By TIOL News Service

CHENNAI, FEB 16, 2018: THE ISSUE BEFORE THE BENCH is - Whether a co-operative society, carrying on banking business with the approval of RBI, is liable to deduct TDS u/s 194A on the interest paid to its members before the amendment of such provision. NO is the answer.

Facts of the case:

The Assessee, a co-operative society, formed for the welfare of the employees of the Life Insurance Corporation. The Assessee had filed its return for the relevant AY. In the course of the assessment proceeding, a SCN was issued by the Revenue after perusal of the Profit and Loss account of the Assessee and stated that the Assessee had failed to deduct TDS on on interest payments exceeding Rs.10,000/- as per sec 194(A)(1) r.w. sec 194A(i)(b). In reply, the Assessee stated that it started in the year 1939 with a different name and after nationalization of the insurance sectors, the name was changed to the present name with area of operation extending to the State of Tamil Nadu. The Assessee had also obtained a license from the RBI in order to carry out the banking business. Further, the Assessee had two categories of membership, one for LIC employees and another for associate membership. Both categories of members were allowed to deposit money to the Assessee but loan could only be availed by the LIC employee members. The Assessee later, contended that after the amendment made to sec 194, they were not required to deduct from the payment of interest on time deposits of its members paid or credited. Apart from the theory of prospectivity and retrospectivity, the concept of single transaction was also explained by the Assessee. However, after rejecting all the contensions placed by the Assessee, the assessment was completed and thereby, the Revenue passed an order against the Assessee.

the High Court held that,

++ this Court noted that there has not been due application of mind to the stand taken by the Assessee in their reply dated 04.12.2017. The Revenue has proceeded entirely on a different ground than what was mentioned in the SCN. In other words, the decision arrived at while completing the assessment is not on the ground on which the Assessee was required to show cause. This would be sufficient to set aside the proceedings under consideration. That apart, the Revenue has passed the order so challenged by drawing a distinction between different types of co-operative societies and has stated that the Assessee is involved in banking business though it is a cooperative society and tax has to be deducted at source;

++ this very issue was considered by the Division Bench in the case of Coimbatore District Central Cooperative Bank Ltd. It appears that the Revenue has not gone through the decision, copy of which was filed by the Assessee along with their reply to the SCN. The AO was bound by the decision rendered by the jurisdictional High Court. It is stated that as on date there is no appeal by the revenue as against the decision of the Division Bench. That apart, in the Assessee's own case for the previous AYs, the Tribunal has held in favour of the Assessee;

++ accordingly, the writ petition is allowed, the said order is set aside and the matter is remanded to the Revenue for passing fresh orders, who is directed to take into consideration the decision of the Division Bench in the case of Coimbatore District Central Cooperative Bank Ltd. and also the circular issued by the CBDT in Circular No.19/2015 and pass revised orders in accordance with law. While re-doing the assessment, the Revenue should bear in mind the observations made by the Supreme Court in the case of Kamlakshi Finance Corporation.

(See 2018-TIOL-290-HC-MAD-IT)