Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
आदेश / ORDER PER SUSHMA CHOWLA, JM:
The appeal filed by the assessee is against the order of CIT(A)-1, Thane, dated 20.10.2015 relating to assessment year 2014-15 against order passed under section 201(1) / 201(1A) of the Income-tax Act, 1961 (in short ‘the Act’).
The assessee has raised the following grounds of appeal:- 1. The learned Commissioner of Income Tax (Appeals) erred on facts and in law in upholding that the interest paid by the assessee bank to its members & other co-operative societies (amounting to Rs.7,42,40,899/-) as liable to TDS u/s 194A and consequently erred in upholding ITO(TDS)’s action of levying tax and interest of Rs.82,40,740/-. The learned CIT(A) failed in appreciating the scheme and logic behind sec.194A and the correct legal position in this behalf.
2 ITA No.52/PUN/2016 Abhyudaya Co-op. Bank Ltd.
Without prejudice to the above, the learned Commissioner of Income Tax (Appeals) erred on facts and in law in not giving an opportunity to the assessee to establish and not holding that the assessee is not in default as contemplated under the 1st proviso to sec. 201(1) of the Act.
The issue which arises in the present appeal is against the liability of tax deduction under section 194A of the Act on the assessee Co-operative bank, wherein interest has been paid to its members and other Co-operative societies amounting to ₹ 7,42,40,899/-. The Assessing Officer has held the assessee to be in default for not deducting tax and has raised demand under section 201(1) and 201(1A) of the Act at ₹ 82,40,740/-.
Briefly, in the facts of the case, the assessee was Co-operative Bank and had filed quarterly TDS statement for financial year 2013-14 under Form No.26A; but while verifying the TDS payments, the Assessing Officer noted that deductor Co-operative bank was not deducting TDS on interest paid to members and Co-operative societies. Show cause notice was issued to the assessee as to why TDS was not deducted on interest paid to Co-operative societies, members and shareholders. The assessee explained that under section 194A(3)(v) of the Act, it is provided that provisions of section 194A(1) of the Act will not apply to such income credited or paid by Co-operative society to its members or to any other Co-operative society. The assessee explained that it was Co-operative Society registered under Multiple State Co-operative Societies Act carrying on the business of banking, hence it was not liable to deduct tax on interest paid to members or any other Co-operative society. It was also pointed out that provisions of section 194A(3)(viia)(b) of the Act were applicable in the case of a depositor of Co-operative society engaged in the business of banking, who shall received interest on deposits other than time deposits made on or after 1st July, 1995. It was also pointed out that the said
3 ITA No.52/PUN/2016 Abhyudaya Co-op. Bank Ltd.
provisions would be applicable to income credited or paid to non member depositors and the said provision has been complied with by the assessee. Reference was made to CBDT Circular No.9/2002, dated 11.09.2002. The Assessing Officer did not agree with the contention of assessee that it was not under legal obligation to deduct tax on interest paid to members under the pretext of section 194A(3)(v) of the Act. Reference was made to provisions of section 194A of the Act and it was noted by the Assessing Officer that the said section talks about deposits which are neither defined in the Act nor Banking Regulation Act. However, the term ‘deposit’ is defined in RBI Act, to mean monies collected in any manner and it covers time deposits. It was thus, held by the Assessing Officer that any interest paid by Co-operative society engaged in the business of banking on time deposits to its members was covered under section 194A(3)(i) of the Act. Reliance was placed on different decisions and it was held that the assessee deductor had failed to discharge its duty to deduct tax on interest paid to members on time deposits as per provisions of section 194A and 194A(3)(i) of the Act. The assessee was held to be in default and demand under section 201(1) of the Act was raised at ₹ 74,24,089/- and interest was charged under section 201(1A) of the Act at ₹ 8,16,650/-, totaling ₹ 82,40,739/-.
The CIT(A) upheld the order of Assessing Officer after referring to provisions of section 194A of the Act and relying on different decisions.
The assessee is in appeal against the order of CIT(A).
The learned Authorized Representative for the assessee pointed out that liability to deduct tax has been fastened on Co-operative society vis-à-vis deduction of tax at source on interest paid to members and other Co-operative
4 ITA No.52/PUN/2016 Abhyudaya Co-op. Bank Ltd.
societies by the Finance Act, 2015. In this regard, reliance was placed on Explanatory Notes to the provisions of Finance Act, 2015, dated 27.11.2015, by which the Ministry of Finance, Govt. of India had clarified about the obligations of Co-operative Banks for deduction of tax at source under section 194A of the Act. Our attention was drawn to the above said Explanatory Notes with special reference to paras 42.4 and 42.5. The learned Authorized Representative for the assessee further pointed out that the Hon’ble Bombay High Court at Goa had decided similar issue of liability or obligation of Co-operative Bank in assessment years 2010-11 to 2013-14 based upon the then existing provisions of law and interpretations given to the section. Reference was made to the issue decided in Saraswat Co-operative Bank Ltd. Vs. (1) ITO & (2) Union of India in Tax Appeal No.3, 4, 5, 6, 7, 8, 9 & 11 of 2015, judgment dated 07.03.2017. He referred to the decision, wherein Explanatory Notes were taken note of and it was held that prior to the effective date of 1st June, 2015, the Co-operative Bank was not under obligation to deduct TDS from the interest paid to members.
The learned Departmental Representative for the Revenue on the other hand, placed reliance on the orders of authorities below.
We have heard the rival contentions and perused the record. The only issue which is raised in the present appeal is the liability of assessee Co- operative bank to deduct tax at source out of interest payments made by the assessee to its members or other Co-operative societies and on time deposits. The assessee had claimed shelter under section 194A(3)(v) of the Act. Section 194A(1) of the Act lays down that any person who is responsible for paying to a resident any income by way of interest, then he shall be liable at the time of
5 ITA No.52/PUN/2016 Abhyudaya Co-op. Bank Ltd.
credit of such income to the account of payee or at the time of payment thereof in cash or by cheque / draft or by any other mode, whichever is earlier, to deduct income tax thereon at the rates in force. In respect of an individual or Hindu Undivided Family, the said provisions are applicable on satisfaction of certain conditions, but for deciding the present issue before us, same are not relevant.
The assessee before us is a Co-operative Bank. Certain exemptions are provided which are enlisted in sub-section (3) of section 194A of the Act, which lays down that provisions of sub-section (1) shall not apply and we are concerned with clause (v) thereunder, which reads as under:- “194A(3) The provisions of sub-section (1) shall not apply – ….. (v) – to such income credited or paid by a co-operative society (other than a co- operative bank) to a member thereof or to such income credited or paid by a co-operative society to any other co-operative society.”
The assessee seeks shelter under the said section for the relevant year to point out that in view of specific provisions of clause (v) to section 194A(3) of the Act, where the assessee is a Co-operative Society being Co-operative Bank, then any payment made to its members or Co-operative society being interest income is outside the purview of section 194A(1) of the Act.
The assessee in this regard has pointed out that this position of law is also clarified by the amendment made by the Finance Ac, 2015 w.e.f. 01.06.2015. In this regard, he has invited our attention to the Memorandum explaining the aforesaid provisions vide paras 42.4 and 42.5. The Memorandum further explains in respect of applicability of specific provisions mandating deduction of tax from the payment of interest on time deposits by the Co-operative banks to its members by claiming that general exemption was also applicable for payment of interest to member depositors by the
6 ITA No.52/PUN/2016 Abhyudaya Co-op. Bank Ltd.
amendment. The provisions of section 194A(3)(v) of the Act have been amended so as to expressly provide that exemption provided from deduction of tax from payment of interest to members by Co-operative society shall not apply to the payment of interest on deposits by the Co-operative Bank to its members. This amendment was made effective from prospective date of 01.06.2015 as explained in clause 42.5 of Explanatory Notes and it was directed that Co-operative bank shall be required to deduct tax from payment of interest on time deposits of its members, on or after 01.06.2015. It is also clarified that Hence, a cooperative bank was not required to deduct tax from the payment of interest on time deposits of its members paid or credited before 1st June, 2015.
The Hon’ble Bombay High Court in Saraswat Co-operative Bank Ltd. Vs. (1) ITO & (2) Union of India (supra) referred to the Explanatory Notes of the provisions of the Finance Act, 2015, dated 27.11.2015, wherein the position was clarified about obligation of Co-operative banks from deduction of tax at source under section 194A of the Act. The Hon’ble High Court referred to the Explanatory Note para 42.5 and stated that position of relevant law is clearly specified in the said para and held that Explanatory Note has made the position of law clear that such Co-operative banks are not liable to deduct any amount of TDS prior to the effective date of 01.06.2015.
In the facts of the present case also, the year under appeal is assessment year 2014-15 i.e. prior to the date of introduction of amendment from 01.06.2015 and under the old provisions of section 194A(3)(v) of the Act, the assessee Co-operative bank was not obliged to deduct tax on the income of members and Co-operative societies. Applying the ratio laid down by the
7 ITA No.52/PUN/2016 Abhyudaya Co-op. Bank Ltd.
Hon’ble Bombay High Court in Saraswat Co-operative Bank Ltd. Vs. (1) ITO & (2) Union of India (supra), we hold that the assessee had not defaulted in not deducting tax at source out of such payments made to its members / Co- operative societies. Thus, there was no liability to deduct tax at source and the assessee cannot be said to have violated the provisions of section 194A(1) of the Act. The ground of appeal No.1 raised by the assessee is allowed. The issue in ground of appeal No.2 is on without prejudice basis and the same is dismissed.
In the result, the appeal of assessee is partly allowed.
Order pronounced on this 5th day of April, 2018.
Sd/- Sd/- (ANIL CHATURVEDI) (SUSHMA CHOWLA) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक Dated : 5th April, 2018. GCVSR आदेश की प्रयतलऱपप अग्रेपषत/Copy of the Order is forwarded to : अऩीऱाथी / The Appellant; 1. प्रत्यथी / The Respondent; 2. आयकर आयुक्त(अऩीऱ) / The CIT(A)-1, Thane; 3. The CIT(TDS), Pune; 4. ववभागीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, ऩुणे “ए” / DR 5. ‘A’, ITAT, Pune; गार्ड पाईऱ / Guard file. 6. आदेशािुसार/ BY ORDER, सत्यावऩत प्रतत //True Copy// वररष्ठ तनजी सधिव / Sr. Private Secretary आयकर अऩीऱीय अधधकरण ,ऩुणे / ITAT, Pune