TMI Blog2014 (12) TMI 381X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of such tax if such resident payee has furnished the return of income u/s 139, secondly has taken into account such sum for computing income in such return of income and thirdly has paid the tax due on the income declared by him in such return of income and the payer furnishes a certificate to this effect from an accountant in such form as may be prescribed – following the decision in Rajeev Kumar Agarwal Versus Additional Commissioner of Income Tax [2014 (6) TMI 79 - ITAT AGRA] – the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004 – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of assessee. - I.T.A. No. 160/PNJ/2014 - - - Dated:- 14-11-2014 - Shri P. K. Bansal (AM) And D. T. Garasia (JM),JJ. For the Appellant : Shri Sham Kamat, CA/Chinmay Kamat, CA For the Respondent : Shri Vinay Singh Rawat, Ld D.R. ORDER Per D. T. Garasia, JM. The appeal filed by the assessee is directed against order under section 263 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it further provides including a co-operative land mortgage bank. Thus, the cooperative society engaged in providing credit facilities to its members is outside the scope of section 194A(3)(iii). Therefore, the Commissioner was of the view that the Assessing Officer has failed to consider the above fact to bring the same to tax in view of provisions of section 40(a)(ia) of the Act. Therefore, there is lack of verification and application of mind by the AO on the facts and on law. Therefore, he held that the order passed by the AO is erroneous in so far as it prejudicial to the interests of the revenue. Therefore, ld CIT issued notice u/s.263 of the Act to the assessee to show cause why the order passed by the AO be not cancelled. In reply to the said notice, the assessee filed written submission as under: At the outset, we have to submit that the order of assessment dated 22.27.2011 passed u/s. 743(3) of the Income Tax Act, 1962 (hereinafter referred to as the, Act ) by the Learned Joint Commissioner of Income Tax, Range-2, Belgaum is neither erroneous nor prejudicial to the Interest of the revenue. No case has been made out, to show any income, which has not been subject t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited cheque in their account at Karnataka Vikas Grameena Bank bearing saving bank account numbers as under, 1. Kothi wale Suryakant Somashekar Account No.2012928 2. Kothiwale Shashikant Somashekar Account No.2012929 3. Kothi wale Chandrakant Somashekar Account No.2012930 4. Kothiwale Rudrakumar Chandrasekhar Account No .2012697 then partners have given this amount to the firm for the purpose of business of by account payee cheques. On the request of the partner, the firm has paid the interest on these loans directly to the society for the sake of convenience. This interest is actually payable to the partners on account of loan obtained from them partners in turn have to pay the interest to the society. Therefore the actual fret is that the obligation for payment of interest by the firm is towards partners not towards the society. Further, the said society is legally entitled to the interest from partners only in view of loan agreement executed between the individual partners the society. As per the contract Act, the said society has no any right to collect the interest from our partnership firm, so also the partnership firm is under no obligation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a)(i). Therefore the said society is deemed as co-operative bank therefore naturally the TDS Provision u/s 194A are not applicable for the payment of interest on the loan obtained from a cooperative bank. Since the said society has been defined as co-operative bank for the purpose of its assessments, there is strong objection by the said society to make TDS on the payment of interest. The letter of the society is hereby enclosed. We therefore, pray that the Hon ble Commissioner be pleased to drop the proceedings u/s 263 of the Act, in view of our above submission . 4. After considering the assessee s submission, ld Commissioner of Income Tax, Belgaum was of the view that assessee has claimed that the impugned payment of interest of ₹ 15,22,519 has been paid to the Shraddha Credit Souharda Sahakari Niyamit, on behalf of the partners, who have obtained loan for the purposes of business of the partnership firm. The loan was obtained by the partners on the security of their agricultural lands. The assessee s contention that the assessee has paid interest directly to co-operative bank and co-operative bank is exempt from the provisions of TDS in view of section 194A(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n paid to society on loan account. No loan has been drawn in the partner s name nor the capital has been shown in partners account. Therefore, ld CIT was of the view that loan has been taken by the partners in his name. Therefore, interest payment is inadmissible in view of provisions of section 40(a)(ia) of the Act. We find that ld CIT has also held that assessee has paid interest paid to co-op. Bank and co.op.bank is not entitled for deduction u/s.80P(4) of the Act. Therefore, ld CIT has disallowed the interest paid to bank in view of provisions of section 40(a)(ia) of the Act. We find that this Tribunal is taking consistent view that the co-operative bank is liable for deduction of tax at source in view of the decision in the case of Saraswat Co-operative Bank Ltd vs. ITO (ITA Nos.233 to 236/Pnj/2014) and in the case of The Bailhongal Urban Co-Op. Bank Ltd vs JCIT (ITA No.85/Pnj/2013) for A.Y. 2009-2010. Therefore, we are of the view that ld CIT is justified in action and same deserves to be upheld. 7. However, the assessee has filed additional evidence in the form of Form 26, which is admitted in view of the decision of Hon ble Supreme Court in the case of NTPC Ltd. 229 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee in default in respect of such tax if such resident payee has furnished the return of income under section 139, secondly has taken into account such sum for computing income in such return of income; and thirdly has paid the tax due on the income declared by him in such return of income and the payer furnishes a certificate to this effect from an accountant in such form as may be prescribed. We find that the Tribunal in the case of Rajeev Kumar Agarwal (supra) has dealt with this issue in detail in its order and discussed the various judgements, wherein, it has been held as under: 9. On a conceptual note, primary justification for such a disallowance is that such a denial of deduction is to compensate for the loss of revenue by corresponding income not being taken into account in computation of taxable income in the hands of the recipients of the payments. Such a policy motivated deduction restrictions should, therefore, not come into play when an assessee is able to establish that there is no actual loss of revenue, This disallowance does deincentivize not deducting tax at source, when such tax deductions are due, but, so far as the legal framework is concerned, this pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urce by declining the deduction in respect of related payments, even when the corresponding income is duly brought to tax. That will be going much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004. 10. In view of the above discussions, we deem it fit and proper to remit the matter to the file of the Assessing Officer for fresh adjudication in the light of our above observations and after carrying out necessary verifications regarding related payments having been taken into account by the recipients in computation of their income, regarding payment of taxes in respect of such income and regarding filing of the related income tax returns by the recipients. While giving effect to these directions, the Assessing Officer shall give due and fair opportunity of hearing to the assessee, decide the matter in accordance with the law and by way of a speaking order. We order so. 10. Respectfully following the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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