Nilkanth Urban Co-operative Bank Limited, Solapur V. Assistant Commissioner of Income-tax, Circle - 1, Solapur

ITA 2644/PUN/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7007 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 15-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 40(a)(ia); 80P; 194A; 119

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE VIRTUAL COURT BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO.2644/PUN/2017 / ASSESSMENT YEAR : 2013-14 NILKANTH URBAN COOPERATIVE BANK LIMITED, NEAR SAMRAT CHOWK, POLICE CHOWKI, SOLAPUR 413002 PAN : AAAJN0172A VS. ACIT, CIRCLE-1, SOLAPUR APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER D ATED 29-09-2017 PASSED BY THE CIT(A)-7, PUNE, IN RELATION TO THE ASSESSMENT YEAR 2013-14. 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS.4,20,773/- MADE BY THE ASSESSING OFFICER (AO) U/S.40(A)(IA) OF THE INCOME-TAX A CT, 1961 (HEREINAFTER ALSO CALLED THE ACT) ON ACCOUNT OF NON-DEDUC TION OF ASSESSEE BY NONE (WRITTEN SUBMISSIONS) REVENUE BY SHRI ABHISHEK MESHRAM DATE OF HEARING 09-09-2020 DATE OF PRONOUNCEMENT 10-09-2020 ITA NO.2644/PUN/2017 NILKANTH URBAN COOPERATIVE BANK LIMITED 2 TAX AT SOURCE ON INTEREST PAID TO SOME OF THE MEMBERS, WHICH WERE HELD TO BE NOT LEGAL MEMBERS. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSE E IS A CO-OPERATIVE BANK, WHO FILED ITS RETURN DECLARING TOTAL INCOME O F RS.97,40,280/-. DURING THE COURSE OF ASSESSMENT PROCE EDINGS, THE AO REQUIRED THE ASSESSEE TO SUBMIT DATA RELATING TO `PERSON- WISE DEPOSITS HELD BY THE BANK AS ON 31-03-2013 AND INTEREST CREDITED OR PAID TO THEM ALONG WITH A COPY OF BYE-LAWS OF THE BANK, ELABORATING THE SCOPE OF ITS MEMBERS. THE ASSESSEE FURNIS HED `PERSON-WISE DATA OF THE DEPOSITORS WITH THE BREAK-UP IN THE TERMS OF INDIVIDUAL, HINDU UNDIVIDED FAMILY (HUF), PARTNERSHIP FIRM (REGISTERED), PARTNERSHIP FIRM (UNREGISTERED), COMPANY, TRU ST- REGISTERED, LLP, BOI, AOP, COOPERATIVE SOCIETY AND COOPERA TIVE BANKS AND OTHERS. ON THE PERUSAL OF BYE-LAWS OF THE A SSESSEE- BANK, THE AO OBSERVED THAT CLAUSE 4 (IX) CONTAINS DEFINITION O F PERSON TO MEAN AN ADULT-INDIVIDUAL, PARTNERSHIP FIRM REGIS TERED OR LOCAL AUTHORITY OR ANY OTHER BODY CORPORATE AND PUBLIC TRU ST REGISTERED ETC. HE FURTHER PERUSED CLAUSE 4(IV) OF THE B YE-LAWS DEFINING THE TERM MEMBER TO MEAN A `PERSON JOINING WITH AN APPLICATION OF REGISTRATION OF BANK INCLUDING A NOMINAL AND ASSOCIATE MEMBER. ON A CONJOINT READING OF CLAUSES 4(IX) A ND ITA NO.2644/PUN/2017 NILKANTH URBAN COOPERATIVE BANK LIMITED 3 4(IV), THE AO HELD THAT ONLY A PERSON CAN BE A MEMBER. SINCE HUF AND UNREGISTERED FIRMS DID NOT FALL WITHIN THE DEFINITION OF TH E TERM PERSON, THE AO HELD THAT THEY COULD NOT BE TREATED AS MEMBERS AND HENCE, INTEREST AMOUNTING TO RS.4,20,773/- PAID TO THEM WITHOUT DEDUCTION OF TAX AT SOURCE U/S 194A WAS HIT BY SECTION 40(A)(IA) OF THE ACT. THE LD. CIT(A) ECHOED THE ASSESSMENT ORDER ON THIS POINT, AGAINST WHICH THE ASSESSEE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE LD. DR THROUGH VIRTUAL COURT. WRITTE N SUBMISSION FILED ON BEHALF OF THE ASSESSEE HAVE ALSO BEE N TAKEN INTO CONSIDERATION. THE SHORT POINT FOR CONSIDERATION IS WHETHER THE LD. CIT(A) WAS JUSTIFIED IN SUSTAINING DISALLOWANCE MADE BY THE AO U/S.40(A)(IA) OF THE ACT TOWARDS INTEREST PAID TO SOME ME MBERS WITHOUT DEDUCTION OF TAX AT SOURCE IN TERMS OF SECTION 194A. THE RAISON DETRE ASSIGNED FOR MAKING SUCH A DISALLOWANCE IS THAT THE HUFS AND UNREGISTERED FIRMS COULD NOT HAVE BEEN LEGALLY IND UCTED AS MEMBERS WITHIN THE DEFINITION OF THE TERM `PERSON AS GIVEN IN THE BYE-LAWS OF THE ASSESSEE BANK AND HENCE, PAYMENT OF INTEREST TO THEM WAS LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S.194A O F THE ACT. ITA NO.2644/PUN/2017 NILKANTH URBAN COOPERATIVE BANK LIMITED 4 5. SECTION 194A OF THE ACT DEALS WITH DEDUCTION OF TAX AT SO URCE ON INTEREST OTHER THAN INTEREST ON SECURITIES. SUB-SECTION (1) PROVIDES THAT ANY PERSON, NOT BEING AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHO IS RESPONSIBLE FOR PAYING TO A RESIDE NT ANY INCOME BY WAY OF INTEREST SHALL AT THE TIME OF PAYMENT, DED UCT INCOME-TAX THEREON. SUB-SECTION (3) IS EXCEPTION TO SUB-SECTIO N (1), WHICH MANDATES THAT THE PROVISIONS OF SUB-SECTION (1) SHALL N OT APPLY IN CERTAIN SITUATIONS NARRATED THEREIN. WE ARE PRIMARILY CONCERNED WITH CLAUSE (V) OF SUB-SECTION (3) OF SECTION 1 94A WHICH PROVIDES THAT SUB-SECTION (1) SHALL NOT APPLY: `TO SUCH INCOME CREDITED OR PAID BY A CO- OPERATIVE SOCIETY TO A MEMBER THEREOF OR TO ANY OTHER CO-OPERATIVE SOCIETY. ON A HARMONIOUS READIN G OF SUB-SECTIONS (3) AND (1) OF SECTION 194A, IT BECOMES APPA RENT THAT A CO-OPERATIVE SOCIETY IS REQUIRED TO DEDUCT TAX AT SOURCE FR OM ANY INTEREST PAID BY IT EXCEPT WHERE THE INTEREST IS PAID TO ITS MEMB ER OR TO ANY OTHER COOPERATIVE SOCIETY. IN OTHER WORDS, IF INTE REST IS PAID BY IT TO ITS MEMBERS, THE SAME DOES NOT REQUIRE ANY DED UCTION OF TAX AT SOURCE. 6. A QUESTION AROSE AS TO WHETHER NOMINAL MEMBERS, AS SOCIATE MEMBERS AND SYMPATHIZER MEMBERS WERE ALSO COVERED BY TH E EXEMPTION UNDER SECTION 194A(3)(V). THE CBDT VIDE CIRCULA R ITA NO.2644/PUN/2017 NILKANTH URBAN COOPERATIVE BANK LIMITED 5 NO.9/2002 CLARIFIED THAT `THE EXEMPTION IS AVAILABLE ONLY TO SUCH MEMBERS WHO HAVE JOINED IN APPLICATION FOR THE REGISTRATION OF THE CO-OPERATIVE SOCIETY AND THOSE WHO ARE ADMITTED TO MEMBERSHIP AFTER REGISTRATION IN ACCORDANCE WITH THE BYE-LAWS AND RULES. IT FURTHER CLARIFIED THAT A MEMBER ELIGIBLE FOR EXEMPTION UNDER SE CTION 194A(3)(V) MUST HAVE SUBSCRIBED TO AND FULLY PAID FOR AT LEAST ONE SHARE OF THE CO-OPERATIVE BANK AND MUST BE ENTITLED TO PARTIC IPATE AND VOTE IN THE GENERAL BODY MEETINGS AND/OR SPECIAL GENERAL BODY MEETINGS OF THE CO-OPERATIVE BANK ETC. TO PUT IT SIMPL Y, THE CBDT CLARIFIED THAT EXEMPTION UNDER CLAUSE (V) OF SECTION 19 4A(3) APPLIES TO ONLY SUCH MEMBERS WHO HAVE EITHER JOINED IN THE APPLICATION FOR THE REGISTRATION OF THE SOCIETY OR THOSE WHO AR E ADMITTED AFTER THE REGISTRATION IN ACCORDANCE WITH THE BYE-LAWS AND RULES. GOING BY THE CIRCULAR, IF A `PERSON HAS BEEN AD MITTED AS A `MEMBER CONTRARY TO THE BYE-LAWS AND RULES OF THE CO-OPE RATIVE SOCIETY, SUCH A PERSON WILL NOT BE ENTITLED TO BE COVERED WITHIN SECTION 194A(3)(V). 7. THIS CIRCULAR CAME UP FOR CONSIDERATION BEFORE THE HONBLE JURISDICTIONAL HIGH COURT IN THE JALGAON DISTRICT CENTRAL COOPERATIVE BANK LTD. AND ANOTHER VS. UNION OF INDIA (2004 ) 265 ITR 423. THE HONBLE HIGH COURT QUASHED THE CIRCULAR BY HOLDIN G ITA NO.2644/PUN/2017 NILKANTH URBAN COOPERATIVE BANK LIMITED 6 THAT IT RESTRICTS THE EXEMPTION UNDER SECTION 194A(3)(V) ONLY TO SUCH MEMBERS WHO HAVE JOINED IN APPLICATION FOR THE REGISTRATIO N OF THE CO-OPERATIVE SOCIETY AND THOSE WHO ARE ADMITTED TO T HE MEMBERSHIP AFTER THE REGISTRATION IN ACCORDANCE WITH THE BYE- LAWS AND RULES AND EXCLUDING NOMINAL, ASSOCIATE OR SYMPATHIZER MEMBERS, WHICH POSITION IS IN CONFLICT WITH THE PROVISIONS OF SECTION 194A(3)(V) AND, THEREFORE, OUTSIDE THE SCOPE OF S ECTION 119 OF THE ACT. 8. IN VIEW OF THE QUASHING OF THE SAID CIRCULAR, WH ICH IS EVEN OTHERWISE NOT BINDING ON THE TRIBUNAL, THE POSITION WHICH STANDS IS THAT THE EXCEPTION CARVED OUT IN CLAUSE (V) OF SECTION 194A (3) APPLIES TO ALL TYPES OF MEMBERS OF THE ELIGIBLE CO-OPERATIVE BA NKS - WHETHER OR NOT THEY WERE ADMITTED TO THE MEMBERSHIP IN ACCORDANCE WITH THE BYE LAWS AND RULES OF THE CO-OPERATIVE BANK. A PLAIN READING OF SECTION 194A(3)(V) DECIPHERS THAT THE LEGIS LATURE HAS NOT ADDED ANY ADJECTIVE TO THE TERM `MEMBER, SUCH AS, NOMINAL OR ASSOCIATE OR SYMPATHIZER, SO AS TO RESTRICT THE APPLICATION OF CLAUSE (V) ONLY TO THE REGULAR AND PARTICIPATING MEMBERS. THE COROLLARY WHICH NOW STANDS IS THAT SO LONG AS A DEPOSITOR IS ENROLLED AS A MEMBER OF A CO-OPERATIVE BANK, PAYMENT OF ANY INTEREST TO SUCH DEPOSITOR-MEMBER WILL NOT REQUIRE ITA NO.2644/PUN/2017 NILKANTH URBAN COOPERATIVE BANK LIMITED 7 DEDUCTION OF TAX AT SOURCE AS IT WILL FALL WITHIN THE DOMAIN OF C LAUSE (V) U/S.194A(3) OF THE ACT. 9. ADVERTING TO THE FACTS OF THE EXTANT CASE, WE FIND THAT THE AUTHORITIES BELOW HAVE DENIED THE BENEFIT OF DEDUCTION OF INTERE ST OF RS.4,20,773/- BY MAKING DISALLOWANCE U/S.40(A)(IA) OF THE ACT ONLY ON THE GROUND THAT THE ASSESSEE OUGHT TO HAVE DEDUCTE D TAX AT SOURCE U/S.194A ON INTEREST PAID TO HUF AND UNREGISTERED FIRM S, WHO WERE NOT LEGAL MEMBERS IN ACCORDANCE WITH THE BYE-LAWS OF THE ASSESSEE INASMUCH AS THE DEFINITION OF PERSON IN CLA USE 4(IX) OF THE BYE-LAWS DID NOT INCLUDE HUF AND UNREGISTERED FIRMS. IT IS NOT THE CASE OF THE AO THAT SUCH HUFS AND UNREGISTERED FIRMS WERE NOT OTHERWISE THE MEMBERS OF THE ASSESSEE-BANK. THE ASS ESSEE MADE IT EXPLICITLY KNOWN TO THE AUTHORITIES BELOW, AS HAS BEEN RECORDED ON PAGE 8 OF THE IMPUGNED ORDER THAT: `BOTH THE ABOVE ENTITIES ARE MEMBERS OF THE BANK AND THEY HAVE BEEN ADMITTED AS `MEMBERS BY WAY OF AN APPLICATION MADE BY THEM TO THE BA NK AND THEN PASSING A RESOLUTION TO THE EXTENT OF THEIR ADMISSION AS MEMBERS OF THE BANK IN ITS BOARD OF DIRECTORS MEETING. 10. RELIANCE OF THE LD. CIT(A) ON CITIZEN CO-OPERATIVE SOCIETY LTD. VS. ACIT (2017) 397 ITR 1 (SC) IS MISCONCEIVED. THE ISSUE INVOLVED IN THAT CASE WAS ABOUT THE DENIAL OF DEDUCTION U/S 8 0P OF ITA NO.2644/PUN/2017 NILKANTH URBAN COOPERATIVE BANK LIMITED 8 THE ACT. THE AO IN THAT CASE HELD THAT DEDUCTION IN RESPECT OF INCOME OF CO-OPERATIVE SOCIETIES U/S 80P WAS NOT ADMISSIBLE TO ASSESSEE THEREIN AS BENEFIT OF DEDUCTION WAS ADMISSIBLE, INTER ALIA, TO THOSE CO-OPERATIVE SOCIETIES WHICH CARRIED ON BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE CIT( A) REJECTED CLAIM FOR DEDUCTION THEREBY UPHOLDING ORDER OF AO . THE FURTHER APPEALS TO THE TRIBUNAL AND THE HONBLE HIGH COURT ME T WITH THE SAME FATE. THE HONBLE APEX COURT ALSO DISMISSED THE APPEAL OF THE ASSESSEE BY HOLDING THAT THAT WITH INSERTION OF S UB- SECTION (4) BY FINANCE ACT, 2006, IT WAS MADE CLEAR THAT SU CH DEDUCTION SHOULD NOT BE ADMISSIBLE TO CO-OPERATIVE BANK EXCEP T WHERE IT WAS PRIMARY AGRICULTURE CREDIT SOCIETY OR PRIMARY C O- OPERATIVE AGRICULTURE AND RURAL DEVELOPMENT BANK. IT IS MAN IFEST THAT THE QUESTION OF DEDUCTION OF TAX AT SOURCE U/S 194A WAS NOWHERE BEFORE THE HONBLE SUPREME COURT, WHICH IS CURRE NTLY UNDER CONSIDERATION. 11. IN VIEW OF THE CATEGORICAL JUDGMENT OF HONBLE JUR ISDICTIONAL HIGH COURT IN JALGAON DISTRICT CENTRAL COOPERATIVE BANK LTD. (SUPRA) SETTING ASIDE CIRCULAR NO.9/2002, WHICH, IN TURN, MADE A DISTINCTION BETWEEN VARIOUS CLASSES OF MEMBERS AND ENTITLED ON LY SOME CLASSES TO THE BENEFIT OF SECTION 194A(3)(V) OF THE AC T, THERE ITA NO.2644/PUN/2017 NILKANTH URBAN COOPERATIVE BANK LIMITED 9 REMAINS NO DOUBT WHATSOEVER THAT PAYMENT OF INTEREST BY A C O- OPERATIVE BANK TO ITS MEMBERS, WHETHER ADMITTED IN ACCORDANC E WITH THE BYE-LAWS OR OTHERWISE, DOES NOT REQUIRE DEDUCTION OF TAX AT SOURCE. SO LONG AS ANY PERSON IS A MEMBER, PAYMENT O F INTEREST TO HIM HAS TO BE COVERED WITHIN THE MANDATE OF CLAUSE (V) OF SECTION 194A(3) REQUIRING NO DEDUCTION OF TAX AT SOURCE. SINCE THE ASSESSEE MADE PAYMENT OF INTEREST AMOUNTING TO RS.4,20,773 /- TO HUF AND UNREGISTERED FIRMS, WHICH HAPPENED TO BE ITS MEMBERS, WE HOLD THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIE D IN MAKING AND CONFIRMING DISALLOWANCE U/S.40(A)(IA) OF THE AC T. THE IMPUGNED ORDER IS SET ASIDE TO THIS EXTENT. 12. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH SEPTEMBER, 2020. SD/- SD/- (S.S. VISWANETHRA RAVI) (R.S.SY AL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 10 TH SEPTEMBER, 2020 SATISH ITA NO.2644/PUN/2017 NILKANTH URBAN COOPERATIVE BANK LIMITED 10 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT-7, PUNE 4. 5. THE PR.CIT-6, PUNE , , / DR B, ITAT, PUNE 6. / GUARD FILE / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 09-09-2020 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 10-09-2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *