Lokmangal Co-Operative Bank Ltd, Solapur V. Assistant Commissioner of Income-Tax, Circle -2, Solapur

ITA 522/PUN/2020

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 1465 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 01-09-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASSESSEES FORMER TWIN SUBSTANTIVE
• Keywords: TDS
• Section: 143(3); 40(a)(ia); 40a(ia); 194A; 119; 2(19)

Judgement Text

आयकर अपीऱीय अधिकरण “ए” न्यायपीठ पुणे में । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE BEFORE SHRI S.S.GODARA, JM AND SHRI DR. DIPAK P. RIPOTE, AM आयकर अपीऱ सं. / ITA No.522/PUN/2020 ननधधारण वषा / Assessment Year : 2010-11 Lokmangal Co-Operative Bank Ltd., 128, Murarji Peth, Near Seva Sadan High School, Solapur – 413 001 PAN : AAAAL0119J .......अपऩलधथी / Appellant बनधम / V/s. ACIT, Cir.-2, Solapur ......प्रत्यथी / Respondent Assessee by : Shri Pramod S. Shingte Revenue by : Shri Arvind Desai सपनवधई की तधरऩख / Date of Hearing : 22.06.2022 घोषणध की तधरऩख / Date of Pronouncement : 29.08.2022 आदेश / ORDER PER S. S. GODARA, JM : 1. This assessee’s appeal for A.Y. 2010-11 is directed against the CIT(A)-7, Pune’s order dated 24/02/2020 passed in case No. PN/CIT(A)-7/Cir- 2/10203/2017-18 involving proceeding u/s. 143(3) of the Income Tax Act, 1961; in short "the Act”. Heard both the parties. Case file perused. 2 ITA No.522/PUN/2020 A.Y. : 2010-11 Lokmangal Co-Operative Bank Ltd., 2. We straightway come to the assessee’s first substantive grievance challenging correctness of the both the lower authorities action in making section 194(1) r.w.s. 40a(ia) disallowance of Rs.3,49,386/- on account of non- deduction of TDS on interest payments made to its members wherein the CIT(A) has affirmed the assessment findings to this effect as follows. “5. Ground No. 3 of the appeal relates to disallowance made u/s. 40(a)(ia) on the default of deducting TDS on interest payments made to non-members. 5.1 The appellant submitted that the member is defined in clause 9 of the by- laws which specifies certain category of persons. The AO relied on the entities specified therein to hold that other entities like HUF, Trust and Cooperative Societies are not eligible to be members. It is submitted that the AO has ignored the definition of nominal member which specifies that “i) Any person who is co-parcener or who desires to stand surety for a borrowing member of the Bank or who desires to borrow occasionally for a temporary period against certain tangible securities such as gold and silver ornaments and other silver articles. Life Insurance Policies and Government and other trustee securities may be enrolled as nominal member upon his application in this prescribed form on payment of Rs. 5/- as non-refundable entrance fee and upon his agreeing to the condition that he shall cease to be a nominal member when all liabilities against him either as a borrower or as a surety are fully discharged provided that such person is one who resides or is gainfully engaged in any occupation within the area of operation of the bank. ii) An employee of the bank may be admitted as a nominal member and he will be entitled to the same facilities as admissible to other nominal members. 3 ITA No.522/PUN/2020 A.Y. : 2010-11 Lokmangal Co-Operative Bank Ltd., iii) A co-operative society registered under the Act shall not be eligible and as such, shall not be admitted to nominal membership in terms of the provisions of this by law,” The appellant further relied on the section 2(19) of Maharashtra State Cooperative Societies Act as per which Member includes Nominal member, Associate member and Sympathizer member. Relying on this, the appellant had claimed that the AO had erred in treating the above mentioned entities as non-members. 5.2 Various claims made by the appellant have been examined. It is a fact that the by-laws of the appellant bank have defined as to which persons are entitled to the members of the society. The AO has the mandate to determine the tax liability of the appellant bank and also to ensure that the appellant bank has complied with the provisions of the IT Act. The IT Act provides for exemption from deduction of TDS on interest paid to members of the society. In view of this provision, it is incumbent upon the AO to determine and find as to who are the members of the society for allowing the exemption from deduction of TDS. It is in pursuance of this power, the AO has examined the by-laws of the society and found that the society has violated its own by-laws in admitting some persons as nominal members and not deducting TDS on the interest payments made to them, It is further seen that the entities nominal taken as members do not have the right to vote, not entitled to dividends, do not hold shares of the society. The exemption provided under the Act is to those society members who are covered by the concept of mutuality. It is applicable only to those members who are both contributors and beneficiaries. The nominal members are not beneficiaries to the surplus of the society and therefore the concept of mutuality does not apply to them. Therefore the action of the AO in treating such nominal members as not entitled to exemption u/s. 194A(3)(v) of the Act is to be upheld as appropriate under the law. The 4 ITA No.522/PUN/2020 A.Y. : 2010-11 Lokmangal Co-Operative Bank Ltd., various decision relied upon the by the appellant have no application to the facts of the appellant's case. It is only the Karta who can act on behalf of the HUF and not any co-parcener. Therefore there is no merit in making the claim that if co-parcener is a member, HUF is deemed to be a member. Similar is the case of a Trust as the Trustee has two roles both as a Trustee and also in his individual capacity. The actions in the individual capacity have no bearing as a Trustee to affect the Trust. Therefore these- claims are dismissed as not legally tenable. 5.2.1 As regards the interest paid to other cooperative societies, there is merit in the appellant’s claim. In view of the Circular No. 19/2015 explaining the provisions of the Finance Act 2015, the appellant bank is not required to deduct TDS on the payments made to other cooperative societies. The AO shall verify and allow the exemption to all such cooperative societies. No distinction is made between credit and non credit cooperative societies in the section and therefore the AO shall allow the exemption to all cooperative societies. Even otherwise it is not the responsibility of the bank to find whether cooperative societies to whom interest is paid are actually cooperative societies in the true sense as laid down by the Supreme Court decision in the case of Citizen Cooperative Society and it is only mandated to ensure that they are registered as cooperative societies under the Maharashtra Cooperative Society Act before making the payments without TDS. Further the AO has also erred in treating all the credit cooperative societies as not cooperative societies without making any enquiry of activities of such credit cooperative societies. It may also be noted that the cooperative societies need not be members of the appellant bank for claiming this exemption. With these directions this ground is treated as partly allowed.” 3. We have given our thoughtful consideration to vehement rival stands against in support of impugned section 40(a)(ia) disallowance. Mr.Desai 5 ITA No.522/PUN/2020 A.Y. : 2010-11 Lokmangal Co-Operative Bank Ltd., strongly supported the learned lower authorities’ conclusion that the assessee had failed to deduct TDS on its interest payments. We find no merit in the Revenue’s instant arguments as we are in assessment year 2010-11 whereas “a cooperative bank” has been excluded from the purview of section 194(A)(3)(v) vide Finance Act 2015 w.e.f. 01.06.2015 only. This tribunal’s Special Bench decision is The Virudhunagar Central District Co-Operative Bank Ltd., V/s. ITO, ITA NO. 2055 & 2056/CHNY/2014; dated 09/10/2014 (Chennai) has followed hon’ble Madras high court’s judgment M/s. Coimbatore District Central Co-Operative Bank Ltd. V/s. ITO, Tax case (Appeal) Nos. 588-645/2015 dated 15/10/2015 while adjudicating the very issue against the department. This is coupled with the fact that hon’ble jurisdictional high court in (2004) 134 taxmann.com 1 (BOM) Jalgaon district Central Co-operative Bank Ltd., V/s Union Of India has quashed the CBDT’s circular dated 11.09.2002 as ultra vires violating section 119 of the Act. Their lordship’s further decisions in ITA No. 100001 of 2014 dated 16.12.2015 in The Bailhongal Urban Cooperative Bank Ltd., V/s. CIT and Tax Appeals No. 3 to 9 and 11 of 2015 dated 07.03.2017 in Saraswat co-operative Bank V/s. ITO take note of forgoing legislation developments to hold that a co-operative bank/ assessee has no liability to deduct TDS on interest payments made to members. We thus delete the impugned section 194A r.w.s. 40 (a)(ia) disallowance of Rs.3,49,386/- in very terms therefore. The assessee’s third substantive grievance is accepted. 6 ITA No.522/PUN/2020 A.Y. : 2010-11 Lokmangal Co-Operative Bank Ltd., 4. Learned counsel does not press for assessee’s former twin substantive grounds challenging validity of reopening at this stage. Rejected accordingly. 5. Delay of two days in the instant appeal instituted on 02.09.2020 is condoned since falling in Covid-19 pandemic outbreak period. 6. This assessee’s appeal is partly allowed in above terms. Order pronounced in the Open Court on this 29 th day of August, 2022. Sd/- Sd/- (DR.DIPAK P.RIPOTE) (S.S. GODARA) लेखध सदस्य/ ACCOUNTANT MEMBER न्यधनयक सदस्य/JUDICIAL MEMBER पपणे / Pune; ददनधांक / Dated : 29 th August, 2022. Ashwini आदेश की प्रनतनलनप अग्रेनषत / Copy of the Order forwarded to : 1. अपऩलधथी / The Appellant. 2. प्रत्यथी / The Respondent. 3. The CIT(A)-7, Pune. 4. The Pr.CIT-6, Pune. 5. नवभधगऩय प्रनतनननध, आयकर अपऩलऩय अनधकरण, “ए” बेंच, पपणे / DR, ITAT, “A” Bench, Pune. 6. गधर्ा फ़धइल / Guard File. आदेशधनपसधर / BY ORDER, // True Copy // Senior Private Secretary आयकर अपऩलऩय अनधकरण, पपणे / ITAT, Pune. 7 ITA No.522/PUN/2020 A.Y. : 2010-11 Lokmangal Co-Operative Bank Ltd., S.No. Details Date Initials 1 Draft dictated on 22.06.2022 2 Draft placed before author 16.08.2022 3 Draft proposed & placed before the Second Member 4 Draft discussed/approved by Second Member 5 Approved Draft comes to the Sr. PS/PS 6 Kept for pronouncement on 7 Date of uploading of Order 8 File sent to Bench Clerk 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order