DCIT, BANGALORE vs. SIR M. VISWESHWARAIAH CO-OP BANK LTD.,, BANGALORE

Per Bench :

These five appeals by the Revenue are directed against the orders of

Commissioner of Income Tax (Appeals)-13 dt.24.3.2015 arising from the order

passed under Section 201(1) and 201(1A) of the Income Tax Act, 1961 (in short 'the

Act') for the Assessment Years 2012-13 and 2013-14 respectively.

There was a survey under Section 133A at the business premises of the assessee on

13.11.2013. During the course of survey, the Assessing Officer noticed that the

assessee has deducted tax at source from the interest paid to non-members but

has failed to deduct the tax at source from the interest paid to its own members

and to the co-operative societies without obtaining declaration in Form

No.15G/15H from them. Accordingly, the Assessing Officer determined that the

assessee was liable for default in deducting tax at source as well as interest

therefrom. Accordingly, the Assessing Officer has raised the demand under

Sections 201(1) and 201(1A). The assessee challenged the action of the Assessing

Officer before the CIT (Appeals) and contended that by virtue of section 194A(3)(v)

of the Act, the assessee was not obliged to deduct tax at source when the interest

payments was made to members or to another co-operative society. Thus the

assessee contended before the CIT (Appeals) that there was no failure on the part

of assessee for complying the provisions of Sections 201(1) and 201(1A) of the Act.

The CIT (Appeals) has accepted the claim of the assessee that the assessee was not

3 ITA Nos.790 to 794/Bang/2015 required to deduct tax at source under Section 194A by virtue of exemption

granted vide clause (v) of sub-section 3 of the said section while allowing the claim

of the assessee. The CIT (Appeals) has followed the decision of this Tribunal in the

case of The Bagalkot District Central Co-operative Bank in ITA No.1572/Bang/2013

dt.30.5.2014.

Authorised Representative and considered the relevant material on record. There is

no dispute that the Assessing Officer has invoked the provisions of sections 201(1)

and 201(1A) of the Act in respect of the payment of interest by the assessee to its

members and to the other co-operative societies for want of deduction of tax at

source. At the outset, we note that an identical issue was considered and decided

by the co-ordinate bench of this Tribunal vide order dt.30.5.2014 in the case of

Bagalkot Central District Co-operative Society (supra) wherein the Bench has held

that co-operative society carrying on banking business need not to deduct tax at

source under Section 194A in respect of the interest paid to members on deposits

by virtue of exemption granted vide clause (v) of the sub-section (3) of the said

section. The learned Authorised Representative of the assessee has pointed out

that in the subsequent decision dt.20.3.2015, this Tribunal in the case of ITO Vs.

Hubli Urban Co-operative Bank Ltd. in ITA Nos.1191 to 1194/Bang/2014 has again

reiterated the same view by following the decision in the case of The Bagalkot

District Central Co-operative Bank (supra). We note that in the case of Hubli

4 ITA Nos.790 to 794/Bang/2015 Urban Co-operative Society (supra), the co-ordinate bench of this Tribunal while dealing with an identical issue has held in paras 12 to 14 as under :- “ 12. We have heard the rival submissions. The learned counsel for the Assessee after referring to the relevant provisions of Sec.194A(3)(i)(b), 194A(3)(v) and 194A(3)(viia) of the Act (these provisions have already been extracted in the earlier part of this order and are not being repeated), submitted that an analysis of the provisions would disclose that: a) U/s. 194A(3)(i)(b) a Co-operative Bank need not deduct tax at source if the amount of interest paid does not exceed Rs. 10,000 whether the payment is made to a member or non- member or whether the interest is on time deposit or non-time deposit. b) U/s 194A (3)(v) a Co-operative Society irrespective of its nature of activity need not deduct tax at source on any interest paid to its members whether on time deposits or non-time deposits c) U/s l94A(3)(viia)(a), a primary agricultural credit Co-operative Society or a Cooperative land mortgage bank or a co-operative land development bank need not deduct tax at source on any interest paid by it in respect of deposits received by it. d) U/s 194A(3)(viia)(b) of the Act a co-operative society other than a co- operative society or a bank referred to in Clause (a) need not deduct tax at source on interest paid on any deposit other than time deposits.

2.3 The following chart explains the position: Any Interest on Interest Type of Rs. 10,000 or Amount/Any deposits other on time Interest / less type of interest than time- deposit Payee paid by a Co-op deposits 194A 1 94A(3)(i)(b) Society 194A(3)(viia)(b) (3)(v) 194A(3)(v) Member Exempt Exempt Exempt Exempt TDS to Non- Exempt TDS to be made Exempt be Member made

5 ITA Nos.790 to 794/Bang/2015 According to him the above chart would clearly show that when a co- operative society is paying interest to its members, it need not deduct tax at source. It was his submission that the Assessee is a co-operative society registered under the Mysore Co-operative Societies Act vide the certificate issued by the Registrar of Co-operative Societies. 13. With regard to the reliance placed by the learned Assessing Officer on the decision of the Hon’ble ITAT Pune Bench in Bhagani Nivedita Sahakari Bank Ltd Vs ACIT (87) ITD 569, it was submitted by him that in that case the Hon’ble Tribunal held that the provision of S. 194A(3)(v) of the Act is not applicable to a Co-operative Bank. The Hon’ble Tribunal held that u/s. l94A(3)(v) were to apply to a Co-operative Bank, there will be a conflict between 194A(3)(viia)(b) and S. 194A(3)(v). It was his submission that there is no conflict. S.194A(3)(viia)(b) would apply to all co-operative banks when they pay interest on deposits other than time deposit whether to members or non-members whereas S. 194A(3)(v) applies to payment to members including interest on time-deposits”. The classification itself is different. S.194A(3)(v) classifies the payees into members or non-members whereas 194A(3)(viia)(b) classifies the nature of interest whether it is on time deposit or a non-time deposit When the classification is on a totally different criterion, there cannot be any conflict between the two sections. They operate in two different fields. It is respectfully submitted that the Hon’ble ITAT Bench erred in holding that there is a conflict between 194A(3(v) and 194A(3)(viia)(b). It was further submitted by him that the Hon’ble ITAT Pune Bench did not have the benefit of Circular No. 9/2002 dated 11.9.2002 (257 ITR St 36). In this circular the Board has clarified as under: “Board has considered the matter and it is clarified that a member of a co-operative bank shall receive interest on both time deposits and deposits other than time deposits where such co-operative bank without TDS under Section 194A by virtue of exemption granted vide clause (v) of sub-section (3) of the said section. The provisions of clause (viia) of the said sub-section are applicable only in case of a non-member depositor of the co- operative bank, who shall receive interest only on deposits other than time deposits made on or after July 1, 1995 without TDS under section 194A”. It was also submitted by him that the learned Assessing Officer has stated that the Circular was struck down in Jalgaon District Central Cop-operative Bank Ltd Vs Union of India (265)ITR 423. According to him the observations of the AO in this regard were not correct as the Hon’ble High Court struck

6 ITA Nos.790 to 794/Bang/2015 down only that portion of circular which dealt with Boards clarification as to who is a member. The court never had an occasion to go into a question whether S. 194A(3)(v) of the Act would cover- a co-operative bank or not. It was finally submitted that the Assessee is entitled to deduction and no disallowance is called for u/s 40(a)(ia) of the Act. 14. The learned DR while reiterating the stand of the AO/CIT(A)further relied on the decision of the ITAT Panaji Bench in ITA No.85/PN/2013 for AY 09-10 in the case of The Bailhongal Uraban Co-op Bank Ltd. Vs. JCIT order dated 28.8.2013 wherein the Tribunal followed the order of SMC Bench in the case of Bhagani Nivedita Sah Bank Ltd. Vs. ACIT 87 ITD 569 (Pune). Without prejudice to his submission that TDS provisions were applicable even in the case of payment of interest to member depositors by a co-operative society, it was submitted by him that the order of the AO/CIT(A) is not clear as to whether the interest disallowed pertains to interest paid to members or non- members and this aspect has to be verified, if necessary. In particular it was submitted that if clause(v) of Sec.194A(3) exempts co-operative societies from the provisions of TDS when it pays interest to its members then there was no need to have Sec.194A(3)(viia) of the Act specifically exempting certain co- operative societies from the obligation to deduct tax at source when it pays interest. To this argument, we have already noticed the argument of the learned counsel for the Assessee that these two provisions operate in different field. We may clarify here that the said argument of the learned counsel for the Assessee is a clear answer to the above argument of the learned DR. The learned DR also filed written submission before us, in which the stand of the revenue, as reflected in the orders of the lower authorities, has been reiterated.” In view of the above facts and circumstances of the case and by following the decisions of the co-ordinate benches of this Tribunal, we do not find any error or

7 ITA Nos.790 to 794/Bang/2015 illegality in the orders of the CIT (Appeals). Accordingly, we uphold the impugned

orders of the CIT (Appeals).

Order pronounced in the open court on 24th day of Feb., 2016.

Sd/- Sd/- (INTURI RAMA RAO) (VIJAYPAL RAO) Accountant Member Judicial Member

*Reddy gp

Copy to : 1. Appellant 2. Respondent 3. C.I.T. 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard File.

(True copy) By Order

Asst. Registrar, ITAT, Bangalore