2023 (10) TMI 908 - AT - Income Tax

TDS liability u/s 194A - assessee in default - principle of Res-judicata - tds liability on interest payments to the nominal members - HELD THAT - Law is settled on the issue of nominal members are to be considered as members of the cooperative society. Meaning thereby, the assessee was not required to deduct tax at source on interest payments to the nominal members. On parity of facts, following the judgment of CIT vs. Punjab State Co-operative Bank Ltd. 2008 (3) TMI 45 - HIGH COURT PUNJAB AND HARYANA , has also held that the assessee was not required to deduct tax at source on interest payments to the nominal members, who are members of the society. As in the case of The Jalgon District Central Bank Vs Union of India and Ore 2003 (9) TMI 56 - BOMBAY HIGH COURT have adjudicated upon the question of whether the exemption granted to the co-operative society under Section 194A(3)(v) can be taken away be creating a distinction between duly registered member and a nominal member, which is unknown to the exemption clause contained in Section 194A(3)(v), gave a clear opinion that CBDT has no authority to make a crack in the exemption clause contained in Section 194A(3)(v) by issuing the impugned circular and that the CBDT cannot usurp the powers of Parliament by virtue of Section 119 of the IT Act, 1961. Meaning thereby that the CBDT, under the garb of Section 119 of the IT Act, 1961, cannot exercise wider powers than the powers bestowed on it. CBDT has no power to introduce a substantial change or alteration in the provisions of the IT Act. 1961, by importing the ideas unknown to the IT Act. 1961. The impugned circular, therefore, does not stand to the legal test. Accordingly, the impugned Circular No. 9 of 2002 dt. 11 th Sept., 2002 F. No. 275/106/2000/IT(B)--Annexure A was quashed and set aside. Thus, in our view, the reliance of the Worthy CIT(A) NFAC, Delhi on this circular is against law. Hon ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT has also observed that the expression member is not defined in the Act. Since a cooperative society has been established under the provisions of the law made by the State Legislature in that regard, the expression member in section 80-P(2)(a)(i) must therefore, be construed in the context of the provisions of the law enacted by the state Legislature under which the cooperative society claiming exemption has been formed. Also in the assessee s own case for the proceeding in respect of the Assessment Year 2014-15, CIT(A) NFAC has accepted nominal members as members and held that interest paid to them is not liable for TDS u/s. 194 of the Income Tax Act, 1961 (Copy of Order filed on record). In view of the matter, we hold that the CIT/NFAC has acted against Res Judicata. We accept the grievance of the assessee genuine.

Summary

Issues Involved:

1. Treating the assessee in default for TDS to the tune of Rs. 41,89,719/-.
2. Overlooking the principle of Res-judicata.
3. Charging of interest under Section 201(1A).

Summary:

1. Treating the assessee in default for TDS:
The appellant, a cooperative society, paid interest exceeding Rs. 5,000 to non-members/nominal members without deducting TDS. The Ld. CIT(A) confirmed the AO's action, citing Section 194A(3)(v) of the Income Tax Act, 1961, which exempts TDS only for members of a cooperative society. The CBDT Circular No. 9 of 2022 was referenced to define 'member.' The appellant's reliance on the case of CIT vs Punjab State Cooperative Bank Ltd (2008) was dismissed as it pertained to Section 80P, not TDS provisions. The CIT(A) dismissed the appellant's appeal, emphasizing that allowing TDS exemption for non-members could lead to tax evasion.

2. Overlooking the principle of Res-judicata:
The appellant argued that the CIT(A) NFAC, Delhi, erred in overlooking the principle of Res-judicata, as the same issue had been adjudicated in their favor for the preceding Assessment Year 2014-15. The CIT(A) had previously accepted nominal members as members, exempting interest paid to them from TDS under Section 194A. The ITAT Amritsar Bench and other judicial precedents, including the Hon'ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. vs. Commissioner of Income Tax, Calicut, supported the appellant's position that nominal members should be considered members for TDS exemption purposes.

3. Charging of interest under Section 201(1A):
The appellant contended that the CIT(A) erred in confirming the AO's action of charging interest under Section 201(1A) for non-deduction of TDS. The appellant cited various judicial precedents, including the Hon'ble High Court of Bombay in The Jalgon District Central Bank vs. Union of India, which quashed the CBDT Circular No. 9 of 2002, asserting that the exemption under Section 194A(3)(v) cannot be taken away by distinguishing between duly registered and nominal members.

Conclusion:
The ITAT Amritsar Bench concluded that nominal members are to be considered as members of the cooperative society, and thus, the assessee was not required to deduct tax at source on interest payments to nominal members. The CIT(A) NFAC's reliance on the CBDT Circular was deemed against the law. The impugned order was quashed, and the appeal was allowed in favor of the assessee.