SHREE BASAVESWWAR CO-OP. BANK LTD vs. THE COMMISSIONER OF INCOME-TAX (APPEALS)

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ITA/100182/2015HC KarnatakaKAHC02014361201517 August 2016Bench: H.BILLAPPA,K.N.PHANEENDRA5 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that, in light of Circular No. 19/2015, cooperative banks were not required to deduct tax at source on interest paid on time deposits to their members before June 1, 2015. Consequently, the ITAT's direction was not sustainable.

What were the facts?

The appellant, Shree Basaveshwar Co-op. Bank Ltd., challenged an ITAT order that remanded the matter for verification of tax deduction on interest payments to members. The core issue was whether the bank was required to deduct tax at source on time deposits paid or credited before June 1, 2015.

What were the issues?

Whether a cooperative bank was obligated to deduct tax at source on interest paid on time deposits to its members prior to the amendment effective from June 1, 2015.

Which sections of the Income-tax Act were involved?

Section 194A,Section 201(1)

AI-generated summary — verify with the full judgment below

1 IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS THE 17th DAY OF AUGUST 2016 PRESENT THE HON’BLE MR. JUSTICE H.BILLAPPA AND THE HON’BLE MR. JUSTICE K.N.PHANEENDRA I.T.A. No.100182/2015 BETWEEN SHREE BASAVESWWAR CO-OP. BANK LTD RAVIWAR PETH, BELAGAVI. REP BY ITS GENERAL MANAGER, PAN-AAAAB3041M SRI.VEERAPPA S/O CHANNBASAPPA KHANAPUR AGE:55 YEARS. ... APPELLANT (BY SRI.: H.R.KAMBIYAVAR, ADV. & SMT. PATRI SHASHIKALA K.ADV.) AND 1. THE COMMISSIONER OF INCOME-TAX (APPEALS) DR.B.R.AMBEDKAR ROAD, BELAGAVI. 2. THE ASSISTANT COMMISSIONER OF I.T. CIRCLE, 1, BELAGAVI. ... RESPONDENTS (BY SRI.Y.V.RAVIRAJ, ADV)

2 THIS ITA IS FILED UNDER SECTION 260A OF THE INCOME-TAX ACT, 1961, PRAYING TO (A) FORMULATE THE SUBSTANTIAL QUESTION OF LAW (B) ALLOW THE APPEAL BY DELETING THE ADDITION OF RS.70,52,023/- AND SUITABLY MODIFY THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL IN ITA NO.346/PNJ/2014 DTD:5/1/2015, ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), BELAGAVI IN ITA NO.436/BGM/2013-14 DTD:1/8/2014 AND ASESSMENT ORDER DATED 11/2/2014 AS SOUGHT IN THE APEPAL. THIS ITA COMING ON FOR HEARING ON INTERLOCUTORY APPLICATION THIS DAY, H.BILLAPPA, J., DELIVERED THE FOLLOWING: JUDGMENT The appellant has filed this appeal challenging the order dated 5.01.2015 passed by the ITAT, Panaji Bench, Panaji, in ITA No.346/PNJ/2014. 2. By the impugned order, the Appellate Tribunal has remanded the matter directing the Assessing Officer to verify whether the recipient has accounted for the interest under the provision of Section 201(1) of the Act or not, by giving the assessee adequate opportunity of being heard.

3 3. Aggrieved by that, the appellant-assessee has filed this appeal. 4. The learned counsel for the parties submit that in view of the circular bearing No.19/2015 in F.No.142/14/2015 TPL, issued by the Ministry of Finance, Government of India, the Co-operative Banks are not required to deduct the tax from the payment of interest on time deposits of its members paid or credited on or before 1/6/2015. 5. The question of law involved is in this appeal is, Whether the Co-operative Bank was required to deduct the tax while paying interest to its members on time deposits under Section 194A of the Income Tax Act.? 6. The learned counsel for the parties submits that in view of the clarification issued by the Ministry of Finance, Government of India vide circular No.19/2015 in F.No.142/14/2015 TPL, the Cooperative Banks are not required to deduct the tax at source on time deposits of its members paid or credited on or before 1/6/2015.

4 7. The relevant portion of the circular reads as follows:- “42.5 In view of this, the provisions of the section 194(3)(v) of the Income-tax Act have been amended so as to expressly provide that the exemption provided from deduction of tax from payment of interest to members by a co-operative society under Section 194A(3)(v) of the Income- tax Act shall not apply to the payment of interest on time deposits by the co- operative banks to its members. As this amendment is effective from the prospective date of 1st June, 2015, the co-operative bank shall be required to deduct tax from the payment of interest on time deposits of its members, on or after the 1st June 2015. 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.” 8. It is clear, the circular clarifies that a Co- operative Bank was not required to deduct the tax from the payment of interest on time deposits of its members paid or credited before 1/6/2015. 9. Therefore, the direction issued by the ITAT cannot be sustained in law.

5 10. Accordingly, the appeal is allowed and the impugned order passed by the Income Tax Appellate Tribunal Panaji Bench, Panaji, in ITA No.346/PNJ/2014 is hereby set aside. The Assessing officer is directed to consider the matter in the light of the circular bearing No.19/2015 in F.NO.142/14/2015 TPL issued by the Ministry of Finance, Government of India and pass appropriate orders in accordance with law. Sd/- JUDGE Sd/- JUDGE Vmb

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