TaxTMI 
TaxTMI 
2019 (8) TMI 1332
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....(i) Disallowance under section 40(a)(ia) - Rs. 1,59,59,667/ (ii) Disallowance of interest accrued on standard assets - Rs. 19,10,753/- (iii) Interest received in earlier year excluded 2.2 Aggrieved by the order of assessment dated 25.03.2015 for Assessment Year 2012-13, the assessee filed an appeal before the CIT(A), Mysuru raising various grounds / additional grounds. The CIT(A) dismissed the assessee's appeal vide order dated 28.02.2018. 3.1 The assessee, being aggrieved by the order of the CIT(A), Mysuru, dated 28.02.2018 for Assessment Year 2012-13, has preferred this appeal wherein it has raised the following grounds:- 3.2 The assessee has also raised the following additional grounds:- 3.3 In the course of appellate proceedings, the learned AR for the assessee filed paper book (pages 1 to 69) containing various documents and copies of some judicial pronouncements. The learned DR for Revenue has also put forth submissions / cited a judicial pronouncement. The rival contentions / submissions put forth have been duly considered. 4. Ground Nos.1 and 7 (supra) being general in nature, do not call for adjudication thereon and are accordingly dismisse....
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....l evidence to prove its claim. The learned DR submits that in view of the above, the assessee's ground on this issue be dismissed. 7.3 In rejoinder, the learned AR submitted that the case of the AO was not that the assessee had not furnished the requisite evidence to support its claim. The AO's case was that the provisions of section 194A(3)(v) of the Act were not applicable to the assessee; and that the AO arrived at the disallowance only on the basis of the submissions and details furnished by the assessee. According to the learned AR, the conclusion of both the AO and the CIT(A) was erroneous and the issue being squarely covered by the decisions of the Hon'ble jurisdictional High Court (supra), the disallowance under section 40(a)(ia) of the Act needs to be deleted. 7.4.1 We have considered the rival submissions and perused the material on record; including the judicial pronouncements cited. From a perusal of the record, it emerges that in the course of assessment proceedings, the AO required the assessee to explain the reasons for non-deduction of tax at source under section 194A of the Act in respect of interest paid by it to its Members on Fixed Deposits maintained b....
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....shed the same. In fact, it appears that it is from the very details furnished by the assessee that the AO has quantified the interest on time deposits as Rs. 1,59,59,667/- and held the same liable for TDS. Therefore, the finding rendered by the CIT(A) is factually incorrect. 7.4.3 As regards the applicability of the provisions of section 195A(3)(i(b) of the Act; this issue has been decided by the Hon'ble Karnataka High Court in its judgment in the case of CIT Vs. Jamkhandi Urban Co-operative Bank in ITA No.1004 of 2015, wherein it held that the Amendment made to section 194(3)(V) of the Act, that the exemption is not applicable to payment of interest on term deposits to Members only w.e.f. 01.06.2015. In the aforesaid case of the Hon'ble Karnataka High Court (supra), the following was the substantial question of law before it: "1 Whether the Tribunal is right in concluding that the provisions of section 194A(3)(V) of the Income Tax Act, 1961 applies to all Co-operative Societies including Co-operative Society engaged in the business of banking?" The relevant portion of the judgment where the aforesaid substantial question of law was answered at Para 4 of the Hon'ble ....
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....egard, the learned AR submitted that the issue was covered in favour of the assessee by the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Pandarpura Sahakara Sakkare Kharkhane Ltd., (1998) 174 ITR 475 (KAR). 9.2 Per contra, the learned DR for Revenue supported the orders of the authorities below on this issue and placed reliance on the decision of the Coordinate Bench of this Tribunal in the case of Tumkur DCC Bank Ltd., in ITA No.1532 and 1533/Bang/2016 dated 31.01.2019. 9.3.1 We have considered the rival contentions and perused the material on record; including the judicial pronouncements cited. We have carefully perused the decisions cited by both parties (supra). The issue before the Hon'ble Karnataka High Court was directly on the point of whether the contribution to Co-operative Education Fund by a society governed by the Karnataka Societies Registration Act, was allowable. The issue before the Hon'ble Apex Court in the case of Vellore Electric Corporation Ltd., (supra) was on the issue of allowability of amounts transferred to contingency reserve, development reserve and tariff and dividend control reserve out of profits of an electric supply corp....
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.... to be followed and respectfully following the same, allow the grounds 5 and 5.1 raised by the assessee. 10. In the result, the assessee's appeal for Assessment Year 2012-13 is partly allowed. Pronounced in the open court on 28th August, 2019. ============= Document 1 1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. 2. The learned CIT[A] is not justified in upholding the disallowance of Rs.1,59,59,667/- made by invoking the provisions of sec. 40[a] [ia] of the Act in respect of the interest paid by the appellant to its members without deducting tax at source on the unsustainable ground that the appellant had not established the fact that the interest was paid to its members under the facts and in the circumstances of the appellant's case. 2.1 The learned CIT[A] ought to have appreciated that there was no dispute with regard to the aforesaid facts relating to the interest paid by the appellant to the members of the appellant, which was an admitted position and the disallowance was made by the learned A.O.....
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.... Rs. 20,72,175/ transferred to Reserve Fund under statutory regulation did not constitute the income of the appellant as it was diverted by overriding title and accordingly, ought to have held that it was not assessable to tax or in the alternative, allowed deduction of the same as business expenditure under section 37[1] of the Act under the facts and in the circumstances of the appellant's case. 5. The learned CIT[A] erred in facts and law in upholding the action of the A.O. in refusing to law a sum of Rs. 1,24,330/- as deduction being 2% of the net profit of the appellant for the previous year transferred to the Co- operative Education Fund as required by section 57[2A] of the Karnataka Co- operative Societies Act, 1959 under the facts and in the circumstances of the appellant's case. 5.1 The learned CIT[A] ought to have appreciated that the sum of Rs. 1,24,330/- transferred to the Co-operative Education Fund under statutory regulation did not constitute the income of the appellant as it was diverted by overriding title and accordingly, ought to have held that it was not assessable to tax or in the alternative, allowed deduction....
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....ll not apply to the payment of interest on time deposits by the co-operative banks to its members. As this amendment is effective from the prospective date of 1st June, 2015, the co-operative bank shall be required to deduct tax from the payment of interest on time deposits of its members, on or after the 1st June, 2015. Hence, a cooperative bank was not required to deduct tax from the payment of interest on time deposits of its members paid or credited before 1st June, 2015." Consequently, the finding of the Tribunal that the Co- operative banks were required to deduct tax at source is unsustainable. Accordingly, this appeal filed by the revenue stands dismissed. Document 4 9. The Madras High Court in Vellore Electric Corpn. Ltd.'s case (supra)has disagreed with the view of the Kerala High Court in Cochin State Power & Light Corpn. Ltd.'s case (supra) as regards the deductibility of the amounts appropriated to the Contingencies Reserve but has agreed with the view of the Kerala High Court with regard to Development Reserve. According to the Madras High Court, there is no difference between the two revenues and, referrin....
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.... further deduction of the amount of compensation, if any, payable to the employees of the outgoing licensee under any law for the time being in force, has to be handed over to the Electricity Board or the State Government as the case may be. Under the proviso to sub-para (4) of Paragraph VA where the undertaking is purchased by the State Electricity Board or the State Government the amount of Development Reserve has to be deducted from the price payable to the licensee. This difference in the two provisions does not, in our opinion, mean that the amounts appropriated to Development Reserve were not part of the real profit of the Electricity Company. Like Contingencies Reserve, Development Reserve also belonged to the Electricity Company and it had the use of it. The Contingencies Reserve is meant to be utilised by the Electricity Company to meet the expenses or recoup loss of profits arising out of accidents, strikes or other circumstances which the Electricity Company could not have promoted or to meet the expenses on replacement or renewal of plant or works or for payment of compensation required by law for which no other provision has been mad....