TMI Blog2015 (7) TMI 1272X X X X Extracts X X X X X X X X Extracts X X X X ..... e findings of the Ld. CIT(A) and direct the Assessing Officer to delete the impugned additions made in the order u/s. 201(1) & 201(1A)- Decided in favour of assessee Addition on account of accrued interest on loans which are classified as ‘Non-performing Assets’ - Held that:- In view of the decision of the jurisdictional High Court in the case of JCIT Vs.M/s Canfin Homes Ltd (2011 (8) TMI 178 - KARNATAKA HIGH COURT), it is observed that the facts of the appellant bank are similar to the facts of the case before the Hon'ble High Court of Karnataka wherein it has been held that the contention of the revenue that in respect of non-performing assets even though it does not yield any income as the assessee has adopted a mercantile system of accounting, he has to pay tax on the revenue which has accrued notionally is without any basis.- Decided in favour of assessee - ITA No. 436/PNJ/2014, ITA No. 441/PNJ/2014 - - - Dated:- 13-7-2015 - SHRI N.S. SAINI, HON BLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HON BLE JUDICIAL MEMBER Assessee by : Shri S.V. Halbhavi CA. Department By : Shri Anand Shankar Marathe-DR O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 8. On appeal, the Commissioner of Income Tax(Appeals) confirmed the action of the Assessing Officer. 9. The Authorized Representative of the assessee relied on the decision of this Bench of the Tribunal in the case of Belgaum District Central Cooperative Bank Ltd. Vs. ITO in I.T.A.Nos. 312 to 315 / PNJ /2014 dated 16/06/2015 and submitted that the issue under consideration is decided in favour of the assessee by the above decision of the Tribunal. 10. Departmental Representative very fairly agreed to the same. 11. We find that the Tribunal in the case of Belgaum District Central Cooperative Bank Ltd. (supra) has held as under:- 4. The sum and substance of the grievance of the assessee for all the years under consideration is that the Ld. CIT(A) failed to appreciate the true import of sec. 194(v) and sec. 194A(viia) sub-clause (b) and erred in denying the exemption from sec. 194A in respect of payments of interest to Members. 5. The assessee is a cooperative bank engaged in the business of banking. A survey was conducted at the bank premises on 28/10/2013 to verify the compliance with TDS provisions. A show-cause notice was issued to the assessee calling for det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the CBDT does not help the case of the appellant. The appellant's reliance on the said circular is found to be ill founded. Similarly, the appellant's reliance on the decisions of the High Court in the cases of Jalgaon District Co-op Bank 265 ITR 423, supra as well as in the case of the Gujarat Urban Co-operative Bank Federation do not help the case of the appellant as in both the cases the decision is same as discussed above. Ld. CIT(A) further drawing support from the decision of the Tribunal Panaji Bench in the case of Bailhongal Urban Co. Bank (supra), confirmed the order of the Assessing Officer made u/s.201(1) 201(1)(A) of the Act. 7. Aggrieved by this, the assessee is before us. 8. At the very outset, counsel for the assessee drew our attention to the memorandum explaining the provisions in the Finance Bill 2015. The relevant portion of which reads as under:- Section 194A(1) read with section 194A(3)(i) of the Act provide for deduction of tax on interest (other than interest on securities)'over a specified threshold, i.e., ₹ 10,000 for interest payment by banks, co-operative society engaged in banking business (co-operative bank) and post of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o-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 which is similar to that for the other commercial banks. Therefore, there is no rationale for treating the co-operative banks differently from other commercial banks in the matter of deduction of tax and allowing them to avail the exemption meant for smaller credit co-operative 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 payment 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 depositors. In view of this, it is proposed to amend the provisions of the section 194A of the Act to expressly provide from the prospective date of 1st June, 2015 that the exemption pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, with this clarification, it is clear that the circular has not been withdrawn. Moreover, a perusal of the decision of the Hon‟ble High Court of Bombay in the case of Jalgaon District Co. Bank (supra) shows that the Hon‟ble High Court has held that the impugned notification issued by the CBDT which is in the form of a clarification with regard to the rights and privileges of a duly registered member and nominal member is outside the scope of sec.119 of the Act. The Hon‟ble High Court further held that the CBDT cannot issue a circular u/s. 119 of the Act which would override or retract from the provisions of Income-tax Act, 1961. Thus, the observations of the Hon‟ble High Court were more towards the clarification regarding member and nominal member. Considering all the facts in totality in the light of the memorandum explaining the provisions in the Finance Bill 2015 (supra) and the clarification by the Board that the Circular has not been withdrawn, makes it ample clear that the impugned provisions relating to the liability of TDS would come with effect from 01/06/2015, we, therefore, set aside the findings of the Ld. CIT(A) and direct the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of UCO Bank Vs.CIT, 237 ITR 889 (1999). Other case laws in favour of the appellant are the JCIT(Asst) v. Canfin Homes Ltd in ITA No.801 of 2006 and the decision of the ITAT, Bangalore Bench 'C' Bangalore in the case of ITO Ward-2 Shivamogga v.Shiva Sahakari bank Niyamitha in ITA No.257/Bang/2012 for A.Y. 2008-09 dated 21.12.2012 wherein, the Hon'ble ITAT, relying upon the decision of Hon'ble High Court of Karnataka, in the case of JCIT(Asst) v. Canfin Homes Ltd in ITA No.801 of 2006, has held that interest on non-performing assets cannot be taken as income accrued to the assessee in the relevant year. The above mentioned cases of Supreme court and High Court in favour of the appellant in the cases of UCO Bank and Canfin, supra are later in time than the case laws relied upon by the A.O. The Apex Court in the case of UCO Bank, supra has considered and over ruled its own decision in the case of State Bank of Travancore, supra. Further, the Hon'ble ITAT Ahmedabad Bench in case of Karnavati Co-Op. Bank Ltd. Vs. Deputy Commissioner of Income Tax (2012) 14 ITR (Trib) 175 has held that co-operative bank is governed by RBI guidelines hence provisions of Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntile system of accounting, he has to pay tax on the revenue which has accrued nationally is without any basis. In that view of the matter, the second substantial question framed is answered against the revenue and in favour of the assessee. 5.2.8 Thus, in view of the decision of the jurisdictional High Court in the case of JCIT Vs.M/s Canfin Homes Ltd (2011) 5 Tax Corp (DT) 49593 , it is observed that the facts of the appellant bank are similar to the facts of the case before the Hon'ble High Court of Karnataka wherein it has been held that the contention of the revenue that in respect of non-performing assets even though it does not yield any income as the assessee has adopted a mercantile system of accounting, he has to pay tax on the revenue which has accrued notionally is without any basis. 5.2.9 The Panjim bench of the Hon'ble ITAT has in the appellant's own case in ITA No.72/PNJ/2013 for A.Y. 2009-10, decided the appeal on this issue in favour of the appellant. 5.2.10 In view of the above discussion and respectfully following the judgments of the Apex Court in the UCO Bank Vs.CIT, supra, judgments of the jurisdictional High court in the case of Canfin, ..... 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