2016 (7) TMI 1240 - AT - Income Tax

TDS u/s 194A - non deduction of TDS on interest paid on time deposits - assessee is a cooperative bank - Held that - By reading the above sub-section 194A(3)(v) it is clear that it is applicable to the cooperative societies and not cooperative bank. In the present case assessee is a cooperative bank. At the same time reading the sub-section 194A(3)(viia) it explains the type of deposits which is eligible for exemption. In the present case we are not sure whether these deposits are time deposits or other deposits of member/shareholders of the assessee. Hence in our considered view this is a fit case to be remitted to the file of the AO to verify the type of deposits. If it is found that it is not time deposit exemption may be granted. Needless to mention that proper opportunity of hearing may be given to assessee. With regard to interest payment to the non- members the assessee represented before the CIT (A) that assessee having obtained form 15G no TDS should be deducted. It was also represented that as per the decision of the special bench of ITAT in the case of Merilyn Shipping & Transports (supra) the amount was already paid and not payable as on 31/03/2012 in which event TDS provisions are not applicable. On careful perusal of the above two representations we are of the view that if the assessee had collected form 15G it should be made available to the AO so that it can be verified and exemptions may be granted to the assessee. In the interest of justice we remit this matter also to the file of the AO to verify the Form 15G and grant exemption

Summary

Issues:
1. Disallowance of interest payment under section 40(a)(ia) of the Income-tax Act, 1961.
2. Interpretation of provisions under section 194A for exemption from TDS on interest payments.
3. Application of judicial decisions on TDS provisions for interest payments.

Analysis:
1. The case involved a dispute over the disallowance of interest payment by an Urban Cooperative Bank under section 40(a)(ia) of the Income-tax Act, 1961. The Assessing Officer (AO) disallowed the interest amount of Rs. 1,52,36,988 for non-deduction of TDS under section 194A. The bank argued that certain interest payments were exempt from TDS under section 194A(3)(v) and 194A(3)(viia).

2. Regarding the interpretation of provisions under section 194A for exemption from TDS on interest payments, the bank contended that interest payments below Rs. 10,000 were exempt from TDS as per section 194A(3)(i). Additionally, it argued that interest payments to members/shareholders were exempt under section 194A(3)(viia). The bank also cited CBDT Circular No. 09/2002 to support its position.

3. The Tribunal analyzed the judicial decisions and observed that the bank's payments below Rs. 10,000 were indeed exempt from TDS. However, for interest payments exceeding Rs. 10,000 to individual members/shareholders, the Tribunal directed a verification by the AO to determine the deposit type for possible exemption. Similarly, for interest payments to non-members, the Tribunal remitted the matter to the AO to verify Form 15G submission and grant exemptions.

4. The Tribunal also considered the argument that since the payments were already made and not outstanding as of the year-end, TDS provisions should not apply. While acknowledging conflicting High Court decisions on the matter, the Tribunal chose to follow the special bench decision in Merilyn Shipping & Transports case, holding that if payments were already made, section 40(a)(ia) provisions would not apply.

5. Ultimately, the Tribunal partly allowed the revenue's appeal for statistical purposes, emphasizing the need for verification by the AO on various aspects related to TDS exemptions and interest payments. The decision was pronounced on 22nd July 2016 by the Appellate Tribunal ITAT Hyderabad, comprising D. Manmohan, Vice-President, and S. RifaUr Rahman, Accountant Member.