M/S DAIVADNYASAHAKARA BANK vs. THE JOINT COMMISSIONER OF INCOME TAX

IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS THE 16TH DAY OF DECEMBER, 2015 PRESENT THE HON’BLE MR.JUSTICE S. ABDUL NAZEER AND THE HON’BLE MR.JUSTICE P.S.DINESH KUMAR ITA Nos.100047 OF 2015 AND 100048-49/2015 IN ITA NO.100047/2015 BETWEEN: M/S.DAIVADNYA SAHAKARA BANK NIYAMITA., NO.1169, SARAF GALLI, SHAHAPUR, BELAGAVI-590 003. REPRESENTED BY ITS PRESIDENT .. APPELLANT (BY SRI A. SHANKAR, ADV.) AND THE JOINT COMMISSIONER OF INCOME TAX, CIRCLE-1, DR. B.R.AMBEDKAR ROAD, OPP. CIVIL HOSPITAL, BELAGAVI-590 001. … RESPONDENT (BY SRI Y.V.RAVIRAJ, ADV.)

2 IN ITA NO.100048/2015 BETWEEN: M/S.DAIVADNYA SAHAKARA BANK NIYAMITA., NO.1169, SARAF GALLI, SHAHAPUR, BELAGAVI-590 003, REPRESENTED BY ITS PRESIDENT. .. APPELLANT (BY SRI A. SHANKAR, ADV.) AND THE JOINT COMMISSIONER OF INCOME TAX, CIRCLE-1, DR. B.R.AMBEDKAR ROAD, OPP. CIVIL HOSPITAL, BELAGAVI-590 001. … RESPONDENT (BY SRI Y.V.RAVIRAJ, ADV.) IN ITA NO.100049/2015 BETWEEN: M/S.DAIVADNYA SAHAKARA BANK NIYAMITA., NO.1169, SARAF GALLI, SHAHAPUR, BELAGAVI-590 003, REPRESENTED BY ITS PRESIDENT. .. APPELLANT (BY SRI A. SHANKAR, ADV.) AND THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1, DR. B.R.AMBEDKAR ROAD,

3 OPP. CIVIL HOSPITAL, BELAGAVI-590 001. … RESPONDENT (BY SRI Y.V.RAVIRAJ, ADV.) THESE ITA’s ARE FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961 PRAYING TO SET ASIDE THE FINDINGS TO THE EXTENT AGAINST THE APPELLANTS IN THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, PANAJI BENCH PANAJI IN ITA NO.327/PNJ/2013, 329/PNJ/2013 AND C.O.NO.31/ PNJ/2014 DATED 06.01.2015 RELATING TO ASSESSMENT YEAR 2009-10. THESE ITAs COMING ON FOR ORDERS THIS DAY, P.S.DINESH KUMAR, J., DELIVERED THE FOLLOWING: JUDGMENT In these appeals filed by the assessee following two substantial questions of law are raised; (1) Whether the Tribunal erred in law in directing the Assessing Officer to verify whether the Appellant is following the mercantile or hybrid system of accounting without appreciating the law that interest on sticky and non- performing assets are not liable to be treated as income on the facts and circumstances of the case?

4 (2) Whether the Tribunal erred in law in holding that the Appellant was required to deduct tax at source on payment of interest on time-deposits to its members on the facts and circumstances of the case? 2. Sri A.Shankar, Learned counsel appearing for the Assessee submits that in ITA No.471/2013 disposed of on 30.06.2014, on the issue of interest on non performing assets a Division Bench of this Court has answered the substantial questions of law in favour of the Assessee by following the earlier judgment in the case of Commissioner of Income Tax, Central Circle, Bangalore /vs./ Canfin Homes Limited ((2011) 201 TAXMAN 273/13 taxmann.Com 43(Karnataka). 3. Learned counsel for the appellants and respondent agree that the issue involved in this

5 appeal and ITA No.471/2013 are one and the same. Accordingly, this appeal is disposed off in like terms. 4. In so far as the substantial question of law with regard to Section 194A, it is brought to the notice of this Court by the learned counsel appearing for the Assessee that vide Circular No.19/2015 in F.No.142/14/2015-TPL, the Ministry of Finance, Government of India, has clarified as under: “42.5 In view of this, the provisions of the section 194A(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