2018 (7) TMI 228 - AT - Income Tax

TDS u/s 194A - assessee is a cooperative society registered under the Karnataka Cooperative Society Act, 1959 - Held that - The Ministry of Finance, Government of India vide Circular No.19/2015 in F.No.142/14/2015-TPL, has held that the Co- operative Banks are not required to deduct tax at source on time deposits of its members paid or credited on or before 1.6.2015 The provisions of the section 194A(3)(v) have been amended so as to expressly provide that the exemption provided from deduction of tax from payment of interest to members by a co-operative society under section 194A(3)(v) shall not apply to the payment of interest on time deposits by the co-operative banks to its members. As this amendment is effective from the prospective date of 1st June, 2015, the co-operative bank shall be required to deduct tax from the payment of interest on time deposits of its members, on or after the 1st June, 2015. Hence, a cooperative bank was not required to deduct tax from the payment of interest on time deposits of its members paid or credited before 1st June, 2015. SEE THE COMMISSIONER OF INCOME-TAX TDS, VERSUS THE NATIONAL CO-OPERATIVE BANK LTD BANASHANKARI 2ND STAGE BRANCH, BANGALORE 2016 (6) TMI 1118 - KARNATAKA HIGH COURT - Decided against revenue

Summary

Issues:
- Whether the assessee, a cooperative society engaged in banking business, was required to deduct tax at source on interest payments made above the statutory limit?
- Whether the order of the Assessing Officer disallowing the interest payment amount of ?6,26,99,189/- was justified?
- Whether the reliance on the Tribunal's decision and High Court judgments exempted the assessee from deducting tax at source?

Analysis:
1. The appeal pertains to the Revenue challenging the CIT (A)'s order concerning the assessment year 2012-13. The assessee, a cooperative society registered under the Karnataka Cooperative Society Act, claimed ?26,42,47,278/- as total expenses towards interest payment, out of which ?6,26,99,189/- exceeded the statutory limit of ?10,000/-. The Assessing Officer disallowed this amount, contending that tax should have been deducted at the time of payment, despite the assessee's reliance on a Tribunal order. The CIT (A) ruled in favor of the assessee, leading to the Revenue's appeal.

2. The Revenue argued that the Assessing Officer's decision was lawful, emphasizing the assessee's liability to deduct tax at the payment time. Conversely, the assessee relied on High Court judgments in similar cases to support their position. The Tribunal examined the contentions and records, noting the Division Bench's judgment in a related case and the circular of the Government of India. The High Court decisions highlighted the exemption from tax deduction on interest payments by cooperative banks to members before a specified date.

3. Considering the precedents and circulars, the Tribunal found no merit in the Revenue's appeal. The judgments cited by the assessee and the specific circular exempting tax deduction on interest payments before a certain date were crucial in dismissing the Revenue's grounds. Consequently, the Tribunal upheld the CIT (A)'s decision, emphasizing the legal provisions and interpretations provided by the High Court judgments and circulars. The appeal of the Revenue was thus dismissed based on the established legal principles and precedents.

This detailed analysis of the judgment showcases the legal intricacies involved in determining the tax liability of a cooperative society in light of specific statutory provisions, tribunal decisions, and High Court judgments.