The LIC Employees Co-operative Bank Ltd., CHENNAI V. ACIT, CHENNAI

ITA 825/CHNY/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4402 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 12-06-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 04-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K RAVI
• Keywords: Non-deduction of tax

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI , ! , ! & BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NOS.823, 824, 825 & 826/MDS/2017 /ASSESSMENT YEARS: 2009-10, 2010-11, 2013-14 & 2014 -15 THE LIC EMPLOYEES CO-OPERATIVE BANK LTD., NO.8, UNITED INDIA BUILDING, ESPLANADE, CHENNAI-600 108. [PAN: AAABL 0162 C] VS. THE ASST. COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE-11, CHENNAI. ( ( /APPELLANT) ( )*( /RESPONDENT) ( + / APPELLANT BY : MR.K.RAVI, ADV. )*( + /RESPONDENT BY : MR.SASIKUMAR, JCIT + /DATE OF HEARING : 12.06.2017 + /DATE OF PRONOUNCEMENT : 12.06.2017 / O R D E R PER BENCH : ITA NOS.823, 824, 825 & 826/MDS/2017 ARE FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (AP PEALS)-13, CHENNAI, IN ITA NOS.120/CIT(A)-13/AY 2009-10 DATED 27.03.201 7, NO.119/CIT(A)- 13/AY 2010-11 DATED 27.03.2017, NO.54/CIT(A)-13/AY 2013-14 DATED 27.03.2017 & NO.118/CIT(A)-13/AY 2014-15 DATED 27. 03.2017. ITA NOS.823 TO 826/MDS/2017 :- 2 -: 2. SHRI SASIKUMAR, JCIT, REPRESENTED ON BEHALF OF T HE RESPONDENTS AND SHRI K.RAVI, ADV., REPRESENTED ON BEHALF OF THE APP ELLANTS. 3. IT IS SUBMITTED BY THE LD.AR THAT THE ISSUE IN T HE APPEAL WAS AGAINST THE ACTION OF THE LD.CIT(A) IN CONFIRMING THE ORDER OF THE AO IN RESPECT OF DISALLOWANCE OF THE INTEREST PAID TO CO-OPERATIVE S OCIETIES ON THE GROUND THAT NO TDS HAS BEEN MADE U/S.194A(3) OF THE ACT. THE LD.AR SUBMITTED THAT THE ISSUE WAS SQUARELY COVERED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S.COIMBA TORE CENTRAL CO- OPERATIVE BANK LTD. VS. THE TDS OFFICER IN TAX CASE APPEAL NOS.588 TO 643, 647 TO 688, 744 TO 750, 942 TO 948, 969 TO 982 OF 2015 REPORTED IN 382 ITR 266 (MADRAS) WHEREIN IN PARA NO.64 OF THE O RDER, IT HAS BEEN HELD THAT THE AMENDMENT MADE TO SEC.194A IN RESPECT OF TDS WAS PROSPECTIVE IN NATURE W.E.F. 01.06.2015. 4. IN REPLY, THE LD.DR VEHEMENTLY SUPPORTED THE ORD ER OF THE AO. IT WAS A SUBMISSION THAT IN VIEW OF THE PROVISIONS OF SEC.194A(3), IT WAS MANDATORY ON THE ASSESSEE TO DEDUCT THE TDS ON THE INTEREST PAID ON THE DEPOSITS BY CO-OPERATIVE SOCIETIES INVOLVED IN BANK ING BUSINESS. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS IT IS NOTICED THAT THE ISSUES IN THE APPEALS ARE SQUARELY COVERED BY THE D ECISION OF THE HONBLE JURISDICTIONAL HIGH COURT (MADRAS) IN THE CASE OF M /S.COIMBATORE CENTRAL ITA NOS.823 TO 826/MDS/2017 :- 3 -: CO-OPERATIVE BANK LTD. REFERRED TO SUPRA WHEREIN IT HAS BEEN HELD AS FOLLOWS: 62. THE RELEVANT PORTION OF THE MEMORANDUM EXPLAINI NG THE CLAUSES IN THE FINANCE BILL READS AS FOLLOWS:- SECTION 194A(1) READ WIT H SECTION 194A(3)(I) OF THE ACT PROVIDE FOR DEDUCTION OF TAX ON INTEREST (OTHER THA N INTEREST ON SECURITIES) OVER A SPECIFIED THRESHOLD, I.E. RS.10,000/- FOR INTEREST PAYMENT BY BANKS, CO-OPERATIVE SOCIETY ENGAGED IN BANKING BUSINESS (CO-OPERATIVE B ANK) 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 COOPERATI VE 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 AGR ICULTURAL CREDIT SOCIETY OR PRIMARY CREDIT SOCIETY OR CO-OPERATIVE LAND MORT GAGE 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 COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING OTHER TH AN 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 PROVISIONS OF SECTIONS 194A(3)(I)(B) AND 194A(3)(VIIA)(B), COOPER ATIVE BANK IS REQUIRED TO DEDUCT TAX FROM INTEREST PAYMENT ON TIME DEPOSIT S 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 TR IED TO AVAIL THIS EXEMPTION BY MAKING THEIR DEPOSITORS AS MEMBERS OF DIFFERENT CATEGORIES. THIS HAS LED TO DISPUTE AS TO WHETHER THE CO-OPERAT IVE BANKS, FOR WHICH THE SPECIFIC PROVISIONS OF TAX DEDUCTION EXIST IN THE F ORM OF SECTION 194A(1), SECTION 194A(3)(I)(B) AND SECTION 194A(3)(VIIA)(B) OF THE ACT, CAN TAKE THE BENEFIT OF GENERAL EXEMPTION PROVIDED TO ALL COOPER ATIVE SOCIETIES FROM DEDUCTION OF TAX ON PAYMENT OF 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 M AKES NO DISTINCTION BETWEEN MEMBERS AND NON-MEMBERS OF CO-OPERATIVE BAN KS FOR THE PURPOSES OF DEDUCTION OF TAX, HENCE, THE CO-OPERATI VE BANKS ARE REQUIRED TO DEDUCT TAX ON PAYMENT OF INTEREST ON TIME DEPOSI T AND CANNOT AVOID THE SAME BY TAKING THE PLEA OF THE GENERAL EXEMPTION PR OVIDED UNDER SECTION 194A(3)(V) OF THE ACT. THIS IS BECAUSE THE 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 EXE MPTION PROVIDED TO ALL CO-OPERATIVE SOCIETIES FOR NON-DEDUCTION OF TAX FRO M INTEREST 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 FINANCE ACT, 2006 AND F INANCE ACT, 2007 AMENDED THE PROVISIONS OF THE ACT TO PROVIDE FOR CO OPERATIVE BANKS A TAXATION REGIME WHICH IS SIMILAR TO THAT FOR THE OT HER COMMERCIAL BANKS. THEREFORE, THERE IS NO RATIONALE FOR TREATING THE C O-OPERATIVE BANKS DIFFERENTLY FROM OTHER COMMERCIAL BANKS IN THE MATT ER OF DEDUCTION OF TAX ITA NOS.823 TO 826/MDS/2017 :- 4 -: AND ALLOWING THEM TO AVAIL THE EXEMPTION MEANT FOR SMALLER CREDIT CO- OPERATIVE SOCIETIES FARMED FOR THE BENEFIT OF SMALL NUMBER OF MEMBERS. HOWEVER, AS MENTIONED EARLIER, A DOUBT HAS BEEN CRE ATED REGARDING THE APPLICABILITY OF THE SPECIFIC PROVISIONS MANDATING DEDUCTION OF TAX FROM THE PAYMENT OF INTEREST ON TIME DEPOSITS BY THE COOPERA TIVE BANKS TO ITS MEMBERS BY CLAIMING THAT GENERAL EXEMPTION PROVIDED IS ALSO APPLICABLE FOR PAYMENT OF INTEREST TO MEMBER DEPOSITORS. IN VI EW OF THIS, IT IS PROPOSED TO AMEND THE PROVISIONS OF THE SECTION 194 A OF THE ACT TO EXPRESSLY PROVIDE FROM THE PROSPECTIVE DATE OF 1 ST JUNE, 2015 THAT THE EXEMPTION PROVIDED FROM DEDUCTION OF TAX FROM PAYME NT OF INTEREST TO MEMBERS BY A CO-OPERATIVE SOCIETY UNDER SECTION 194 A(3)(V) OF THE ACT SHALL NOT APPLY TO THE PAYMENT OF INTEREST ON TIME DEPOSITS BY THE COOPERATIVE BANKS TO ITS MEMBERS. 63. IT CAN BE SEEN FROM THE LAST PART OF THE PORTIO N EXTRACTED ABOVE THAT THE VERY NOTE EXPLAINING THE CLAUSE WAS SPECIFIC TO THE EFFE CT THAT THE PROPOSAL WAS TO BRING FORTH AN AMENDMENT WITH PROSPECTIVE EFFECT FROM 1.6 .2015. THERE IS NO DISPUTE NOW THAT ON AND FROM 1.6.2015 THE APPELLANT CANNOT ESCAPE THE LIABILITY FROM DEDUCTION OF TAX AT SOURCE. 64. ONCE AN AMENDMENT IS INTRODUCED, FOR THE PURPOS E OF REMOVING THE ANOMALOUS SITUATION OR FOR THE PURPOSE OF REMOVING THE CONFUSIONS BOTH IN THE MANNER IN WHICH THE PROVISIONS STOOD AND THE MANNER IN WHICH THEY WERE UNDERSTOOD, THE SAME COULD BE TAKEN ONLY TO HAVE PR OSPECTIVE EFFECT. IT MUST BE POINTED OUT THAT THE PARLIAMENT DID NOT CHOOSE TO A NSWER A QUESTION. RATHER IT CHOSE TO AMEND THE PROVISIONS. IT IS NOW WELL SETTL ED THAT AN AMENDMENT CAN ONLY BE PROSPECTIVE UNLESS IT IS MADE RETROSPECTIVE BY E XPRESS LANGUAGE OR NECESSARY IMPLICATION. APART FROM THE FACT THAT THE EXPRESS L ANGUAGE OF SECTION 194A AFTER AMENDMENT DOES NOT INDICATE ANY RETROSPECTIVELY, TH E NOTE EXPLAINING THE CLAUSES GOES ONE STEP FURTHER IN MAKING IT CLEAR THAT IT WA S INTENDED TO HAVE PROSPECTIVE EFFECT FROM 1.6.2015. 65. THEREFORE OUR ANSWER TO THE FIRST SUBSTANTIAL Q UESTION OF LAW WOULD BE IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, THE DISALLOWANCE MADE BY THE AO AND CONFIRME D BY THE LD.CIT(A) STANDS DELETED. ITA NOS.823 TO 826/MDS/2017 :- 5 -: 6. IN THE RESULT, APPEALS FILED BY THE ASSESSEE AR E STANDS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON JUNE 12, 201 7, AT CHENNAI. SD/- SD/- ( ) ( S. JAYARAMAN ) ! /ACCOUNTANT MEMBER ( ) (GEORGE MATHAN) ! /JUDICIAL MEMBER /CHENNAI, 2 /DATED: JUNE 12, 2017. TLN + )34 54 /COPY TO: 1. ( /APPELLANT 4. 6 /CIT 2. )*( /RESPONDENT 5. 4 ) /DR 3. 6 ( ) /CIT(A) 6. /GF