Assisstant Commissioner of Income Tax, TDS Circle, Hubballi V. M/s. Davanagere Urban Co-op Bank Ltd, Davanagere

ITA 1815/BANG/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1411 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 05-12-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 28-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M NARASIMHA RAJU
• Assessee Lawyers: SOUMYA K
• Keywords: Non-deduction of tax; TDS; Set aside
• Section: 201(1); 201; 194A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI B.R BASKARAN , ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.1815/BANG/2018 ASSESSMENT YEAR : 2012-13 THE ASST. COMMISSIONER OF INCOME-TAX, TDS CIRCLE, HUBBALLI. VS. M/S DAVANGERE URBAN CO-OP BANK LTD., HEAD OFFICE, P.B ROAD, MOTHI CIRCLE, DAVANGERE. PAN BLRT00443 C APPELLANT RESPONDENT APPELLANT BY : SHRI M NARASIMHA RAJU, JCIT RESPONDENT BY : SMT. SOUMYA K, ADVOCATE DATE OF HEARING : 05.12.2019 DATE OF PRONOUNCEMENT : .12.2019 O R D E R PER B.R BASKARAN, ACCOUNTANT MEMBER : THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 5/3/2018 PASSED BY LD CIT(A), DAVANGERE AND I T RELATES TO THE ASST. YEAR 2012-13. 2. THE GROUNDS URGED BY THE REVENUE READ AS UNDER:- 1. CIT(A) HAS ERRED IN ALLOWING RELIEF TO THE DEDU CTOR ON ISSUE OF NON-DEDUCTION OF TAX ON INTEREST PAYMENTS TO MEMBERS WITHOUT VERIFYING WHETHER THE INTEREST PAYMENTS IF ANY WERE MADE TO NOMINAL MEMBERS IN LIG HT ITA NO.1815 /BANG/2018 PAGE 2 OF 12 OF SUPREME COURT DECISION IN THE CASE OF CITIZEN CO - OPERATIVE SOCIETY LIMITED 397 ITR 1. 2. CIT(A) HAS IGNORED THE DECISION RENDERED BY ITAT 'B' BENCH, BANGALORE IN THE CASE OF WS THE SARASWAT CO- OPERATIVE BANK LTD IN ITA NOS-1246 TO 12491BANG12017 DATED 03-11-2017 ON SIMILAR ISSUE. 3. THE APPELLANT CARVES TO ADD, AMEND, ALTER OR MOD IFY ANY GROUND OF APPEAL AT THE TIME OF HEARING OF THIS CASE. 3. WE HEARD THE PARTIES AND PERUSED THE RECORD. TH E ONLY ISSUE RELATES TO DELETION OF DEMAND RAISED BY THE AO UPON THE ASSESSEE U/S 201(1)/201(1A) OF THE ACT FOR NON DEDUCTION OF TAX AT SOURCE FROM THE INTEREST PAID BY THE ASSESSEE TO THE DEPOS IT HOLDERS. 4. THE FACTS RELATING TO THE CASE ARE NARRATED AS U NDER BY LD CIT(A) :- BRIEF FACTS OF THE CASE: THE APPELLANT (DEDUCTOR) IS A CO-OPERATIVE SOCIETY CARRYING ON THE BUSINESS OF BANKING. THE AO CARRIED OUT SPOT VERIFICATION ON THE PREMISES ON 06/01/2014 TO VERIFY THE APPLICABILITY OF THE PROVISIONS OF TDS A ND COMPLIANCES. UPON VERIFICATION OF DETAILS/INFORMATI ON GATHERED DURING THE TIME OF VERIFICATION AND SUBMISSIONS MADE BY THE DEDUCTOR DURING THE COURSE OF PROCEEDINGS U/S 201(1) & 2010 A) OF THE ACT, THE AO FOUND THAT THE DEDUCTOR HAD NOT EFFECTED TDS ON ITA NO.1815 /BANG/2018 PAGE 3 OF 12 INTEREST PAYMENTS MADE ON TERM DEPOSITS, EXCEPT IN FEW CASES, CLAIMING THAT ALL DEPOSITORS ARE ITS MEM BERS AND THEREFORE MEMBERS WERE EXEMPT FROM TDS, THOUGH FORM NO. 1511/I 5G WERE NOT SUBMITTED AS PER THE PROVISIONS OF SEC. 197A(1A) OF THE ACT. THE AO OPINED THAT, THE INTEREST PAYMENTS MADE BY T HE DEDUCTOR DOES NOT QUALIFY FOR EXEMPTION U/S 1 94A(3 ) (V) OF THE ACT AS THE DEDUCTOR IS DOING THE BUSINES S OF BANKING AND ISSUED A SHOW CAUSE PROPOSING TO ASSESS THE SHORT DEDUCTION OF TAX U/S 201(1) OF THE I T AC T AND MANDATORY INTEREST U/S 2010A) OF THE I T ACT FOR SH ORT DEDUCTION. IN RESPONSE THERETO, THE DEDUCTOR FILED A REPLY AND OBJECTED TO THE PROPOSAL OF THE AC) STATI NG THAT THEY ARE BASICALLY A COOPERATIVE SOCIETY DOING BANKING BUSINESS AND MAJORITY OF DEPOSITORS BEING MEMBERS, TDS HAS NOT BEEN MADE AS PER THE PROVISIONS OF SEC.194A(3)(V) AND RELIED ON VARIOUS DECISIONS AND CIRCULAR NO.9/2002 OF CBDT DATED 11/09/2002. THE DEDUCTOR RELIED ON THE DECISION OF THE HON'BLE ITAT, BENGALURU BENCH IN THE CASE OF BAGALK OT DCC BANK VS JCIT, BIJAPUR AND AS IT WAS CHALLENGED BEFORE THE HON'BLE HIGH COURT. THE AO HELD THAT INT EREST PAYMENTS MADE TO MEMBERS DOES NOT QUALIFY FOR EXEMPTION U/S 194(3) (V), AS IT WAS DOING THE BUSIN ESS OF BANKING AND HELD THAT DCDUCTOR WAS REQUIRED TO DEDUCT TAX AS REQUIRED U/S 194A AND WORKED OUT THE SHORT DEDUCTION AND INTEREST THEREUPON AND CHARGED ACCORDINGLY. ITA NO.1815 /BANG/2018 PAGE 4 OF 12 AS THE APPELLANT HAD FAILED TO DEDUCT TAX AS PER THE PROVISIONS OF SEC.L 94A(I) OF THE ACT, THE AC) PROCEEDED TO DECLARE THE APPELLANT AS AN 'ASSESSEE IN DCF4U1/' TO THE EXTENT OF TAX DEDUCTIBLE AND PASSED ORDER U/S 201(1) OF THE ACT AND ALSO LEVIED INTERES T U/S 201 (IA) OF THE I T ACT 1961 ON TAXES NOT DEDUCTED, THEREBY RAISING TOTAL DEMAND FOR THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION AS DETAILED IN THE TABLE BELOW: 3. AGGRIEVED BY THE ORDER PASSED BY THE AO U/S 201 (1) & 201(1 A) OF THE INCOME TAX ACT, 1961, THE DEDUCTOR HAS PREFERRED APPEAL. THE FOLLOWING ARE THE GROUNDS TAK EN BY THE ASSESSEE. 5. BEFORE LD CIT(A) THE ASSESSEE SUBMITTED THAT THE INTEREST WERE PAID TO MEMBERS AND HENCE THE ASSESSEE IS NOT REQUI RED TO DEDUCT TAX AT SOURCE FROM SUCH PAYMENTS IN TERMS OF SEC. 1 94A(3)(V) OF THE ACT. IT WAS FURTHER SUBMITTED THAT THE ABOVE SAID PROVISIONS WERE AMENDED W.E.F 1/6/2015 MAKING INTEREST PAID TO MEMB ERS ALSO LIABLE TO TAX DEDUCTION AT SOURCE. HOWEVER, THE BO ARD HAS CLARIFIED IN CIRCULAR NO.19/2015 DATED 27/11/2015 THAT THE AM ENDED ITA NO.1815 /BANG/2018 PAGE 5 OF 12 PROVISIONS SHALL APPLY TO THE PAYMENT OF INTEREST M ADE ON OR AFTER 1/6/2015. SINCE THE YEAR UNDER CONSIDERATION IS AS ST. YEAR 2012- 13, IT WAS SUBMITTED THAT THE AMENDED PROVISIONS WI LL NOT APPLY TO THE ASSESSEE. THE ASSESSEE ALSO PLACED RELIANCE ON THE FOLLOWING CASE LAW TO SUPPORT ITS CONTENTIONS THAT THE INTERE ST PAID TO MEMBERS ARE NOT LIABLE TO DEDUCT TAX AT SOURCE U/S 194A OF THE ACT. A) JALGAON DISTRICT CENTRAL CO-OPERATIVE BANK LTD., & ANOTHER VS. UOI & OTHERS B) ACIT VS. VISAKHAPATNAM CO-OPERATIVE BANK (VISAKHAPATNAM BENCH DT. 29.08.2011) C) GUJARAT URBAN CO-OPERATIVE BANK FEDERATION VS. UOI DATED 12/6/2012 (GUJARAT HC) D) THE BAGALKOT DISTRICT CENTRAL COOPERATIVE BANK VS. JCIT, BIJAPUR (ITAT, BANGALORE) E) SHRI BASAVESHWARA SAHAKARI BANK VS. DEPARTMENT OF INCOME-TAX, ITAT, B BENCH, BANGALORE DT. 27/6/201 4 F) ACIT, CIRCLE-1, NASIK VS. OZER MERCHANT CO-OPERATIV E BANK LTD., ITAT, PUNE B BENCH DT. 30/10/2013 6. THE LD CIT(A) WAS CONVINCED WITH THE CONTENTIONS OF THE ASSESSEE AND ACCORDINGLY DELETED THE DEMAND RAISED UPON THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS: 5. THE IN GRIEVANCE IS THAT THE AC ERRED IN LAW A S WELL AS ON FACTS WITH REGARD TO THE PROVISIONS OF T DS IN RESPECT OF INTEREST EXCEEDING KS. 10,000/- PAID ON DEPOSITS RECEIVED FROM MEMBERS. IT IS ARGUED THAT A LL ITA NO.1815 /BANG/2018 PAGE 6 OF 12 THE DEPOSITORS ARE MEMBERS AND THEREFORE, THE CASE IS EXEMPT FROM TDS IN VIEW OF THE PROVISIONS OF SECTIO N 194A(3) OF THE ACT. I HAVE PERUSED THE WRITTEN SUBMISSIONS, THE DECISION OF THE HON'BLE ITAT, A BENCH, BANGALORE IN THE CASE OF THE BAGALKOT DISTRICT CENTRAL CO-OPERAT IVE BANK LIMITED VS JCIT, BIJAPUR AND THE CBDT CIRCULAR NO.9/2002 DATED 11/09/2002 WHICH THE APPELLANT HAS RELIED IN SUPPORT OF ITS CLAIM. 5A. THE HON'BLE ITAT IN THE CASE OF THE BAGALKOT DISTRICT CENTRAL CA-OP. BANK VS. JCIT IN ITA NO.1 572/BANG/201 3 DATED 30/05/2014 HAS 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 TI ME DEPOSITS, WITH SUCH CO-OPERATIVE SOCIETY, NEED NOT DEDUCT TAX AT SOURCE U/S 194A BY VIRTUE OF EXEMPTIO N GRANTED VIDE CLAUSE (V) OF SUB-SECTION(3) OF THE SA ID SECTION.' 5B. IN A SIMILAR ISSUE, THE HON'BLE ITAT, 'A' BENCH , BANGALORE IN THE CASE OF MIS THE RADDI SAHAKARA BANK NIYAMITHA VS. THE INCOME TAX OFFICER, 1-LUBLI SP NOS.51 & 52/BANG/201 5 AND ITA NOS.368 & ITA NO.1815 /BANG/2018 PAGE 7 OF 12 369/BANG/201 5 HAS DECIDED THE CASE IN FAVOUR OF THE ASSESSEE RELYING ON VARIOUS OTHER DECISIONS AND HELD AS UNDER. 'THE LEARNED COUNSELFOR THE ASSESSEE HAS BROUGHT TO OUR NOTICE THAT THE [TAT VISHAKAPATNAM BENCH: IN THE CASE OF THE VISAKHAPATNAM GO- OPERATIVE BANK ITA NO.5 AND 19 OF 2011 ORDER DATED 29.8.2011 HAS HELD THAT CO-OPERATIVE SOCIETIES CARRYING ON BANKING BUSINESS WHEN IT PAYS INTEREST TO ITS MEMBERS ON DEPOSITS IT NEED NOT DEDUCT TAX AT SOURCE IN VIEW OF THE PROVISIONS OF SEC.I94A(3)(V) OF THE ACT. SIMILAR VIEW HAS ALSO BEEN EXPRESSED BY THE PU NE BENCH OF THE ITAT IN THE CASE OF OZER MERCHANT GO- OPERATIVE BANK [TA NO.15881PN/2012 ORDER DATED 30.10.2013. WE MAY ADD THAT IN BOTH THESE DECISIONS THE DISCUSSION DID NOT TURN ON THE INTERPRETATION O F SEC.194A(3)(I)(B) OF THE ACT VIS-A-VIS SEC.19 3)(V) OF THE ACT. IT IS THUS CLEAR THAT THE PREPONDERANCE OFJUDI CIAL OPINION ON THIS ISSUE IS THAT CO-OPERATIVE SOCIETIE S CARRYING ON BANKING BUSINESS WHEN IT PAYS INTEREST TO ITS MEMBERS ON DEPOSITS NEED NOT DEDUCT TAX AT SOUR CE IN VIEW OF THE PROVISIONS OF SEC.194A(3)('V) OF THE ACT. 21. FOR THE REASONS GIVEN ABOVE, WE HOLD THAT THE ASSESSEE WHICH IS A CO-OPERATIVE SOCIETY CARRYING O N BANKING BUSINESS WHEN IT PAYS INTEREST INCOME TO A MEMBER BOTH ON TIME DEPOSITS AND ON DEPOSITS OTHER ITA NO.1815 /BANG/2018 PAGE 8 OF 12 THAN TIME DEPOSITS WITH SUCH CO-OPERATIVE SOCIETY N EED NOT DEDUCT TAX AT SOURCE UNDER SECTION 194A BY VIRT UE OF THE EXEMPTION GRANTED VIDE CLAUSE (V) OF SUB-SEC TION ) OF THE SAID SECTION.' 15. IN OUR VIEW, THE ABOVE DECISION RENDERED BY THE COORDINATE BENCH IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. RESPECTFULLY FOLLOWING T HE DECISION OF THE CO-ORDINATE BENCH REFERRED TO ABOVE , WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND H OLD THAT TO THE EXTENT INTEREST IS PAID TO MEMBERS OF T HE SOCIETY THERE IS NO OBLIGATION TO DEDUCT TAX AT SOU RCE.' 5C. THE CBDT VIDE CIRCULAR NO.9/2002 DATED 11/0912002 HAS CLARIFIED THE APPLICABILITY OF THE PROVISIONS IN RESPECT OF INCOME PAID TO A MEMBER OF A CO-OPERATIVE BANK. RELEVANT PART OF THE INSTRUCTION IS REPRODUCED BELOW FOR THE SAKE OF CLARITY/REFERENCE. 2. REPRESENTATION HAVE BEEN RECEIVED IN THE BOARD SEEKING CLARIFICATION AS TO WHETHER A MEMBER OF A C O- OPERATIVE BANK MAY RECEIVE WITHOUT TDS INTEREST ON TIME DEPOSIT MADE WITH THE COOPERATIVE BANK ON OR AFTER 01/07/1995. THE 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 WITH SUCH CO-OPERATIVE BANK WITHOUT TDS UNDER SECTION ITA NO.1815 /BANG/2018 PAGE 9 OF 12 194A BY VIRTUE OF THE EXEMPTION GRANTED VIDE CLAUS E (V) OF SUB-SECTION (V OF THE SAID SECTION. THE PROV ISIONS OF CLAUSE (VIIA) OF THE SAID SUB-SECTION AIR APPLIC ABLE ONLY IN CASE OF A NON-MEMBER DEPOSITOR OF THE CO- OPERATIVE HANK, WHO SHALL RECEIVE INTEREST ONLY ON DEPOSITS OTHER THAN TIME DEPOSITS MADE ON OR AFTER 0110711995 WITHOUT 71'S UNDER SECTION 194A.' 5D. THE BOARD VIDE CIRCULAR NO.19/2015 DATED 27/11/2015 VIDE. SLNO.42.5 HAS FURTHER CLARIFIED AS UNDER: 'THE PROVISIONS OF THE SECTION 194A(3)(V) OF THE IN COME- TAX ACT HAVE BEEN AMENDED SO AS TO EXPRESSLY PROVID E THAT THE EXEMPTION PROVIDED FROM DEDUCTION OF TAX FROM PAYMENT OF INTEREST TO MEMBERS BY A CO-OPERATI VE SOCIETY UNDER SECTION 194A3)(V) OF THE INCOME-TAX A CT 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 DA TE OF 1ST JUNE, 2015, THE CO-OPERATIVE BANK SHALL BE REQUIRED TO DEDUCT TAX FRONT THE PAYMENT OF INTERES T ON TIME DEPOSITS OF ITS MEMBERS, ON OR AFTER THE 1ST J UNE, 2015. HENCE, A CO-OPERATIVE BANK WAS NOT REQUIRED T O DEDUCT TAX FROM THE PAYMENT OF INTEREST ON TIME DEPOSITS OF ITS MEMBERS PAID OR CREDITED BEFORE 1ST JUNE, 2015.' ITA NO.1815 /BANG/2018 PAGE 10 OF 12 5E. IN VIEW OF THE ABOVE DISCUSSIONS AND FOLLOWING BOARD'S CIRCULAR AND JUDICIAL PRECEDENTS CITED SUPR A, I HOLD THAT THERE WAS NO OBLIGATION ON PART OF THE DEDUCTOR TO DEDUCT TAX AT SOURCE ON PAYMENT OF INTEREST TO ITS MEMBERS ON DEPOSITS. THE GROUNDS AR E THUS ALLOWED IN FAVOUR OF THE APPELLANT AND THE AO IS DIRECTED TO DELETE THE DEMANDS RAISED U/S 201(1) & 201(I)A OF THE ACT. THUS, THE GROUND SUCCEEDS. 7. HAVING GONE THROUGH THE ORDER PASSED BY LD CIT(A ), WE ARE OF THE VIEW THAT THERE IS NO INFIRMITY IN THE ORDER, A S THE LD CIT(A) HAS FOLLOWED THE DECISION RENDERED BY THE TRIBUNAL ON I DENTICAL ISSUE AND ALSO THE CIRCULAR ISSUED BY CBDT. ACCORDINGLY WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER PASSED BY TH E LD CIT(A). 8. IN THE RESULT, THE APPEAL OF THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON DECEMBER, 2019. SD/ - (BEENA PILLAI) JUDICIAL MEMBER SD/ - (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, DECEMBER, 2019. / VMS / ITA NO.1815 /BANG/2018 PAGE 11 OF 12 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.