2015 (9) TMI 437 - AT - Income Tax

Compliance to TDS provisions - whether interest payment to associate/nominal members are not covered under the said provision of exemption u/s 194A(3)(v) - difference in rights and privileges between regular members on one side and associate/nominal members on the other found by AO and observed that member as envisaged u/s 194A(3)(v) only refers to a regular member and not all the members of the society - Held that - On perusal of the provisions contained u/s 194A(3)(v), it is very much clear that there is no distinction made under the said provision between different categories of members. The language used u/s 194A(3)(v) is Member , the Hon ble Bombay High Court in case of the Jalgaon District Central Cooperative Bank Ltd. & anr. Vs. Union of India and others (2003 (9) TMI 56 - BOMBAY High Court ), while examining the provision contained u/s 194A(3)(v), held that exemption granted to a cooperative society u/s 194A(3)(v) cannot be taken away by creating a distinction between duly registered member and nominal member. The aforesaid decision of the Hon ble Bombay High Court has been affirmed by the Hon ble Supreme Court while dismissing SLP preferred by the department. In view of the the principle laid down in the judicial precedents, as noted above, to the effect that no distinction can be made between different categories of members while applying the provisions of section 194A(3)(v) of the Act, in our view decision of ld. CIT(A) cannot be interfered with. It may be worthwhile to note here that the impugned assessment order was also subject matter of revision proceeding u/s 263 of the Act. Ld. CIT while revising the assessment order u/s 263 of the Act, held that AO should also have applied TDS provisions to registered/regular member and ITAT held that 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:
Interpretation of Section 194A(3)(v) regarding TDS provisions on interest payments to different categories of members in a cooperative society.

Detailed Analysis:
The case involved an appeal by the department against the order passed by the ld. CIT(A) regarding the TDS provisions for interest payments made by a cooperative society to its members. The society was paying interest to regular, associate, and nominal members without deducting tax at source. The AO contended that the exemption under Section 194A(3)(v) applied only to regular members and not to associate/nominal members due to differences in rights and privileges. The AO relied on a CBDT Circular and computed the demand under Sections 201(1) and 201(1A). The ld. CIT(A) referred to a decision of the Bombay High Court quashing the circular and held that no TDS was to be deducted on interest payments to associate/nominal members under Section 194A(3)(v).

The department challenged the ld. CIT(A)'s order, arguing that only regular members were exempt under Section 194A(3)(v). The ld. AR supported the ld. CIT(A)'s view, citing the Bombay High Court decision that no distinction should be made between different categories of members. The ITAT analyzed the provisions of Section 194A(3)(v) and the judicial precedents, including the Bombay High Court decision, which was affirmed by the Supreme Court. The ITAT held that the exemption applied to all members of a cooperative society, regardless of category, as per the legal interpretation provided by the courts.

Furthermore, the ITAT highlighted a previous decision where the ld. CIT had revised the assessment order to include TDS provisions for regular members, but the ITAT had quashed that order. The ITAT concluded that the ld. CIT(A)'s decision regarding the application of Section 194A(3)(v) to all members of the cooperative society was correct, and there was no reason to interfere with it. The ITAT upheld the ld. CIT(A)'s order and dismissed the department's appeal, emphasizing the legal principles established by the judicial precedents in this matter.

In conclusion, the ITAT's detailed analysis focused on the interpretation of Section 194A(3)(v) and the consistent legal precedents that supported the application of the exemption to all members of a cooperative society, irrespective of their category. The decision underscored the importance of legal interpretations provided by the courts in resolving disputes related to TDS provisions on interest payments within cooperative societies.