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2018 (5) TMI 1794 - AT - Income TaxTDS u/s 194A - failure to deduct tax at source from the interest payments to its members and non-members - addition u/s. 40(a)(ia) - Held that - AR placed heavy reliance on the judgments of the Jurisdictional High Court in the cases of Moolamattom Electricity Board Employees Cooperative Bank Ltd. & others 1998 (7) TMI 53 - KERALA HIGH COURT and Thodupuzha Urban Co-operative Bank Ltd. and another 2003 (7) TMI 49 - KERALA HIGH COURT . In these cases, it was an admitted fact that the assesses are co-operative societies. Hence, the Jurisdictional High Court came to the conclusion that sub-clause(a) of clause (viia) of sub-section (3) of section 194A was applicable. But in the present case, the assessee are not cooperative society but co-operative bank carrying on banking business with the approval of the Reserve Bank of India and as such, the assessee are not liable to deduct TDS under section 194A on the interest paid to its own members. On the other hand, the present assessee are liable to deduct TDS on the interest payments to its non members only. This ground of the appeals of the Revenue is partly allowed.
Issues Involved:
1. Delay in filing appeals by the Revenue. 2. Deletion of addition made by the Assessing Officer under Section 40(a)(ia) for failure to deduct tax at source from interest payments. 3. Applicability of Section 194A of the Income Tax Act regarding TDS on interest payments by a co-operative society engaged in banking. Detailed Analysis: 1. Delay in Filing Appeals by the Revenue: The Revenue filed appeals with a delay of 125 days, citing administrative reasons. The Tribunal reviewed the condonation petition and affidavit submitted by the Revenue and was satisfied with the reasons provided. Consequently, the delay was condoned, and the appeals were admitted for adjudication. 2. Deletion of Addition under Section 40(a)(ia) for Failure to Deduct Tax at Source: The Revenue contested the deletion of additions made by the Assessing Officer under Section 40(a)(ia) due to the assessee's failure to deduct tax at source from interest payments. The Revenue argued that the assessee, a co-operative society registered under the Kerala Co-operative Societies Act, 1969, and listed as a scheduled bank under the Banking Regulations Act, 1949, was required to comply with RBI rules and deduct TDS on interest payments exceeding ?10,000 as per Section 194A(3)(i)(b) of the Income Tax Act. The Revenue also argued that Section 194A(3)(v), which exempts any interest paid by a co-operative society to its members, is a general provision and does not override the specific provision of Section 194A(3)(i)(b) applicable to co-operative societies engaged in banking. 3. Applicability of Section 194A of the Income Tax Act: The Tribunal examined various judgments and provisions, including the CBDT Circular No. 9 of 2002, which clarified that a member of a co-operative bank could receive interest without TDS. The Tribunal also considered the judgments of the Jurisdictional High Court in the cases of Moolamattom Electricity Board Employees’ Co-operative Bank Ltd. and Thodupuzha Urban Co-operative Bank Ltd., which held that for understanding "co-operative society," the definition under Section 2(19) of the Income Tax Act should be used. The Tribunal noted that these judgments were binding and supported the assessee's contention that no TDS was required on interest payments to its members. The Tribunal further referenced its previous decisions in similar cases, such as Pinarayi Service Co-operative Bank Ltd. and Karivelloor Service Co-operative Bank Ltd., where it was held that co-operative societies engaged in banking were required to deduct TDS on interest payments exceeding ?10,000. The Tribunal also considered the amendment made by the Finance Bill, 2015, effective from June 1, 2015, which clarified that the exemption from TDS for interest payments by co-operative societies to their members does not apply to co-operative banks. Conclusion: The Tribunal concluded that the assessee, being a co-operative bank, was required to deduct TDS on interest payments exceeding ?10,000 to non-members. However, based on the binding judgments of the Jurisdictional High Court and the CBDT Circular, the Tribunal held that no TDS was required on interest payments to members until May 31, 2015. The Tribunal partly allowed the Revenue's appeals, holding that the assessee was liable to deduct TDS on interest payments to non-members but not to members until the specified date. Final Order: The appeals filed by the Revenue were partly allowed, with the Tribunal pronouncing the order in the open court on May 31, 2018.
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