ITO (TDS), Ludhiana V. M/s The Ludhiana Central Co-operative Bank Ltd., Ludhiana

ITA 798/CHANDI/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8970 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 17-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: MANISH KUMAR GUPTA
• Keywords: Non-deduction of tax; Benefit of exemption
• Section: 201(1); 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NOS.798 TO 801/CHD/2016 (ASSESSMENT YEAR : 2012-13) THE INCOME TAX OFFICER(TDS), VS. THE LUDHIANA CENTRAL LUDHIANA. CO-OPERATIVE BANK LTD., SARABHA NAGAR, LUDHIANA. PAN: JLDT00915F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.K. MITTAL, DR RESPONDENT BY : SHRI MANISH KUMAR GUPTA DATE OF HEARING : 17.11.2016 DATE OF PRONOUNCEMENT : 28.11.2016 O R D E R PER ANNAPURNA GUPTA, A.M . : ALL THE ABOVE FOUR APPEALS HAVE BEEN FILED BY THE REVENUE AGAINST SEPARATE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) 3 LUDHIANA, IN THE CASE OF D IFFERENT ASSESSEES, ALL DATED 04. 03. 2016. SINCE THE ISSUE INVOLVED IN ALL THE FOUR APPEALS WAS COMMON, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER. 2. FOR THE SAKE OF CONVENIENCE, WE SHALL BE DEALIN G WITH THE REVENUES APPEAL IN ITA NO. 798/CHD/16 AND THE DECISION RENDERED IN THIS APPEAL SHALL APPLY MUTATI S MUTANDIS TO THE OTHER APPEALS OF THE REVENUE IN ITA NOS.799 TO 801/CHD/2016 ALSO. 2 3. BRIEF FACTS RELATING TO THE CASE ARE THAT TDS INSPECTION IN THE CASE OF HEAD OFFICE OF THE LUDHIA NA CENTRAL CORPORATIVE BANK LIMITED, LUDHIANA, WAS CONDUCTED ON 18.02.2014. DURING THE COURSE OF INSPE CTION PROCEEDINGS, PERUSAL OF INCOME AND EXPENDITURE ACCO UNT FOR F.Y. 201112 REVEALED THAT AN AMOUNT OF RS.39,16,08,516/- HAD BEEN DEBITED UNDER THE HEAD INTEREST PAID ON DEPOSITS ACCOUNT. ON BEING ASKED T O RECONCILE THE AMOUNT OF INTEREST PAID WITH TDS DEPO SITED UNDER SECTION 194A ON THE SAME, IT WAS SUBMITTED TH AT THE TDS UNDER SECTION 194A OF THE INCOME TAX ACT, 1961, ON INTEREST PAID, WAS DEDUCTED BY THE BRANCH OFFICES. ON FURTHER EXAMINATION IN THE CASE OF THE ASSESSEE IT WAS ESTABLISHED THAT IN RESPECT OF INTEREST PAID ON TIM E DEPOSITS TO COOPERATIVE SOCIETIES, AMOUNTING TO RS.1,37,82,255/-, NO TDS HAD BEEN DEDUCTED. CONSEQUENTLY THE ASSESSEE WAS HELD TO BE ASSESSEE- IN- DEFAULT WITHIN THE MEANING OF SUBSECTION (1) OF SEC TION 201 READ WITH SECTION 194A OF THE INCOME TAX ACT, 1 961 IN RESPECT OF PAYMENT OF INTEREST EXCEEDING RS.10,000/ -MADE TO TWO SOCIETIES I.E. THE DAD CO-OP AGRI. CREDIT SE RVICE SOCIETY LTD & THE AYALI KALAN CO-OP AGRI. CREDIT SE RVICE SOCIETY. THEREFORE, TOTAL LIABILITY OF RS.17,50,813 /- (TDS AT THE RATE OF 10% UNDER SECTION 194 A OF RS.13,78, 225+ INTEREST THEREON RS.3,72,588/-) WAS DETERMINED UNDE R SECTION 201(1) /201(1A) OF THE INCOME TAX ACT, 1961 . 3 4. AGGRIEVED BY THE SAME, THE ASSESSEE PREFERRED A N APPEAL BEFORE THE CIT(A) WHERE THE ASSESSEE SUBMITT ED THAT IT WAS EXEMPTED FROM DEDUCTING TAX AT SOURCE O N THE INTEREST PAID TO THE AFORESTATED COOPERATIVE SOCIET IES ON ACCOUNT OF THE GENERAL EXEMPTION PROVIDED TO COOPER ATIVE SOCIETIES FROM DEDUCTION OF TAX AT SOURCE ON INTERE ST PAYMENT TO OTHER COOPERATIVE SOCIETIES UNDER SECTIO N 194 A (3) (V) OF THE INCOME TAX ACT ,1961, AS APPLICABL E FOR THE IMPUGNED YEAR. THE ASSESSEE CONTENDED THAT THE AMENDMENT MADE TO THE SAID SECTION, DENYING BENEFIT OF EXEMPTION FROM DEDUCTION OF TAX AT SOURCE ON INTERE ST PAYMENTS MADE BY COOPERATIVE BANKS, WAS EFFECTIVE O NLY FROM 01/06/2015 AND FURTHER APPLIED ONLY ON INTERE ST PAYMENTS MADE BY COOPERATIVE SOCIETIES TO ITS MEMBE RS AND NOT OTHER COOPERATIVE SOCIETIES. THE ASSESSEE P LACED RELIANCE ON THE CBDT CIRCULAR NO. 19/2015 DATED 27/11/15 PARA 42.5 AND 42. 7 IN THIS REGARD. 5. LD.CIT(A) AGREED WITH THE ASSESSEES CONTENTION S AND DELETED THE DEMAND RAISED UNDER SECTION 201/201 (1A) OF THE ACT. AGGRIEVED BY THE SAME THE REVENUE HAS C OME UP IN APPEAL BEFORE US. THE GROUNDS RAISED IN THE PRES ENT APPEAL READ AS UNDER: (I) THE LD. CIT(A) ERRED IN LAW AND FACTS BY CONSI DERING THE APPELLANT IS COOPERATIVE SOCIETY AND NOT LIABLE TO DEDUCT TDS IN ACCORDANCE TO SECTION 194A(3)(V) OF THE INCO ME TAX ACT 1961. 4 (II) THE LD. CIT(A) ERRED IN LAW AND FACTS BY IGNO RING THE FACT THAT THOUGH APPELLANT IS CO-OPERATIVE SOCIETY BUT ENGAGED IN THE BUSINESS OF BANKING AND THEREFORE NO T EXEMPT U/S L94A(3)(V) AND THUS THE LD. CIT(A) IS ER RED IN DELETING THE DEMAND CREATED BY THE AO U/S 201(1)/201(1A) OF THE INCOME TAX ACT ,1961 RAISED O N ACCOUNT OF NON DEDUCTION OF TDS ON AMOUNT OF INTERE ST PAID ON DEPOSITS. (III) THE LD, CIT(A) ERRED IN DELETING THE DEMAND CREATED BY THE AO IN VIEW OF THE FACTS THAT SPECIFIC PROVISION S MADE IN SECTION 194A(3)(VIIA) (B) WHEREIN IT HAS BEEN SPECI FICALLY PROVIDED THAT INTEREST ON TIME DEPOSITS MADE ON OR AFTER THE 1 ST DAY OF JULY, 1995 IS LIABLE FOR TDS. (IV) THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR DELETE ANY GROUND(S) BEFORE THE APPEAL IS FINALLY HEARD FOR DI SPOSAL. 6. BEFORE US LD.COUNSEL FOR THE ASSESSEE POINTED OUT THAT IDENTICAL ISSUE HAD COME UP BEFORE THE CHANDIGARH BENCH IN THE CASE OF THE PUNJAB STATE CO - OPERATIVE BANK LTD VERSUS THE INCOME TAX OFFICER (T DS) IN ITA NO. 279/CHD/2016 WHEREIN THE ISSUE HAD BEEN DECIDED IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 01. 07. 2016. LD. COUNSEL ALSO DREW OUR ATTENTION TO THE DE CISION OF THE KARNATAKA HIGH COURT IN THE CASE OF THE COMMISSIONER OF INCOME TAX VERSUS THE BAGALKOT DIST RICT CENTRAL CO-OPERATIVE BANK IN ITA NO. 100116 OF 2014 DATED 16122015 IN THIS REGARD. 7. LD.DR ON THE OTHER HAND RELIED ON THE ORDER OF THE AO AND STATED THAT IN VIEW OF THE SPECIFIC PROV ISION OF 5 SECTION 194 A (3) (VIIA)/(B), ALL COOPERATIVE SOCIE TIES ENGAGED IN THE BUSINESS OF BANKING WERE REQUIRED TO DEDUCT TAX AT SOURCE ON ALL TIME DEPOSITS MADE WITH IT AND SINCE THIS WAS A SPECIFIC PROVISION IT OVERRODE THE GENERAL EXEMPTION PROVIDED UNDER SECTION 194A(3)(V) TO ALL COOPERATIVE SOCIETIES FROM DEDUCTING TAX AT SOURCE ON INTEREST PAID TO ITS MEMBERS AND OTHER COOPERATIVE SOCIETIES. 8. HAVING HEARD THE CONTENTIONS OF BOTH THE PARTIE S AND AFTER GOING THROUGH THE FACTS OF THE CASE BEFOR E US WE FIND THAT THE ISSUE BEFORE US IS WHETHER IN THE IMP UGNED YEAR I.E. FINANCIAL YEAR 2011-12 THE GENERAL EXEMP TION GRANTED TO COOPERATIVE SOCIETIES FROM TAX DEDUCTION AT SOURCE ON INTEREST PAID TO OTHER COOPERATIVE SOCIET IES UNDER SECTION 194A (3) (V) OF THE ACT WOULD PREVAI L OVER THE SPECIFIC PROVISION OF SECTION 194A (3) (VIIA)/( B) REQUIRING ALL COOPERATIVE SOCIETIES ENGAGED IN THE BUSINESS OF BANKING, OTHER THAN THOSE SPECIFIED IN SUB CLAUS E (VIIA), TO DEDUCT TAX AT SOURCE ON INTEREST PAID ON TIME DE POSITS. 9. ON PERUSING THE ORDER OF THE CHANDIGARH BENCH OF THE ITAT IN THE CASE OF THE PUNJAB STATE COOPERA TIVE BANK LTD VERSUS ITO (TDS 2) IN ITA NO. 279/CHD/201 6 DATED 01.07.2016 WE FIND THAT IDENTICAL ISSUE HAD B EEN DEALT WITH THEREIN AND IT WAS HELD THAT THE GENERA L EXEMPTION PROVIDED UNDER SECTION 194A (3) (V) OF TH E ACT WITH REGARD TO DEDUCTION OF TAX AT SOURCE FROM INTE REST PAYMENT BY A COOPERATIVE SOCIETY TO ANOTHER COOP ERATIVE 6 SOCIETY WOULD PREVAIL. THE RELEVANT FINDINGS OF THE ITAT AT PARA 15 AND 16 OF ITS ORDER ARE AS FOLLOWS: 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 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] ( III) I NTEREST P AYMENT 7 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, 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- 8 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 SPECI FIC 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 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 AND, 9 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.' RE LYING UPON THE 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 10 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. 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.' 11 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 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 12 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. 10. FURTHER WE FIND THAT THE KARNATAKA HIGH COURT IN THE CASE OF BAGALKOT DISTRICT CENTRAL CO-OPERATI VE BANK (SUPRA) HAS DISMISSED THE REVENUES APPEAL ON THE IS SUE WHETHER CO-OPERATIVE BANKS WERE REQUIRED TO DEDUCT TAX WHILE PAYING INTEREST TO ITS MEMBERS ON TIME DEPOSI TS U/S 194A ,RELYING UPON THE CBDT CIRCULAR NO.19/2015 IN F.NO.142/14/2015 WHICH WAS STATED AS HOLDING THAT C O- OPERATIVE BANKS ARE NOT REQUIRED TO DEDUCT TAX AT S OURCE ON TIME DEPOSITS OF ITS MEMBERS CREDITED OR PAID ON OR BEFORE 01-07-2015. THE RELEVANT PARA OF THE HIGH CO URT ORDER IS AS FOLLOWS: IN THIS APPEAL BY THE REVENUE, THE ISSUE INVOLVED I S FOR CONSIDERATION WHETHER THE CO-OPERATIVE BANK WAS REQUIRED TO DEDUCT TAX WHILE PAYING INTEREST TO ITS MEMBERS OH TIME DEPOSITS UNDER SECTION 194-A OF THE INCOME TAX ACT. 2. THE MINISTRY OF FINANCE, GOVERNMENT OF INDIA VIDE CIRCULAR NO.19/2015 IN F.NO.142/ 14/2015-TPL, HAS H ELD THAT THE CO-OPERATIVE BANKS ARE NOT REQUIRED TO DED UCT TAX AT SOURCE ON TIME DEPOSITS OF ITS MEMBERS PAID OR CREDITED ON OR BEFORE 1.7.2015. THE RELEVANT PORTION OF TH E CIRCULAR READS AS UNDER: 13 '42.5 IN VIEW OF THIS, THE PROVISIONS OF THE SECTIO N 194A(3)(V) OF THE INCOME-TAX ACT HAVE BEEN AMENDED SO AS TO EXPRESSLY PROVIDE THAT THE EXEMPTION PROVIDED FR OM DEDUCTION OF TAX FROM PAYMENT OF INTEREST TO MEMBER S BY A CO-OPERATIVE SOCIETY UNDER SECTION 194A(3)(V) OF THE INCOME-TAX ACT SHALL NOT APPLY TO THE PAYMENT OF IN TEREST ON TIME DEPOSITS BY THE CO-OPERATIVE BANKS TO ITS MEMBERS. AS THIS AMENDMENT IS EFFECTIVE FROM THE PROSPECTIVE DATE OF 1 ST JUNE, 2015, THE CO-OPERATIVE BANK SHALL BE REQUIRED TO DEDUCT TAX FROM THE PAYMENT OF INTEREST ON TIME DEPOSITS OF ITS MEMBERS, ON OR AFT ER THE 1 ST JUNE, 2015. HENCE, A COOPERATIVE BANK WAS NOT REQUIRED TO DEDUCT TAX FROM THE PAYMENT OF INTEREST ON TIME DEPOSITS OF ITS MEMBERS PAID OR CREDITED BEFOR E 1 ST JUNE, 2015.' 3. IN VIEW OF THE AFORESAID CIRCULAR, THIS APPEAL D OES NOT SURVIVE FOR CONSIDERATION AND IS ACCORDINGLY DISMIS SED. NO COSTS. 11. IN THE INSTANT CASE WE FIND THAT THE ASSESSEE IS A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BA NKING AND THE INTEREST ON WHICH TAX WAS NOT DEDUCTED AT S OURCE BY THE ASSESSEE RELATED TO THE INTEREST PAID TO TO OTHER COOPERATIVE SOCIETIES IN FY 2011-12. SINCE SUCH INT EREST PAYMENTS HAVE BEEN HELD TO BE EXEMPT FROM DEDUCTION OF TAX AT SOURCE BY THE CHANDIGARH BENCH IN THE CASE O F PUNJAB STATE CO-OPERATIVE BANK LTD (SUPRA) AND THE KARNATAKA HIGH COURT IN THE CASE OF BAGALKOT DISTRI CT CENTRAL CO-OPERATIVE BANK(SUPRA) WE HOLD THAT THE ASSESSEE WAS NOT LIABLE UNDER SECTION 201( 1) OF TH E ACT AS AN ASSESSEE IN DEFAULT FOR NOT DEDUCTING TAX AT SOU RCE 14 UNDER SECTION 194 A OF THE ACT AND CONSEQUENTLY THE REFORE INTEREST UNDER SECTION 201(1A) OF THE ACT CANNOT AL SO BE LEVIED. IN VIEW OF THE SAME WE UPHOLD THE ORDER OF THE CIT( APPEAL). 12. IN THE RESULT ALL THE APPEALS FILED BY THE REV ENUE ARE 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