2018 (4) TMI 340 - AT - Income Tax

TDS u/s 194A - assessee Co-operative bank paying interest has been paid to its members and other Co-operative societies - scope of amendment w.e.f. 1.6.2015 - CBDT Circular No.9/2002, dated 11.09.2002. - Held that - The year under appeal is assessment year 2014-15 i.e. prior to the date of introduction of amendment from 01.06.2015 and under the old provisions of section 194A(3)(v) of the Act, the assessee Co-operative bank was not obliged to deduct tax on the income of members and Co-operative societies. Applying the ratio laid down in Saraswat Co-operative Bank Ltd. Vs. (1) ITO & (2) Union of India (2017 (3) TMI 741 - BOMBAY HIGH COURT), we hold that the assessee had not defaulted in not deducting tax at source out of such payments made to its members / Co-operative societies. Thus, there was no liability to deduct tax at source and the assessee cannot be said to have violated the provisions of section 194A(1) of the Act. - Decided in favour of assessee

Summary

Issues:
Liability of tax deduction under section 194A of the Income-tax Act on interest paid by Co-operative bank to members and other Co-operative societies.

Analysis:

1. The appeal was filed against the order of CIT(A)-1, Thane, related to the assessment year 2014-15 concerning the liability of tax deduction under section 194A of the Act on interest paid by the Co-operative bank to its members and other Co-operative societies amounting to ?7,42,40,899. The Assessing Officer held the bank in default for not deducting tax, raising a demand under section 201(1) and 201(1A) of the Act at ?82,40,740.

2. The assessee argued that as a Co-operative Bank, it was not liable to deduct tax on interest paid to members or other Co-operative societies under section 194A(3)(v) of the Act. The Assessing Officer disagreed, stating that any interest paid on time deposits to members by a Co-operative society engaged in banking was covered under section 194A(3)(i) of the Act.

3. The CIT(A) upheld the Assessing Officer's order, leading to the appeal by the assessee. The authorized representative for the assessee highlighted the obligations clarified by the Finance Act, 2015, and referred to a judgment by the Bombay High Court regarding the liability of Co-operative banks to deduct TDS.

4. The Tribunal analyzed the provisions of section 194A of the Act and the specific exemption for Co-operative banks under section 194A(3)(v). It noted that the Finance Act, 2015, amended the provisions to mandate deduction of tax by Co-operative banks from interest payments on time deposits to members from 1st June 2015. The Tribunal referred to the judgment of the Bombay High Court, holding that prior to this amendment, Co-operative banks were not obligated to deduct TDS from interest payments to members.

5. Considering the law prior to the amendment, the Tribunal held that the Co-operative bank was not in default for not deducting tax on payments made to members and Co-operative societies. The appeal was partly allowed, with the first ground in favor of the assessee and the second ground dismissed.

In conclusion, the Tribunal ruled in favor of the Co-operative bank, stating that it was not liable to deduct tax at source on interest payments to members and Co-operative societies for the relevant assessment year before the amendment introduced by the Finance Act, 2015.