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TMI Blog2015 (4) TMI 1040X X X X Extracts X X X X X X X X Extracts X X X X ..... ax on interest payments, it was submitted by assessee on the principle of mutuality, TDS provisions on interest payments to members would not apply in view of provision contained u/s 194A(3)(v) of the Act. AO after examining the submissions of assessee, found that during the relevant year, assessee had 851 regular members, 4880 associate members and 47 nominal members. He further noticed that while assessee pays interest @ 10% on the deposits received from regular members, it pays 9.5% interest on the deposits received from associate members and 10% interest on the deposits received from nominal members. On going through the bye-laws of the society, AO also found difference in rights and privileges between regular members on one side and associate/nominal members on the other. He, therefore, opined that exemption as contemplated u/s 194A(3)(v) would apply only to a regular member and not associate/nominal members. Though, assessee objected to such proposition of the AO and contended that as the provision contained u/s 194A(3)(v) only speaks of member without any differentiation, AO cannot make a difference between regular member and associate/nominal member while granting exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, was of the view that the order passed by AO u/s 201 and 201(1A) is erroneous and prejudicial to the interests of revenue. Accordingly, he issued a show cause notice to assessee on 14/03/2014 proposing to revise the assessment order on the following reasons: "1) Why the society should not be treated as cooperative bank and which is in the business of banking and which is liable to deduct tax u/s 194A(3) of the IT Act. 2) The AO has differentiated between regular member and nominal and associate member. But the IT Act does not differentiate between any categories of member. The differentiation between the member has resulted in the non- compliance to the TDS provision resulting in the loss of revenue. 5. In response to the show cause notice, assessee submitted its reply objecting to the initiation of proceeding u/s 263 of the Act by stating that assessment order cannot be revised as the issue on which section 263 is invoked has already merged with the order passed by ld. CIT(A). Further, it was submitted by assessee that the assessment order passed cannot be considered to be erroneous and prejudicial to the interests of revenue as mere non-deduction of tax at source does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nominal members for the purpose of exempting assessee from the liability to deduct TDS in respect of interest paid to regular members. He held that as AO treated the regular members as a different category thereby differentiating them from associate/nominal members, the order passed by him is erroneous and prejudicial to the interests of revenue. Thus, ld. CIT set aside the order passed by AO and directed him to redo the assessment by computing correct liability u/s 201(1) and 201(1A). In other words, he directed AO to recompute the liability u/s 201(1) and 201(1A) in so far as interest payments made to regular members. 7. Ld. AR submitted before us, the issue of liability to deduct tax at source on the members of assessee society stood concluded in the order passed by ld. CIT(A) while deciding assessee's appeal against the assessment order. He submitted, ld. CIT(A) having given categorical finding that no differentiation can be made between the different categories of members of a cooperative society in so far as applicability of section 194A(3)(v) is concerned, assessment order got merged with the order of the ld. CIT(A), hence, ld. CIT could not have invoked his power u/s26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een from the facts on record, in course of assessment proceeding, assessee defended itself by contending that tax was not deductible at source on interest payment to any member as provision contained u/s 194A(3)(v) employs the term 'member', therefore, no differentiation can be made between the members while applying the said provision. Though, AO did not accept this contention and held that exemption applies only in case of regular members, however, ld. CIT(A) accepted assessee's claim that exemption provision as contemplated u/s 194A(3)(v) would apply not only to regular members but also to other members like associate/nominal members. While doing so, ld. CIT(A) has followed the decision of the Hon'ble Bombay High Court in case of Jalgaon District Cooperative Society (supra). On careful analysis of the said decision, it is very much clear that Hon'ble Bombay High Court while quashing the CBDT Circular No. 09 of 2002 dt. 11/09/2002 in no uncertain terms held that exemption granted to a cooperative society u/s 194A(3)(v) cannot be taken away by creating a distinction between different categories of members. It is further evident, SLP filed by the department agai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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