2015 (1) TMI 1405 - AT - Income Tax

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

Shree Basaveshwar Co-op. Bank Ltd. Versus I.T.O, TDS Ward, Belgaum

The tribunal dismissed the appeal of the co-operative bank, holding it liable to deduct TDS on interest paid to members on term deposits exceeding Rs. ... TDS u/s 194A - assessee is a co-operative bank and engaged in the business of banking - no TDS had been made for the interest payments on term deposits to members which were liable for TDS @ 10% as per provisions of section 194A(3)(i)(b) - Held that:- We find that in the case of Saraswat Co-operative Bank [2014 (10) TMI 860 - ITAT PANAJI] for the assessment years 2010-11 to 2013-14 vide order dated 01/10/2014, wherein we find that the assessee is required to deduct a tax at source in respect of time deposits in excess of ₹ 10,000/- interest payment to members of the assessee bank. We have already held that the co-operative bank and co-operative society both are different and independent. The co-operative bank was registered under the Banking Regulations Act 1949. The co-operative society was registered under the Karnataka Co-operative Societies Act 1959. Therefore, we are of the view that TDS is required to be made on time deposit on interest payment after 01-07-1995. In terms clause (v) which is general in nature will not apply to the co-op bank. The provisions of Section 194A (1)(viia) is clearly applicable and therefore the 'assessee' has to deduct T.D.S. on income credited or paid in respect of deposits except which falls under that provisions. We therefore, dismiss the appeal of the assessee. Issues Involved:1. Whether the assessee, a co-operative bank, is liable to deduct tax at source (TDS) on interest paid to its members on term deposits under Section 194A(3)(i)(b) of the Income Tax Act, 1961.2. Whether the provisions of Section 194A(3)(v) exempt the interest paid to members of the co-operative bank from TDS.3. The applicability and interpretation of CBDT Circular No. 9/2002 in the context of TDS on interest paid by co-operative banks.4. The distinction between a co-operative bank and a co-operative society for the purposes of TDS under Section 194A.Issue-wise Detailed Analysis:1. Liability to Deduct TDS on Interest Paid to Members:The Income Tax Officer (ITO) conducted a survey under Section 133A of the Income Tax Act, 1961, at the premises of the assessee, a co-operative bank, and found that no TDS had been made on interest payments on term deposits to members during the financial years 2009-10 to 2012-13. The ITO concluded that the assessee failed to deduct TDS on interest payments exceeding Rs. 10,000 as per Section 194A(3)(i)(b), making the assessee liable under Sections 201(1) and 201(1A) for the amount of Rs. 13,29,185, including interest.2. Exemption under Section 194A(3)(v):The assessee argued that interest paid to its members is exempt from TDS under Section 194A(3)(v), which provides that income credited or paid by a co-operative society to its members is not subject to TDS. The assessee cited various judicial precedents and CBDT Circular No. 9/2002 to support this claim. However, the tribunal noted that the co-operative bank and co-operative society are distinct entities, and the specific provisions of Section 194A(3)(viia) apply to co-operative banks, requiring TDS on time deposits made after 01-07-1995.3. Interpretation of CBDT Circular No. 9/2002:The tribunal discussed the CBDT Circular No. 9/2002, which clarified that a member of a co-operative bank is exempt from TDS on interest under Section 194A(3)(v). However, this circular was quashed by the Bombay High Court in the case of Jalgaon DCC Bank Ltd. vs. Union of India, which held that the Board has no power to interpret the provisions of law by way of circular. Therefore, the tribunal concluded that the circular does not aid the assessee's case.4. Distinction Between Co-operative Bank and Co-operative Society:The tribunal emphasized the distinction between a co-operative bank and a co-operative society, noting that a co-operative bank is registered under the Banking Regulations Act, 1949, while a co-operative society is registered under the Karnataka Co-operative Societies Act, 1959. The tribunal referred to various judicial decisions, including the Karnataka High Court's interpretation in the case of CIT vs. Yeshwanthpur Credit Co-operative Society Limited, which highlighted the differences in the nature of business, regulatory oversight, and operational scope between the two entities. The tribunal concluded that the specific provisions of Section 194A(3)(viia) apply to co-operative banks, requiring TDS on time deposits, and the general exemption under Section 194A(3)(v) does not apply.Conclusion:The tribunal dismissed the appeal of the assessee, holding that the assessee, being a co-operative bank, is liable to deduct TDS on interest paid to its members on term deposits exceeding Rs. 10,000, as per the specific provisions of Section 194A(3)(viia). The tribunal rejected the assessee's reliance on Section 194A(3)(v) and CBDT Circular No. 9/2002, affirming the distinction between a co-operative bank and a co-operative society for TDS purposes. The appeal was dismissed, and the order of the CIT(A) was upheld.