2018 (7) TMI 229 - AT - Income Tax

Non deduction of tds u/s 194A - assessee had paid an interest to its members where the individual payment to members exceeded ₹ 10,000/- p.a. - Held that - Provisions of the section 194(3)(v) of the Income-tax Act 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) of the Income-tax Act 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 dated 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 ACIT v. The Bellary Dist. Co-operative Central Bank Ltd 2018 (7) TMI 228 - ITAT BANGALORE - Decided in favour of assessee.

Summary

Issues:
Appeal against CIT (A) order regarding disallowance of interest payment exceeding &8377; 10,000 to members for non-deduction of TDS under section 40(a)(ia) of the Act.

Analysis:
The assessee, a cooperative bank, filed a return declaring income of &8377; 46,78,250 for the year 2012-13. During assessment u/s.143(3), the AO determined total income at &8377; 1,58,57,200, disallowing &8377; 1,09,16,354 paid as interest to members exceeding &8377; 10,000 without TDS deduction. The CIT (A) upheld the AO's decision. The assessee cited judicial precedents in its favor, including judgments by the jurisdictional High Court and a Tribunal bench. The Tribunal referred to a recent decision involving a cooperative bank and a circular by the Government of India, which clarified the requirement of TDS deduction by cooperative banks on interest payments to members. Relying on these, the Tribunal decided in favor of the assessee, directing the AO to allow the disallowed expenditure.

The Tribunal dismissed ground no.4 as not pressed. Consequently, the appeal of the assessee was partly allowed. The judgment was pronounced on 1st June 2018.