TMI Blog2015 (1) TMI 1407X X X X Extracts X X X X X X X X Extracts X X X X ..... matter as per law after giving opportunity of hearing to the assessee. Appeal allowed for statistical purposes. TDS u/s 194A - assessee is a cooperative society and has paid interest to its Members - disallowance of interest on term deposit in excess of ₹ 10,000/- u/s. 40(a)(ia) - Held that:- As decided in ACIT vs. The Belgaum District Central Cooperative Bank Ltd., Belgaum [2015 (1) TMI 743 - ITAT PANAJI] terms clause (v) which is general in nature will not apply to the co-op bank. The provisions of Section 194A (1)(viia) is clearly applicable and therefore the ‘assessee’ has to deduct T.D.S. on income credited or paid in respect of deposits except which falls under that provisions. Assessee cooperative bank is liable for TDS u/s. 194. We therefore, dismiss the appeal of the assessee. - ITA No. 327/PNJ/2013, ITA No. 329/PNJ/2013 AND C.O.No.31/PNJ/2014 - - - Dated:- 6-1-2015 - SHRI P. K. BABNSAL, HON BLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HON BLE JUDICIAL MEMBER Foe the Appellant : Shri Krishnamurthy S. Raikar For the Respondent : Shri Nishant K - D.R. ORDER PER D.T. GARASIA, J.M These two appeals filed by the Department as well as the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on between the Co-operative Society and a Cooperative bank. But the law does not distinguish Co-operative Society and the Co-operative Bank. The learned authority have failed to understand that the Co-operative Bank is first a Co-operative Society and then it is a Ca-operative Bank. This has been decided by the Hon, Tribunal in case of ACIT vs. Vishakhapattan Co-operative Bank Ltd on 29.11.2O11. As such the distinction made is futile one. f) The interest amounting to ₹ 53,00,668/- has been paid to members of the Society Bank. The members of the Society are the owners of the Society. The owners have contributed the Capital in form of Deposit. And therefore for their own amount they themselves cannot be liable for TDS. It is clear that the interest has been paid on Capital by the partners and the same is not subject of TDS Similarly the Capital contribution by the members by way of Deposit is not liable for TDS. Therefore there is wrong application of law and hence, need corrections.. g) The reliance has been placed on am Board Circular regarding the ordinary members and nominal members and the circular has made the distinction between the member and nominal member and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the assessee-bank is following mercantile system of accounting or not? The assessee submitted that they are following mercantile system of accounting read with the Institute of Chartered Accountant Norms (IRAC), which norms as prescribed by the Reserve Bank of India to the banking company. As per the provisions of sec. 43D of the Act, interest on assets classified as Bad and Doubtful debts is to be accounted as per RBI guidelines. As per sec. 43D of the Act, a Cooperative Bank if it is scheduled bank, the interest in relation to bad and doubtful debts is taxable in the previous year in which it is credited to P L a/c or on receipt of interest whichever is earlier. This is applicable to assets categorized as bad and doubtful debts as per RBI guidelines. The interest is to be recognized when there is right to receive. But in respect of NPA accounts the same is not guaranteed as the debt itself is doubtful. If interest on such account is taxed it will be against the spirit of law. The Assessing Officer was of the view that the provisions of Karnataka Co-operative Societies Act as well as the circulars issued by the Reserve Bank of India for recognition of interest income, stipula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of accounting, he has to pay tax on the revenue which has accrued notionally is without any basis. 5.2.10. In view of the above discussion and respectfully following the judgments of the Apex Court in the UCO Bank v CIT (supra) judgments of the jurisdictional High Court in the case of Cafin (supra) and the decisions of ITAT, Bangalore Bench C Bangalore in the case of ITO Ward-2, Shivamogga v. Shiv Sahakari Bank Niyamitha (supra) and Panaji Bench in the case of The Khanapur Co-op. Bank Ltd. v. ITO ITA No. 141/PNJ/2011, I hold that the addition made by the Assessing Officer of ₹ 31,87,638/- cannot be sustained in law. Accordingly, the addition of ₹ 31,87,638/- on account of interest receivable on NPA made by the Assessing Officer is deleted. The Department is in appeal against the decision of CIT(A). 5. The learned DR submitted before us that the assessee has not accounted the interest accrued on the loans which are clarified as Non Performing Assets by ignoring the provisions of sec. 43D of the Act and relied upon the decision of the Hon‟ble Karnataka High Court. Sec 43D which is amended on 01/04/2002 has provided this benefit of not accounted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Krishnamurthy S. Raikar, who present before this Tribunal on behalf of the assessee and have gone through the order of CIT(A). The learned CIT(A) has relied upon the decision in the case of Karnavati Cooperative Bank vs. DCIT (2012) 14 ITR (Trib.) 175. The Commissioner held that the provisions of section 43D are applicable to the cooperative bank. We are of the view that there is an amendment in sec. 43D of the Act w.e.f. 01/04/2012 and from 01/04/2012, this section specified the institution to which the sec. 43D is not applicable and sec. 43D is applicable to National Housing Bank, public financial institution or a scheduled bank or a State financial corporation or a State industrial investment corporation. The assessee is a cooperative bank and is not a scheduled bank, therefore sec. 43D is not applicable. We find that from the definition of scheduled bank as per sec. 36(1)(viia) of the Act, cooperative bank has been omitted by the Finance Act, 2007 w.e.f. 01/04/2007. Therefore, we are of the view that CIT(A) is not justified in holding that sec. 43D is applicable to the assessee-bank. In respect of the assessee, interest accrued on non-performing assets which we can verify from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the return of income. The Assessing Officer made the assessment order u/s. 143(3) of the Act and disallowed interest on term deposit in excess of ₹ 10,000/- u/s. 40(a)(ia) of the Act. 11. Matter was carried to the CIT(A) and CIT(A) has dismissed the appeal of the assessee by observing as under:- 5.1.3 It san undisputed fact that the appellant has paid interest on term deposits to the tune of ₹ 53,00,668/- to depositors without deducting tax at source. The appellant has contended that the provisions of TOS are not attracted in view of clause-(v) of sub section (3) of section 194A as the interest payments to the extent of ₹ 53,00,668/- have been made to the. members of the bank in this regard, the AD has interpreted the word co operative society as employed in Sec 194A(3)(v) to mean co-operative society other than co-operative bank as decided by the ITAT, Pune Bench, in Bhagani Nivedita Sahakari bank Ltd v. MIT 87 ITD 569 wherein, the Hon ble TAT has held that the term co-operative society mentioned in section 194A(3)(v) to be interpreted as co-operative society other than cooperative bank. Thus, the AO disallowed the entire interest payments exceeding &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank Ltd v. ACIT (2003) 87 ITO 569 that the term co-op society in sub-clause (v) to be interpreted a co-op society other than cooperative bank, the appellant is liable for TDS provisions under section 194k 5.1.5 The appellant s argument that clause(v) to sec.194A(3) may be taken as applying to members and other clauses to the said section may he taken to apply to non members is without any basis in as much as clauses (I) and (viia) apply to both the members as well as non members, Where ever the legislature intends to apply a particular provision to member or to a fl member, it has done so expressly. 5.1.6 Now coming to the circular No.9 of 2002 issued by the CBDT relied upon by the ant, the Board vide said circular had sought to interpret the definition of word member clarifying that the word member does not include word nominal member It was held by the Bombay High Court in the case of Jalgaon District Central Co-op Bank Ltd Anr v. Union of India 265 ITR 423 (6am), that the Board has no power to interpret the provisions of law by way of circular The issue at hand of the Bombay High Court was the definition of the word member as appearing in clause (v) of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excess of ₹ 10,000/-, the TDS is applicable to the cooperative bank. Learned DR relied upon the Tribunal‟s decision in the case of ACIT vs. The Belgaum District Central Cooperative Bank Ltd., Belgaum in I.T.A.No. 324/PNJ/2013 dated 14/11/2014. 13. The representative of the bank did not submit anything. 14. Having heard learned DR and looking to the facts and circumstances of the case, we find that the issue in controversy is covered by the decision of this Tribunal in the case of ACIT vs. The Belgaum District Central Cooperative Bank Ltd., Belgaum in I.T.A.No. 324/PNJ/2013 dated 14/11/2014 wherein this Tribunal has taken a decision that the assessee cooperative bank is liable for TDS u/s. 194 of the Act. The Tribunal has held as under:- 9. We have heard the rival contentions and perused the record of the case. The short question before us for adjudication, whether or not, the assessee co-operative bank engaged in the banking business is liable for TDS or not. We find that the assessee s case falls under the ambit of sub-clause (b) of clause (i) of sub-section(3) of section 194A and, hence, TDS provisions are attracted. As per the said provisions of sub-clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ash credit account, issue letter of credit, discounting bills.. of exchange, issue cheques, demand drafts (DD), Pay orders, Gift cheques, lockers, bank guarantees etc. 3. Co-operative Banks can act as clearing agent for cheques, DDs, pay -orders and other forms. 4. Banks are bound to follow the rules, regulations and directions issued by Reserve Bank of India (RBI) 1. As per the bye laws of the cooperative society. 2. Society cannot open savings bank account, current account, issue letter of credit, discounting bills of exchange, issue cheque, demand drafts, payorders, gift cheques,lockers, bank guarantees etc. 3. Society cannot act clearing agent, for cheques, DDs, pay orders and other forms. 4. Society are bound by rules and regulations as specified by in the co-operative societies act. Filing of returns Co-operative banks. have to submit annual return to RBI every year Society has to submit the annual return to Registrar of Societies. Inspection RBI has the power to inspect accounts and over all functioning of the Bank Registrar has the power to inspect accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vishwas Nagar, Delhi -110032 Sir, Subject: Clarification regarding admissibility of deduction under Sec. 80P of Income-tax Act, 1961 1. Please refer to your letter No. DCUS/30688/2007, dated 28.3.2007 addressed to Chairman, Central Board of Direct Taxes on the above cited subject. 2. In this regard, I have been directed to state that sub-section(4) of section 80P provides that deduction under the said section shall not be available to any co-operative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank. For the purposes of the said sub-section, cooperative bank shall have the meaning assigned to it in Fart V of the Banking Regulation Act, 1949. 3. In part V of the Banking Regulation Act, Co-operative Bank means a State Co-operative Bank, a Central Co-operative Bank and a primary Co-operative Bank and a primary Co-operative Bank. 4. Thus, if the Delhi Co-op. Urban T C Society Ltd., does not fall within the meaning of Co-operative Bank as defined in pan V of the Banking Regulation Act, 1949, sub-section (4) of Section 801 will not apply in its case. 5. These issues with the approval of Chair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or by any other mode, whichever is earlier, deduct income tax thereon at the rates in force (2) .... (3) The provisions of sub-section(1) shall not apply- Where the amount of such income or, as the case may be, the aggregate of the amount of such income credited or paid or likely to be credited or paid during the financial year by the person referred to i subsection (1) to the account of or to, the payee, does not exceed- (a) ten thousand rupees, where the payer is a banking company i which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution, referred to in section 51 of that 4cr); (b) ten thousand rupees, where the payer is a co-operative society engaged in carrying on the business of banking; (c,) ten thousand rupees, on any deposit with post office under any scheme framed by the Central Government and not(fled by it in this behalf and (d) five thousand rupees in any other case: (ii)t o (iv) ........ ( to such income credited or paid by a co-operative society to a member thereof or to any other co-operative society; (vi,) (vii,).......... (viia) to such income credited or paid in respect of- (a) deposits with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that going by the provisions contained in section 194A(3)(viia)(a) of the Income Tax Act, for short the Act ,the writ petitioners were not liable to deduct income-tax at source in respect of the interest so paid, as sub-section (3) exempts them from the coverage of sub-section (1) of section 194A of the Act. Aggrieved by the judgment, this appeal is filed only against the 4th petitioner in O.P. No. 17082/1997 (see[199]238 ITR 630), namely, the Thodupuzha Urban Co-operative Bank Ltd. No. 394, Thodupuzha, Idukki District, represented by the secretary. Sub-section 3 of section 194A of the Act makes it clear that the provisions of sub-section (1) shall not apply in respect of several situations mentioned under that clause. Admittedly, sub-section (1) of section 194A cast the liability on all those institutions other than individuals and Hindu Undivided Family to deduct income-tax at source, when such institutions pay interest on deposits exceeding the prescribed limit. Sub-section (3)(viia) reads as follows : Sub-section 3 of section 194A of the Act makes it clear that the provisions of sub-section (1) shall not apply in respect of several situations mentioned under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... member clarified that the member does not include the nominal member. It was held by the Bombay High Court in the case of Jalgaon District Central Co-operative Bank Ltd. Anors. vs. Union of India 265 ITR 423, that the Board has no power to interpret the provisions of law by way of circular. The issue in hand of Hon ble Bombay High Court was the definition of word member as appearing in clause-(v)of Section 194A(3) and power of Central Board of Direct Tax to issue circular u/s 119 which would override or detract from the provisions of Income Tax Act. The Circular No.9/2002 dated 11.9.2002 issued by CBDT has been quashed and set aside by Hon ble Bombay High Court. Therefore, circular No.9/2002 dated 11.09.2002 issued by CBDT does not help to the case of the assessee. The assessee relied upon the said circular is ill founded. The question before the Hon ble Bombay High Court was not whether a Co-operative Bank not entitle to deduction of tax on interest paid on the deposits with it. To understand the legislative amendment in this regard query wherein in the budgets speech of Finance Minister and his object for suggesting TDS to such deposit in following words to enable the G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nking company or with a Co-operative society engaged in carrying on business of banking. The aforesaid limit of ₹ 10,000/- shall be computed with reference to the income credited or paid by branch of banking company or Co-operative Society as the case may be. The interest on time deposit made with a primary agricultural society or a credit society or a co-operative land mortgage bank or a Co-operative land development bank will not be subject to requirement of deduction of tax at source. Reference in this connection may be made to circular no. 715 dated 18th August, 1995 and explanatory circular no. 717 dated 14th August, 1995. The Finance Act 2001 by amendment in provision to sub-section (3) of Section 194 has omitted the provision therein providing the specific limit of ₹ 10,000/- in respect of time deposit made with banking company with reservation that overall limit of ₹ 5,000/- provided in main portion of sub-section 3 would apply to such deposit w.e.f. 19th June, 2001. From this above intention of legislature we are of the view that it is clear that assessee company a Co-operative Society carrying on a business of banking is liable to make TDS u/s. 194A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to in sub-clause (a), engaged in carrying on the business of banking The TDS on time deposits is dealt in clauses (vii) (viia) of 194A (3) which are extracted below: (3) The provisions of sub-section (1) shall not apply (vii) : to such income credited or paid in respect of deposits (other than time deposits made on or after the 1st day of July, 1995) with a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); (viia) : to such income credited or paid in respect of, (a) deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank; (b) deposits (other than time deposits made on or after the 1st day of July, 1995) with a co-operative society, other than a co-operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking *emphasized+ From a plain reading of above clauses, it is clear that while clause (vii) deals with interest payment by a banking company the clause (viia) deals with interest payment by a certain categ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, in respect of interest paid on time deposits by a co-op bank, the clause(v) which deals with cooperative societies will apply or the clause (viia) which mentions specifically a co-operative society engaged in the business of banking finds application? 2. Legislative history of TDS on interest: a. The Finance act 1968, inserted clause (v) in 194A(3) to exempt interest paid by on co-op society to another co-op society from TDS purview. b. The Finance Act 1970, inserted clause (vii) in section 194A(3) which for the first time, created a new type of co-operative society engaged in carrying on the business of banking, as distinct from the cooperative society as envisaged in clause (v). By this amendment, a specific specie called a cooperative society engaged in carrying on the business of banking was carved out of the genus cooperative society mentioned in clause (v). The scope of the above amendment is explained in Circular no 42 dated 20-06-1970, whose relevant portion is extracted below: I am directed to invite a reference to the Board s Circular No. 22/68- IT(B) [F.No. 12/23/68-IT(B)], dated 28-3/13-5-1968, and to say that the Finance Act of 1970, has mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit society or a primary credit society (emphasized) The above circular clearly states that, it was only by introduction of clause (viia), a cooperative society engaged in the business of banking was brought under the purview of TDS on time deposits. The TDS on time deposits was withdrawn very next year by way of substituting above mentioned clauses (vii) (viia) with a combined clause (vii) and status quo ante was restored. f. The Finance Act 1995 inserted clauses (vii) (viia) which lay down that, the exemption as envisaged in 194A(3) is not available in respect of time deposits made on or after 01-07-1995 with a banking company and a cooperative society engaged in the business of banking. This position of law has been explained in the explanatory notes to Finance Act 1995, contained in CBDT Circular No. 717 dated 14-8-1995 as under. Para 46.2: The (Finance )Act amends Section 194A of the Income-tax Act relating to deduction of income-tax at source from interest other than interest on securities in the case of residents. The amendment provides for deduction of income-tax at source at the rate in force from payment of interest exceeding ten thousand rupees in a fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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