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2018 (9) TMI 1690 - AT - Income TaxTDS u/s 194A - disallowance u/s 40(a)(ia) - interest paid on term deposits to the members by assessee Co-operative bank - Held that - We find that similar issue i.e. the obligation of assessee Co-operative bank to deduct tax out of interest payment to the members or other Co-operative societies on time deposits arose in Saraswat Co-operative Bank Ltd. Vs. ITO and Anr 2017 (3) TMI 741 - BOMBAY HIGH COURT as held 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. 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 - decided in favour of assessee.
Issues:
1. Obligation of assessee Co-operative bank to deduct tax at source out of interest paid on deposits of its members. Analysis: The appeal was filed against the order of CIT(A)-1, Nashik, for the assessment year 2012-13 under section 143(3) of the Income-tax Act, 1961. The primary issue raised in the appeal was regarding the liability of the assessee Co-operative bank to deduct tax at source out of interest paid on deposits of its members. The appellant contended that as per section 194A(3)(v) applicable for the relevant assessment year, Co-operative banks were not liable to deduct TDS under section 194A for interest paid to its members. The appellant also relied on a decision of the Hon'ble Bombay High Court in support of their argument. The Authorized Representative for the assessee pointed out that the issue was settled by the Hon'ble Bombay High Court in a previous case and the Pune Bench of Tribunal had also ruled in favor of the assessee in a similar matter. The Departmental Representative for the Revenue, however, relied on the orders of the authorities below. After hearing both sides, the Tribunal examined the issue in light of the relevant provisions of section 194A(3)(v) of the Act. The Tribunal referred to the decision of the Hon'ble Bombay High Court in Saraswat Co-operative Bank Ltd. Vs. ITO and Anr, where it was clarified that Co-operative banks were not required to deduct TDS before the effective date of 01.06.2015. Since the assessment year in question was 2012-13, prior to the amendment effective from 01.06.2015, the Tribunal held that the Co-operative bank was not obligated to deduct tax on the income of its members and Co-operative societies. The Tribunal relied on the precedent set by the Hon'ble Bombay High Court and allowed the appeal of the assessee, stating that there was no liability to deduct tax at source as per the provisions of section 194A(3)(v) of the Act. In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing that the Co-operative bank was not required to deduct tax at source from the interest payments made to its members or Co-operative societies for the assessment year 2012-13. The decision was based on the interpretation of section 194A(3)(v) and the precedent set by the Hon'ble Bombay High Court, providing clarity on the obligations of Co-operative banks regarding TDS deductions on interest payments.
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