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2019 (3) TMI 565 - AT - Income TaxTDS u/s 194A - non deduction of tds on time deposits - whether a co-operative bank as per the pre-amended Sec. 194A(3)(v) remained under a statutory obligation to deduct tax at source on the interest paid to its members? - scope of amendment - HELD THAT - As per the preamended clause (v) to Sec. 194A(3) of the IT Act (i.e prior to its amendment vide the Finance Act, 2015 w.e.f 01.06.2015), a co-operative bank was under no obligation to deduct tax at source on the interest credited or paid to a member prior to 01.06.2015. We thus after considering the aforesaid CBDT Circular No.19/2015, dated 27.11.2015 and respectfully following the aforementioned judicial pronouncements which seizes the issue under consideration, therein conclude that as per the mandate of law as was available on the statute during the year under consideration viz. A.Y 2012- 13, no statutory obligation was cast upon the assessee co-operative society to deduct tax at source on the interest that was paid or credited by it on the time deposits of its members. On the basis of our aforesaid observations, the disallowance of the interest expenditure made by the A.O u/s 40(a)(ia) for the alleged failure on the part of the assessee to deduct tax at source on the said amount under Sec. 194A is vacated - Disallowance u/s 40(a)(ia) - decided in favour of assessee.
Issues Involved:
1. Disallowance under Section 40(a)(ia) due to non-deduction of TDS on interest paid by a co-operative bank to its members. 2. Applicability of Section 194A for TDS deduction on interest payments by co-operative banks to their members before the amendment effective from 01.06.2015. Issue-wise Detailed Analysis: 1. Disallowance under Section 40(a)(ia): The assessee, a co-operative bank, filed its return for A.Y. 2012-13. During assessment, the A.O. observed that the bank had not deducted TDS on interest payments exceeding ?10,000 as required under Section 194A, leading to a disallowance of ?1,15,21,357 under Section 40(a)(ia). The CIT(A) upheld this disallowance, interpreting that co-operative banks were not exempt from TDS on interest payments exceeding ?10,000 from 01.07.1995 onwards. 2. Applicability of Section 194A: The assessee contended that as per the pre-amended Section 194A(3)(v), co-operative societies were not required to deduct TDS on interest paid to their members. This exemption was only withdrawn by the Finance Act, 2015, effective from 01.06.2015. The assessee relied on CBDT Circular No. 19/2015, which clarified that co-operative banks were not required to deduct TDS on interest paid before 01.06.2015. The assessee also cited various High Court judgments supporting this view. Tribunal's Findings: The Tribunal examined the provisions of Section 194A and the amendments brought by the Finance Act, 2015. It noted that before 01.06.2015, Section 194A(3)(v) exempted co-operative societies from deducting TDS on interest paid to their members. The Tribunal referred to CBDT Circular No. 19/2015 and several High Court judgments, including those from Karnataka and Madras High Courts, which confirmed that the amendment was prospective and did not apply to interest payments made before 01.06.2015. The Tribunal concluded that during A.Y. 2012-13, there was no statutory obligation for the co-operative bank to deduct TDS on interest paid to its members. Consequently, the disallowance of ?1,15,21,357 under Section 40(a)(ia) for non-deduction of TDS was vacated. Conclusion: The Tribunal set aside the order of the CIT(A) and deleted the disallowance of ?1,15,21,357, allowing the appeal of the assessee. The judgment emphasized the prospective nature of the amendment to Section 194A and upheld the pre-amendment exemption for co-operative banks regarding TDS on interest payments to members.
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