2015 (1) TMI 1406 - AT - Income Tax

TDS u/s 194A - addition u/s 40(a)(ia) - assessee has paid interest on term deposit in excess of ₹ 10,000/- without making TDS - assessee contended that the provisions of TDS are not attracted in view of sub section(3)(v) of section 194A as interest payment to that extent has been made to members of bank - Held that - The issue is now controversy that the assessee has paid interest on term deposits to the members/depositors without deducting the TDS u/s 194A of the Act. We find that in the case of Shreee Basaveshwar Co-operative Bank 2015 (7) TMI 1287 - ITAT PANAJI for the assessment years 2011-12 vide order dated 05-01-2015, wherein we find that the assessee is required to deduct a tax at source in respect of time deposits in excess of ₹ 10,000/- interest payment to members of the assessee bank. The co-operative bank and co-operative society both are different and independent. The co-operative bank was registered under the Banking Regulations Act 1949. The co-operative society was registered under the Karnataka Co-operative Societies Act 1959 only. Therefore, we are of the view that TDS is required to be made on time deposit on interest payment after 01-07-1995. - decided against assessee.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.
2. Interpretation of Section 194A(3)(v) and Section 194A(3)(viia) regarding TDS on interest paid by co-operative banks.
3. Applicability of judicial precedents and CBDT circulars.

Detailed Analysis:

1. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961:
The primary issue revolves around the disallowance made by the Assessing Officer (AO) under Section 40(a)(ia) of the Income Tax Act, 1961, amounting to Rs. 7,14,002/-, due to the assessee's failure to deduct TDS on interest paid on term deposits exceeding Rs. 10,000/-. The AO determined that the assessee, a co-operative bank, was required to deduct TDS as per Section 194A(3)(i)(b) since the interest paid exceeded the specified threshold. The AO distinguished between a co-operative society and a co-operative bank, asserting that the latter is specifically required to deduct TDS under Section 194A(3)(i)(b).

2. Interpretation of Section 194A(3)(v) and Section 194A(3)(viia):
The assessee argued that as a co-operative society, it was exempt from TDS under Section 194A(3)(v), which exempts interest paid by a co-operative society to its members. However, the AO and CIT(A) rejected this argument, highlighting that Section 194A(3)(viia) specifically mandates TDS for co-operative societies engaged in banking for interest on time deposits made on or after July 1, 1995. The CIT(A) upheld the AO's view, relying on judicial precedents that a specific provision (Section 194A(3)(viia)) overrides a general provision (Section 194A(3)(v)).

3. Applicability of Judicial Precedents and CBDT Circulars:
The assessee cited various judicial precedents in its favor, including decisions from the Bombay High Court and the Gujarat High Court, which supported the view that co-operative banks are exempt from TDS under Section 194A(3)(v). Additionally, the assessee referred to CBDT Circular No. 9/2002, which clarified that co-operative banks are not required to deduct TDS on interest paid to members. However, the CIT(A) and ITAT Panaji Bench dismissed these arguments, emphasizing that the specific provisions of Section 194A(3)(viia) take precedence over the general exemption provided in Section 194A(3)(v). The ITAT Panaji Bench also referred to its own earlier decisions and the decision of the Kerala High Court in the case of Moolamatom Electricity Board Employees Co-operative Bank Ltd, which distinguished between primary credit societies and co-operative societies engaged in banking.

Conclusion:
The ITAT Panaji Bench dismissed the appeal of the assessee, confirming the disallowance made under Section 40(a)(ia) for failure to deduct TDS on interest paid on term deposits. The tribunal reiterated that the specific provisions of Section 194A(3)(viia) override the general exemption under Section 194A(3)(v), and therefore, co-operative banks are required to deduct TDS on interest payments exceeding Rs. 10,000/-. The tribunal also noted that judicial precedents favoring the assessee were not applicable in light of the specific legislative intent and provisions governing co-operative banks.