2015 (4) TMI 1040 - AT - Income Tax

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) 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 (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 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 cooperative society while applying the exemption provision of section 194A(3)(v) of the Act. In fact ld. CIT himself while issuing notice u/s 263 as well as in more than one place in the impugned order has held the assessment order passed to be erroneous and prejudicial to the interests of revenue on the 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 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 exercise his power u/s 263 to an issue which is not contested and decided in appeal proceeding. Therefore as in the present case the issue in dispute is clearly the subject matter of appeal before ld. CIT(A) and a decision has already been rendered by ld. CIT(A) much prior to the exercise of power u/s 263 of 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

Summary

Issues Involved:
1. Applicability of TDS provisions under section 194A(3)(v) of the Income Tax Act.
2. Differentiation between regular, associate, and nominal members regarding TDS exemption.
3. Jurisdiction of the CIT under section 263 to revise the assessment order.
4. Status of the assessee as a cooperative society versus a cooperative bank.

Issue-wise Detailed Analysis:

1. Applicability of TDS Provisions under Section 194A(3)(v) of the Income Tax Act:
The assessee, a cooperative society, did not deduct TDS on interest payments to its members, claiming exemption under section 194A(3)(v) based on the principle of mutuality. The AO, however, differentiated between regular members and associate/nominal members, concluding that the exemption applied only to regular members. The CIT(A) disagreed, holding that no differentiation between members is warranted as per the decision of the Hon'ble Bombay High Court in Jalgaon District Cooperative Society Bank Vs. Union of India (265 ITR 423). The Tribunal upheld this view, stating that the exemption under section 194A(3)(v) applies to all members without differentiation.

2. Differentiation Between Regular, Associate, and Nominal Members Regarding TDS Exemption:
The AO's decision to differentiate between regular and associate/nominal members was challenged by the assessee, who argued that section 194A(3)(v) does not distinguish between categories of members. The CIT(A) supported the assessee's view, citing the Bombay High Court's decision, which quashed a CBDT Circular attempting to create such a distinction. The Tribunal affirmed this, emphasizing that the exemption applies uniformly to all members of a cooperative society.

3. Jurisdiction of the CIT Under Section 263 to Revise the Assessment Order:
The CIT invoked section 263, arguing that the AO's order was erroneous and prejudicial to the interests of revenue. The assessee contended that the assessment order had merged with the CIT(A)'s order, thus precluding revision under section 263. The Tribunal agreed, noting that the CIT(A) had already addressed the issue of TDS on interest payments to members, and therefore, the assessment order could not be revised under section 263. The Tribunal held that the CIT's exercise of power under section 263 was invalid.

4. Status of the Assessee as a Cooperative Society Versus a Cooperative Bank:
The CIT suggested that the assessee should be treated as a cooperative bank, which would affect the applicability of section 194A(3)(v). The assessee argued that its status as a cooperative society had been consistently accepted by the AO and could not be altered by the TDS officer. The Tribunal found merit in the assessee's argument, stating that the AO had already examined the issue and taken a conscious decision based on the facts and statutory provisions. The Tribunal concluded that the CIT could not change the assessee's status through revision under section 263.

Conclusion:
The Tribunal set aside the CIT's order and restored the AO's order, concluding that the CIT's exercise of power under section 263 was invalid. The Tribunal affirmed that the exemption under section 194A(3)(v) applies to all members of a cooperative society without differentiation and that the AO's decision was a possible and valid view. The appeal of the assessee was allowed, with the Tribunal pronouncing its decision in the open court on 29th April 2015.