The Punjab State Coop Bank Ltd., Chandigarh V. Income Tax Officer, Chandigarh

ITA 97/CHANDI/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9830 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 12-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Recovery proceedings; Non-deduction of tax
• Section: 201(1); 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI GEORGE GEORGE K. JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.97 /CHD/2016 (ASSESSMENT YEAR: 2012-13) THE PUNJAB STATE COOP BANK LTD., VS. THE INCOME TA X OFFICER(TDS-II), SCO 175-187, SECTOR 34-A, CHANDIGARH. CHANDIGARH. PAN NO. PTLT10607C AND ITA NO.279 /CHD/2016 (ASSESSMENT YEAR: 2012-13) THE INCOME TAX OFFICER(TDS-2), VS. THE PUNJAB STA TE COOP BANK LTD., CHANDIGARH. SCO 175-187, SECTOR 34-A, CHANDIGARH. PAN NO. PTLT10607C (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M.R. SHARMA DEPARTMENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 29.06.2016 DATE OF PRONOUNCEMENT : 01.07.2016 O R D E R PER GEORGE GEORGE K., J.M . : THESE CROSS APPEALS ARE DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-2 , CHANDIGARH DATED 5.1.2016. THE RELEVANT ASSESSMEN T YEAR IS 2012-13. 2 2. WE SHALL FIRST TAKE UP FOR ADJUDICATION ASSESSE ES APPEAL IN ITA NO.97/CHD/2016. ITA NO.97/CHD/2016 (ASSESSEES APPEAL) : 3. THE REVISED GROUNDS RAISED IN ASSESSEES APPEAL READ AS FOLLOWS : 1. THAT THE ORDER OF THE INCOME TAX OFFICER (TDS-II ), CHANDIGARH AS UPHELD BY THE COMMISSIONER OF INCOME TAX (APPEALS)-2, CHANDIGARH IS BAD IN LAW AND IS BEYOND ALL THE CANNONS OF LAW AND JUSTICE. 2. THAT THE ORDER OF THE INCOME TAX OFFICER (TDS-II) , CHANDIGARH AS UPHELD BY THE COMMISSIONER OF INCOME TAX (APPEALS)-2, CHANDIGARH UPHOLDING THE LEVY OF INTERE ST U/S 201(1A) AT RS.9,11,428/- IN RESPECT OF TRUSTS WHICH A RE REGULAR ASSESSEE AND HAVE FILED RETURN DECLARING NI L INCOME BEING EXEMPT UNDER THE PROVISION OF SECTION 10( 25) AND SECTION 10(23AAA) OF THE INCOME TAX ACT IS BAD IN LAW AND NEEDS TO BE DELETED IN VIEW OF THE JUDICIAL DEC ISIONS IN THIS BEHALF. 3. THAT THE ORDER OF THE INCOME TAX OFFICER (TDS-II ), CHANDIGARH AS UPHELD BY THE COMMISSIONER OF INCOME TAX (APPEALS) -2, CHANDIGARH UPHOLDING THE LEVY OF TAX U/S 201(1) AT RS.3645715/- IN RESPECT OF TRUSTS WHICH ARE REGULAR ASSESSEE AND HAVE FILED RETURN DECLARING NIL INCOME BEING EXEMPT UNDER THE PROVISION OF SECTION10(25) AND SEC TION 10(23AAA) OF THE INCOME TAX ACT IS BAD IN LAW AND N EEDS TO BE DELETED IN VIEW OF THE JUDICIAL DECISIONS IN THI S BEHALF. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, DELETE, ALTER ANY OF THE GROUNDS OF APPEAL BEFORE THE SAME IS HEARD FINA LLY. 3 IT IS THEREFORE HUMBLY PRAYED THAT THE LEVY OF TAX UNDER SECTION 201(1) AND INTEREST U/S 201(1A) AMOUNTING T O RS 36,45,715/- AND RS. 9,11,428/- RESPECTIVELY MAY KIN DLY BE DELETED. 4. THE BRIEF FACTS IN RELATION TO ASSESSEES APPEA L ARE AS FOLLOWS : THE ASSESSEE IS A COOPERATIVE SOCIETY REGISTERED UNDER THE PUNJAB COOPERATIVE SOCIETIES ACT, 1961. IT IS ENGAGED IN THE BUSINESS OF BANKING. FOR THE RELEVA NT ASSESSMENT YEAR, THE ASSESSEE HAD PAID INTEREST ON TERM DEPOSITS TO PUNJAB STATE COOPERATIVE BANK PENSION F UND AMOUNTING TO RS.2,23,34,880/- AND TO BOARD OF TRUST EE, PROVIDENT FUND, AMOUNTING TO RS.1,41,22,274/-. THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE WHEN IT HAD MADE PAYMENT OF INTEREST TO PUNJAB STATE COOPERATIVE BAN K PENSION FUND AND BOARD OF TRUSTEE, PROVIDENT FUND. THE ITO(TDS-II) HAD PASSED ORDERS UNDER SECTIONS 201(1) AND 201(1A) OF THE ACT TREATING THE ASSESSEE AS AN ASSE SSEE IN DEFAULT FOR NON-DEDUCTION OF TAX AT SOURCE AND ALSO MAKING IT LIABLE FOR CONSEQUENT INTEREST. 5. AGGRIEVED BY THE ORDERS PASSED UNDER SECTIONS 201(1) AND 201(1A) OF THE ACT, THE ASSESSEE PREFERR ED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. BEFORE THE C IT (APPEALS), IT WAS CONTENDED THAT THE PUNJAB STATE COOPERATIVE BANK PENSION FUND AND BOARD OF TRUSTEE PROVIDENT FUND ARE APPROVED UNDER SECTION 10(23A AA) AND 4 UNDER SECTION 67 OF THE ACT AND ITS INCOME WAS EXEM PT UNDER SECTION 10 OF THE ACT. IT WAS CONTENDED THAT THE INTEREST THAT WAS RECEIVED BY THESE TWO ENTITIES WA S DULY CREDITED IN THEIR BOOKS OF ACCOUNTS AND RETURN OF I NCOME WAS FILED DECLARING NIL INCOME, SINCE IT WAS EXEMPT UNDER SECTIONS 10(25) AND 10(23AAA) OF THE ACT. THE ASSE SSEE HAD RELIED ON THE JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF HINDUSTAN COCA-COLA BEVERAGES (P) LTD. VS. CIT ( 2007) 293 ITR 226 (SC) AND CONTENDED THAT WHEN THE DEDUCT EE HAS FILED RETURN AND PAID THE TAX, NO TAX CAN BE DEMAN DED UNDER SECTION 201(1) OF THE ACT AGAINST THE DEDUCTO R. THE CIT (APPEALS), HOWEVER, REJECTED THE CONTENTION RAI SED BY THE ASSESSEE AND CONFIRMED THE ORDER PASSED BY THE ITO (TDS-II) UNDER SECTIONS 201(1) AND 201 (1A) OF THE ACT. THE RELEVANT FINDINGS OF THE CIT (APPEALS) READ AS FOLL OWS : 5.3(D) M/S PUNJAB STATE COOP BANK PENSION FUND AND M/S BOARD OF TRUSTEE PROVIDENT FUND ARE THE TRUST AND T HE APPELLANT RELIED ON THE APEX COURT DECISION IN THE CASE OF HI NDUSTAN COCO COLA BEVERAGES PVT LTD. VS. COMMISSIONER OF INCOME TA X, 293 ITR STATING THAT THE RECOVERY OF THE TAX CANNOT BE MADE FROM THE DEDUCTOR WHEN THE DEDUCTEE HAS FILED THE RETURN AND PAI D THE TAX. THE CONTENTION OF THE APPELLANT IS MISPLACED AS IN TH E CASE OF HINDUSTAN COCA COLA BEVERAGES PVT LTD. IT IS THE SIT UATION IN WHICH TAX CANNOT BE RECOVERED FROM DEDUCTOR IN CASE THE DEDUCTEE HAS SHOWN THE PAYMENT AS ITS INCOME IN ITS BOOKS OF ACCOUNTS AND PAID THE TAX DUE ON SUCH PAYMENT. THE A PPLICANT HAS NOT PRODUCED THE BOOKS OF ACCOUNTS OF THE DEDUC TEE BEFORE THE ASSESSING OFFICER EVIDENCING THAT THE DEDUCTEE HAS INCLUDED THIS PAYMENT AS ITS INCOME IN THE BOOKS OF ACCOU NTS AND NO 5 EVIDENCE/LEDGER ALSO PRODUCED BEFORE THE UNDERSIGNE D DURING APPELLATE PROCEEDING. THE TRUSTS I.E. M/S PUNJAB STA TE COOP BANK PENSION FUND AND M/S BOARD OF TRUSTEE PROVIDENT FUN D IN CASE THEY HAVE INCLUDED THE PAYMENT AS THEIR INCOME AND I S EXEMPT FROM TAXATION BEING TRUST, THE APPELLANT WAS REQUIRED TO OBTAIN CERTIFICATE OF NON DEDUCTION/LOWER DEDUCTION FROM TH E ASSESSING OFFICER U/S 197 OF THE ACT, BUT NO SUCH CERTIFICATE WAS OBTAINED. THEREFORE APPELLANT AS HELD BY THE ASSESSING OFFICER IS LIABLE U/S 201(1) AS PERSON-IN-DEFAULT FOR NOT DEDUCTING THE TAX A T SOURCE U/S 194A(1) OF THE IT ACT, 1961 AND IS ALSO LIABLE TO PAY IN TEREST U/S 201(1A) OF THE IT. ACT, 1961. THEREFORE DEMAND CREA TED BY THE ASSESSING OFFICER ON THE APPELLANT WITH REGARD TO THE DEFAULT IN RESPECT OF PAYMENTS MADE TO M/S PUNJAB STATE COOP B ANK PENSION FUND AND M/S BOARD OF TRUSTEE PROVIDENT FUN D IS CONFIRMED. 6. THE ASSESSEE BEING AGGRIEVED, IS IN APPEAL BEFO RE US. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT (APPEALS) HAS ERRED IN HOLDING THAT THE ASSESSE E HAD NOT PRODUCED BOOKS OF ACCOUNT OF THE DEDUCTEE BEFORE TH E ASSESSING OFFICER EVIDENCING THAT THE DEDUCTEE HAS INCLUDED THE INTEREST RECEIVED AS ITS INCOME IN THE BOOKS OF ACCOUNT. IT WAS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASS ESSEE THAT THE COPY OF CERTIFICATE ISSUED BY THE PAYEE TR UST SHOWING THAT THE AMOUNT OF INTEREST RECEIVED FROM T HE ASSESSEE WAS DULY ACCOUNTED IN ITS BOOKS OF ACCOUNT , WAS ENCLOSED IN THE PAPER BOOK FILED BEFORE THE CIT (AP PEALS). IT WAS FURTHER SUBMITTED THAT SINCE THE INCOME OF THE ASSESSEE IS EXEMPTED UNDER SECTIONS 10(25) AND 10(23AAA) OF THE ACT, THERE WAS NO POINT IN DEDUCTING TAX AT SOURCE, SINC E THE RECIPIENT OF THE INTEREST INCOME WOULD HAVE CLAIMED REFUND 6 OF THE SAME. 7. PER CONTRA, THE LEARNED D.R. RELIED ON THE ORDE RS OF THE INCOME TAX AUTHORITIES. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE PUNJAB STATE COOPERATIVE BANK PENSION FUND AND BOARD OF TRUSTEE PROVIDENT FUND ARE APPROVED TRUSTS CREATED BY ASSES SEE FOR THE PURPOSE OF PENSION FUND AND PROVIDENT FUND RESPECTIVELY. A COPY OF THE APPROVAL OF THE SAME I S ENCLOSED AT PAGES 1 AND 7 OF THE PAPER BOOK FILED BY THE ASS ESSEE. FURTHER, THE ASSESSEE HAS ALSO ENCLOSED COPIES OF R ETURNS FILED FOR ASSESSMENT YEAR 2012-13 IN THE CASE OF P UNJAB STATE COOPERATIVE BANK PENSION FUND AND BOARD OF TR USTEE, PROVIDENT FUND. THESE ENTITIES HAVE DULY FILED RET URNS OF INCOME UNDER SECTION 139(1) OF THE ACT. ON PERUSAL OF THE SAME, IT IS EVIDENT THAT WHOLE OF THEIR INCOME WAS EXEMPT UNDER SECTIONS 10(25) AND 10(23AAA) OF THE ACT. TH EREFORE, THERE WAS NO LIABILITY IN RESPECT OF THESE TRUSTS, WARRANTING TAX DEDUCTION AT SOURCE UNDER SECTION 194A OF THE A CT. CONSEQUENTLY, THE ORDERS PASSED UNDER SECTIONS 201( 1) AND 201(1A) OF THE ACT ARE LIABLE TO QUASHED IN THE FAC TS AND CIRCUMSTANCES OF THE CASE. 9. FURTHER, ASSESSEE HAD FURNISHED A CERTIFICATE ISSUED BY THE CHAIRMAN OF BOARD OF TRUSTEES, PUNJAB STATE COOPERATIVE BANK LTD., PENSION FUND, STATING THAT T HEY ARE IN RECEIPT OF AN AMOUNT OF RS.2,23,34,880/- AS INTE REST ON 7 TERM DEPOSIT WITH THE ASSESSEE BANK AND THE SAME WA S DULY ACCOUNTED IN ITS BOOKS OF ACCOUNT AND THE RETURN OF INCOME HAS BEEN FILED FOR THE RELEVANT ASSESSMENT YEAR. S IMILAR CERTIFICATE IS ALSO ISSUED BY PUNJAB STATE COOPERAT IVE BANK, PROVIDENT FUND TRUST. THEREFORE, IT IS EVIDENT FRO M THE CERTIFICATES THAT THESE TWO ENTITIES WHO ARE IN REC EIPT OF INTEREST INCOME FROM THE ASSESSEE HAD DULY ACCOUNTE D THE SAME IN THEIR BOOKS OF ACCOUNT AND FILED THEIR RETU RN OF INCOME FOR THE CONCERNED ASSESSMENT YEAR. THE HON' BLE APEX COURT IN THE CASE OF HINDUSTAN COCA-COLA BEVE RAGES (P) LTD. (SUPRA) HAD HELD THAT THE RECOVERY OF TAX CANNOT BE MADE FROM THE DEDUCTOR WHEN THE DEDUCTEE HAD FILED THE RETURN AND PAID THE TAX ON THE SAME. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT (TDS) VS. ASSISTANT MANAGER (ACCOUNTS) FOOD CORPORATION OF IN DIA, REPORTED IN 326 ITR 106 HAD HELD ON IDENTICAL FACT S, THAT THE TDS WAS NOT REQUIRED TO BE DEDUCTED BY THE DEDU CTOR, SINCE THE DEDUCTEE HAS DISCLOSED THE INCOME IN ITS BOOKS OF ACCOUNT AND FILED THE RETURN OF INCOME, EVIDENCING THE RECEIPT OF SUCH INCOME. IN VIEW OF THE FACT THAT T HE RECIPIENT OF INTEREST HAS DISCLOSED THE SAME IN ITS BOOKS OF ACCOUNT AND FILED THE RETURN OF INCOME, WE ARE OF T HE VIEW THE JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF HINDUSTAN COCA-COLA BEVERAGES (P) LTD. (SUPRA) IS A PPLICABLE TO THE FACTS OF THE INSTANT CASE. THEREFORE, WE HO LD THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE, IN RESPECT OF INTEREST PAID ON TERM DEPOSITS RECEIVED FROM PUNJAB STATE COOPERATIVE BANK PENSION FUND AND BOARD OF TRUSTEE, 8 PROVIDENT FUND. IT IS ORDERED ACCORDINGLY. 10. THEREFORE, THE APPEAL OF THE ASSESSEE IS ALLOW ED. ITA NO.279/CHD/2016 (REVENUES APPEAL) : 11. THE GROUNDS RAISED IN REVENUES APPEAL READ AS FOLLOWS : THE LD. CIT(A) ERRED IN LAW AND FACTS BY CONSIDERIN G THE APPELLANT IS COOPERATIVE SOCIETY AND NOT LIABLE TO DE DUCT TDS IN ACCORDANCE TO SECTION 194A(3)(V) OF THE I.T. ACT, 19 61. 1. THE LD. CIT(A) ERRED IN LAW AND FACTS BY IGNORING THE FACT THAT THOUGH APPELLANT IS CO- OPERATIVE SOCIETY BUT ENGAGED IN THE BUSINESS OF BANKING AND THEREFORE NOT EXEMPT U/S 194A (3) (V) AND THUS THE LD. CIT(A)- 2,CHANDIGARH NAB ERRED IN DELETING THE DEMAND OF RS.33,57,00//- RAISED ON ACCOUNT OF NON DEDUCTION OF TDS ON AMOUNT OF INTEREST PAID ON DEPOSIT. 2. THE APPELLANT CRAVES LEAVE TO AMEND, ADD, ALTER OR DELETE ANY OF THE AFORESAID GROUNDS TILL THE DISPOSAL. 12. THE ASSESSEE HAD RECEIVED TERM DEPOSITS FROM HOUSEFED PUNJAB AND KRIBHCO. ON THESE TERM DEPOSIT S, THE ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR HA D PAID INTEREST TO HOUSEFED PUNJAB AMOUNTING TO RS.13,40,4 76/- AND KRIBHCO AMOUNTING TO RS.2,55,15,595/-. SINCE T HE ASSESSEE HAD NOT DEDUCTED THE TAX AT SOURCE ON THES E INTEREST PAYMENTS, THE ITO (TDS) TREATED THE ASSESS EE, AS AN ASSESSEE IN DEFAULT AND PASSED THE ORDER UNDER SECTION 201(1) OF THE ACT. THE ITO(TDS) ALSO LEVIED INTERE ST UNDER SECTION 201(1A) OF THE ACT. 9 13. BEING AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT (APPEALS). THE CIT (APPEALS) FOR HI S ELABORATE REASONING MENTIONED IN PARAS 5.3 TO 5.3(C) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 14. THE REVENUE BEING AGGRIEVED, IS IN APPEAL BEFO RE US. THE LEARNED D.R. RELIED ON THE ASSESSMENT ORDE R. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSE E REITERATED THE SUBMISSIONS MADE BEFORE THE INCOME T AX AUTHORITIES AND RELIED ON THE FINDINGS OF THE CIT ( APPEALS). IN FURTHERANCE, THE LEARNED COUNSEL RELIED ON THE R ECENT ORDER OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT (TDS) VS. SREE THYAGARAJA CO-OP BANK LTD. IN I TA NOS.856 TO 860/BANG/2015, (ORDER DATED 10.11.2015). 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D 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 A LSO CONSIDERED VARIOUS ORDERS OF THE TRIBUNAL ON THIS A SPECT AND HAS GIVEN A VERY ELABORATE FINDINGS, WHICH READ AS FOLLOWS: 5.3 THE SUBMISSION OF THE APPELLANT HAVE BEEN CONSI DERED. THE AMENDED PROVISIONS OF SECTION 194A(3)(V) ARE EFFECTIV E FROM 01.06.2015 . THE RELEVANT PORTION OF THE CHAPTER ON 'RATIONALIZATION OF PROVISION RELATING TO DEDUCTION OF TAX ON INTEREST (OTHER THAN INTEREST ON SECURITIES)' IN THE FINANCE BILL, 2015 IS AS UNDER: 'SECTION 194A(1) READ WITH SECTION 194A(3)(I) OF THE A CT PROVIDE FOR DEDUCTION OF TAX ON INTEREST (OTHER THAN INTEREST ON SECURITIES) OVER A SPECIFIED THRESHOLD, I.E. RS.10,0 00 FOR 10 INTEREST PAYMENT BY BANKS, CO-OPERATIVE SOCIETY ENGAG ED IN BANKING BUSINESS (COOPERATIVE BANK) AND POST OFFI CE AND RS.5,000 FOR PAYMENT OF INTEREST BY OTHER PERSONS. F URTHER, SUB-SECTION (3) OF SECTION 194A INTER ALIA ALSO PROVID ES FOR EXEMPTION FROM DEDUCTION OF TAX IN RESPECT OF FOLLOWI NG INTEREST PAYMENTS BY CO-OPERATIVE SOCIETY: (I) INTERE ST PAYMENT BY A CO-OPERATIVE SOCIETY TO A MEMBER THEREOF O R ANY OTHER CO-OPERATIVE SOCIETY. [SECTION 194A(3)(V) OF T HE ACT] (II) INTEREST PAYMENTS ON DEPOSITS BY A PRIMARY AGRICULTU RAL CREDIT SOCIETY OR PRIMARY CREDIT SOCIETY OR CO-OPER ATIVE LAND MORTGAGE BANK OR CO-OPERATIVE LAND DEVELOPMENT BANK. [SECTION 194A(3)(VIIA)(A) OF THE ACT] (HI) INTEREST PAYMENT ON DEPOSITS OTHER THAN TIME DEPOSIT BY A CO-OPERATIVE SO CIETY ENGAGED IN THE BUSINESS OF BANKING OTHER THAN THOSE MENTIONED IN SECTION 194A(3)(VIIA)(A) OF THE ACT. [SEC TION 194A(3)(VIIA)(B) OF THE ACT] THEREFORE, AS PER THE PRO VISIONS OF SECTION 194A(1) READ WITH PROVISIONS OF SECTIONS 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 AM OUNT OF SUCH PAYMENT EXCEEDS SPECIFIED THRESHOLD OF RS.10,0 00/-. HOWEVER, AS THE PROVISIONS OF SECTION 194A(3)(V) OF THE ACT PROVIDE A GENERAL EXEMPTION FROM MAKING TAX DEDUCTIO N FROM PAYMENT OF INTEREST BY ALL CO-OPERATIVE SOCIETI ES TO ITS MEMBERS, THE CO-OPERATIVE BANKS TRIED TO AVAIL THIS E XEMPTION BY MAKING THEIR DEPOSITORS AS MEMBERS OF DIFFERENT CAT EGORIES. THIS HAS LED TO DISPUTE AS TO WHETHER THE CO-OPERAT IVE BANKS, FOR WHICH THE SPECIFIC PROVISIONS OF TAX DEDUCTION EXIST IN THE FORM OF SECTION 194A (1), SECTION 194A(3)(I)(B) AND S ECTION 194A(3)(VIIA)(B) OF THE ACT, CAN TAKE THE BENEFIT O F GENERAL EXEMPTION PROVIDED TO ALL CO-OPERATIVE SOCIETIES FR OM DEDUCTION OF TAX ON PAYMENT OF INTEREST TO MEMBERS. THE MATTER HAS BEEN CARRIED TO JUDICIAL FORUMS AND IN SOME C ASES A VIEW HAS BEEN TAKEN THAT THE PROVISIONS OF SECTION 194A(3)(VIIA)(B) OF THE ACT MAKES NO DISTINCTION BE TWEEN MEMBERS AND NON-MEMBERS OF CO-OPERATIVE BANKS FOR T HE PURPOSES OF DEDUCTION OF TAX, HENCE, THE CO-OPERATI VE BANKS ARE REQUIRED TO DEDUCT TAX ON PAYMENT OF INTEREST ON TI ME DEPOSIT 11 AND CANNOT AVOID THE SAME BY TAKING THE PLEA OF THE GENERAL EXEMPTION PROVIDED UNDER SECTION 194A(3)(V) OF THE ACT. THIS IS BECAUSE THE SPECIFIC PROVISION OF TAX DEDUCTION PRO VIDED UNDER SECTION 194A(3)(I)(B) AND 194A(3)(VIIA)(B) OF THE A CT FOR CO- OPERATIVE BANKS OVERRIDE THE GENERAL EXEMPTION PROV IDED TO ALL CO-OPERATIVE SOCIETIES FOR NON-DEDUCTION OF TAX FROM 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 FINANCE ACT, 2007 AMENDED THE PROVISIONS OF THE ACT TO PROVIDE FOR CO-OPERATIVE BANKS A TAXATION REGIME WH ICH IS SIMILAR TO THAT FOR THE OTHER COMMERCIAL BANKS. THE REFORE, THERE IS NO RATIONALE FOR TREATING THE CO-OPERATIVE BANKS DIFFERENTLY FROM OTHER COMMERCIAL BANKS IN THE MATTER OF DEDUCT ION 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 SPECIFIC 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 DEPOSIT ORS. IN VIEW OF THIS, IT IS PROPOSED TO AMEND THE PROVISIONS OF THE SECTION 194A OF THE ACT TO EXPRESSLY PROVIDE FROM T HE 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 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. H OWEVER, THE EXISTING EXEMPTION PROVIDED UNDER SECTION 194A(3)(V IIA)(A) OF THE ACT TO PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRI MARY CREDIT SOCIETY OR A CO-OPERATIVE LAND MORTGAGE BANK OR A C O-OPERATIVE LAND DEVELOPMENT BANK FROM DEDUCTION OF TAX IN RESP ECT OF INTEREST PAID ON DEPOSIT SHALL CONTINUE TO APPLY. T HEREFORE, THESE CO-OPERATIVE CREDIT SOCIETIES/BANKS REFERRED TO IN SAID CLAUSE (VIIA)(A) WOULD NOT BE REQUIRED TO DEDUCT TAX ON INTEREST PAYMENT TO DEPOSITORS EVEN AFTER THE PROPOSED AMEND MENT 12 FURTHER, THE EXISTING EXEMPTION PROVIDED UNDER SECT ION 194A(3)(V) OF THE ACT FROM DEDUCTION OF TAX FROM IN TEREST PAID BY A COOPERATIVE SOCIETY TO ANOTHER CO-OPERATIVE SO CIETY SHALL CONTINUE TO APPLY TO THE CO-OPERATIVE BANK AND, THE REFORE, A CO-OPERATIVE BANK SHALL NOT BE REQUIRED TO DEDUCT T AX FROM THE PAYMENT OF INTEREST ON TIME DEPOSIT 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 SOCIETIES CARRYING ON BANKING BUSINESS IS NOT LIABLE TO DEDUCT TAX AT SOU RCE FOR THE PAYMENT OF INTEREST ON DEPOSITS BY ITS MEMBERS. IN THE SAID JUDGEMENT, THE DECISION IN THE CASE OF BHAGANI NIVE DITA SAHAKARI BANK LTD HAS BEEN CONSIDERED. IT IS DISCUSSED IN TH E CASE OF RADDI SAHAKARA BANK (SUPRA) THAT HON'BLE ITAT BANGALORE BENCH IN THE CASE OF BAGALKOT DISTRICT CENTRAL COOPERATIVE BANK HAS DEALT WITH IDENTICAL ISSUE WHEREIN THE HON'BLE TRIBUNAL DID NO T AGREE WITH THE VIEW EXPRESSED BY THE HON'BLE PUNE ITAT (SMC BENCH) IN THE CASE OF BHAGANI NIVEDITA SAHAKARI BANK LTD. IT WAS HELD BY THE HON'BLE 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 BUSIN ESS WHEN IT PAYS INTEREST INCOME TO A MEMBER BOTH ON TIME DEPOSI TS AND ON DEPOSITS OTHER THAN TIME DEPOSITS WITH SUCH CO-OPERAT IVE SOCIETY NEED NOT DEDUCT TAX AT SOURCE UNDER SECTION 194A BY VIRTUE OF THE EXEMPTION GRANTED VIDE CLAUSE (V) OF SUB-SECTION (3) OF THE SAID SECTION.' RELYING UPON THE ABOVE DECISION, HON'BLE I TAT, BANGALORE BENCH DECIDED IN THE CASE OF M/S RADDI SA HAKARA BANK AS 'IN OUR VIEW, THE ABOVE DECISION RENDERED BY THE CO- ORDINATE BENCH IS SQUARELY APPLICABLE TO THE FACTS O F THE PRESENT CASE. RESPECTFULLY FOLLOWING THE DECISION OF THE CO -ORDINATE BENCH REFERRED TO ABOVE, WE SET ASIDE THE ORDERS OF THE LO WER AUTHORITIES AND HOLD THAT TO THE EXTENT INTEREST IS PAID TO MEMB ERS 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 OF TAX 13 FROM THE PAYMENT OF INTEREST ON TIME DEPOSITS BY THE CO-OPERATIVE BANKS TO ITS MEMBERS BY CLAIMING THAT GENERAL EXEMPTIO N PROVIDED IS ALSO APPLICABLE FOR PAYMENT OF INTEREST TO MEMBER DEPOSITORS, PROVISIONS OF THE SECTION 194A OF THE AC T IS AMENDED TO EXPRESSLY PROVIDE FROM THE PROSPECTIVE DATE OF 1S T JUNE, 2015 THAT THE EXEMPTION PROVIDED FROM DEDUCTION OF TAX FR OM PAYMENT OF INTEREST TO MEMBERS BY A CO-OPERATIVE SOCIETY UN DER SECTION 194A(3)(V) OF THE ACT SHALL NOT APPLY TO THE PAYMEN T OF INTEREST ON TIME DEPOSITS BY THE CO-OPERATIVE BANKS TO ITS MEMB ERS. WHILE PROPOSING AMENDMENT IN SECTION 194A(3)(V) OF THE ACT , LEGISLATURE WAS AWARE OF THE FACT THAT THE MATTER HAS BEEN CARR IED TO JUDICIAL FORUMS AND IN SOME CASES A VIEW HAS BEEN TAKEN THAT THE PROVISIONS OF SECTION 194A(3)(VIIA)(B) OF THE ACT MAKE S 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 ON PA YMENT OF INTEREST ON TIME DEPOSIT AND CANNOT AVOID THE SAME B Y TAKING THE PLEA OF THE GENERAL 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)(VII A)(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 MEMBERS U/S 194A(3)(V) OF THE ACT. HOWEVER , IT IS MADE CLEAR IN THE CHAPTER ON 'RATIONALISATION OF PRO VISIONS RELATING TO DEDUCTION OF TAX ON INTEREST (OTHER THAN INTERES T ON SECURITIES) IN THE FINANCE BILL, 2015 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 C O-OPERATIVE SOCIETY SHALL CONTINUE TO APPLY TO THE CO-OPERATIVE BA NK AND, THEREFORE A CO-OPERATIVE BANK SHALL NOT BE REQUIRED TO DEDUCT TAX FROM THE PAYMENT OF INTEREST ON TIME DEPOSIT TO A D EPOSITOR, BEING A CO-OPERATING SOCIETY.' 5.3(C) IT IS THEREFORE CLEAR FROM THE ABOVE MEMORANDU M OF FINANCE BILL, 2015 THAT EXEMPTION PROVIDED UNDER SEC TION 194A(3)(V) OF THE ACT FROM DEDUCTION OF TAX FROM INT EREST PAID BY A CO-OPERATIVE SOCIETY TO ANOTHER CO-OPERATIVE SOCI ETY EXISTED 14 BEFORE THE AMENDMENT AND SHALL CONTINUE TO APPLY TO THE CO- OPERATIVE BANK EVEN AFTER THE AMENDMENT. IT WAS MADE C LEAR FURTHER THAT SUCH EXEMPTION TO CO-OPERATIVE BANK IS AVAILABLE ONLY WHEN THE DEPOSITOR IS A CO-OPERATIVE SOCIETY. IN THE INSTANT CASE M/S HOUSEFED & M/S KRIBHCO 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 DEDUCT TAX FROM THE PAYMENT OF INTER EST ON TIME DEPOSIT TO ITS MEMBERS BEING COOPERATIVE SOCIETIES O R OTHER COOPERATIVE SOCIETIES. HENCE, THE APPELLANT IS NOT LI ABLE UNDER SECTION 201(1) AS PERSON IN-DEFAULT FOR NOT DEDUCTI NG TAX AT SOURCE UNDER SECTION 194A(1) OF THE ACT AND ALSO NOT LIABLE FO R INTEREST U/S 201 (1 A) OF THE ACT AND THEREFORE THE DEMAND CREAT ED 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 TA X AT SOURCE FROM INTEREST PAYMENT BY A COOPERATIVE SOCIE TY TO ANOTHER COOPERATIVE SOCIETY EXISTED BEFORE THE AMEN DMENT, AND CONTINUE TO APPLY TO THE COOPERATIVE BANK EVEN AFTER THE AMENDMENT. IT WAS MADE FURTHER CLEAR THAT SUCH EXE MPTION TO COOPERATIVE BANK IS AVAILABLE ONLY WHEN THE DEPO SITOR IS A COOPERATIVE SOCIETY. IN THE INSTANT CASE, HOUSEFED PUNJAB AND KRIBHCO ARE COOPERATIVE SOCIETIES WHO ARE MEMBE RS WITH THE ASSESSEE SOCIETY AND INTEREST RECEIVED BY THEM WAS EXEMPTED FOR TAX DEDUCTION AT SOURCE UNDER SECTION 194A(3)(V) OF THE ACT. HENCE, AS RIGHTLY POINTED O UT BY THE CIT (APPEALS), THE ASSESSEE WAS NOT LIABLE UNDER SE CTION 201(1) OF THE ACT AS AN ASSESSEE IN DEFAULT FOR NOT DEDUCTING THE TAX UNDER SECTION 194A OF THE ACT AND CONSEQUEN TLY, 15 INTEREST UNDER SECTION 201(1) OF THE ACT CANNOT ALS O BE LEVIED. IT IS ORDERED ACCORDINGLY. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO.97/CHD/2016 IS ALLOWED AND THE APPEAL OF THE REV ENUE IN ITA NO.279/CHD/2016 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 1 ST DAY OF JULY, 2016 SD/- SD/- (ANNAPURNA GUPTA) (GEORGE GEORGE K.) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 1 ST JULY, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH