2022 (9) TMI 1080 - AT - Income Tax

TDS u/s 194A - Addition u/s. 40(a)(ia) - non-deduction of TDS on interest payments made to its members - HELD THAT - We find no merit in the Revenue s instant arguments as we are in assessment year 2010-11 whereas a cooperative bank has been excluded from the purview of section 194(A)(3)(v) vide Finance Act 2015 w.e.f. 01.06.2015 only. As in Saraswat co-operative Bank 2017 (3) TMI 741 - BOMBAY HIGH COURT take note of forgoing legislation developments to hold that a co-operative bank/ assessee has no liability to deduct TDS on interest payments made to members. We thus delete the impugned section 194A r.w.s. 40 (a)(ia) disallowance of Rs.3,49,386/- in very terms therefore. The assessee s third substantive grievance is accepted.

Summary

Issues involved:
1. Disallowance under section 194(1) r.w.s. 40a(ia) for non-deduction of TDS on interest payments made to members.
2. Validity of reopening of assessment.

Analysis:

Issue 1: Disallowance under section 194(1) r.w.s. 40a(ia) for non-deduction of TDS on interest payments made to members:

The appellant challenged the disallowance made under section 40(a)(ia) for not deducting TDS on interest payments to non-members. The appellant argued that the entities considered non-members were actually nominal members as per the by-laws of the society. However, the AO found that these nominal members did not have the rights of a regular member, such as voting rights and entitlement to dividends, and therefore were not entitled to the exemption from TDS. The tribunal observed that the Finance Act 2015 excluded cooperative banks from the purview of section 194(A)(3)(v) only from 01.06.2015, and cited relevant case laws to support the appellant's claim. The tribunal held that a cooperative bank had no liability to deduct TDS on interest payments to members and deleted the disallowance of Rs.3,49,386.

Issue 2: Validity of reopening of assessment:

The counsel did not press for the appellant's challenge regarding the validity of reopening the assessment at this stage, and it was rejected accordingly. The tribunal also condoned the delay of two days in filing the appeal due to the Covid-19 pandemic outbreak. The appellant's appeal was partly allowed based on the findings related to the disallowance under section 194(1) r.w.s. 40a(ia) for non-deduction of TDS on interest payments made to members.

In conclusion, the tribunal ruled in favor of the appellant, holding that a cooperative bank was not liable to deduct TDS on interest payments made to members for the assessment year 2010-11. The disallowance under section 194A r.w.s. 40(a)(ia) was deleted, and the appeal was partly allowed.