of section 194A(3)(v) of the Act (whether pre amended and / or post amendment (supra) the assessee bank is not liable to deduct TDS on any payment made to a cooperative society and contentions canvassed by the assessee bank is meritorious in nature. The Assessee bank has rightly not deducted TDS on payment made to “SMR Coop Bank Emp Society Nahan”& “The SBI Emp Non-Agri/CR/SEV Coop Society”. The addition 9 made on this count is liable to be deleted. The Section 194A(3)(v) of the Act was express and clear with regard to cooperative society. We hold that it is not mandatory requirement in law that such societies (depositors) should be “Members” of Cooperative Bank. Section 194A(3)(v) expressly say that “Income is credited or paid by a cooperative society to any other cooperative society” then such income payment or credit need not be made subject matter of TDS. The other cooperative societies to whom payment is made or amount credited need not be a member of cooperative society so making payment.
6.3 We gainfully refer to the order of ITAT Chandigarh Bench in cases of (1) Punjab State Co-operative Bank Ltd. Chandigarh Vs. ITO (TDS-II) Chandigarh in dated 01/07/2016, (2) Income Tax Officer (TDS-1) Ludhiana Vs. The Ludhiana Central Co-operative Bank ltd. Ludhiana in ITA No. 196/Chd/2016 dt. 29/11/2016 wherein it has been that when assessee being a Cooperative Society paid interest without deducting tax at source to other cooperative societies then such assessee would enjoy immunity from deduction of tax at source by virtue of section 194A(3)(v) of the Act. The said decisions would squarely apply in the present case. We thus hold that by virtue of the provisions of Section 194(A)(3)(v) the assessee is not required to deduct from payment of 10 interest on time deposit of other being a cooperative society and that any demand raised to the contrary view (Supra) needs to be deleted.
6.4 In so far as other ground /contention that assessee was required to deduct “TDS” on interest paid to “Jagan Nath Temple Nahan” we hold that said temple is being run by state Government that interest payable to Temple is not liable to TDS / or subject to TDS by virtue of notification so 3489 dt. 22/10/1970 under section 194A(3)(iii)(f) which includes “ any undertaking or body, including a society registered under the Societies registration Act, 1860 (21 of 1860) financed wholly by the Government.”
In view of aforesaid we hold that Assessee’s action in not deducting TDS is justifiable.
Order 7.1 In the premises laid down by us, we allow the appeal of the assessee.
7.2 In result, appeal of assessee is allowed, additions made in “impugned order” in so far as aforesaid are concerned are deleted.
Both the parties fairly submitted that the facts and circumstances of other two appeals i.e and 127/ Chd/2020 are exactly identical to the Appeal in ITA No. 125/Chd/2020 and similar contentions raised 11 therein may be considered, therefore, our findings and directions given in ITA No. 125/Chd/2020 shall apply mutatis mutandis to these two appeals which are accordingly allowed.
In the result, all the above appeals filed by the Assessee are allowed.
Order pronounced in the open Court on 27/02/2025 िव"म िसंह यादव परेश म. जोशी ( VIKRAM SINGH YADAV) (PARESH M. JOSHI) लेखासद"/ ACCOUNTANT MEMBER "ाियक सद" / JUDICIAL MEMBER AG