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Facts
The assessee, a real estate company, obtained loans from various sources, including a credit cooperative society. During a survey, it was found that the assessee had not deducted TDS on interest paid to the credit cooperative society. The Assessing Officer treated the assessee as being in default for non-deduction of TDS and raised a demand.
Held
The Tribunal held that the assessee was not liable to deduct TDS on interest paid to the cooperative society, as it was engaged in the business of banking, and thus exempt under Section 194A(3)(iii)(a) of the Income Tax Act. The Tribunal also noted that the payee had paid taxes directly, meaning no loss was suffered by the revenue.
Key Issues
Whether the assessee was liable to deduct TDS on interest paid to a cooperative society engaged in banking, and whether the assessee could be treated as an assessee in default if the payee had already paid the tax.
Sections Cited
194A(3)(iii)(a), 201(1), 201(1A), 191, 2(24)(viia)
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Income Tax Appellate Tribunal, JAIPUR BENCHES,”SMC’’ JAIPUR
Before: Hon’ble SHRI SANDEEP GOSAINvk;dj vihy la-@ITA No. 866/JP/2024
ORDER PER: SANDEEP GOSAIN, JM This appeal filed by the assessee is directed against order of the ld. CIT(A), Udaipur-2 dated 10-05-2024 for the assessment year 2018-19 raising therein following grounds of appeal. ‘’1. On the facts and in the circumstances of the case and in law, the Id CIT(A) has erred in confirming the AO's action of raising TDS liability on interest payment to Hriday Credit Co-operative Society Ltd. of Rs. 38,36,566/- and further erred in charging interest thereon of Rs. 7,53,988/- u/s 201(1)/201(1A) of the Income Tax Act.
2 On the facts and in the circumstances of the case and in law, the Id CIT(A) has erred in confirming the order of the Assessing Officer treating the assessee as an assessee in default u/s. 201(1) in respect of the amount Millenium Buildhome Pvt Ltd. vs ITO (TDS), Kota of tax which has not been deducted under section 194-A from interest payment made to Hridaya Cooperative Credit Society and levying interest under section 201(1A). 3 On the facts and in the circumstances of the case and in law, the ld CIT(A) has erred in confirming the action of AO of treating the appellant as an assessee in default under section 201(1) of the Act notwithstanding that the payee had paid tax on the interest and so the appellant as a payer cannot be called upon to pay the tax on the same transaction again 4 On the facts and in the circumstances of the case and in law, the Id CIT(A) has erred in not following the favorable decision rendered by Hon'ble Madras High Court in SBI Staff Credit Cooperative Society ((1998) 234 ITR 104 (Mad)] by drawing analogy from the decision of Hon'ble Supreme Court rendered in CIT V/s Vegetable Products Ltd. (1972) 88 ITR 192) for the conclusion that in case of two reasonable constructions of taxing statutes, the one that favors the assessee must be adopted. 5 On the facts and in the circumstances of the case and in law, the Id CIT(A) has erred in confirming the AO's action of charging interest u/s 201(1A) of Rs.2,30,060/- in the case of M/s India Bulls Housing Finance and M/s Magma Housing Finance Co 6. On the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in not appreciating that that liability U/S 201 is vicarious and can not be invoked if the recipient of income's primary liability to pay tax has been discharged.
On the facts and in the circumstances of the case and in law, the Id CIT(A) has erred in not appreciating that if the recipient of income has deposited tax timely in the form of advance tax to revenue, there is no loss suffered to revenue, and no liability for penal interest can be invoked.’’ 2.1 Brief facts of the case are that the assesee is a real estate company carrying on the business construction of building. For the purpose of its business, the assessee company had obtained loans from individuals, bank and credit cooperative society. During the course of survey conducted by ITO (TDS), Kota on 08-08-2018, he found that the assessee had not deducted TDS on interest paid to Millenium Buildhome Pvt Ltd. vs ITO (TDS), Kota Hriday Credit Cooperative Society Ltd. (‘’ for short HCCSL’’) for F.Y. 2015-16, 2016-17 and 2017-18. While passing the order, the AO held the assessee to be in default u/s 201(1) and raised a demand in respect of the TDS not deducted on account of interest paid to HCCSL. In first appeal, the ld. CIT(A) has dismissed the appeal of the assessee holding that ‘’No fault is found in the order of the ITO, TDS with respect to this issue.’’ 3.1 The Bench during the course of hearing noticed that all the grounds bearing numbers 1 to 4 are interrelated and interconnected and relates to challenging the order of ld. CIT(A) in confirming the action of AO of raising TDS liability on interest payment made to Hriday Co operative Society Limited. Therefore I have decided to deal with all the four Grounds and decide the same through the present common order.
3.2 I have heard the counsel for both the parties and perused the material placed on record orders passed by the revenue authorities and the judgement cited by the respective parties. From the records I noticed that the assessee had obtained business loan from HCCSL which is a Multistate Credit Cooperative Society carrying on the business of banking and had paid interest to it as detailed below.
(i)F.Y. 2015-16 Rs. 9,30,370/- (ii)F.Y.2016-17 Rs. 1,58,81,625/- (iii)F.Y.2017-18 Rs.2,15,53,660/- Millenium Buildhome Pvt Ltd. vs ITO (TDS), Kota As per ld. AR the appellant was not required to deduct TDS on interest payments made to HCCSL, in view of the express provisions of 194A (3) (iii) a of the Act. It was also submitted that the auditor of the company in his audit report has also not made any adverse comments in this regard. However, on the contrary, the AO was of the view that under this section only those cooperative societies were covered that carried on banking business as per Banking Regulation Act 1949. Considering the above submissions in my view before dealing with the controversy in question it would be appropriate to quote section 194A (3) (iii) a of the Act which reads as under:-
‘’The provisions of sub-section (1) shall not apply to such income credited or paid to any banking company to which the Banking Regulation Act, 1949 applies or any Cooperative Society engaged in carrying on the business of banking (including a cooperative land mortgage bank’’ I find that this section does not clarify as to what is meant by business of Banking. Nor is business of banking defined anywhere in the Income Tax Act, 1961. In these circumstances, the general meaning of business banking has to be adopted for interpreting this clause without going into its technicalities. The meaning which would be understood by a layman should be considered in this regard. Banking in common parlance means accepting and lending money. In earlier days, Mahajans used to banking business. These days, NVFCs are doing banking business. But, it Millenium Buildhome Pvt Ltd. vs ITO (TDS), Kota is only the interest paid to Cooperative Societies that has been exempted by the Statute from the liability of deducting TDS while making interest payment. Since the taxing statue has to be interpreted in the light of what is clearly expressed in this context and I rely upon the decision of Hon’ble Supreme Court in the case of State of West Bengal vs. Kesoram Industries Ltd. (2004) 10 SCC 201, (Bench of five Judges), summed up the following principles applicable to the interpretation of a taxing statute:-
(i) In interpreting a taxing statute, equitable considerations are entirely out of place. A taxing statute cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed; it cannot imply anything which is not expressed, it cannot import provisions in the statute so as to supply any deficiency, (ii) Before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section; and (iii) If the words are ambiguous and open to two interpretations, the benefit of interpretation is given to the subject and there is nothing unjust in a taxpayer escaping if the letter of the law fails to catch him on account of the legislature's failure to express itself clearly.
Now what is important for consideration is that Hriday Credit Cooperative Society is accepting deposits from its members and also providing loans to them and therefore, Hriday Credit Cooperative Society is engaged in the business of banking as providing of credit facilities by the cooperative society to its member is defined as business of banking u/s 2(24)(viia) of the Income Tax Act. Thus as per the Millenium Buildhome Pvt Ltd. vs ITO (TDS), Kota definition of income defined in this section, income of any business of banking includes providing credit facilities carried on by the co-operative society with its members. It is further important to appreciate that while defining income of business of Banking carried out by a Co-operative Society, no further condition is imposed that such cooperative societies should be regulated by the Banking Regulation Act as understood by the AO and in this regard identical term is also used in Sec. 11(5)(iii) of the Income Tax Act herein the Hon'ble Madras High Court in SBI Staff Credit Cooperative Society[(1998) 234 ITR 104 (Mad)] while adjudicating the issue whether a credit co-operative society (Patsanstha) is covered by the expression "co-operative society engaged in carrying on the business of banking, their Lordships came to the conclusion that a credit society dealing with members only can be said to be in the business of banking. These two expressions are two distinct limbs of the definition and must be given meaning accordingly. The common thread, if at all be necessary, between the two expressions is the business of banking, which, in the esteemed opinion of the Hon'ble Madras High Court, includes business of giving loans to members. Further the same view was taken by the ITAT Pune in the case of ITO vs. Pramod Bhaichand Raisoni, in No.1397 & 1398/PUN/2017 dated 24.02.2022 [Pune – Trib, (2022) 102 TLC 126]. The decision of ITAT Pune Bench is on section 194A(3)(iii)(a) and this decision is ‘’7. We have heard the ld. DR and gone through the relevant material on record. It is seen that the assessee had paid interest to BHR. The Business of BHR is banking. Section 194A(3)(iii)(a) provides that no deduction of tax at source is required in respect of interest paid to ‘’any cooperative society engaged in carrying on the business of banking (including cooperative land mortgage bank)’’. The assessee paid interest to BHR which is engaged in the business of banking. The ld. CIT(A) deleted the addition by relying on the judgement of Hon’ble Madras High Court in SBI Staff Co-op Society Ltd vs ITO (1998) 234 ITR 104 (Mad.) holding that ‘’A Cooperative Society which undertakes the business of banking such as , lending money to its members or accepting deposits or raising loans from financial banking institutions and advancing the same to its members is definitely engaged in the business of banking.’’ He also referred to another decision of Hon’ble Madras High Court in Syndicate Bank Employees Coop Thrift and Credit Society vs ITO (2006) 287 ITR 40 (Mad.) reiterating the same proposition. Then he also referred to certain Tribunal orders on page 30 of its order taking similar view. The ld. DR could not point out any direct decision on the point contrary to those considered and decided by the ld. CIT(A). In the absence of any decision, we respectfully follow the precedents cited by the ld. CIT(A) and accord our imprimatur to the view canvassed. This ground fails.’’ I found that the Revenue Authorities relied upon the Judgement of Kerala High Court in the case of Chirayinkeezhu Service Co-operative Bank Ltd. vs. Central Board of Direct Taxes (2019) 112 taxmann.com 272(Kerala) wherein it is held that the appellant company has not proved that the Hridaya Credit Cooperative Society is engaged in carrying on a business that involves accepting deposits, for the purposes of investment or lending, from public as opposed to their own members.
Millenium Buildhome Pvt Ltd. vs ITO (TDS), Kota In the case of Chirayinkeezhu Service Co-operative Bank Ltd. vs. Central Board of Direct Taxes (supra), the Hon'ble Court, for interpreting the meaning of business of banking appearing in Section 194A(3)(iii)(a) placed heavy reliance on Banking Regulation Act, 1949. Although, it was imperative for the Hon'ble court to base its finding in the light of what is clearly expressed in the provision, as held by the Constitutional bench of Supreme Court in Kesoram Industries case. But their Lordship's traveled beyond their jurisdiction, to import the meaning of Business of banking from Banking Regulation Act, 1949. Therefore in my view the revenue authorities erred in adopting the judgement favoring the revenue as it is a settled law that in case of conflicting decisions of two non-jurisdictional High Courts and absence of direct decision by the jurisdictional high court, the judgment favoring the assessee ought to be adopted. In this connection we find support from the judgment of the Hon'ble Apex Court in case of CIT vs. Vegetable Products Ltd. reported in 88 ITR 192, where the Hon'ble Apex Court have laid down that in case of conflicting view of the provision of the Act, the view favoring to the assessee should be relied upon. The relevant finding of the Hon'ble Apex court reads as under:-
‘’The duty of the Court is to read the section, understand its language and give effect to the same. If the language is plain, the fact that the consequence of giving effect to it may lead to some absurd result is not a factor to be taken into account in interpreting a provision. It is for the legislature to step in and remove the absurdity. On the other hand, if two reasonable constructions of a taxing provision are possible, that Millenium Buildhome Pvt Ltd. vs ITO (TDS), Kota construction which favours the assessee must be adopted. This is a well-accepted rule of construction recognised by this Court in several of its decisions.’’ Even otherwise the ld CIT(A) has erred in confirming the order of the Assessing Officer treating the assessee as an assessee in default u/s 201(1) in respect of the amount of tax which has not been deducted under section 194-A from interest payment made to Hridaya Cooperative Credit Society. The AO in order to hold the assessee as Assessee in default ought to have first established that the payee, i.e. HCCSL has failed to pay such tax directly. However, the O has not spared a word regarding discharge or otherwise of the tax liability by HCCSL. Therefore, from the above, it is clear that deductor cannot be treated an assessee in default till it is found that the payee has also failed to pay such tax directly.
3.3 In the present case, the Income tax authorities had not adverted to the Explanation to Section 191 nor had applied their mind as to whether the payee has also failed to pay such tax directly. Thus, to declare a deductor, who failed to deduct the tax at source as an assessee in default, condition precedent is that payee has also failed to pay tax directly. The fact that payee has failed to pay tax directly is thus, foundational and jurisdictional fact and only after finding that payee has failed to pay tax directly, deductor can be deemed to be an assessee in default in respect of such tax. It is relevant to notice here that Explanation to Section 191 is confined only to the amount of tax which was required to be deducted. In this Millenium Buildhome Pvt Ltd. vs ITO (TDS), Kota regard, the Bench draws support from the decision of Hon'ble Allahabad High Court in the case of Jagran Prakashan Ltd. vs. DCIT (Writ Tax No. 388 of 2012 date of order 23-05-2012). Therefore considering that totallity of facts and circumstances as discussed by me and also keeping in view the judgements cited Supra, I am of the view that the assessee was not liable to deduct TDS and the interest paid by it was not subject to deduction of TDS. Therefore these grounds raised by the assessee are allowed.
4.1 Now coming to G. No. 5 wherein the assessee is aggrieved that , the ld CIT(A) has erred in confirming the AO's action of charging interest u/s 201(1A) of Rs.2,30,060/- in the case of M/s India Bulls Housing Finance and M/s Magma Housing Finance Co.
4.2 On the facts and in the circumstances of the case and in law, the Id CIT(A) has erred in confirming the AO's action of charging interest u/s 201(1A) of Rs.2,30,060/- in the case of M/s India Bulls Housing Finance and M/s Magma Housing Finance Co.
4.3 After having gone through the records I noticed that the AO has wrongly worked out the interest therefore this issue is restored to the AO for calculating the correct amount of interest.
Millenium Buildhome Pvt Ltd. vs ITO (TDS), Kota 5.1 Since the Bench has dealt with the issues (supra), therefore, the ground No. 6 & 7 are not required to adjudicate and the same are infructuous.
In the result, the appeal of the assessee is stands partly allowed with no 6.0 orders as to cost.
Order pronounced in the open court on 20 /08/2024.
Sd/- ¼lanhi xkslkbZ½ (Sandeep Gosain) U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 20 /08/2024 *Mishra आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- M/s. Millenium Buildhome Private Ltd., Kota 2. izR;FkhZ@ The Respondent- The ITO (TDS), Kota 3. vk;dj vk;qDr@ The ld CIT 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 866/JP/2024) vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेजज. त्महपेजतंत