ITO (TDS)-1, Ludhiana V. The Ludhiana Central Co-operative Bank Ltd., Ludhiana

ITA 196/CHANDI/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8958 (ITAT-CHANDIGARH)
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Next Hearing Date: 07-09-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 08-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Non-deduction of tax
• Section: 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.196/CHD/2016 (ASSESSMENT YEAR : 2012-13) THE INCOME TAX OFFICER(TDS)-1, VS. THE LUDHIANA CENTRAL LUDHIANA. CO-OPERATIVE BANK LTD., VPO TEHSIL ROAD, JAGRAON, DISTT. LUDHIANA. PAN: JLDT00890B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.K. MITTAL, DR RESPONDENT BY : SHRI PARVEEN JINDAL DATE OF HEARING : 22.11.2016 DATE OF PRONOUNCEMENT : 29.11.2016 O R D E R PER ANNAPURNA GUPTA, A.M . : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-1, LUDHIANA DATED 30.12.2015 RELATING TO ASSESSMENT YEAR 2012-13. 2. BRIEFLY, THE FACTS RELATING TO THE CASE ARE THAT NOTICE UNDER SECTION 201(1)/201(1A) OF THE INCOME T AX ACT, 1961 (IN SHORT THE ACT) WAS ISSUED AND SERVE D UPON THE PR FOR SHORT FALL IN DEDUCTION OF TDS ALONGWITH INTEREST. THE ASSESSING OFFICER OBSE RVED 2 THAT THE PR IS A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING AND, THEREFORE, THE PR IS REQUI RED TO DEDUCT TAX AT SOURCE ON INTEREST PAID EXCEEDING RS.10,000/- AND CANNOT CLAIM THE BENEFIT OF EXEMPTI ON FROM TAX DEDUCTION AT SOURCE UNDER THE PROVISIONS O F SECTION 194A(3)(A)(V) OF THE ACT. ACCORDING TO THE ASSESSING OFFICER, THE PROVISIONS OF SECTION 194A(3)(VIIA)/(B) BEING SPECIFIC PROVISION REQUIRIN G TAX DEDUCTION AT SOURCE BY CO-OPERATIVE SOCIETIES ON TI ME DEPOSITS OVERRULED THE GENERAL PROVISIONS GRANTING EXEMPTION FROM THE SAME, OF SECTION 194A(3)(V) OF T HE ACT. THE ASSESSING OFFICER RELIED UPON THE CASE OF BHAGANI NIVEDITA SAHAKARI BANK LTD. VS. ACIT 87 ITD 569(PUNE) AND HELD THAT THE ASSESSEE WAS LIABLE O DEDUCT TAX ON THE INTEREST PAYMENTS MADE. ACCORDINGLY, THE PR WAS HELD TO BE AN ASSESSEE IN DEFAULT AND LIABILITY UNDER SECTION 201(1)/201(1A) OF THE ACT WAS DETERMINED AT RS.14,51,636/-. 3. AGGRIEVED BY THE SAME, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT (APPEALS), WHERE HE MADE DETAILED SUBMISSIONS WHICH ARE REPRODUCED AT PARA 3.1 OF THE ORDER OF THE CIT (APPEALS). THE GIST OF THE CONTENTIONS RAISED BY T HE ASSESSEE WAS THAT AS PER SECTION 194A(3)(V) OF THE ACT THE ASSESSEE BEING A COOPERATIVE SOCIETY WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE ON INTEREST PAYMEN T 3 MADE TO OTHER COOPERATIVE SOCIETIES/MEMBERS. THE ASSESSEE FURTHER SUBMITTED THAT ALL PROVISION S OFSECTION 194A(3)(I)(B)/(III)(A)/(V)/(VIIA)(A) & (B ) WERE SPECIFIC AND THERE WAS NO CONFLICT BETWEEN THE SAME . THEREFORE, THE ASSESSEE SUBMITTED THAT THE PROVISIO NS OF SECTION 194A(3)(V) WOULD GRANT EXEMPTION TO THE ASSESSEE IN THE PRESENT CASE FROM DEDUCTION OF TAX AT SOURCE. FURTHER, THE ASSESSEE RELIED UPON CBDT CIRCULAR NO.9 DATED 11.9.2002 TO STATE THAT IT WAS SPECIFIED THEREIN THAT THE MEMBERS OF THE COOPERATI VE SOCIETY COULD RECEIVE INTEREST ON BOTH TIME DEPOSIT S AND OTHER DEPOSITS WHICH SUCH COOPERATIVE BANK WITHOUT TDS UNDER SECTION 194A BY VIRTUE OF EXEMPTION GRANTED VIDE CLAUSE (V) OF SUB-SECTION (3 ) OF THE SAID SECTION. THE ASSESSEE FURTHER RELIED UPON ON THE DECISION OF THE I.T.A.T. BANGALORE BENCH IN THE CASE OF THE BAGALKOT DISTRICT CENTRAL CO-OPERATIVE BANK VS. JCIT, DATED 30.05.2014. THE ASSESSEE FURTHER STATED THAT THE AMENDMENT MADE TO SECTION 194A(3)(VIIB) MANDATING TAX DEDUCTION AT SOURCE ON TIME DEPOSITS MADE BY THE MEMBERS OF COOPERATIVE SOCIETIES WAS APPLICABLE W.E.F. 01.06.2015. THE ASSESSEE RELIED UPON CBDT CIRCULAR EXPLAINING THE PROVISIONS OF FINANCE ACT 2015 IN THIS REGARD. THE ASSESSEE FURTHER RELIED UPON VARIOUS DECISIONS OF T HE HIGH COURT. THE LD. CIT (APPEALS) AFTER GOING THRO UGH THE SUBMISSIONS OF THE ASSESSEE DELETED THE DEMAND RAISED UNDER SECTION 201(1)/201(1A) OF THE ACT BY 4 HOLDING THAT THE AMENDMENT OF CLAUSE (V) OF SECTION 194A(3) HAS BEEN MADE W.E.F. 1.6.2005 AND IT REQUIR ED COOPERATIVE BANKS TO DEDUCT TDS ON INTEREST PAYMENT S MADE TO MEMBERS. THE SAID AMENDMENT HAD BEEN HELD TO BE PROSPECTIVE BY THE I.T.A.T. PANAJI BENCH IN T HE CASE OF BELGAON DISTRICT COOPERATIVE CENTRAL BANK VIDE ORDER DATED 16.6.2015 WHICH HAS BEEN FOLLOWED IN ANOTHER DECISION OF THE SAME BENCH IN THE CASE OF GOA STATE COOPERATIVE BANK VS. CIT DATED 19.6.2016. IN VIEW OF THE SAME THE CIT (APPEALS) HELD THAT THE ASSESSEE WAS ENTITLED TO EXEMPTION FROM TAX DEDUCTI ON AT SOURCE UNDER SECTION 194A(3)(V) AND THE ASSESSIN G OFFICER WAS NOT JUSTIFIED IN CREATING THE SAID LIAB ILITY UNDER SECTION 201(1) ALONGWITH 201(1A) OF THE ACT WHICH WAS ACCORDINGLY DELETED. 4. AGGRIEVED BY THE SAME, THE REVENUE HAS COME UP IN APPEAL BEFORE US. DURING THE COURSE OF HEARI NG BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE DRE W OUR ATTENTION TO THE DECISION OF THE I.T.A.T., CHANDIGARH BENCH IN THE CASE OF THE PUNJAB STATE COOP BANK LTD., CHANDIGARH VS. ITO(TDS-II), CHANDIGARH IN ITA NO.279/CHD/2016 DATED 1.7.2016 AND STATED THAT IT HAS BEEN CATEGORICALLY HELD BY T HE BENCH THAT THE EXEMPTION PROVIDED UNDER SECTION 194A(3)(V) OF THE ACT WITH REGARD TO DEDUCTION OF T AX AT SOURCE FROM INTEREST PAYMENT BY A COOPERATIVE SOCIE TY TO ANOTHER COOPERATIVE SOCIETY EXISTED BEFORE THE 5 AMENDMENT AND CONTINUED TO APPLY EVEN AFTER THE AMENDMENT. THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT THE ISSUE IN THE PRESENT CASE IS SQUARE LY COVERED BY THE AFORESAID ORDER OF THE I.T.A.T., CHANDIGARH BENCH AND THE REVENUES APPEAL THEREFORE , OUGHT TO BE DISMISSED. 5. THE LD. DR, ON THE OTHER HAND, RELIED UPON ON THE ORDER OF THE ASSESSING OFFICER AND STATED TH AT THE PROVISIONS OF SECTION 194A(3)(VIIA)(B) BEING SP ECIFIC PROVISIONS REQUIRING COOPERATIVE SOCIETIES TO DEDUC T TAX AT SOURCE ON ALL TIME DEPOSITS, THE SAME WERE APPLICABLE IN THE PRESENT CASE AND WOULD OVERRULE T HE PROVISIONS OF SECTION 194A(3)(V) EXEMPTING COOPERAT IVE SOCIETIES FROM DEDUCTION OF TAX AT SOURCE OF INTERE ST PAYMENTS MADE TO MEMBERS AND OTHER COOPERATIVE SOCIETIES WHICH WAS A GENERAL PROVISION. 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. THE UNDISPUTED FACTS WHICH AR E NECESSARY FOR ADJUDICATION OF THE PRESENT APPEAL AR E THAT THE ASSESSEE IS COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING. THAT IN THE IMPUGNED YEAR THE ASSESSEE HAD MADE INTEREST PAYMENTS TO OTHER COOPERATIVE SOCIETIES WITHOUT DEDUCTING TAX AT SOUR CE WHICH AMOUNTED TO RS.14,51,636/-. WHILE THE ASSESSING OFFICER CONTENDED THAT IN THE LIGHT OF TH E 6 SPECIFIC PROVISIONS OF SUB-CLAUSE (VIIA) AND (B) OF SECTION 194A(3) THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE ON THE IMPUGNED PAYMENTS OF INTEREST, THE ASSESSEE HAS RELIED UPON THE PROVISIONS OF SECTION 194A(3)(V) FOR CLAIMING EXEMPTION FROM DEDUCTION OF TAX AT SOURCE ON THE IMPUGNED PAYMENTS. 7. WE FIND THAT IDENTICAL ISSUE HAS BEEN DECIDED BY I.T.A.T., CHANDIGARH BENCH IN THE CASE OF THE PUNJAB STATE COOP BANK LTD., CHANDIGARH (SUPRA) WHEREIN IT WAS HELD THAT ON READING OF MEMORANDUM O F FINANCE BILL, 2015, THE EXEMPTION PROVIDED UNDER SECTION 194A(3)(V) WITH REGARD TO DEDUCTION OF TAX AT SOURCE FROM INTEREST PAYMENTS BY A COOPERATIVE SOCI ETY TO ANOTHER COOPERATIVE SOCIETY EXISTED BEFORE THE AMENDMENT AND CONTINUED TO APPLY EVEN AFTER THE AMENDMENT. THE RELEVANT FINDINGS OF THE I.T.A.T., CHANDIGARH BENCH AT PARAS 12 TO 16 OF THE ORDER ARE AS FOLLOWS : 12. THE ASSESSEE HAD RECEIVED TERM DEPOSITS FROM HOUSEFED PUNJAB AND KRIBHCO. ON THESE TERM DEPOSITS, THE ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR HAD PAID INTEREST TO HOUSEFED PUNJAB AMOUNTING TO RS.13,40,476/- AND KRIBHCO AMOUNTING TO RS.2,55,15,595/-. SINCE THE ASSESSEE HAD NOT DEDUCTED THE TAX AT SOURCE ON THESE INTEREST PAYMENTS, THE ITO (TDS) TREATED THE ASSESSEE, AS AN ASSESSEE IN DEFAULT AND PASSED THE ORDER UNDER SECTION 201(1) OF THE ACT. THE ITO(TDS) ALSO LEVIED INTEREST UNDER SECTION 201(1A) OF THE ACT. 7 13. BEING AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT (APPEALS). THE CIT (APPEALS) FOR HIS ELABORATE REASONING MENTIONED IN PARAS 5.3 TO 5.3(C) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 14. THE REVENUE BEING AGGRIEVED, IS IN APPEAL BEFORE US. THE LEARNED D.R. RELIED ON THE ASSESSMENT ORDER. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE INCOME TAX AUTHORITIES AND RELIED ON THE FINDINGS OF THE CIT (APPEALS). IN FURTHERANCE, THE LEARNED COUNSEL RELIED ON THE RECENT ORDER OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT (TDS) VS. SREE THYAGARAJA CO-OP BANK LTD. IN ITA NOS.856 TO 860/BANG/2015, (ORDER DATED 10.11.2015). 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE CIT (APPEALS) HAD CONSIDERED THE AMENDED PROVISION OF SECTION 194A(3)(V) OF THE ACT (W.E.F. 1.6.2015). THE CIT (APPEALS) HAS ALSO CONSIDERED VARIOUS ORDERS OF THE TRIBUNAL ON THIS ASPECT AND HAS GIVEN A VERY ELABORATE FINDINGS, WHICH READ AS FOLLOWS: 5.3 THE SUBMISSION OF THE APPELLANT HAVE BEEN CONSIDERED. THE AMENDED PROVISIONS OF SECTION 194A( 3)(V) ARE EFFECTIVE FROM 01.06.2015 . THE RELEVANT PORTIO N OF THE CHAPTER ON 'RATIONALIZATION OF PROVISION RELATING TO DEDUCTION OF TAX ON INTEREST (OTHER THAN INTEREST ON SECURITI ES)' IN THE FINANCE BILL, 2015 IS AS UNDER: 'SECTION 194A(1) READ WITH SECTION 194A(3)(I) OF THE AC T PROVIDE FOR DEDUCTION OF TAX ON INTEREST (OTHER THAN INTEREST ON SECURITIES) OVER A SPECIFIED THRESHOLD, I.E. RS.10,000 FOR INTEREST PAYMENT BY BANKS, CO-OPERATIV E 8 SOCIETY ENGAGED IN BANKING BUSINESS (COOPERATIVE BAN K) AND POST OFFICE AND RS.5,000 FOR PAYMENT OF INTEREST BY OTHER PERSONS. FURTHER, SUB-SECTION (3) OF SECTION 194 A INTER ALIA ALSO PROVIDES FOR EXEMPTION FROM DEDUCTION OF TAX IN RESPECT OF FOLLOWING INTEREST PAYMENTS BY CO- OPERATIVE SOCIETY: (I) INTEREST PAYMENT BY A CO-OPER ATIVE SOCIETY TO A MEMBER THEREOF OR ANY OTHER CO-OPERATI VE SOCIETY. [SECTION 194A(3)(V) OF THE ACT] (II) INTEREST PAYMENTS ON DEPOSITS BY A PRIMARY AGRICULTURAL CREDIT SOCIETY OR PRIMARY CREDIT SOCIETY OR CO-OPERATIVE LA ND MORTGAGE BANK OR CO-OPERATIVE LAND DEVELOPMENT BANK. [SECTION 194A(3)(VIIA)(A) OF THE ACT] (HI) INTEREST PAYMENT ON DEPOSITS OTHER THAN TIME DEPOSIT BY A CO-OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING OTHER TH AN THOSE MENTIONED IN SECTION 194A(3)(VIIA)(A) OF THE A CT. [SECTION 194A(3)(VIIA)(B) OF THE ACT] THEREFORE, AS PE R THE PROVISIONS OF SECTION 194A(1) READ WITH PROVISIONS OF SECTIONS 194A(3)(I)(B) AND 194A(3)(VIIA)(B), CO-OPERAT IVE BANK IS REQUIRED TO DEDUCT TAX FROM INTEREST PAYMEN T ON TIME DEPOSITS IF THE AMOUNT OF SUCH PAYMENT EXCEEDS SPECIFIED THRESHOLD OF RS.10,000/-. HOWEVER, AS THE PROVISIONS OF SECTION 194A(3)(V) OF THE ACT PROVIDE A GENERAL EXEMPTION FROM MAKING TAX DEDUCTION FROM PAYMENT OF INTEREST BY ALL CO-OPERATIVE SOCIETIES TO ITS MEMBERS, THE CO-OPERATIVE BANKS TRIED TO AVAIL THIS EXEMPTION BY MAKING THEIR DEPOSITORS AS MEMBERS OF DIFFERENT CATEGORIES. THIS HAS LED TO DISPUTE AS TO WHETHER THE CO-OPERATIVE BANKS, FOR WHICH THE SPECIFIC PROV ISIONS OF TAX DEDUCTION EXIST IN THE FORM OF SECTION 194A (1), SECTION 194A(3)(I)(B) AND SECTION 194A(3)(VIIA)(B) OF THE A CT, CAN TAKE THE BENEFIT OF GENERAL EXEMPTION PROVIDED TO ALL CO -OPERATIVE SOCIETIES FROM DEDUCTION OF TAX ON PAYMENT OF INTER EST TO MEMBERS. THE MATTER HAS BEEN CARRIED TO JUDICIAL FO RUMS AND IN SOME CASES A VIEW HAS BEEN TAKEN THAT THE PROVISIONS OF SECTION 194A(3)(VIIA)(B) OF THE ACT M AKES NO DISTINCTION BETWEEN MEMBERS AND NON-MEMBERS OF CO- OPERATIVE BANKS FOR THE PURPOSES OF DEDUCTION OF TA X, HENCE, 9 THE CO-OPERATIVE BANKS ARE REQUIRED TO DEDUCT TAX O N PAYMENT OF INTEREST ON TIME DEPOSIT AND CANNOT AVOI D THE SAME BY TAKING THE PLEA OF THE GENERAL EXEMPTION PR OVIDED UNDER SECTION 194A(3)(V) OF THE ACT. THIS IS BECAUS E THE SPECIFIC PROVISION OF TAX DEDUCTION PROVIDED UNDER SECTION 194A(3)(I)(B) AND 194A(3)(VIIA)(B) OF THE ACT FOR C O-OPERATIVE BANKS OVERRIDE THE GENERAL EXEMPTION PROVIDED TO AL L CO- OPERATIVE SOCIETIES FOR NON-DEDUCTION OF TAX FROM I NTEREST PAYMENT TO MEMBERS UNDER SECTION 194A(3)(V) OF THE ACT. AS THERE IS NO DIFFERENCE IN THE FUNCTIONING OF THE CO- OPERATIVE BANKS AND OTHER COMMERCIAL BANKS, THE FINA NCE ACT, 2006 AND FINANCE ACT, 2007 AMENDED THE PROVISI ONS OF THE ACT TO PROVIDE FOR CO-OPERATIVE BANKS A TAXA TION REGIME WHICH IS SIMILAR TO THAT FOR THE OTHER COMME RCIAL BANKS. THEREFORE, THERE IS NO RATIONALE FOR TREATIN G THE CO- OPERATIVE BANKS DIFFERENTLY FROM OTHER COMMERCIAL B ANKS IN THE MATTER OF DEDUCTION OF TAX AND ALLOWING THEM TO AVAIL THE EXEMPTION MEANT FOR SMALLER CREDIT COOPERATIVE SOCIETIES FORMED FOR THE BENEFIT OF SMALL NUMBER OF MEMBERS. HOWEVER, AS MENTIONED EARLIER, A DOUBT HAS BEEN CREATED REGARDING THE APPLICABILITY OF THE SPEC IFIC PROVISIONS MANDATING DEDUCTION OF TAX FROM THE PAYM ENT OF INTEREST ON TIME DEPOSITS BY THE CO-OPERATIVE BANKS TO ITS MEMBERS BY CLAIMING THAT GENERAL EXEMPTION PROVIDED IS ALSO APPLICABLE FOR PAYMENT OF INTEREST TO MEMBER DEPOSITORS. IN VIEW OF THIS, IT IS PROPOSED TO AMEND THE PROVISIONS OF THE SECTION 194A OF THE ACT TO EXPRES SLY PROVIDE FROM THE PROSPECTIVE DATE OF 1ST JUNE, 2015 T HAT THE EXEMPTION PROVIDED FROM DEDUCTION OF TAX FROM PAYME NT OF INTEREST TO MEMBERS BY A CO-OPERATIVE SOCIETY UNDER SECTION 194A(3)(V) OF THE ACT SHALL NOT APPLY TO THE PAYMEN T OF INTEREST ON TIME DEPOSITS BY THE COOPERATIVE BANKS TO ITS MEMBERS. HOWEVER, THE EXISTING EXEMPTION PROVIDED U NDER SECTION 194A(3)(VIIA)(A) OF T HE ACT TO PRIMAR Y AGRICULTURAL 10 CREDIT SOCIETY OR A PRIMARY CREDIT SOCIETY OR A CO -OPERATIVE LAND MORTGAGE BANK OR A CO-OPERATIVE LAND DEVELOPME NT BANK FROM DEDUCTION OF TAX IN RESPECT OF INTEREST P AID ON DEPOSIT SHALL CONTINUE TO APPLY. THEREFORE, THESE C O- OPERATIVE CREDIT SOCIETIES/BANKS REFERRED TO IN SAI D CLAUSE (VIIA)(A) WOULD NOT BE REQUIRED TO DEDUCT TAX ON IN TEREST PAYMENT TO DEPOSITORS EVEN AFTER THE PROPOSED AMENDM ENT FURTHER, THE EXISTING EXEMPTION PROVIDED UNDER SECT ION 194A(3)(V) OF THE ACT FROM DEDUCTION OF TAX FROM INTE REST PAID BY A COOPERATIVE SOCIETY TO ANOTHER CO-OPERATIVE SO CIETY SHALL CONTINUE TO APPLY TO THE CO-OPERATIVE BANK AN D, THEREFORE, A CO-OPERATIVE BANK SHALL NOT BE REQUIRE D TO DEDUCT TAX FROM THE PAYMENT OF INTEREST ON TIME DEP OSIT TO A DEPOSITOR, BEING A CO-OPERATIVE SOCIETY.' 5.3(A) IN A RECENT JUDGMENT OF HON'BLE ITAT, BANGAL ORE BENCH IN THE CASE OF M/S THE RADDI SAHAKARA BANK, NIYAMITHA, IT IS HELD THAT THE COOPERATIVE SOCIETIE S CARRYING ON BANKING BUSINESS IS NOT LIABLE TO DEDUCT TAX AT S OURCE FOR THE PAYMENT OF INTEREST ON DEPOSITS BY ITS MEMBERS. IN THE SAID JUDGEMENT, THE DECISION IN THE CASE OF BHAGANI NIVEDITA SAHAKARI BANK LTD HAS BEEN CONSIDERED. IT IS DISCUS SED IN THE CASE OF RADDI SAHAKARA BANK (SUPRA) THAT HON'BLE ITAT BANGALORE BENCH IN THE CASE OF BAGALKOT DISTRICT CEN TRAL COOPERATIVE BANK HAS DEALT WITH IDENTICAL ISSUE WHE REIN THE HON'BLE TRIBUNAL DID NOT AGREE WITH THE VIEW EXPRES SED BY THE HON'BLE PUNE ITAT (SMC BENCH) IN THE CASE OF BHAGAN I NIVEDITA SAHAKARI BANK LTD. IT WAS HELD BY THE HON'BL E ITAT, BANGALORE BENCH IN THE CASE OF BAGALKOT DISTRICT CENTRAL COOPERATIVE BANK THAT 'WE HOLD THAT THE ASSE SSEE WHICH IS A CO-OPERATIVE SOCIETY CARRYING ON BANKING BUSINESS WHEN IT PAYS INTEREST INCOME TO A MEMBER BOTH ON TI ME DEPOSITS AND ON DEPOSITS OTHER THAN TIME DEPOSITS WIT H SUCH CO-OPERATIVE SOCIETY NEED NOT DEDUCT TAX AT SOURCE UNDER SECTION 194A BY VIRTUE OF THE EXEMPTION GRANTED VID E CLAUSE (V) OF SUB-SECTION (3) OF THE SAID SECTION.' RELYI NG UPON THE 11 ABOVE DECISION, HON'BLE ITAT, BANGALORE BENCH DECID ED IN THE CASE OF M/S RADDI SAHAKARA BANK AS 'IN OUR VIEW , THE ABOVE DECISION RENDERED BY THE CO-ORDINATE BENCH IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. RESPECT FULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH REF ERRED TO ABOVE, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITI ES AND HOLD THAT TO THE EXTENT INTEREST IS PAID TO MEMBERS OF THE SOCIETY THERE IS NO OBLIGATION TO DEDUCT TAX AT SOURCE.' 5.3(B) THERE WERE CONFLICTING DECISIONS OF VARIOUS TRIBUNALS ON APPLICABILITY OF THE SPECIFIC PROVISIONS MANDATING DE DUCTION OF TAX FROM THE PAYMENT OF INTEREST ON TIME DEPOSITS BY THE CO-OPERATIVE BANKS TO ITS MEMBERS BY CLAIMING THAT GE NERAL EXEMPTION PROVIDED IS ALSO APPLICABLE FOR PAYMENT OF INTEREST TO MEMBER DEPOSITORS, PROVISIONS OF THE SEC TION 194A OF THE ACT IS AMENDED TO EXPRESSLY PROVIDE FROM THE PROSPECTIVE DATE OF 1ST JUNE, 2015 THAT THE EXEMPTI ON PROVIDED FROM DEDUCTION OF TAX FROM PAYMENT OF INTE REST TO MEMBERS BY A CO-OPERATIVE SOCIETY UNDER SECTION 194A (3)(V) OF THE ACT SHALL NOT APPLY TO THE PAYMENT OF INTEREST ON TIME DEPOSITS BY THE CO-OPERATIVE BANKS TO ITS MEMBERS. WHILE PROPOSING AMENDMENT IN SECTION 194A(3)(V) OF THE AC T, LEGISLATURE WAS AWARE OF THE FACT THAT THE MATTER HA S BEEN CARRIED TO JUDICIAL FORUMS AND IN SOME CASES A VIEW HAS BEE N TAKEN THAT THE PROVISIONS OF SECTION 194A(3)(VIIA)(B) OF THE ACT MAKES NO DISTINCTION BETWEEN MEMBERS AND NON- MEMBERS OF CO-OPERATIVE BANKS FOR THE PURPOSES OF DEDUCTION OF TAX, HENCE THE CO-OPERATIVE BANKS ARE R EQUIRED TO DEDUCT TAX ON PAYMENT OF INTEREST ON TIME DEPOSIT AN D CANNOT AVOID THE SAME BY TAKING THE PLEA OF THE GENE RAL EXEMPTION PROVIDED UNDER SECTION 194A(3)(V) OF THE ACT. THIS IS BECAUSE THE SPECIFIC PROVISION OF TAX DEDUCTION PROVIDED UNDER SECTION 194A(3)(I)(B) AND194A(3)(VIIA)(B) OF THE ACT FOR CO-OPERATIVE BANKS OVERRIDE THE GENERAL EXEMPTION PRO VIDED TO ALL CO-OPERATIVE SOCIETIES FOR NON-DEDUCTION OF TAX FROM INTEREST PAYMENT TO MEMBERS U/S 194A(3)(V) OF THE ACT. 12 HOWEVER, IT IS MADE CLEAR IN THE CHAPTER ON 'RATION ALISATION OF PROVISIONS RELATING TO DEDUCTION OF TAX ON INTERE ST (OTHER THAN INTEREST ON SECURITIES) IN THE FINANCE BILL, 2 015 THAT THE 'THE EXISTING EXEMPTION PROVIDED UNDER SECTION 194A (3)(V) OF THE ACT FROM DEDUCTION OF TAX FROM INTEREST PAID BY A COOPERATIVE SOCIETY TO ANOTHER CO-OPERATIVE SOCIETY SHALL CONTINUE TO APPLY TO THE CO-OPERATIVE BANK AND, THERE FORE A CO-OPERATIVE BANK SHALL NOT BE REQUIRED TO DEDUCT TA X FROM THE PAYMENT OF INTEREST ON TIME DEPOSIT TO A DEPOSI TOR, BEING A CO-OPERATING SOCIETY.' 5.3(C) IT IS THEREFORE CLEAR FROM THE ABOVE MEMORANDU M OF FINANCE BILL, 2015 THAT EXEMPTION PROVIDED UNDER SECT ION 194A(3)(V) OF THE ACT FROM DEDUCTION OF TAX FROM INT EREST PAID BY A CO-OPERATIVE SOCIETY TO ANOTHER CO-OPERAT IVE SOCIETY EXISTED BEFORE THE AMENDMENT AND SHALL CONTINUE TO A PPLY TO THE CO-OPERATIVE BANK EVEN AFTER THE AMENDMENT. IT WAS MADE CLEAR FURTHER THAT SUCH EXEMPTION TO CO-OPERATIV E BANK IS AVAILABLE ONLY WHEN THE DEPOSITOR IS A CO-OPER ATIVE SOCIETY. IN THE INSTANT CASE M/S HOUSEFED & M/S KRIBH CO ARE MEMBERS WHO HAS DEPOSITED THE AMOUNT WITH THE APPELLANT CO-OPERATIVE BANK ARE CO-OPERATIVE SOCIETIES ONLY. THEREFORE IN VIEW OF THE ABOVE DISCUSSION IT IS HELD THAT THE APPELLANT, A COOPERATIVE SOCIETY, IS NOT REQUIRED TO DE DUCT TAX FROM THE PAYMENT OF INTEREST ON TIME DEPOSIT TO ITS MEMBERS BEING COOPERATIVE SOCIETIES OR OTHER COOPERA TIVE SOCIETIES. HENCE, THE APPELLANT IS NOT LIABLE UNDER SECTION 201(1) AS PERSON IN-DEFAULT FOR NOT DEDUCTING TAX A T SOURCE UNDER SECTION 194A(1) OF THE ACT AND ALSO NOT LIABLE FOR INTEREST U/S 201 (1 A) OF THE ACT AND THEREFORE THE DEMAND CREATED IN RESPECT OF M/S HOUSEFED AND M/S KRIBHCO IS DELETED. 16. ON READING THE MEMORANDUM OF FINANCE BILL, 2015, IT IS CLEAR THAT THE EXEMPTION PROVIDED UNDER SECTION 194A(3)V) OF THE ACT WITH REGARD TO DEDUCTION OF TAX AT SOURCE FROM INTEREST PAYMENT BY A COOPERATIVE SOCIETY TO ANOTHER COOPERATIVE 13 SOCIETY EXISTED BEFORE THE AMENDMENT, AND CONTINUE TO APPLY TO THE COOPERATIVE BANK EVEN AFTER THE AMENDMENT. IT WAS MADE FURTHER CLEAR THAT SUCH EXEMPTION TO COOPERATIVE BANK IS AVAILABLE ONLY WHEN THE DEPOSITOR IS A COOPERATIVE SOCIETY. IN THE INSTANT CASE, HOUSEFED PUNJAB AND KRIBHCO ARE COOPERATIVE SOCIETIES WHO ARE MEMBERS WITH THE ASSESSEE SOCIETY AND INTEREST RECEIVED BY THEM WAS EXEMPTED FOR TAX DEDUCTION AT SOURCE UNDER SECTION 194A(3)(V) OF THE ACT. HENCE, AS RIGHTLY POINTED OUT BY THE CIT (APPEALS), THE ASSESSEE WAS NOT LIABLE UNDER SECTION 201(1) OF THE ACT AS AN ASSESSEE IN DEFAULT FOR NOT DEDUCTING THE TAX UNDER SECTION 194A OF THE ACT AND CONSEQUENTLY, INTEREST UNDER SECTION 201(1) OF THE ACT CANNOT ALSO BE LEVIED. IT IS ORDERED ACCORDINGLY. 8. THE FACTS IN THE PRESENT CASE, WE FIND ARE IDENTICAL TO THAT IN THE CASE OF THE PUNJAB STATE COOP BANK LTD., CHANDIGARH (SUPRA) AS IN THIS CASE THE ASSESSEE BEING A COOPERATIVE SOCIETY HAS PAID INTER EST WITHOUT DEDUCTING TAX AT SOURCE TO OTHER COOPERATIV E SOCIETIES. SINCE THE I.T.A.T., CHANDIGARH BENCH HA S IN THE IMPUGNED CASE HELD THAT THE ASSESSEE WOULD ENJO Y IMMUNITY FROM DEDUCTION OF TAX AT SOURCE UNDER THE PROVISIONS OF SECTION 194A(3)(V) OF THE ACT ON SUCH PAYMENTS OF INTEREST I.E. FROM ONE COOPERATIVE SOCI ETY TO ANOTHER COOPERATIVE SOCIETY, THE DECISION RENDE RED THEREIN WOULD SQUARELY APPLY IN THE PRESENT CASE FOLLOWING WHICH WE UPHOLD THE ORDER OF THE CIT (APPEALS) IN HOLDING THAT THE ASSESSEE IS NOT AN ASSESSEE IN DEFAULT UNDER SECTION 201(1) OF THE ACT AND 14 CONSEQUENTLY INTEREST UNDER SECTION 201(1A) OF THE ACT ALSO CANNOT BE LEVIED. IN VIEW OF THE SAME, THE A PPEAL OF THE REVENUE IS DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 28 TH NOVEMBER, 2016 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH