TaxTMI 
TaxTMI 
TaxTMI 
2015 (1) TMI 1407
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....d. (2011) 5 TaxCorp (DT) 49593, ignoring the provisions of sec. 43D of the I.T. Act, 1961. 2. On the facts and in law the CIT(A) erred in holding that income accrued to the assessee cannot be taken as income in the year ignoring the amended provisions of sec 43D of the I.T. Act, 1961, which provides certain benefit to the certain class of assessee‟s but do not provide such benefit to the assessee bank and as such, the provisions of sec 43D amended w.e.f. 1.4.2000 overruled the Court decisions/ Circulars." The grounds raised in I.T.A.No. 329/PNJ/2013 are as follows:- "a) The learned Commissioner of Income Tax (Appeals), Belgaum has erred in confirming the disallowances made U)s 40(1)(ia) when the facts of the case does not warrant such additions. b) Both the appellate authority as well as assessing authority have erred in facts of the case that the assessee is a Co-operative Society and has paid interest to its memberswhich is rightly covered by the provisions of section 194A(3)(v) of the Income Tax Act, 1961. c) The assessing authority as well as the appellate authority both have erred in facts to note that the assessee is a first Ccopeart4e Society and then it is a ....
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....And has not applied the provisions of section 40(A)(ia) of the Income Tax Act, 1961. Therefore the view of the assessing authority itself is contradictory and in dual mind. Therefore the claim of the assessee be allowed. i) The assessee craves to add, to alter, to amend, to delete or modify any of the grounds of appeal at the time of hearing of the appeal." In C.O.No. 31/PNJ/2013, the following grounds have been raised: "1. The additions deleted by the CIT(A), Belgaum amounting to Rs. 31,87,638/- is according to law and therefore the same be allowed. 2. The order passed by the CIT(A), Belgaum on allowing interest on NPA is according to and on the basis of Hon. High Court of Karnataka in Canfin Homes Ltd. (2011) 5 Tax Corp (DT) 49593 and hence, the same be allowed. 3. The assessee craves to add, to alter, to amend, to delete or modify any of the grounds at the time of hearing of the appeal." I.T.A. No. 327/PNJ/2013 3. Short facts of the case are that the assessee is a Co-operative Bank carrying on the business of banking. It has obtained necessary license from the Reserve Bank of India for carrying on its banking operations as a Co-operative Bank. For the year unde....
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....nterest receivable on various types of loans as on 11/11/2011 which are as under:- Previous year balance Interest receivable 2008-09 Total Balance Interest received 2009-10 2010-11 2011-12 Total 28,44,043 31,87,638 60,31,681 9,15,318 7,94,219 2,72,571 19,82,108 The assessee had not credited the interest receivable on various loans, therefore the Assessing Officer has held that the interest receivable is income of the assessee and he made the addition. 4. Matter was carried to the CIT(A) and CIT(A) has deleted the addition by observing as under:- "5.2.7 Hon'ble Supreme Court (3 members) in the case of UCO Bank v. CIT (1999) 237 ITR 889 has held that interest accrued on sticky advances which was not brought in profit and loss account but taken to separate suspense account should be added as income only when actually received. This judgment of the Apex Court in its essence lays down law on the issue unless expressly overruled either by itself or by a legislative amendment which has not come till date. 5.2.8 x x x 5.2.9 Thus, in view of the decision of the jurisdictional High Court in the case of JCIT v. M/s. Canfin Homes Ltd. (2011) 5 Tax Corp (D....
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....arnataka High Court is not applicable to the facts of the assessee‟s case. The Jurisdictional High Court in the case of JCIT v. M/s. Cafin Homes Ltd. (2011) 5 Tax Corp (DT) 49593 has held that if the assessee is adopted mercantile system of accounting and in his accounts he shows a particular income as accruing, whether that amount is really accrued or not, is liable to bring the said income to tax. Merely because the said amount accrued was not realized immediately cannot be a ground to avoid payment of tax. But, if in his account it is clearly stated though a particular income is due to him but it is not possible to recover the same then it cannot said to have been accrued and the said amount cannot be brought to tax. The Assessing Officer as well as CIT(A) has not verified this fact from the accounts of the assessee and simply followed the decision of Karnataka High Court. Therefore, matter may be restored to the Assessing Officer to decide the issue as per the decision of UCO Bank v. CIT (1999) 237 ITR 889. 6. One representative appeared on behalf of the assessee and given application for adjournment. Earlier also, various adjournments were granted. Today, the asse....
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....ssee adopts mercantile system of accounting and his accounts he shows a particular income as accruing, whether that amount is really accrued or not is liable to bring the said income to tax. His accounts should reflect true and correct statement of affairs. Merely because the said amount, accrued was not realized immediately cannot be a ground to avoid payment of tax, but if in his account it is clearly stated though a particular income is due to him but it is not possible to recover the same, then it cannot said to have been accrued and the said amount cannot be brought to tax. Therefore, we reverse the finding of CIT(A) and restore the issue back to the file of Assessing Officer to verify whether the assessee has followed the mercantile system of accounting or not? Secondly, if this amount is accrued to the assessee, but it is not possible to recover the same then it cannot be said to have been accrued and the said amount cannot be brought to tax. The Assessing Officer should verify from the P & L a/c and decide the matter as per law after giving opportunity of hearing to the assessee. 8. In the result, appeal is allowed for statistical purposes. I.T.A. No. 329/PNJ/2013 ....
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....ct lax at source under section 194A(1) on interest on time deposits paid/credit to its depositors if such interest amount exceeded the limit prescribed in proviso to section 194A(3)(ii). Further, the Hon'ble Kerala High Court in the case of Moolamattom Electricity Board Employees Co-op Bank Ltd 238 ITR 630 has made a clear distinction between primary credit society and a co-oh society engaged in banking business, Thus, section 194A deals with co-op societies engaged in the business of banking, co-operative societies engaged in providing credit facilities to the members, etc. As has been rightly held by the Assessing Officer that the moment the amount paid/credited to any depositor during the year exceeds Rs. 10,000 the provisions of section 1944(1) shall apply and the co-operative society engaged in the banking business shall have to deduct tax on such payments, From the facts of the case, it is seen that the Assessing Officer categorically brought out the material on record to prove that the appellant bank is covered b'/ the provisions of sub-clause (b) of clause (i) of Sec 194A(3) as well as the provisions of clause (viia) of Sec.194A(3) which are specific in nature and the appel....
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....aged in carrying on the business of banking". This Circular of the CBDT explains in no uncertain terms that the intention of the legislature n amendment of Section 1944, inter alia was to secure deduction of tax at source from interest on time deposits with the banking companies and co-operative societies 2ngaged in carrying on the business of banking. The appellant being a co-operative society engaged in carrying on the business of banking s liable to make TDS u/s 194A. 5.1.8 In view of the above discussion and taking into consideration the various reasons en by the Assessing Officer, the disallowance made under section 40(a)(ia} amounting to Rs. 53,00,668/- is confirmed. The next grounds of appeal relate to the addition of Rs. 31,87,638/- on account interest receivable NPAs not credited to P '& I account as per the method of accounting followed, by the, appellant Bank. The Assessing officer noticed that the appellant Bank is following hybrid system or mixed system of accounting to compute its net income from the banking business. The appellant Bank is mainly following mercantile system of accounting but interest on advances is recognized as income o receipt basis as per....
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....nt benefits to different types of co-operative societies through the Income tax Act. The assessee claimed the benefit of sections 36(1)(viia), 269 SS and 269T on the ground that it is a co-operative bank but for availing exemption from TDS under section 194A, it is claiming itself as an ordinary 'co-operative society' within the meaning of section 194A(3)(v) of the Act. We find that this distinguishes the co-operative society and the cooperative society carrying on business of banking. The Hon'ble Kerala High Court in the case of Moolamatom Electricity Board Employees Co-operative Bank Ltd., 238 ITR 630 has distinguished this. We also rely upon the decision of Hon'ble Jurisdictional Karanataka High Court in the case of CIT vs. Yeshwanthpur Credit Co-operative Society Limited in Income Tax Appeal No.2372012, wherein, the Hon'ble High Court has interpreted the co-operative bank by observing as under: Nature Co-operative society registered under Banking Regulation Act, 1949 Co-operative Society registered under Karnataka CO-operative Society Act, 1959 Registration Under the Banking Regulation Act, 1949 and Co-operative Societies Act, 1959 Co-operative Societies Act, 1959 Nature....
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....f the amendment. If the assessee is not a Co-operative bank carrying on exclusively banking business and if it does not possess a license from the Reserve Bank of India to carry on business, then it is not a Co-operative bank. It is a Co-operative society which also carries on the business of lending money to its members which is covered under Section 80P(2)(a)(i) i.e., carrying on the business of banking for providing credit facilitates to its members. The object of the aforesaid amendment is not to exclude the benefit extended under Section 80P(i) to the society." 11. In the above judgement, Hon'ble High Court has held that the co-operative bank and co-operative society is different entity and they are on different footing. We also rely upon the clarification made by CBDT in this regard, which reads as under: "No. 133/06/2007-TPL Government of India Ministry of Finance Department of Reserves Central Board of Direct Taxes New Delhi, the 9th May, 2007 To, Shri. 0. P. Gupta, Secretary, The Delhi Co-op. Urban T& C Society Ltd., 31/64, Bhikam Singh Colony, Vishwas Nagar, Delhi -110032 Sir, Subject: Clarification regarding admissibility of dedu....
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....eral provision. For this proposition, we rely upon the decision of the Jurisdictional Karnataka High Court in the case of M.L.Vasudeva Murthy and Sons and others vs. Joint Commissioner of Agricultural Income tax, 198 ITR 426(KAR). The Hon'ble Supreme Court in the case of South Indian Corpn. (P) Ltd. vs. Secretary, Board of Revenue AIR 1964 SC 207 has held that "a special provision should be given to the extent of its scope leaving the general provision to control cases where the special provision does not apply" Therefore, we are of the view that in this case, assessee's case is covered by the provisions of clause (i) and (va) which are the general provisions of clause (v) of Section 194A(3) of the Act. We reproduce the section for the sake of convenience, which reads as under: Section : 194A.: Interest other than "Interest on securities" (1) Any person, not being an individual or a Hindu paying to a resident any income by way of interest securities, shall, at the time of credit of such income to the account of the payee payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rates in force (2....
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....society engaged in banking business. Section 194A dealt with Co-operative Society engaged in business as banking. We find that the assessee bank is covered by the provisions of sub-clause (b) of clause (i) of Sec.194A(3) as well as the provisions of clause (viia) of Section 194(3)A which are specific in nature and 194(3)(v) which are general in nature. We find that the Hon'ble Kerala High Court in the case of ITO& Ors. vs. Thodupuzha Urban Co-operative Bank and others have filed the writ before the Hon'ble Kerala High Court, wherein the Hon'ble High Court has held as under: "The Income Tax Department has come up with this appeal against the judgment in O.P. No. 17082/1997.(Thodupuzha Urban Co-operative Bank Ltd., In [1999]238 ITR630(Ker). That petition was filed by five co-operative Societies, when they were faced with a notice from the appellant to deduct the income-tax out of the interest paid by them on time deposits, in respect of every payment exceeding Rs. 10,000, at the relevant point of time. The learned single judge as per the impugned judgment, quashed the notices holding that going by the provisions contained in section 194A(3)(viia)(a) of the Income Tax Act, for short....
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....in sub-clause (a) of clause (viia) of sub-section (3) of section 194A of the Act. Therefore, irrespective of Whether it is a time deposit or any other type of deposit, the 4th petitioner, first respondent will not be liable to deduct income-tax, as such society is under sub-section (3) taken out of the purview of section 194A(1) of the Act. Therefore, the writ appeal fails, dismissed. W.A. No. 2270 of 1998: A reading of the impugned judgment discloses that the writ petitioner, the first respondent, was concede to be an agricultural co-operative society. Consequently, it comes within the purview of clause (viia)(a) of sub-section (3) of section 194A of the Income-tax Act, 1961. Naturally, the first respondent-society will not be liable in terms of sub-section (1) of section 194A. The writ appeal fails, dismissed. From this above we are of the view that the Hon'ble High Court has interpreted section 194(v) and 194(va) of Section 194A(3). Now coming to Circular No. 9/2002, issued by the CBDT, which is relied upon the assessee. The said circular sought to interpret the definition of "member" clarified that the member does not include the nominal member. It was held by the B....
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....tion at source in respect of interest on term deposit with the bank and commission w.e.f., June 1992. Accordingly, Finance Act 1992 substituted a new Clause (vii) w.e.f., 1st June, 1992, sub-section 3 of Section 194A for clause (vii) and someone as earlier introduced by Finance No.2 Act w.e.f., 1st October, 1991. This amendment was made to restore the position as was before 1st October, 1991 in relation to deduct tax at source in the case of income credited or paid in respect of deposit with a bank company to which banking regulation Act 1940 applies or with a co-operative society engaged in carrying on the business of banking, "including co-operative land mortgage bank or co-operative land development bank" This was brought into w.e.f., 1.4.1992. Finance Act 1995 w.e.f., 1st July 1995 again withdrawn the exemption for interest on time deposit payable by bank. The amendment Section 194A now provides for deduction of tax at source at the rate in force from payment for interest exceeding Rs. 10,000/-in a financial year on time deposits made on or after 1st July,1995 with a banking company or with a Co-operative society engaged in carrying on business of banking. The aforesa....
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....ovision of section 194A (viia) will become redundant. The section cannot be read in this manner. For the sake of clarity, we have analyse the Section 194A(3)(v) and (viia) which read as under: "(3) The provisions of sub- section (1) shall not apply- (i) 5 where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub- section (1) to the account of, or to, the payee, does not exceed 6 ten thousand rupees................. (v) to such income credited or paid by a co- operative society 5 to a member thereof or] to any other co- operative society; (viia) to such income credited or paid in respect of,- (a) deposit with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank; (b) deposits (other than time deposits made on or after the 1st day of July, 1995) with a co-operative society, other than a co-operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking The TDS on time deposits is dealt....
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....under any scheme framed by the Central Government and notified by it in this behalf; and (d) five thousand rupees in any other case]:] From the above it is clear that, in case of a payer which is a cooperative society engaged in the business of banking, the monetary limit prescribed is Rs. 10000/-. Once the interest payment exceeds that amount the TDS is to be made. Neither in clause (viia) nor in clause (i) there is anything to restrict their applicability only to non-members and therefore they apply to all depositors. Going by the above understanding, the co-op bank is required u/s 194A(1) to make TDS from the interest paid to all depositors. However co-op bank holds the view that clause (viia) applies only to non-members and not to the members. However, on perusal of clause (viia), nothing in it to restrict its application only to non-members. The stand taken by co-op bank is that the interest paid to members is exempted in clause(v). The appellant is placing reliance on Circular no 9 of 2002 in its support. In this scenario, the moot question for consideration is: Whether, in respect of interest paid on time deposits by a co-op bank, the clause(v) which deals with coope....
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....ative banks were required to deduct tax from interest paid to depositors who are not its members, rendering clause (vii) redundant. e. The by Finance Act 1991, for the first time introduced TDS on time deposits by substituting above mentioned clause (vii) with two separate clauses (vii) & (viia). While clause (vii) applied to banking companies, clause (viia) applied to specially created category of cooperative societies. This reaffirms the decision of legislature to apply a specific clause to the specific genre cooperative societies, which were earlier carved out of the genus as envisaged in general clause(v). The effect of above amendment was explained by the CBDT in Circular no 617 dated 22-11-1991 where in it is clarified that: The effect of the aforesaid change is that income-tax shall now be deductible at source from the interest income on the deposits with. (i) a banking company, or cii) a co-operative society engaged in carrying on the business of banking, other than a co-operative land mortgage bank, a co-operative land development bank, primary agricultural credit society or a primary credit society (emphasized) The above circular clearly states that, it was ....