The Assistant Commissioner of Income Tax, Circle-2 (1), Panaji., V. The Bicholim Urban Co-op. Bank Ltd., Bicholim

ITA 34/PAN/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2100 (ITAT-PANAJI)
• Duration Of Justice: 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 02-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMESH S MUTAGAR
• Assessee Lawyers: RAJENDRA L BHOBE
• Section: 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI N.S. SAINI , HONBLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NO. 34 /P A N/201 6 ) (ASST. YEAR : 20 12 - 1 3 ) ACIT, CIRCLE - 2 (1), PANAJI GOA. VS. THE BICHOLIM URBAN CO - OPERATIVE BANK LTD., NANDANVAN CENTRAL OFFICE , BICHOLIM GOA. PAN NO. AAAAT 9649 P (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAJENDRA L. BHOBE C A DEPARTMENT BY : SHRI RAMESH S. MUTAGAR - D R DATE OF HEARING : 04 / 0 5 /201 6 . DATE OF PRONOUNCEMENT : 04 / 0 5 /201 6 . O R D E R PER GEORGE MATHAN , JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE R EVENUE AGAINST THE ORDER OF THE LD. CIT(A), PANAJI - 1 IN APPEAL NO. 379/CIT(A)/PNJ - 1/14 - 15 DATED 16/12/2015 FOR THE ASSESSMENT YEAR 2012 - 13 . 2. SHRI RAMESH S. MUTAGAR, DEPARTMENTAL REPRESENTATIVE REPRESENTED ON BEHALF OF THE REVENUE AND SHRI RAJENDRA L. BHOBE, CA REPRESENTED ON BEHALF OF THE ASSESSEE. 3 . IT WAS THE SUBMISSION BY THE DEPARTMENTAL REPRESENTATIVE THAT THE ONLY ISSUE IN REVENUES APPEAL WAS AGAINST THE ACTION OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE ADDITION ON ACCOUNT OF DISALLOWANCE UNDER SEC. 40(A)(IA) ON ACCOUNT OF NON - 2 ITA NO. 34 /P A N/201 6 D EDUCTION OF TDS BY THE ASSESSEE UNDER SEC. 194A IN RESPECT OF INTEREST PAYMENTS EXCEEDING 10,000/ - ON TERMS DEPOSITS TO ITS MEMBERS. IT WAS FAIRLY AGREED BY BOTH THE PARTIES THAT THE ISSUE WAS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF TH IS TRIBUNAL IN THE CASE OF M/S. THE GOA STATE CO - OP BANK IN ITA NOS. 123 TO 137/PNJ/2015 , DATED 19/06/2015 , WHEREIN IT HAS BEEN HELD AS FOLLOWS: - 3. AT THE VERY OUTSET, IT WAS BROUGHT TO THE NOTICE OF THE RIVAL PARTIES THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS VERY BENCH IN THE CASE OF BELGAUM DISTRICT CENTRAL COOPERATIVE BANK LTD. VS. ITO, TDS WARD, BELGAUM IN I.T.A.NOS. 312 TO 315/PNJ/2014, WHEREIN THE BENCH HAS CONSIDERED THE PROVISIONS OF THE FINANCE ACT, 2015. THE RELEVANT PO RTION OF WHICH READS AS UNDER: - SECTION 194A(1) READ WITH SECTION 194A(3)(I) OF THE ACT PROVIDE FOR DEDUCTION OF TAX ON INTEREST (OTHER THAN INTEREST ON SECURITIES)'OVER A SPEC - IFIED THRESHOLD, I.E., RS. 10,000 FOR INTEREST PAYMENT BY BANKS, CO - OPERATIVE SOCIETY ENGAGED IN BANKING BUSINESS (CO - OPERATIVE BANK) AND POST OFFICE AND RS. 5,000 FOR PAYMENT OF INTEREST BY OTHER PERSONS. FURTHER, SUB - SECTION (3) OF SECTION 194A, 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 - OPERATIVE SOCIETY TO A MEMBER THEREOF OR ANY OTHER CO - OPERATIVE 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 LAND MORTGAGE BANK OR CO - OPERATIVE LAND DEVELOPMENT BANK. [SECTION 194A(3)(VIIA)(A) OF THE ACT] (III) INTEREST PAYMENT ON DEPOSITS OTHER THAN TIME DEPOSIT BY A CO - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING OTHER THAN THOSE MENTIONED IN SECTION 194A(3)(VIIA)(A) OF THE ACT. [SECTION 194A(3)(VIIA)(B) OF THE ACT] THEREFORE, AS PER THE PROVISIONS OF SECTION 194A(1) READ WITH PROVISI ONS OF SECTION 194A(3)(I)(B) AND 194A(3)(VIIA)(B), CO - OPERATIVE BANK IS REQUIRED TO DEDUCT TAX FROM INTEREST PAYMENT ON TIME DEPOSITS IF THE AMOUNT OF SUCH PAYMENT EXCEEDS SPECIFIED THRESHOLD OF RS. 10,000. HOWEVER, AS THE PRO VISIONS OF SECTION 194A(3)(Y) OF THE ACT PROVIDE A GENERAL EXEMPTION FROM MAKING TAX DEDUCTION FROM PAYMENT OF INTEREST BY ALL CO - OPERATIVE SOCIETIES TO ITS MEMBERS, THE C O - OPERATIVE BANKS TRIED TO AVAIL THIS EXEMPTION BY . MAKING THEIR DEPOSITORS AS MEMBERS OF DIFFERENT CATEGORIES. TH IS HAS LED TO DISPUTE AS TO WHETHER THE CO - OPERATIVE BANKS, FOR WHICH THE SPECIFIC PRO - VISIONS OF TAX DEDUCTION EXIST IN THE FORM OF SECTION 194A(1), SECTION ( C)4A(3)(I)(B) AND 1 94A(3)(VIIA) (B) OF THE ACT CAN TAKE THE BENEFIT OF GENERAL EXEMPTION PROVIDED T O ALL CO - OPERATIVE SOCIETIES FROM DEDUCTION O F TAX ON PAYMENT O F INTEREST TO MEMBERS. THE MATTER HAS BEEN CARRIED TO JUDICIAL FORUMS AND IN SOME CASES A VIEW HAS BEEN 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 PURPO SES OF DEDUCTION OF TAX, HENCE, THE CO - OPERATIVE BANKS ARE 3 ITA NO. 34 /P A N/201 6 REQUIRED TO DEDUCT TAX ON PAYMENT OF INTEREST ON TIME DEPOSIT AND CANNOT AVOID THE SAME BY TAK ING THE PLEA OF THE GENERAL EXEMPTION PROVIDED UNDER SECTION 194A(3)(V) OF THE ACT. THIS IS BECAUSE TH E SPECIFIC PROVISION OF TAX DEDUCTION PROVIDED UNDER SECTION 194A(3)(I)(B) AND 194A(3)(VIIA)(B) OF THE ACT FOR CO - OPERATIVE BANKS OVERRIDE THE GENERAL EXEMPTION PROVIDED TO ALL CO - OPERATIVE SOCIETIES FOR NON - DEDUCTION OF TAX FROM INTEREST PAYMENT TO MEMBER S 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 FINANCE ACT, 2006 AND FINANCE ACT, 2007, AMENDED THE PROVISIONS OF THE ACT TO PROVIDE FOR CO - OPERATIVE BANKS A T AXATION REGIME WHICH IS SIMILAR TO THAT FOR THE OTHER COMMERCIAL BANKS. THEREFORE, THERE IS NO RATIONALE FOR TREATING THE CO - OPERATIVE BANKS DIFFERENTLY FROM OTHER COMMERCIAL BANKS IN THE MATTER OF DEDUCTION OF TAX AND ALLOWING THEM TO AVAIL THE EXEMPTION MEANT FOR SMALLER CREDIT CO - OPERATIVE SOCIETIES FORMED FO R THE BENEFIT OF SMALL NUMBER OF MEMBERS. HOWEVER, AS MENTIONED EARLIER, A DOUBT HAS BEEN CREATED REGARDING THE APPLICABILITY O F THE SPECIFIC PROVISIONS MANDATING DEDUCTION OF TAX FRO M THE PAY MENT OF INTEREST ON T IME 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 TH I S , IT IS PROPOSED TO AMEND THE PROVISIONS OF THE SECTION 194A O F THE ACT TO EXPRESSLY PROVIDE FROM THE PROSPECTIVE DATE OF 1ST JUNE, 2015 THAT THE EXEMPTION PROVIDED FROM DEDUCTION OF TAX FROM PAYM ENT OF I N TEREST TO MEMBE R S BY A CO - OPERATIVE SOCIETY U NDER SECTION 194A(3)(V) OF THE ACT SHALL NOT APPLY TO THE PAYMENT OF INTEREST O N TIME DEPOSITS BY THE CO OPERATIVE BANKS TO ITS MEMBERS. 3.1 IT WAS OBSERVED THAT WITH THIS AMENDMENT, THE IMPUGNED PROVISION WAS NOT APPLICABLE DURING THE YEARS UNDER APPEAL AND IT IS CLEAR THAT THE PROVISIONS ARE APPLICABLE W.E.F. 01/06/2015. THE BENCH HAS ALSO CONSIDERED CIRCULAR NO. 09/2002 OF THE CBDT AND STATED THAT THE BOARD HAS CLARIFIED THAT THE PROVISIONS OF TDS ARE NOT ENFORCEABLE IN RESPECT OF INTEREST PAID BY THE COOPERATIVE SOCIETY/BANK TO ITS MEMBERS, BUT TAX HAS TO BE DEDUCTED F ROM THE INTEREST PAID TO THE NON - MEMBERS. 3.2 THE BENCH HAS ALSO CONSIDERED THE FACT THAT THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF JALGAON DISTRICT CO - OP BANK LTD. & ANO. VS. UNION BANK OF INDIA (265 ITR 423) HAS HELD THAT THE SAID CIRCULAR IS NOT GOOD. AFTER CONSIDERING ALL THESE FACTS, THE TRIBUNAL HELD AS UNDER: - 11. FIRSTLY, THE ASSESSING OFFICER AND THE LD. CIT(A) HAVE HEAVILY RELIED UPON THE DECISION OF THE TRIBUNAL PANAJI BENCH IN THE CASE OF BAILHONGAL URBAN CO. BANK LTD. (SUPRA), WHEREIN THE TRIBUNAL HAS HELD THAT CIRCULAR NO. 9 OF 2002 DATED 11/09/2002 ISSUED BY THE CBDT HAS BEEN QUASHED AND SET ASIDE BY THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF JALGAON DISTRICT CO. BANK (SUPRA). THEREFORE, ASSESSEES RELIANCE ON THE SAID CASE AND THE CIRCULAR IS FOUND TO BE ILL - FOUNDED. THE TRIBUNAL DECIDED THE APPEAL IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. WITH DUE RESPECT TO THE SAID DECISION OF THE TRIBUNAL, WE HAVE TO SAY THE OBSERVATIONS MADE BY THE TRIBUNAL ARE ILL - FOUNDED BECAU SE SUBSEQUENT TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF JALGAON DISTRICT CO. BANK (SUPRA) AN INFORMATION WAS REQUIRED FROM THE CBDT UNDER THE RIGHT TO INFORMATION ACT, 4 ITA NO. 34 /P A N/201 6 2005. THE INFORMATION REQUIRED AND THE REPLY OF THE BOARD READS A S UNDER: - THUS, WITH THIS CLARIFICATION, IT IS CLEAR THAT THE CIRCULAR HAS NOT BEEN WITHDRAWN. MOREOVER, A PERUSAL OF THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF JALGAON DISTRICT CO. BANK (SUPRA) SHOWS THAT THE HONBLE HIGH COURT H AS HELD THAT THE IMPUGNED NOTIFICATION ISSUED BY THE CBDT WHICH IS IN THE FORM OF A CLARIFICATION WITH REGARD TO THE RIGHTS AND PRIVILEGES OF A DULY REGISTERED MEMBER AND NOMINAL MEMBER IS OUTSIDE THE SCOPE OF SEC.119 OF THE ACT. THE HONBLE HIGH COURT FU RTHER HELD THAT THE CBDT CANNOT ISSUE A CIRCULAR U/S. 119 OF THE ACT WHICH WOULD OVERRIDE OR RETRACT FROM THE PROVISIONS OF INCOME - TAX ACT, 1961. THUS, THE OBSERVATIONS OF THE HONBLE HIGH COURT WERE MORE TOWARDS THE CLARIFICATION REGARDING MEMBER AND NOMI NAL MEMBER. CONSIDERING ALL THE FACTS IN TOTALITY IN THE LIGHT OF THE MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL 2015 (SUPRA) AND THE CLARIFICATION BY THE BOARD THAT THE CIRCULAR HAS NOT BEEN WITHDRAWN, MAKES IT AMPLE CLEAR THAT THE IMPUG NED PROVISIONS RELATING TO THE LIABILITY OF TDS WOULD COME WITH EFFECT FROM 01/06/2015, WE, THEREFORE, SET ASIDE THE FINDINGS OF THE LD. CIT(A) 5 ITA NO. 34 /P A N/201 6 AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITIONS MADE IN THE ORDER U/S. 201(1) & 201(1A) OF THE ACT. 3.3 RESPECTFULLY FOLLOWING OUR OWN DECISION IN THE CASE OF BELGAUM DISTRICT CENTRAL COOPERATIVE BANK LTD. (SUPRA), ALL THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. 4 . WE HAVE CONSIDERED THE SUBMISSIONS. AS IT IS NOTICED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE C OORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. THE GOA STATE CO - OP BANK (SUPRA), RESPECTFULLY FOLLOWING THE DECISION OF THE C OORDINATE B E NCH OF THIS TRIBUNAL, THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE STANDS CONFIRMED. 5 . IN THE RESULT, APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF THE HEARING ON WEDNESDAY , THE 04 TH DAY OF MAY , 201 6 AT GOA . SD/ - SD/ - (N.S.SAINI) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 04 TH MAY , 201 6 . VR/ - COPY TO: 1 . THE ASSESSEE. 2 . THE REVENUE. 3 . THE CIT 4 . THE CIT(A) 5 . THE D.R . 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., PANAJI .