2016 (7) TMI 205 - AT - Income Tax

Taxability of trust - liability to deduct TDS u/s 194A - receipt of interest income - whether the assessee s income was exempt under sections 10(25) and 10(23AAA)? - Held that - The Punjab State Cooperative Bank Pension Fund and Board of Trustee Provident Fund are approved trusts created by assessee for the purpose of pension fund and Provident Fund respectively. Assessee has also enclosed copies of returns filed for assessment year 2012-13 in the case of Punjab State Cooperative Bank Pension Fund and Board of Trustee Provident Fund. These entities have duly filed returns of income under section 139(1) of the Act. On perusal of the same it is evident that whole of their income was exempt under sections 10(25) and 10(23AAA) of the Act. Therefore there was no liability in respect of these trusts warranting tax deduction at source under section 194A of the Act. Consequently the orders passed under sections 201(1) and 201(1A) of the Act are liable to quashed in the facts and circumstances of the case. Assessee had furnished a certificate issued by the Chairman of Board of Trustees Punjab State Cooperative Bank Ltd. Pension Fund stating that they are in receipt of an amount as interest on term deposit with the assessee bank and the same was duly accounted in its books of account and the return of income has been filed for the relevant assessment year. Similar certificate is also issued by Punjab State Cooperative Bank Provident Fund Trust. Therefore it is evident from the certificates that these two entities who are in receipt of interest income from the assessee had duly accounted the same in their books of account and filed their return of income for the concerned assessment year. Hon ble Apex Court in the case of Hindustan Coca-cola Beverages (P) Ltd. (2007 (8) TMI 12 - SUPREME COURT OF INDIA) had held that the recovery of tax cannot be made from the deductor when the deductee had filed the return and paid the tax on the same. - Decided in favour of assessee TDS u/s 194A - interest paid to Housefed Punjab and KRIBHCO - Held that - On reading the memorandum of Finance Bill 2015 it is clear that the exemption provided under section 194A(3)v) of the Act with regard to deduction of tax at source from interest payment by a cooperative society to another cooperative society existed before the amendment and continue to apply to the cooperative bank even after the amendment. It was made further clear that such exemption to cooperative bank is available only when the depositor is a cooperative society. In the instant case Housefed Punjab and KRIBHCO are cooperative societies who are members with the assessee society and interest received by them was exempted for tax deduction at source under section 194A(3)(v) of the Act. Hence as rightly pointed out by the CIT (Appeals) the assessee was not liable under section 201(1) of the Act as an assessee in default for not deducting the tax under section 194A of the Act and consequently interest under section 201(1) of the Act cannot also be levied. - Decided in favour of assessee

Issues Involved:
1. Legality of the order of the Income Tax Officer (TDS-II), Chandigarh.
2. Levy of interest under section 201(1A) of the Income Tax Act.
3. Levy of tax under section 201(1) of the Income Tax Act.
4. Applicability of section 194A(3)(v) concerning cooperative societies and tax deduction at source (TDS).

Issue-wise Detailed Analysis:

1. Legality of the Order of the Income Tax Officer (TDS-II), Chandigarh:
The assessee challenged the order of the Income Tax Officer (TDS-II), Chandigarh, which was upheld by the Commissioner of Income Tax (Appeals)-2, Chandigarh. The order was deemed "bad in law and beyond all the cannons of law and justice." The Tribunal found that the assessee, a cooperative society engaged in banking, had paid interest to the Punjab State Cooperative Bank Pension Fund and the Board of Trustee Provident Fund without deducting tax at source. The Tribunal concluded that since the recipients’ income was exempt under sections 10(25) and 10(23AAA) of the Act, there was no liability for tax deduction at source. Consequently, the order passed under sections 201(1) and 201(1A) was quashed.

2. Levy of Interest under Section 201(1A) of the Income Tax Act:
The assessee was held liable for interest under section 201(1A) amounting to ?9,11,428/-. The Tribunal noted that the Punjab State Cooperative Bank Pension Fund and the Board of Trustee Provident Fund had filed returns declaring nil income, and their income was exempt under section 10(25) and section 10(23AAA). The Tribunal referenced the Apex Court's decision in Hindustan Coca-cola Beverages (P) Ltd. Vs. CIT, which held that tax recovery cannot be made from the deductor when the deductee has filed returns and paid the tax. Since the recipients had duly accounted for the interest in their books and filed returns, the interest levied under section 201(1A) was deemed inappropriate and was deleted.

3. Levy of Tax under Section 201(1) of the Income Tax Act:
The Tribunal addressed the levy of tax under section 201(1) amounting to ?36,45,715/-. The assessee argued that the interest paid to the trusts was exempt from tax under sections 10(25) and 10(23AAA). The Tribunal found that the trusts had included the interest in their income and filed returns accordingly. Following the precedent set by the Apex Court in Hindustan Coca-cola Beverages (P) Ltd., the Tribunal held that the assessee was not liable to deduct tax at source. Thus, the levy of tax under section 201(1) was quashed.

4. Applicability of Section 194A(3)(v) Concerning Cooperative Societies and TDS:
The Revenue's appeal contested the CIT(A)'s decision that the assessee, a cooperative society, was not liable to deduct TDS under section 194A(3)(v). The Tribunal examined the amended provisions effective from 01.06.2015 and various judicial precedents. It was clarified that the exemption from TDS for interest payments by cooperative societies to their members applied to cooperative banks only when the depositor was another cooperative society. The Tribunal affirmed that Housefed Punjab and KRIBHCO, being cooperative societies, were exempt from TDS under section 194A(3)(v). Consequently, the assessee was not liable under section 201(1) for non-deduction of TDS, and the interest levied under section 201(1A) was also deleted.

Conclusion:
The Tribunal allowed the assessee's appeal, quashing the orders under sections 201(1) and 201(1A) related to non-deduction of tax at source. The Revenue's appeal was dismissed, affirming that the assessee was not liable to deduct TDS on interest payments to cooperative societies under section 194A(3)(v). The judgment emphasized the applicability of exemptions under sections 10(25) and 10(23AAA) and the precedence of the Apex Court's ruling in Hindustan Coca-cola Beverages (P) Ltd.

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