ORDER
PER BEENA PILLAI, JUDICIAL MEMBER
Present appeal is filed by assessee against order dated 29/03/2021 passed by the Ld.CIT (TDS), Bangalore for AY 2016- 17 on following grounds of appeal:
"1. That the order of the learned Commissioner of Income- tax (TDS) in so far it is prejudicial to the interests of the appellant, is bad and erroneous in law and against the facts and circumstances of the case.
2. That the learned Commissioner of Income-Tax (TDS) erred in law and on facts in invoking provisions of section 263 of the Act with respect to the order passed u/s. 201(1) and 201(1A) on the ground that they are erroneous and prejudicial to the interests of the Revenue.
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3. That the learned Commissioner of Income-tax (TDS) erred in law and on facts in passing order u/s 263 of the Act revising the orders passed u/s 201 ( 1 ) and 201(1A) of the Act even though such orders u/s. 201(1) and 201(1A) were subject matter of appeal before the Hon'ble Income Tax Appellate Tribunal and such appeals were disposed of before the order u/s. 263 was passed.
4. That the learned Commissioner of Income-tax (TDS) erred in law and on facts in holding that the Hon'ble Income Tax Appellate Tribunal has not considered the issue of violation of section 18 of Karnataka Co-operative Societies Act, 1959 and therefore, order u/s. 201(1) of the Act has not merged with the order of the Hon'ble Tribunal.
5. That the learned Commissioner of Income-tax (TDS) erred in law and on facts in holding that the orders u/s 201(1) and 201(1A) of the Act are erroneous and prejudicial to the interest of the revenue on the grounds that the order is made without any enquiry on violation of provisions of Karnataka Co-operative Societies Act 1959.
6. That the learned Commissioner of Income-tax (TDS) erred in law and on facts in holding that the provisions of S.18 of Karnataka Co-operative Societies Act 1959 and therefore the appellant is not a Co-operative Society.
7. That the learned Commissioner of Income-tax (TDS) erred in law and on facts in holding that the threshold limit of Rs. 10,000 provided u/s 194A(3)(i)(b) is not applicable to the appellant.
8. That the learned Commissioner of Income-tax (TDS) erred in law and on facts in holding that the appellant has to be assessed in the status of `AOP' and accordingly provisions of S. 194A(3)(i)(d) providing threshold limit of Rs. 5,000 is applicable.
Each of the above grounds is without prejudice to one another, the appellant craves the leave of the Hon'ble Income Tax Appellate Tribunal, Bangalore to add, delete, amend or otherwise modify all or any of the grounds of appeal either before or at the time of hearing of this appeal."
2. Brief facts of the case are as under:
2.1 The assessee is a Member Credit Co-operative Society, and it has regular members and associate members. During the FY 2015-16 the regular members were 836 and associate members were 49,517. The assessee had accepted deposits from its associate members and paid interest on such deposits. The
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assessee was under a bonafide belief that the interest paid to associate members falls u/s 194A(3)(v) of the Act and therefore, it did not deduct tax at source on interest paid to associate members.
2.2 The Ld.AO passed an order on 21.12.2018 u/s 201(1) of the Act holding that the interest paid by the assessee to its associate members in excess of Rs. 10,000 is liable for deduction of tax at source u/s 194A of the Act. The Ld.AO held that the associate members are not to be treated as members on the ground that they are not entitled to participate in the management and have no voting rights. The Ld.AO relied on the decision of the Hon'ble Supreme Court in Citizens Co-operative Society Vs ACIT reported in 397 ITR 1.
2.3 Aggrieved by the order of the Ld.AO, the assessee preferred appeal before the Ld.CIT(A) who dismissed the submissions.
2.4 Aggrieved by the order of the Ld.CIT(A), the assessee filed appeal before this Tribunal.
2.5 This Tribunal vide its order dated 18.01.2021 in ITA Nos. 412 and 413/Bang/2020 held that the associate members are also members, and the assessee need not deduct tax at source. In paragraph 14 of the order the Hon'ble Tribunal set aside the order passed by the Ld.CIT(A) and directed the assessing officer to delete the demand raised u/s 201(1) and 201(1A) of the Act.
2.6 When the appeal was pending before the Hon'ble Tribunal, the Ld.CIT(TDS), Bengaluru issued a notice u/s 263 of the Act on 18.12.2020 proposing to revise the order passed by the Ld.AO u/s 201(1), dated 21.12.2018.
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3. It is submitted by the Ld.AR that the order passed by the Ld.AO dt. 21.12.2018 u/s 201(1) travelled up to Tribunal in appeal and this Tribunal has to set aside the order of Ld.CIT(A) and deleted the demand raised in the order u/s 201(1) of the Act.
3.1 On the contrary, the Ld.DR relied on order passed under section 263 of the Act.
We have perused the submissions advanced by both sides based on records placed before us.
4. It is the submission of the assessee that this Tribunal in assessee's own case for assessment year 2916-17 in ITA No. 412- 413/Bang/2020 vide order dated 18/01/2021 deleted the addition made by the Ld.AO under section 201(1)/(1A) of the Act, and that pursuant such deletion the order passed by the Ld.CIT under section 263 seeking to revise the order passed by the Ld.AO u/s. 201(1)/(1A) of the Act becomes void. The observations of coordinate bench of this Tribunal is as under:
"11. We are concerned with the liability of the assessee for deduction of tax at source u/s 194A of the Act from the interest paid by the assessee. The assessee herein has paid interest to its "associate members" without deduction of tax at source. As per the definition of the term "member" given in sec. 2(f) of the Karnataka Co-operative Societies Act, 1959, "member" includes an associate member. Hence the assessee is able to collect deposit from them and also lend the money to them. Hence, we are of the view that the associate members should be construed as "members" only for the purpose of sec.194A of the Act, since the definition of the term "member" should be construed as given in sec. 2(f) of the Karnataka Co-operative Societies Act, 1959.
12. In the case of M/s The Government Employees Co- Operative Bank Limited vs. ACIT (ITA No.1485/Bang/2019 dated 31-12- 2020), the co-ordinate bench has expressed the following view:-
"11. We have considered the rival submissions. We find that a sum of Rs. 93,36,928/- is interest paid to
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Associate Members. The CIT(A) has, however, made a reference to the decision of Hon'ble Supreme Court in the case of Citizens Co-operative Society Ltd., Vs. ACIT in appeal No.10245 of 2017 Dt. 08.08.2017 which was a decision referred in the context of allowing deduction u/s. 80P(2)(a)(i) of the Act.
12. We are of the view that the analogy so drawn by the CIT(A) is erroneous. The provisions of Sec.194A which are in relation to deduction of tax at source cannot be equated with the provisions of Sec. 80P(2)(a)(i) of the Act, which deals with deduction while computing total income. The admitted position is that the sum of Rs.93,36,928/- has been paid to Associate Members and CIT(A) has equated it and named them as non- members. In our view this approach is erroneous." It can be noticed that the co-ordinate bench has expressed the view that the liability to deduct tax at source u/s 194A of the Act cannot be equated with the provisions of sec.80P of the Act.
13. This view combined with the decision of Hon'ble Supreme Court holding that the term "members" should be construed as defined in the respective co-operative societies Act would lead us to the conclusion that the associate members should be considered as included in the term "members" used in sec.194A(3)(v) of the Act. We notice that paragraph 3 of CBDT Circular (referred supra) has been quashed by Hon'ble Bombay High Court in the case of Jalagaon District Central Co-operative Bank Ltd. Vs. Union of India (265 ITR 423). Accordingly, we hold that the assessee is not liable to deduct tax at source from the interest payments made to Associate members as per sec.194A(3)(v) of the Act.
14. In view of the foregoing discussions, we set aside the orders passed by Ld CIT(A) and direct the AO to delete the demand raised u/s 201(1) and 201(1A) of the Act."
6. In the present case there is no dispute that the Ld.CIT(TDS) sought to revise an order passed by the Ld.AO which has been set aside by this Tribunal by its order dated 18/01/2021. We also note that the Ld.CIT(TDS) noted the view of this Tribunal, still sought to revise an order which is not in existence as on the date of passing of impugned order. He proceeds to discuss applicability of provisions of Section 80P, which has been considered by this Tribunal in its order dated 18/01/2021.
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7. Thus in our view, the Ld.CIT(TDS) sought to revise an inoperative order. We therefore, hold the impugned order passed by Ld.CIT(TDS) u/s. 263 of the Act, to be bad in law and deserves to be quashed.
Accordingly, the grounds raised by assessee stands allowed. In the result appeal filed by assessee stands allowed.
Order pronounced in open court on 28thDecember, 2021. Sd/- Sd/-
(B.R. BASKARAN) (BEENA PILLAI)
Accountant Member Judicial Member Bangalore,
Dated, the 28thDecember, 2021. /MS /
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore
6. Guard file By order Assistant Registrar, ITAT, Bangalore