2022 (7) TMI 1048 - AT - Income Tax

TDS u/s 194A(3)(V) - Disallowance u/s 40(a)(ia) - deduction of TDS on interest paid by a cooperate society to a member thereof - as per AO assessee was not a cooperative society but a cooperative society engaged in the business of banking - CIT-A deleted the addition - HELD THAT - As assessee is registered under Tamilnadu Cooperative Societies Act, 1983 and it has obtained license from RBI to carry out banking activities u/s. 22(1) read with Section 56(6) of Banking Regulation Act, 1949. It has paid interest and submits that there is no requirement of deduction of tax at source in this year. On the other hand, the case of Ld. AO is that the statutory provisions provide for different effect to co-operative society and central district co-operative society engaged in the business of banking. Therefore, the assessee was obligated to deduct TDS on Time/Term deposits and the failure to do so would attract disallowance u/s. 40(a)(ia). The amendment brought in by Finance Act, 2015 was only to clear the doubt regarding the applicability of provisions of Sec. 194A(3)(v) to cooperative banks. As rightly held in the impugned order, this issue has been held in assessee's favor by Hon'ble High Court of Madras in the case of Coimbatore District Central Cooperative Bank Ltd. 2016 (1) TMI 370 - MADRAS HIGH COURT none of the State or Central enactments such as the Tamil Nadu Co-operative Societies Act, 1983, the Multi-State Co-operative Societies Act, 2002, the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949 and the National Bank for Agriculture and Rural Development Act, 1981 make any distinction between a co-operative society engaged in carrying on banking business and a co-operative bank. However, the amendment as brought in by Finance Act, 2015 was prospective in nature and applicable only from 01.06.2015. It is only on and from 01.06.2015, the assessee could be held liable for such TDS but not before that date. On the basis of this decision, it could be concluded that the co-operative banks have thus been taken out of the purview of beneficial exception only from 01.06.2015 and not before that. We order so. In the result, the impugned order could not be faulted with. - Decided against revenue.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) for non-deduction of Tax Deducted at Source (TDS) on interest payments.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for non-deduction of TDS on interest payments:

Assessment Proceedings:

During the assessment year 2012-13, the assessee paid interest on deposits exceeding Rs. 10,000 to various depositors without deducting tax at source. The amounts were as follows:
- Interest paid to individual depositors: Rs. 580.74 Lacs
- Interest paid to Co-op Society depositors: Rs. 590.12 Lacs
- Accrued Interest on FDRs: Rs. 2541.79 Lacs
- Total: Rs. 3712.66 Lacs

The Assessing Officer (AO) disallowed these payments under Section 40(a)(ia) due to the failure to deduct TDS.

Appellate Proceedings:

The assessee argued that under Section 194A(3)(v), no TDS was required for interest paid by a cooperative society to its members, a provision applicable only from 01.06.2015 due to an amendment by the Finance Act, 2015. The AO rejected this argument, stating that the assessee, being a cooperative society engaged in banking, was obligated to deduct TDS on time/term deposits. The AO maintained that the amendment clarified the applicability of Section 194A(3)(v) to cooperative banks, resulting in a disallowance of Rs. 3712.66 Lacs under Section 40(a)(ia).

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] relied on the Madras High Court decision in Coimbatore District Central Cooperative Bank Ltd. vs. ITO and the rationale behind the amendment effective from 01.06.2015, directing the AO to delete the disallowance. The revenue then appealed to the ITAT.

ITAT Findings and Adjudication:

The ITAT reviewed the facts and statutory provisions, concluding that the assessee, registered under the Tamil Nadu Cooperative Societies Act, 1983, and licensed by the RBI for banking activities, was not required to deduct TDS on interest payments before the amendment effective from 01.06.2015. The ITAT upheld the CIT(A)'s decision based on the Madras High Court ruling, which stated that no distinction existed between a cooperative society engaged in banking and a cooperative bank under relevant laws. The amendment by the Finance Act, 2015, was prospective, applying only from 01.06.2015, thus exempting the assessee from TDS obligations for the relevant assessment year.

Conclusion:

The ITAT dismissed the revenue's appeal, confirming that the disallowance under Section 40(a)(ia) was not applicable for the assessment year 2012-13 due to the prospective nature of the amendment by the Finance Act, 2015. The order was pronounced on 06th July, 2022.