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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI JASON P. BOAZ
Per N.V. Vasudevan, Judicial Member This appeal by the Revenue is against the order dated 16.10.2014 of the CIT(Appeals), Mysore relating to assessment year 2007-08.
The issue that arises for consideration in this appeal is as to whether the disallowance of interest for non-deduction of tax at source u/s. 40(a)(ia) of the Act can be sustained.
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Disallowance of interest paid on deposits for non-deduction of TDS – Rs.5,18,83,290
Sl. Particulars Amount paid Sub-section under No. by the bank which exempted from (in Rs.) deduction of TDS 1 Interest paid on SB (including 1,54,14,512 194A(3)(viia)(b) SHG deposit) 2 Interest paid on NRD 5,03,683 194A(3)(viia)(b) 3 Interest paid on Pigmy Accounts 7,43,466 194A(3)(viia)(b) 4 Interest paid on Kalpatharu Cash 1,23,206 194A(3)(i)(b) Certificates (KCC): Institutions (Others) 5 Interest paid on KCC : Societies 12,61,625 194A(3)(v) (Members/Shareholders) 6 Interest paid on Fixed deposits to 7,18,604 194A(3)(v) CJMSB (Shareholder) 7 Interest paid on Fixed deposits to 1,86,205 194A(3)(v) CPSB (Shareholder) 8 Interest paid on Fixed deposits to 1,54,250 194A(3)(i)(b) Institutions 9 Interest paid on Fixed deposits to 73,53,924 194A(3)(v) Societies (Shareholders) 10 Interest paid on Fixed deposits 2,30,56,813 194A(3)(i)(b) amount less than Rs 1 Lakh 11 Interest paid on Fixed deposits 14,67,002 194A(3)(v) amount more than Rs.1 Lakh 5,18,83,290 TOTAL
The assessee is a Co-operative Bank carrying on the business of banking. In the course of assessment proceedings u/s.143(3) of the
Income Tax Act, 1961 (the Act) for AY 09-10, the AO noticed that the
Assessee had paid interest of Rs.1,29,19,176 on deposits from members and non-members and payment to each of the depositors exceeded a sum
of Rs.10,000/-. The AO was of the view that as per the provisions of Sec.194A(1) of the Act, the Assessee who is responsible for paying to a
resident any income by way of interest other than income by way of interest
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on securities, ought to have at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deducted income-tax thereon at the rates in force. Admittedly the Assessee did not deduct tax at source on the payment of interest on the deposits to members and non-members. Section 40 (a)(ia) of the Income Tax Act, 1961 (the Act) provides as follows:-
“Sec.40.Amounts not deductible: Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",
(a)……
(ia) any interest, commission or brokerage, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub- contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid,—
(A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139 ; or
(B) in any other case, on or before the last day of the previous year.
Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted—
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(A) during the last month of the previous year but paid after the said due date ; or
(B) during any other month of the previous year but paid after the end of the said previous year,
such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.”
As can be seen from the above provisions, the Assessee, in the event of failure to deduct tax at source on payments made to a resident on account of interest, cannot claim the same as expenditure while computing income from business. The provisions of Sec.40(a)(ia) will apply only if the Assessee was liable to deduct tax at source under Chapter XVII-B of the Act. According to the AO the Assessee was under an obligation to deduct tax at source u/s.194A (1) of the Act on payment of interest to depositors who were members and non-members and the payment to each of such depositors exceeded Rs.10,000. Since the Assessee failed to deduct tax at source, the AO was of the view that the aforesaid sum claimed as deduction while computing income from business cannot be allowed. The AO accordingly proposed to add the sum of Rs. 5,18,83,290 to the total income declared by the Assessee in the return of income. The AO did not accept the claim of the assessee that the provisions of section 194A(3)(v) are not applicable to the assessee.
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On appeal by the assessee, the CIT(Appeals), following the decision of the Hon’ble ITAT Bangalore Bench in the case of Bagalkot District
Central Co-operative Bank Ltd. v. Jt. CIT, ITA No.1572/Bang/2013
dated 30.5.2014 wherein it has been held that the assessee which is a co-
operative society carrying on banking business, when it pays interest income to a member both on time deposits and on deposits other than time deposits, with such co-operative society, need not deduct tax at source u/s 194A by virtue of exemption granted vide clause (v) of sub-section(3) of the said section, allowed the claim of the assessee. Aggrieved by the order of CIT(Appeals), the Revenue has preferred the present appeal before the Tribunal.
At the time of hearing of the appeal, the ld. DR submitted that the decision rendered by the ITAT Bangalore Bench in the case of Bagalkot
District Central Co-operative Bank Ltd. (supra) has not been accepted
by the Revenue and further appeal has been preferred.
We have considered the submissions of the ld. DR and are of the view that the same is without any merit. Pendency of an appeal by the Revenue before higher forum cannot be the basis not to follow the decision rendered by this Tribunal. In the light of the aforesaid decision, we are of the view that the CIT(Appeals) rightly deleted the disallowance made by the AO. The order of CIT(Appeals) is accordingly upheld and the appeal by the Revenue is dismissed.
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In the result, the appeal by the Revenue is dismissed.
Pronounced in the open court on this 29th day of May, 2015.
Sd/- Sd/-
( JASON P. BOAZ ) ( N.V. VASUDEVAN ) Accountant Member Judicial Member
Bangalore, Dated, the 29th May, 2015.
/D S/
Copy to:
Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file
By order
Assistant Registrar/ Senior Private Secretary ITAT, Bangalore.