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2021 (2) TMI 546 - AT - Income TaxTDS u/s 194H OR 192 - Addition u/s 40(i)(a) - TDS was not deducted on pigmy deposits commission - AR has been clarified vide letter dated 12/12/2007 by CBDT treating the remuneration (commission) earned by the pigmy deposit collectors as salary and subject to TDS under section 192 - HELD THAT - The CBDT circular relied by the Ld.AR has been clarified vide letter dated 12/12/2007 by CBDT treating the remuneration (commission) earned by the pigmy deposit collectors as salary and subject to TDS under section 192 of the Act. The same has been placed Vide letter dated 03/03/2008 the position has been reiterated and confirmed by CBDT followed by 01/12/2011 and 14/12/2011. The subsequent clarifications by CBDT States applicability of provisions of section 192 of the Act on the remuneration earned by pigmy deposit collectors and that the same will be treated as salary. In the light of the Circulars and subsequent clarifications issued by CBDT in our view the authorities below could not have treated the payment made by assessee to the pigmy deposit collectors as commission for making disallowance under section 40(a)(ia) of the Act for non-deduction of TDS under section 194H of the Act - We are therefore of the opinion that the disallowance deserves to be deleted. Denial of deduction u/s 36(1)(viia) - provision for NPA of 10% of the aggregate average advances made by the rural branches - CIT(A) while concluding on this issue held that assessee is eligible only for deduction equal to an amount not exceeding 7 % of the total income computed before making any deduction under section 36 (1) (viia) of the Act read with Rule 6 ABA of Income tax Rules - HELD THAT - Section 36 of the Act deals with various deductions that could be allowed in computing income under section 28 of the Act. As per Section 36(1)(a)(viia) deduction could be claimed by banks referred to in clause (viia) in respect of bad and doubtful debts. It provides certain terms and conditions under which such deductions could be claimed by a particular bank. As benefit of 7.5% of the total income there is no condition that it should be in respect of any rural branch. In the paper book computation of deduction under section 36(1)(viia) of the Act and 10% of aggregate advances of rule rural branches have been placed. We note in computation of income placed in paper book that the income from business of banking claiming any deduction under section 36(1)(viia) is 64, 49, 179/- and that the Ld.AO disallowed the said sum under section 36(1)(viia) of the Act thereby treating the deduction to be nil . The Ld.CIT(A) directed the Ld.AO to verify the reversal of the opening balance of provision relating to that asset which in our view cannot be found fault with. If the assessee created a new provision on a particular asset by fully reversing the opening balance of provision relating to that asset then the net recreation should be treated as a new provision which needs verification at the end of the Ld.AO. Accordingly this issue is remanded to the Ld.AO for verification on the lights of various judicial proceedings passed by this Tribunal and in accordance with law. - Ground allowed for statistical purposes.
Issues Involved:
1. Validity of assessment order passed in the wrong status as a 'Company'. 2. Disallowance under Section 40(a)(ia) for non-deduction of TDS on payments to pigmy collectors. 3. Eligibility for deduction under Section 36(1)(viia) for provision for NPA. Detailed Analysis: 1. Validity of Assessment Order Passed in the Wrong Status as a 'Company': The assessee argued that the assessment order was invalid as it was passed under the wrong status of a 'Company'. The Commissioner of Income Tax (Appeals) [CIT(A)] did not quash the assessment order, and the issue was not further pursued in the detailed judgment analysis. 2. Disallowance Under Section 40(a)(ia) for Non-Deduction of TDS on Payments to Pigmy Collectors: The primary contention was whether the payments made to pigmy collectors should be treated as commission subject to TDS under Section 194H or as salary subject to TDS under Section 192. The assessee initially treated these payments as commission and disallowed the amounts under Section 40(a)(ia) for non-deduction of TDS. However, they later argued that these payments should be treated as salary based on the CBDT's clarification and the Supreme Court's decision in Indian Banks Association vs. Workmen of Syndicate Bank & Ors., which classified pigmy collectors as 'workmen'. The CIT(A) upheld the disallowance, treating the payments as commission. However, the Tribunal found that the CBDT circulars and subsequent clarifications indicated that the remuneration paid to pigmy collectors should be treated as salary. Consequently, the Tribunal deleted the disallowance under Section 40(a)(ia), ruling that the payments should not be treated as commission for TDS purposes. 3. Eligibility for Deduction Under Section 36(1)(viia) for Provision for NPA: The assessee claimed a deduction for the provision for NPA under Section 36(1)(viia), which includes two types of deductions: 7.5% of total income and 10% of aggregate average advances made by rural branches. The CIT(A) allowed only the 7.5% deduction, stating that the assessee, being a non-scheduled cooperative bank, was not eligible for the 10% deduction. The Tribunal noted that the CIT(A) directed the Assessing Officer (AO) to verify the factual position regarding the provision and reversal of NPAs. The Tribunal remanded the issue back to the AO for verification, emphasizing the need to ensure that any new provision created by reversing the opening balance of NPAs should be treated as a new provision eligible for deduction. Separate Judgments: The Tribunal's decision was unanimous, and no separate judgments were delivered by the members. Conclusion: The Tribunal allowed the appeal for the assessment year 2011-12 by deleting the disallowance under Section 40(a)(ia) and remanding the issue of deduction under Section 36(1)(viia) back to the AO for verification. Similarly, the appeal for the assessment year 2015-16 was allowed by applying the same reasoning for the disallowance under Section 40(a)(ia).
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