ACIT Vs Dharmapuri District Central Co-operative Bank Ltd. (ITAT Chennai)
Held that co-operative banks are liable to deduct TDS on payment of interest on time deposits only from 01.06.2015 and not before that.
Facts-
Assessee, a co-operative society, paid interest on deposits for more than Rs. 10,000/- and since no TDS, AO proceeded to make disallowance u/s. 40(a)(ia). CIT(A) directed AO to delete the said disallowance. Being aggrieved, the revenue is in appeal.
Conclusion-
Hon’ble Madras HC in the case of Coimbatore District Central Cooperative Bank Ltd. V/S ITO has held that it is proposed to amend the provisions of the section 194A of the Act to expressly provide from the prospective date of 1st June, 2015 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 Act shall not apply to the payment of interest on time deposits by the co-operative banks to its members.
Held that the amendment as brought in by Finance Act, 2015 was prospective in nature and applicable only from 01.06.2015. It is only on and from 01.06.2015, the assessee could be held liable for such TDS but not before that date. On the basis of this decision, it could be concluded that the co-operative banks have thus been taken out of the purview of beneficial exception only from 01.06.2015 and not before that. We order so. In the result, the impugned order could not be faulted with.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
1. Aforesaid appeal by revenue for Assessment Year (AY) 2012-13 arises out of the order of learned Commissioner of Income Tax (Appeals), Salem-7 [CIT(A)] dated 12.02.2016 in the matter of an assessment framed by Ld. Assessing Officer (AO) u/s 143(3) of the Act on 11.03.2015. The grounds taken by the revenue read as under:
1. The order of the CIT(A) is opposed to law and facts of the case.
2. The CIT(A) erred in deleting the disallowance of Rs.37,12,66,293/- made U/s. 40(a)(ia) of the I.T. Act, by relying on the decision of the Madras High Court in the case of Coimbatore District Central Co-operative Bank Ltd. vs. ITO, TDS.
3. The CIT(A) failed to note that the Dharmapuri District Central Co-operative Bank (DCC Bank) is registered under the Tamil Nadu Co-operative Societies Act, 1983 and obtained license from the RBI to carry on banking activities under the Banking Regulation Act, 1949 and as such is like any other Schedule Bank.
4. The CIT(A) should have noted that for Co-operative Societies, Banking Regulation Act, 1949 does not apply. Only Central Co-operative society Act, 1912 or the particular State Government Act applies. The CIT(A) failed to appreciate the fact that the DCC Bank though registered as a Co-operative society but is engaged in the commercial activities viz. “business of banking”, like any other Nationalized Banks.
5. The CIT(A) ought to have considered the fact that the State Government and the Registrar of Co-operative Societies appointed by the State are the main regulatory authorities for the “Co-operative Societies”.
6. The CIT(A) ought to have considered the fact that the Tamil Nadu State Government and Reserve Bank of India controls the affairs of the “Co-operative Bank”, namely the Dharmapuri District Central Co-operative Bank and not the Registrar of Co-operative Societies.
7. The CIT(A) should have noted that Section 40(a)(ia) is to be interpreted harmoniously with the TDS provisions as its operation solely depends on the provisions contained under Chapter XVII-B. It contemplates one of the consequences of non-deduction of tax and, therefore, has to be interpreted in the light of mandatory provisions contained under Chapter XVII-B.
8. The CIT(A) failed to consider the fact that the decision of the Madras High Court relied on by the CIT(A) has not been accepted by the Department and a proposal for filing SLP has already been sent to Board.
9. For these and such other grounds that may be urged at the time of hearing it is prayed that the order of the CIT(A) may be quashed and that of the Assessing Officer may be restored.
As evident, the sole subject matter of appeal is disallowance u/s 40(a)(ia) for want of Tax deduction at source (TDS) on interest payment.
2. The Ld. Sr. DR, drawing attention to the grounds of appeal as well as the orders of lower authorities justified the disallowance as made by Ld. AO u/s 40(a)(ia). The Ld. AR, on the other hand, controverted the arguments and submitted that the issue stood covered in assessee’s favor by the decision of Hon’ble High Court of Madras. Having heard rival submissions and after going the order of lower authorities, our adjudication to the subject matter of appeal would be as under.
Assessment Proceedings
3.1 During the year, the assessee paid interest on deposits for more than Rs.10,000/- as follows: –
