Co-op bank must deduct TDS on interest payments over Rs.10,000 to members

The tribunal upheld the decision that the co-operative bank, as the assessee, was liable to deduct TDS on interest payments exceeding Rs. 10,000 to its members under Section 194A(3)(i)(b) of the Income-tax Act. The tribunal dismissed the appeals for both assessment years, emphasizing that the CBDT circular could not override the statutory provision and that inconsistent judgments were not binding due to their per incuriam nature.

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Issues Involved:
1. Liability of the assessee to deduct TDS on interest payments to its members.
2. Applicability of Section 194A(3)(v) and Section 194A(3)(i)(b) of the Income-tax Act, 1961.
3. Validity of the demand created by the ITO (TDS) under Section 201 and 201(1A) for short deduction of TDS.
4. Relevance and binding nature of CBDT Circular No. 9/2002.
5. Consistency in the application of tax laws and previous judgments.

Issue-wise Detailed Analysis:

1. Liability of the Assessee to Deduct TDS on Interest Payments to its Members:
The primary issue before the tribunal was whether the assessee, a co-operative bank, was required to deduct TDS on interest payments made to its members. The assessee argued that under Section 194A(3)(v) of the Income-tax Act, it was exempt from deducting TDS on such payments. The ITO (TDS) and the CIT(A) held that the assessee was liable to deduct TDS, resulting in a demand for short deduction and interest.

2. Applicability of Section 194A(3)(v) and Section 194A(3)(i)(b) of the Income-tax Act, 1961:
The tribunal examined the provisions of Section 194A(3)(v), which exempts co-operative societies from deducting TDS on interest paid to their members. However, it also considered Section 194A(3)(i)(b), which specifically applies to co-operative societies engaged in banking and provides an exemption only up to Rs. 10,000. The tribunal concluded that Section 194A(3)(i)(b) is a special provision applicable to co-operative banks, and therefore, the general provision under Section 194A(3)(v) does not absolve the assessee from deducting TDS on interest payments exceeding Rs. 10,000.

3. Validity of the Demand Created by the ITO (TDS) under Section 201 and 201(1A) for Short Deduction of TDS:
The ITO (TDS) created a demand of Rs. 49,01,840 for the assessment year 2012-13 and Rs. 48,08,420 for the assessment year 2013-14, citing short deduction of TDS and interest under Section 201 and 201(1A). The tribunal upheld this demand, stating that the assessee was indeed required to deduct TDS on interest payments exceeding Rs. 10,000 as per Section 194A(3)(i)(b).

4. Relevance and Binding Nature of CBDT Circular No. 9/2002:
The assessee relied heavily on CBDT Circular No. 9/2002, which clarified that members of a co-operative bank could receive interest without TDS under Section 194A(3)(v). However, the tribunal held that CBDT circulars cannot override statutory provisions. Since the specific provision for co-operative banks under Section 194A(3)(i)(b) mandates TDS for interest payments exceeding Rs. 10,000, the circular could not be used to negate this requirement.

5. Consistency in the Application of Tax Laws and Previous Judgments:
The tribunal acknowledged the principle of consistency in tax laws but noted that previous judgments, such as the one in the case of Kashipur Urban Cooperative Bank Ltd., were rendered per incuriam (in ignorance of the relevant statutory provision) and thus could not be considered binding precedents. The tribunal emphasized that the specific statutory provision applicable to co-operative banks must be followed.

Conclusion:
The tribunal dismissed the appeals for both assessment years, upholding the orders of the CIT(A) and the ITO (TDS). It confirmed that the assessee, being a co-operative bank, was required to deduct TDS on interest payments exceeding Rs. 10,000 to its members as per Section 194A(3)(i)(b) and that the CBDT circular could not override this statutory requirement. The tribunal also clarified that previous inconsistent judgments were not binding due to their per incuriam nature.

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