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2014 (2) TMI 1346 - AT - Income TaxTDS u/s 194 - Disallowance u/s 40(a)(ia) - interest payments to the nominal members without deduction of tds - Held that - We are of the view that nominal members are to be considered as members in view of the decision of Hon'ble Punjab Haryana High Court in the case of CIT vs. Punjab State Co-operative Bank Ltd. (2008 (3) TMI 45 - HIGH COURT PUNJAB AND HARYANA). Accordingly, the assessee was not required to deduct tax at source on interest payments to the nominal members, who are members therefore, no disallowance under section 40(a)(ia) of the Act can be made. Also in the case of Jalgaon District Central Co-operative Bank Ltd. v. Union of India 2003 (9) TMI 56 - BOMBAY HIGH COURT held that where the legal validity of Circular No.9 of 2002 dated 11.9.2002 was questioned and the said circular was quashed and set aside. Accordingly, there is no distinction between member and nominal member as far as provisions of section 80P and 194(3)(v) are concerned. In the facts and circumstances of the case, the order of the ld. CIT(A) is reversed and the A.O. is directed to delete the disallowance so made. - Decided in favour of assessee. Also disallowance on account of admission fees cannot be disallowed
Issues:
1. Disallowance of admission fees received from nominal members. 2. Disallowance of interest payments to nominal members for non-deduction of TDS. 3. Interpretation of the term 'member' under the Income Tax Act, 1961. 4. Applicability of TDS provisions to nominal members. 5. Binding nature of judicial decisions on the assessing authority. Issue 1: Disallowance of Admission Fees: The appellant challenged the CIT(A)'s decision to treat admission fees received from nominal members as not directly related to the society's objects. The appellant argued that the definition of 'member' under the Punjab Cooperative Societies Act includes both nominal and associate members. The Tribunal held that the admission fees were connected to the society's objectives and directed the allowance of the entire amount under section 80P(2). Issue 2: Disallowance of Interest Payments to Nominal Members: The AO disallowed interest payments to nominal members for non-deduction of TDS under section 40(a)(ia). The CIT(A) upheld this disallowance. However, the Tribunal, relying on a decision of the Hon'ble Punjab & Haryana High Court, determined that nominal members should be considered as members. Therefore, no TDS disallowance could be made on interest payments to nominal members. The disallowance was reversed, and the AO was directed to delete the disallowance. Issue 3: Interpretation of 'Member' under Income Tax Act: The appellant argued that the term 'member' is not defined under the Income Tax Act, 1961. The Tribunal referred to the definition under the Punjab Cooperative Societies Act, which includes nominal and associate members. This interpretation influenced the decision regarding TDS applicability to nominal members. Issue 4: Applicability of TDS Provisions to Nominal Members: The Tribunal examined the applicability of TDS provisions to nominal members. Relying on the decision of the Hon'ble Punjab & Haryana High Court, the Tribunal concluded that nominal members should be treated as members for TDS purposes. Therefore, the AO's disallowance of TDS on interest payments to nominal members was deemed incorrect. Issue 5: Binding Nature of Judicial Decisions: The Tribunal emphasized the binding nature of judicial decisions on the assessing authority. Referring to decisions of the Hon'ble Punjab & Haryana High Court and the Hon'ble Bombay High Court, the Tribunal overturned the CIT(A)'s decision and directed the deletion of disallowances related to interest payments and admission fees. In conclusion, the Tribunal allowed the appeal, setting aside the disallowances of admission fees and interest payments to nominal members. The Tribunal's decision was based on the interpretation of the term 'member' and the binding nature of judicial precedents, particularly those of the jurisdictional High Courts.
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