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2015 (4) TMI 1040 - ITAT HYDERABAD

2015 (4) TMI 1040 - ITAT HYDERABAD - TMI - Revision u/s 263 - assessee challenged the jurisdiction of the ld. CIT in invoking section 263 on the doctrine of merger - non deduction of tds on interest payment to any member as provision contained u/s 194A(3)(v) - Held that:- As can be seen 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) e .....

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mbay High Court in case of Jalgaon District Cooperative Society (2003 (9) TMI 56 - BOMBAY High Court ) wherein 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 against the aforesaid judgment of the Hon'ble Bombay High Court was also dismissed by the Hon'ble .....

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he reasoning that no differentiation between members can be made while applying TDS provision u/s 194A(3). Thus, applying the same logic, it is to be held that ld. CIT(A)'s order holding that interest payment to associate/nominal members is exempt from deduction of tax at source in view of section 194A(3)(v) would also impliedly apply to the regular members as she came to such conclusion on the principle that no differentiation can be made between members of the cooperative society. That being t .....

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f the Act, in our view, assessment order has merged with the order of ld. CIT(A), hence, could not have been revised by invoking the provisions of section 263. Therefore, the exercise of power u/s 263 is invalid. - Decided in favour of assessee - ITA Nos. 1070 /Hyd/2014 - Dated:- 29-4-2015 - P. M. Jagtap (Accountant Member) And Saktijit Dey (Judicial Member) For the Petitioner : A. Srinivas For the Respondent : G. Aparna Rao ORDER Saktijit Dey (Judicial Member) This appeal of the assessee is dir .....

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egular members, associate members and nominal members. However, while making such interest payments, assessee society has not deducted tax at source. When assessee was called upon to explain the reason for not deducting tax 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 rel .....

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e 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 u/s 194A(3)(v) of the Act. Assessee in support of such contention, relied upon .....

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nce the Board has not withdrawn or repealed the said Circular, it is binding on both assessee and revenue. Holding as aforesaid, AO proceeded to compute demand u/s 201(1) and 201(1A), as under: Member FY 2010-11 Interest paid Tax u/s 201(1) Interest u/s 201(1A) Associate Member 14,89,26,397 1,48,92,640 35,74,233 Nominal Member 14,80,706 1,48,070 35,536 Total 15,04,07,103 1,50,40,710 36,09,769 Thus, AO passed the order accordingly on 30/03/2013 raising he total demand of ₹ 1,86,50,479. Bein .....

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mption granted to members u/s 194A(3)(v) of the Act. Thereafter, the Hon'ble Court has quashed the Circular No. 9 of 2002 dated 11/09/2002. Since the SLP filed by the Department has not been admitted and the Hon'ble Supreme Court has disposed the SLP (12601-12602 of 2004) on 07/07/2004, the order of the Mumbai High Court in the case of Jalgaon District Cooperative Bank Ltd. Vs. Union of India stands good as on date as precedent on this issue that no TDS is to be deducted on interest paym .....

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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 i .....

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s not result in any loss of revenue since tax can be recovered from the deductee. Further, assessee submitted that observation of ld. CIT that assessee should be treated as cooperative bank would not make any difference as AO has already raised the demand of ₹ 1,86,50,479. Since the rate of tax does not change inter-se between cooperative bank and cooperative society, there is nothing prejudicial or erroneous in the order of AO. It was also submitted that regular AO from the inception has .....

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ular members and not to associate/nominal members. Therefore, when AO has examined the issue and applied his mind and come to a conclusion after interpreting the statutory provision as well as keeping in view the decisions placed before him, the view taken by him cannot be considered to be erroneous only because ld. CIT does not agree with such view. 6. Ld. CIT after considering the submissions of assessee, however, was not convinced with the same. He was of the view that AO went wrong in differ .....

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ontention that jurisdiction invoked u/s 263 will not lie as the assessment order has already merged with the order of ld. CIT(A), ld. CIT observed that the subject matter of appeal before ld. CIT(A) was limited to the demand raised u/s 201(1) & (1A) for non-deduction of tax on interest paid to associate/nominal members. Ld. CIT observed that AO should not have made difference between regular and associate/nominal members for the purpose of exempting assessee from the liability to deduct TDS .....

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terest 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, ass .....

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bye-laws of the society and keeping in view relevant statutory provisions has come to a conscious decision that exemption provisions of section u/s 194A(3)(v) would apply to regular members and not associate/nominal members. Therefore, AO having taken a view after proper application of mind, assessment order cannot be held to be erroneous and prejudicial to the interests of revenue only because ld. CIT does not agree with such view. Further, challenging the observation that assessee should be t .....

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Court after examining the provisions of section 194A(3)(v) has clearly held that no differentiation between members can be made while applying the said exemption provisions. Thus, it was submitted by ld. AR, order passed u/s 263 deserves to be quashed/set aside. 8. Ld. DR, on the other hand, supporting the order of ld. CIT submitted before us, the order passed by AO is erroneous and prejudicial since he failed to bring to tax the interest payment made to regular members without deduction of tax .....

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n be seen 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 .....

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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 against the aforesaid judgment of the Hon'ble Bombay High Court was also dismissed by the Hon'ble Supreme Court. Thus, as per the decision of the Hon'ble Bombay High Court as aforesaid, which was also followed by ld. CIT(A), no differentiation can be made between the members of a coope .....

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est payment to associate/nominal members is exempt from deduction of tax at source in view of section 194A(3)(v) would also impliedly apply to the regular members as she came to such conclusion on the principle that no differentiation can be made between members of the cooperative society. That being the case, order passed by ld. CIT(A) also covers the issue of application of section 194A(3)(v) to regular members also. Explanation 'c' to section 263(1) clearly spells out that ld. CIT can .....

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