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2019 (8) TMI 1332 - AT - Income TaxInterest under section 234B and 234C - HELD THAT - The charging of interest is consequential and mandatory and the AO has no discretion in the matter. This proposition has been upheld by the Hon ble Apex Court in the case of Anjum H. Ghaswala 2001 (10) TMI 4 - Supreme Court and we, therefore, uphold the action of the AO in charging the assessee the aforesaid interest u/s 234B and 234C of the Act. The AO is, however, directed to re-compute the interest chargeable u/s 234B and 234C of the Act, if any, while giving effect of this order. Disallowance u/s 40(a)(ia) - payment of interest on term deposits to Members of Co-operative Bank - HELD THAT - Amendment to section 194A(3)(V) operates prospectively w.e.f. 01.06.2015; we hold that the assessee, being a Co-operative Bank, is not required to deduct tax at source from the payment of interest on terms deposits to its Members in the year under consideration i.e., Assessment Year 2012-13. We consequently delete the disallowance under section 40(a)(ia) of the Act made by the AO and accordingly allow the ground No.2 and 2.1 raised by the assessee. Transfer of Reserve Fund - HELD THAT - Respectfully following the decision of the Hon ble Apex Court in the case of Vellore Electric Corporation Ltd., 1997 (7) TMI 13 - SUPREME COURT , we hold that the assessee is not entitled to claim deduction in respect of transfer to reserve fund. Transfer to Co-operative Education Fund - HELD THAT - Decision of the Hon ble Karnataka High Court in the case of Pandavapura Sahakara Sakkare Kharkane Ltd. 1988 (6) TMI 39 - KARNATAKA HIGH COURT , while deciding on the allowability of contributions to the Co-operative Education Fund, the Hon ble Court considered them akin to consumer rebate reserve and, following the decision of the Hon ble Apex Court in the case of Poona Electric Supply Company Ltd. 1965 (4) TMI 20 - SUPREME COURT , upheld its allowability. The ratio of the decision in the case of Poona Electricity Supply Company Ltd., 1965 (4) TMI 20 - SUPREME COURT was upheld by the Hon ble Apex Court in the case of Vellore Electric Corporation Ltd., 1997 (7) TMI 13 - SUPREME COURT , relied on by the Co-ordinate Bench of this Tribunal. We are, therefore, of the view that the decision of the Hon ble Karnataka High Court in the case of Pandavapura Sahakara Sakkare Karkhane Ltd., (supra) would continue to hold the ground and is to be followed and respectfully following the same, allow the grounds 5 and 5.1 raised by the assessee.
Issues Involved:
1. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961. 2. Interest under section 234B and 234C of the Income Tax Act. 3. Transfer of Reserve Fund. 4. Transfer to Co-operative Education Fund. Detailed Analysis: 1. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961: The assessee, a Co-operative Society, was disallowed ?1,59,59,667/- by the AO for not deducting TDS on interest paid to its members. The assessee argued that as per section 194A(3)(v) of the Act, Co-operative Societies are exempt from TDS on interest paid to members. The AO contended that section 194A(3)(i)(b) applies to Co-operative Banks, overriding the general provision. The CIT(A) upheld the AO's decision, stating the assessee failed to provide evidence supporting the exemption claim. However, the Tribunal found that the assessee did provide necessary details and relied on the Karnataka High Court's decisions in Jamkhandi Urban Co-operative Bank and Shri Siddeshwar Co-operative Bank Ltd., which confirmed that the amendment to section 194A(3)(v) is prospective from 01.06.2015. Thus, the Tribunal deleted the disallowance, allowing the assessee's appeal on this ground. 2. Interest under section 234B and 234C of the Income Tax Act: The assessee contested the interest charged under sections 234B and 234C. The Tribunal upheld the AO's action, citing the Supreme Court's decision in Anjum H. Ghaswala, which established that charging interest under these sections is mandatory and consequential. The AO was directed to re-compute the interest while giving effect to the Tribunal's order. 3. Transfer of Reserve Fund: The assessee's claim for deduction of the amount transferred to the reserve fund was dismissed. The Tribunal referred to the Supreme Court's decision in Vellore Electric Corporation Ltd., which held that such transfers are not deductible as they are appropriations of profits. Consequently, the Tribunal dismissed the assessee's appeal on this ground. 4. Transfer to Co-operative Education Fund: The assessee sought deduction for the amount transferred to the Co-operative Education Fund. The CIT(A) dismissed the claim, stating the assessee could not prove it was wholly and exclusively for business purposes. The Tribunal, however, relied on the Karnataka High Court's decision in Pandarpura Sahakara Sakkare Kharkhane Ltd., which allowed such deductions, considering them akin to consumer rebate reserves. Thus, the Tribunal allowed the assessee's appeal on this ground. Conclusion: The Tribunal partly allowed the assessee's appeal for the Assessment Year 2012-13, providing relief on the grounds of disallowance under section 40(a)(ia) and transfer to Co-operative Education Fund while upholding the AO's decision on interest under sections 234B and 234C and the transfer to the reserve fund.
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