2021 (2) TMI 134 - HC - Income Tax

TDS u/s 194A - interest paid to various members of the Society ( where individual interest amount exceeded ₹10,000/-) in terms of Section 40(a)(ia) - ITAT deleted the addition - Whether the ld. ITAT has erred in not appreciating that there is nothing in 194A(3)(i)(b) or 194A(3)(viia)(b) to restrict their application to only non members particular when the legislature has not so intended and the explanatory memorandum to these clauses also does not bring out any such restricted interpretation? - HELD THAT - Liability to deduct tax at source arises from the provisions of Section 194A(1) - Section 194A(3) provides that the provisions of sub-section (1) of Section 194A will not apply in certain contingencies. One of the contingencies is provided in sub clause (v). This contingency relates to income credited or paid by a cooperative society to a member thereof. There is no dispute that this was the position for the Assessment Year 2012-2013 and therefore, we feel that the CIT (Appeals) as well as the ITAT were quite right in reversing the Assessing Officer's order and holding that there was no liability for deducting tax at source in respect of amount of interest paid by the cooperative society to its members, even though such amount may have exceeded ₹10,000/-. No doubt, by the Finance Act, 2015 which entered into force with effect from 01.06.2015, clause (v) of Section 194A(3) came to be amended and the exemption from application of provisions of subsection (1) of Section 194A was restricted to co-operative society other than a co-operative bank. This subsequent amendment, will however not apply for the Assessment Year 2012-2013 with which we are concerned in the present case. Further, the very fact that the Legislature had to step in and specifically exclude the co-operative banks with effect from 01.06.2015, indicates that prior to the said date the benefits of exemption were very much available to the co-operative banks like the Assessee as well - Decided in favour of assessee.

Summary

Issues:
1. Detagging of the matter from connected matters.
2. Applicability of Section 194A(3)(i)(b) and 194A(3)(viia)(b) to members of a society.
3. Interpretation of Section 194A(3) in relation to tax deduction at source by cooperative societies.
4. Effect of subsequent amendment on tax deduction provisions for cooperative societies.
5. Res judicata principle in tax matters.

Detagging of the matter:
The judgment begins by addressing the issue of detagging the matter from connected cases as the issue in the present appeal is distinct. The Court detagged the matter and proceeded to consider the substantial questions of law specific to this case.

Applicability of Section 194A(3)(i)(b) and 194A(3)(viia)(b):
The main issue in the appeal revolved around the interpretation of Section 194A(3)(i)(b) and 194A(3)(viia)(b) regarding the deduction of tax at source by cooperative societies. The Assessing Officer disallowed interest paid to society members exceeding a certain amount for failure to deduct tax at source. The key question was whether the provisions restrict their application to non-members only, which the Court analyzed in detail.

Interpretation of Section 194A(3) for cooperative societies:
The Court examined the provisions of Section 194A(3) in the context of tax deduction at source by a cooperative society to its members. The CIT (Appeals) and ITAT held that there was no liability to deduct tax at source for interest paid to society members, contrary to the Assessing Officer's order. The Court agreed with this interpretation, citing relevant legal provisions and precedents.

Effect of subsequent amendment on tax deduction provisions:
The judgment discussed the subsequent amendment brought by the Finance Act, 2015, which restricted the exemption for cooperative societies other than cooperative banks. However, the Court clarified that this amendment did not apply to the Assessment Year in question, indicating that cooperative banks like the Assessee were entitled to the exemption during that period.

Res judicata principle in tax matters:
The issue of res judicata was raised concerning previous appeals related to different assessment years. The Court noted that the principle of res judicata did not apply in this case, emphasizing that there should be no inconsistent decision for the Assessment Year in question based on previous appeal outcomes.

In conclusion, the Court dismissed the appeal, ruling in favor of the Assessee, based on the interpretation of Section 194A(3) and relevant legal provisions, while considering the subsequent amendment and the principle of res judicata in tax matters.