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2017 (3) TMI 741 - HC - Income TaxEntitlement to the benefit of S.194A(3)(v) - cooperative bank requirement to deduct tax from the payment of interest on time deposits of its members paid or credited before 1st June, 2015 - Held that - Taking overall view of the matter and according to the Counsel appearing for the parties it also goes to the root of the issues so raised, we are inclined to allow the appeals. The Explanatory Notes has made the position of law clear that such Co-operative Banks are not liable to deduct any amount from the TDS, prior to the effective date 1/06/2015. The appellant Co-operative Bank was not under obligation to deduct the amount from the TDS, for the assessment years prior to 1/06/2015 i.e. from 2010-11 to 2013-14. There is substance in the submission of the Counsel appearing for the parties.
Issues:
1. Interpretation of Section 194A of the Income Tax Act regarding the obligation of Co-operative Banks to deduct tax at source. 2. Applicability of amendments to Section 194A(3)(v) and 194(va) of the Act to Co-operative Banks. 3. Justification of the Income Tax Appellate Tribunal's decisions regarding TDS liability for assessment years 2010-11 to 2013-14. 4. Substantial questions of law admitted by the High Court. 5. Effect of Explanatory Notes to the Provisions of the Finance Act, 2015 on the tax deduction obligations of Co-operative Banks. 6. Decision of the Division Bench in a related case regarding TDS requirements for Co-operative Banks. 7. Whether Co-operative Banks were required to deduct tax from interest on time deposits before 1st June 2015. Analysis: 1. The High Court examined the interpretation of Section 194A of the Income Tax Act concerning the obligation of Co-operative Banks to deduct tax at source. The Ministry of Finance's Explanatory Notes clarified that Co-operative Banks were not required to deduct tax from interest on time deposits before 1st June 2015. The Court referred to a supporting judgment of a Division Bench in a similar case to support this interpretation. 2. The Court considered the applicability of amendments to Section 194A(3)(v) and 194(va) of the Act to Co-operative Banks. The Explanatory Note explicitly stated that the exemption from tax deduction under Section 194A(3)(v) did not apply to interest on time deposits by Co-operative Banks. This clarification influenced the Court's decision regarding the tax deduction obligations of Co-operative Banks. 3. The Court reviewed the Income Tax Appellate Tribunal's decisions on the TDS liability of Co-operative Banks for the assessment years 2010-11 to 2013-14. The Tribunal had held that Co-operative Banks had to deduct TDS on income credited or paid in respect of deposits, except those falling under specific provisions. The Court overturned these decisions based on the Explanatory Notes and the Division Bench's judgment. 4. The High Court admitted the appeals based on substantial questions of law raised by the parties. These questions challenged the Tribunal's decisions and the interpretation of Section 194A(3)(v) of the Income Tax Act. The Court's analysis of these questions led to a favorable outcome for the appellant Co-operative Bank. 5. The Explanatory Notes to the Provisions of the Finance Act, 2015 played a crucial role in clarifying the tax deduction obligations of Co-operative Banks. Specifically, para 42.5 of the Notes emphasized that Co-operative Banks were not required to deduct tax from interest on time deposits before 1st June 2015. This clarification aligned with the Court's decision in favor of the appellant. 6. The Court considered the Division Bench's decision in a related case involving a Co-operative Bank's TDS requirements. The Division Bench had allowed the appeal, stating that the Co-operative Bank was not required to deduct tax based on the Explanatory Notes. This decision supported the High Court's ruling in the present case. 7. In conclusion, the High Court allowed all appeals, answering the substantial questions of law in favor of the appellant Co-operative Bank. The Court set aside the judgments of the respective Tribunals and emphasized that Co-operative Banks were not obligated to deduct tax from TDS before 1st June 2015, aligning with the Explanatory Notes' provisions.
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