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TMI Blog2015 (7) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... in question relates to payments to non-members and to restrict the disallowance only to the extent of payment of interest to non-members without deduction of tax at source. -Decided against revenue. - I.T.A. Nos.86 & 87/Bang/2015 - - - Dated:- 29-6-2015 - Shri N.V. Vasudevan and Shri Jason P. Boaz, JJ. For the Petitioner : Dr.P.K. Srihari, Addl. CIT (D.R.) For the Respondent : Ms. Vinutha, C.A. ORDER Per Shri Jason P. Boaz, A.M. : These appeals by Revenue are directed against the composite order of the Commissioner of Income Tax (Appeals), Mysore dt.16.10.2014 for Assessment Years 2011- 12 and 2012-13. The appeals having common / identical issues were heard together and are being disposed off by way of this combined order. 2. The facts of the case, briefly, are as under :- 2.1 The assessee is a co-operative society engaged in the business of banking. A survey under Section 133A of the Income Tax Act, 1961 (in short 'the Act') was conducted at the assessee's business premises on 26.11.2013 in order to verify its compliance to the Tax Deduction at Source ( TDS ) provisions. In the course of the survey, it was noticed that in the period r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for both Assessment Years 2011-12 and 2012-13 and has preferred these appeals before the Tribunal raising the following identical grounds for both assessment years :- For A.Y. 2011-12 1. The learned CIT (Appeals) has erred in granting relief contrary to the findings in the earlier part of the order. 2. The learned CIT (Appeals) has erred in relying on the decision of Hon'ble ITAT, Bangalore Bench in the case of The Bagalkot District CentralCo-op. Bank Vs. JCIT in ITA No.1512/Bang/2013 which is erroneous and against the law. 3. The learned CIT (Appeals) ought to have considered the orders of the Hon'ble ITAT, Pune (857 ITD 569) and Hon'ble ITAT, Panaji Bench order in the case of Bailhongal Urban Co-operative Bank dt.28.8.2013, which have been decided in favour of the Department. 4. The learned CIT (Appeals) erred in relying on the decision of the Hon'ble ITAT, Bangalore which held that the provisions of section 194A(3)(v) are applicable to the deposits made with the assessee, the assessee being a co-operative bank. 5. The learned CIT (Appeals) erred in relying on the decision of the Hon'ble ITAT, Bangalore which had failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals) may be set aside and cancelled. 4.1 Though Revenue has raised several grounds (supra), the issue in question relates to the applicability of the provisions of Section 194A(3)(5) of the Act in the case on hand. We have heard both the learned Departmental Representative in support of the above grounds of appeal raised by Revenue and the learned Authorised Representative in support of the impugned orders of the learned CIT (Appeals). We find that the issues in question before us were considered by a co-ordinate bench of this Tribunal in the case of the Bagalkot District Central Co-operative Bank in ITA No.1572/Bang/2013 dt.30.5.2014 and it was held that the assessee, which is a co-operative society carrying on banking business, when it pays interest to a member both on time deposits and on deposits other than time deposits with such co-operative society need not deduct tax at source under Section 194A by virtue of the exemption granted vide clause (v) of Sub-Section (3) of the said section. The operative portion of this order of the co-ordinate bench from paras 12 to 23 thereof are extracted hereunder :- 12. We have heard the rival submissions. The learned counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ari Bank Ltd Vs ACIT (87) ITD 569, it was submitted by him that in that case the Hon ble Tribunal held that the provision of S. 194A(3)(v) of the Act is not applicable to a Co-operative Bank. The Hon ble Tribunal held that u/s. l94A(3)(v) were to apply to a Co-operative Bank, there will be a conflict between 194A(3)(viia)(b) and S. 194A(3)(v). It was his submission that there is no conflict. S.194A(3)(viia)(b) would apply to all co-operative banks when they pay interest on deposits other than time deposit whether to members or non-members whereas S. 194A(3)(v) applies to payment to members including interest on time-deposits . The classification itself is different. S.194A(3)(v) classifies the payees into members or non-members whereas 194A(3)(viia)(b) classifies the nature of interest whether it is on time deposit or a non-time deposit When the classification is on a totally different criterion, there cannot be any conflict between the two sections. They operate in two different fields. It is respectfully submitted that the Hon ble ITAT Bench erred in holding that there is a conflict between 194A(3(v) and 194A(3)(viia)(b). It was further submitted by him that the Hon ble ITAT Pune ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the obligation to deduct tax at source when it pays interest. To this argument, we have already noticed the argument of the learned counsel for the Assessee that these two provisions operate in different field. We may clarify here that the said argument of the learned counsel for the Assessee is a clear answer to the above argument of the learned DR. The learned DR also filed written submission before us, in which the stand of the revenue, as reflected in the orders of the lower authorities, has been reiterated. 15. We have given a very careful consideration to the rival submissions. We are of the view that the submissions made by the learned counsel for the Assessee deserves to be accepted. As rightly contended by him Sec.194A(3)(i)(b) of the Act is a provision which mandates deduction of tax at source by a co-operative Society carrying on the business of banking, where the income in the form of interest which is paid by such society is in excess of ten thousand rupees. Sec.194A(3)(v) of the Act provides that tax need not be deducted at source where the income in the form of interest is credited or paid by a co-operative society to a member thereof or to any other co-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, they claimed that they need not deduct tax at source on interest paid. It was submitted by the petitioner that sub-s.194A(3)(v) deals with such income credited or paid by a cooperative society to a member whereas sub-s. (3)(viia)(a) provides a total exemption to deposits with the primary credit society. The Hon ble Kerala High Court accepted their plea and in their judgment have observed that Sec.194A (3)(i) exemption limit of ₹ 10,000 to interest paid on time deposits with co-operative societies engaged in carrying on business of banking is allowed but that does not mean that all co-operative societies who have credited or paid exceeding ₹ 10,000 are liable to deduct tax at source. The Court held that co-operative society engaged in carrying on business of banking and primary credit societies stand on different footing and belong to different class. That does not mean that Sec.194A(3)(v) of the Act is applicable only to Co-operative Societies other than co-operative societies carrying on the business of banking as observed in para-37 of its judgment the Pune ITAT in the case of Bhagani Nivedita Sah Bank Ltd. (supra). In fact in para-2 of Circular No.9 dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 194A. 3. A question has also been raised as to whether normal members, associate members and sympathizer members are also covered by the exemption under section 194A(3)(v). It is hereby clarified that the exemption is available only to such members who have joined in application for the registration of the cooperative society and those who are admitted to membership after registration in accordance with the bye-laws and rules. A member eligible for exemption under section 194A(3)(v) must have subscribed to and fully paid for at least one share of the co-operative bank, must be entitled to participate and vote in the General Body Meetings and/or Special General Body Meetings of the co-operative bank and must be entitled to receive share from the profits of the co-operative bank. [F. No. 275/106/2000-IT(B)] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been expressed by the Pune Bench of the ITAT in the case of Ozer Merchant Co-operative Bank ITA No.1588/PN/2012 order dated 30.10.2013. We may add that in both these decisions the discussion did not turn on the interpretation of Sec.194A(3)(i)(b) of the Act vis-a-vis Sec.194A(3)(v) of the Act. It is thus clear that the preponderance of judicial opinion on this issue is that co-operative societies carrying on banking business when it pays interest to its members on deposits need not deduct tax at source in view of the provisions of Sec.194A(3)(v) of the Act 21. For the reasons given above, we hold that the Assessee which is a cooperative society carrying on banking business when it pays interest income to a member both on time deposits and on deposits other than time deposits with such co-operative society need not deduct tax at source under section 194A by virtue of the exemption granted vide clause (v) of sub-section (3) of the said section. 22. We however find, as submitted by the learned DR, that the orders are not clear as to whether the entire interest disallowed u/s.40(a)(ia) of the Act relates to interest paid to members or part of the interest is also paid to n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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