Tribunal rules no tax deduction for cooperative society on exempt income, citing Income Tax Act sections.

The Tribunal quashed the orders under sections 201(1) and 201(1A) related to non-deduction of tax at source by the assessee, a cooperative society. The Tribunal held that since the recipients' income was exempt under sections 10(25) and 10(23AAA) of the Income Tax Act, there was no liability for tax deduction at source. The Revenue's appeal was dismissed, confirming that the assessee was not required to deduct TDS on interest payments to cooperative societies under section 194A(3)(v). The Tribunal emphasized the importance of exemptions under the mentioned sections and the precedent set by the Apex Court in Hindustan Coca-cola Beverages (P) Ltd.

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Issues Involved:
1. Legality of the order of the Income Tax Officer (TDS-II), Chandigarh.
2. Levy of interest under section 201(1A) of the Income Tax Act.
3. Levy of tax under section 201(1) of the Income Tax Act.
4. Applicability of section 194A(3)(v) concerning cooperative societies and tax deduction at source (TDS).

Issue-wise Detailed Analysis:

1. Legality of the Order of the Income Tax Officer (TDS-II), Chandigarh:
The assessee challenged the order of the Income Tax Officer (TDS-II), Chandigarh, which was upheld by the Commissioner of Income Tax (Appeals)-2, Chandigarh. The order was deemed "bad in law and beyond all the cannons of law and justice." The Tribunal found that the assessee, a cooperative society engaged in banking, had paid interest to the Punjab State Cooperative Bank Pension Fund and the Board of Trustee Provident Fund without deducting tax at source. The Tribunal concluded that since the recipients’ income was exempt under sections 10(25) and 10(23AAA) of the Act, there was no liability for tax deduction at source. Consequently, the order passed under sections 201(1) and 201(1A) was quashed.

2. Levy of Interest under Section 201(1A) of the Income Tax Act:
The assessee was held liable for interest under section 201(1A) amounting to Rs. 9,11,428/-. The Tribunal noted that the Punjab State Cooperative Bank Pension Fund and the Board of Trustee Provident Fund had filed returns declaring nil income, and their income was exempt under section 10(25) and section 10(23AAA). The Tribunal referenced the Apex Court's decision in Hindustan Coca-cola Beverages (P) Ltd. Vs. CIT, which held that tax recovery cannot be made from the deductor when the deductee has filed returns and paid the tax. Since the recipients had duly accounted for the interest in their books and filed returns, the interest levied under section 201(1A) was deemed inappropriate and was deleted.

3. Levy of Tax under Section 201(1) of the Income Tax Act:
The Tribunal addressed the levy of tax under section 201(1) amounting to Rs. 36,45,715/-. The assessee argued that the interest paid to the trusts was exempt from tax under sections 10(25) and 10(23AAA). The Tribunal found that the trusts had included the interest in their income and filed returns accordingly. Following the precedent set by the Apex Court in Hindustan Coca-cola Beverages (P) Ltd., the Tribunal held that the assessee was not liable to deduct tax at source. Thus, the levy of tax under section 201(1) was quashed.

4. Applicability of Section 194A(3)(v) Concerning Cooperative Societies and TDS:
The Revenue's appeal contested the CIT(A)'s decision that the assessee, a cooperative society, was not liable to deduct TDS under section 194A(3)(v). The Tribunal examined the amended provisions effective from 01.06.2015 and various judicial precedents. It was clarified that the exemption from TDS for interest payments by cooperative societies to their members applied to cooperative banks only when the depositor was another cooperative society. The Tribunal affirmed that Housefed Punjab and KRIBHCO, being cooperative societies, were exempt from TDS under section 194A(3)(v). Consequently, the assessee was not liable under section 201(1) for non-deduction of TDS, and the interest levied under section 201(1A) was also deleted.

Conclusion:
The Tribunal allowed the assessee's appeal, quashing the orders under sections 201(1) and 201(1A) related to non-deduction of tax at source. The Revenue's appeal was dismissed, affirming that the assessee was not liable to deduct TDS on interest payments to cooperative societies under section 194A(3)(v). The judgment emphasized the applicability of exemptions under sections 10(25) and 10(23AAA) and the precedence of the Apex Court's ruling in Hindustan Coca-cola Beverages (P) Ltd.

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