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TMI Blog2017 (9) TMI 2016X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation provided in respect of investment in Government securities ignoring the legal provisions that all capital assets are to be values at cost only and no part thereof can be claimed as revenue expenditure in computing total income. 4, Any other ground that may be made during the appeal. 5. The appellant craves leave to add, alter, amend and delete any of the grounds of leave. 3. Ground No.1 is general in nature and does not require any specific adjudication. 4. Ground No.2 is regarding disallowance made under Section 40(a)(ia) of the Income Tax Act, 1961 (in short 'the Act') for non-deduction of tax in respect of interest paid by the assessee co-operative bank. The Assessing Officer disallowed the interest paid by the assessee on deposits for want of deduction of tax at source by invoking the provisions of Section 40(a)(ia) of the Act. The assessee challenged the action of the Assessing Officer before the CIT (Appeals) and contended that the assessee being co-operative society involved in the business activity of banking is exempt from TDS on interest payment to the members of the assessee-society. The learned Authorised Representative of the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pheld identical order of CIT(A). The relevant observations of the Tribunal in this regard were as follows:- "15. We have given a very careful consideration to the rival submissions. We are of the view that the submissions made by the learned counsel for the Assessee deserves to be accepted. As rightly contended by him Sec.194A(3)(i)(b) of the Act is a provision which mandates deduction of tax at source by a co- operative Society carrying on the business of banking, where the income in the form of interest which is paid by such society is in excess of ten thousand rupees. Sec.194A(3)(v) of the Act provides that tax need not be deducted at source where the income in the form of interest is credited or paid by a co- operative society to a member thereof or to any other co- operative society. This provision therefore applies to all cooperative societies including co-operative society engaged in the business of banking. It is not possible to exclude co-operative society engaged in the business of banking from the provisions of Sec.194A(3)(v) of the Act on the ground that the same is covered by the provisions of Sec.194A(3)(i)(b) of the Act. Sec.194A(3)(v) of the Act refers to payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted their plea and in their judgment have observed that Sec.194A (3)(i) exemption limit of Rs. 10,000 to interest paid on time deposits with co- operative societies engaged in carrying on business of banking is allowed but that does not mean that all co-operative societies who have credited or paid exceeding Rs. 10,000 are liable to deduct tax at source. The Court held that co-operative society engaged in carrying on business of banking and primary credit societies stand on different footing and belong to different class. That does not mean that Sec.194A(3)(v) of the Act is applicable only to Co- operative Societies other than co-operative societies carrying on the business of banking as observed in para-37 of its judgment the Pune ITAT in the case of Bhagani Nivedita Sah Bank Ltd. (supra). In fact in para-2 of Circular No.9 dated 11.9.2002, the CBDT has very clearly laid down that Co-operative societies carrying on banking business when it pays interest on deposits by ITA Nos.368 & 369/Bang/2015 & SP Nos.51 & 52/Bang/2015 its members need not deduct tax at source in view of the provisions of Sec.194A(3)(v) of the Act. 17. We also find that the CBDT in Circular No.9 dated 11.9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral Body Meetings and/or Special General Body Meetings of the co-operative bank and must be entitled to receive share from the profits of the co-operative bank. [F. No. 275/106/2000-IT(B)] (2002) 177 CTR (St) 1" 18. It can be seen from para-2 of the Circular referred to above that the CBDT has very clearly laid down that Co-operative societies carrying on banking business when it pays interest on deposits by its members need not deduct tax at source. The above interpretation of the provisions by the CBDT which is in favour of the Assessee, in our view is binding on the tax authorities. 19. In the case decided by ITAT Panaji Bench in ITA No.85/PN/2013 for AY 09-10 in the case of The Bailhongal Uraban Co-op Bank Ltd. Vs. JCIT order dated 28.8.2013, the tribunal proceeded on the footing that the aforesaid circular has been quashed by the Hon'ble Bombay High Court in the case of The Jalgaon District Central Co-operative Bank Ltd. Vs. Union of India 265 ITR 423 (Bom) and therefore chose to follow the decision rendered by Pune ITAT SMC in the case of Bhagani Nivedita Sahakari Bank Ltd. (supra). In our view the Hon'ble Bombay High Court in the case of Jalgaon District Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Respectfully following the decision of the co-ordinate bench referred to above, we set aside the ITA Nos.368 & 369/Bang/2015 & SP Nos.51 & 52/Bang/2015 orders of the lower authorities and hold that to the extent interest is paid to members of the society there is no obligation to deduct tax at source." We further note that the Hon'ble jurisdictional High Court in the case of CIT Vs. M/s. Basaveshwara Sahakari Bank 242 Taxman 411 has also upheld the view of the Tribunal in paras 4 & 5 as under : " 4. This Court in ITA No. 200002/2015 and connected appeals has raised the following substantial questions of law in addition to one more question regarding gratuity:- (i) Whether the interest paid to members of a Co-operative Bank above Rs.10,000/- should be added to tax or not? (ii) Whether interest receivable from non-performing assets, bad and doubtful debts though the actual expression used is interest payable and not reflected in the profit and loss account, could be deducted? 5. The first question is answered at para 2 as follows:- "2. .................. The point is squarely covered by a Division Bench judgment of this Court in ITA No. 100116/2014 between the Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurities in compliance with the statutory requirement of Statutory Liquidity Ratio (SLR) as prescribed by the RBI. Before the Assessing Officer, the assessee submitted that such investment is required for the purpose of carrying on banking business and the claim of amortization of securities under HTM category was in accordance with the Method of Valuation prescribed by RBI Circular No.665 dt.5.10.1993. It was also submitted that as per CBDT Circular No.17 dt.26.1.2008 investments classified under the HTM category need not be marked to market and could be carried at acquisition cost unless it was more than the face value, in which case the premium could be amortized over the period remaining to maturity. In support of this claim/proposition, the assessee, inter alia, placed reliance on the decision of a co-ordinate bench of this Tribunal in the case of Sir M. Visweswaraya Co-operative Bank Ltd. V JCIT in ITA No.1122/Bang/2010 dt.11.5.2012. The Assessing Officer, however, did not accept the assessee's contentions and disallowed the assessee's claim for amortization of premium on investments in Govt. Securities and disallowed the same following the decision of the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated.8.9.2011 : The Hon'ble Bench of Panaji Tribunal had recorded its findings that "6. Likewise, the premium amortized at Rs.1,78,098/- is claimed to be in respect of securities held under the category 'held to maturity'. The Assessing Officer has taken them as long term investments. In other words, he has accepted the assessee's claim that the securities are 'held to maturity'. That being so and having regard to the CBDT Instruction No.17 of 2008 dated.26.11.2008 as reproduced herein above, the premium paid on such government securities is required to be amortized over the period remaining to maturity .........." (iii) In the case of Corporation Bank v. ACIT, M'lore in ITA.112/Bang/2008 (Bang), for the assessment year 2004-05, the earlier bench had also held a similar view. In the light of the above discussion and the case laws discussed supra, taking into account the totality of the facts and materials, we are of the considered view that the assessee is entitled to claim this deduction and hence we allow the grounds of the assessee relating to this issue." 5.4.2 Following the decision of the co-ordinate bench of this Tribunal in the case of Sir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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