Non filing of 15G/15H would not invoke disallowance u/s 40(a)(ia)

By | November 2, 2016
(Last Updated On: November 2, 2016)

Held

”Since separate provisions were prescribed on default for non-filing or delayed filing of Form 15G/15H to Commissioner. non filing of such form would not invoke disallowance under section 40(a)(ia) and that where person responsible to deduct TDS received declaration in form 15G/form 15h non-filing or delayed filing of such form before Commissioner would not result in disallowance under section 40(a)(ia).”

we hold that TDS is not deductible on receipt of Form No. 15G etc., and accordingly, section 40(a)(ia) of the Act is not applicable in the facts of the case. Thus, assessee succeeds on this score also.

IN THE ITAT HYDERABAD BENCH ‘B’

Assistant Commissioner of Income-tax, Circle 1(1), Tirupati

v.

Chittoor Dist. Co-operative Central Bank Ltd.

D. MANMOHAN, VICE-PRESIDENT
AND PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER

IT APPEAL NOS. 1581 & 1582 (HYD.) OF 2014
C.O. NOS. 64 & 65 (HYD.) OF 2014
[ASSESSMENT YEARS 2007-08 AND 2010-11]

JULY  6, 2016

J. Siri Kumar, DR for the Appellant. T. Chaitanyakumar for the Respondent.

ORDER

1. The Revenue has preferred appeals for the assessment years 2007-08 and 2000-11 against the common order of the Commissioner of Income-tax (Appeals) Guntur dated 25.6.2014. The assessee has also filed its cross-objections under S. 253(4) of the Act. Since issues involved as well as the order impugned are common, all these appeals are being disposed of by this common order for the sake of convenience.

2. In both the appeals of the Revenue, the solitary issue involved is that the CIT (A) is not justified in deleting the additions made by the Assessing Officer by invoking the provisions of S. 40a(ia) of the Act, for non-deduction of tax on interest paid by the assessee in terms of S. 194A of the Act. In its cross-objections, the assessee has impugned the legality of the action of the Assessing Officer in reopening the assessments under S. 147 of the Act.

3. Facts of the case, common for both the years except for the amounts and dates etc. involved, as taken from the appeal for assessment year 2007-08, are that the assessee is a cooperative society carrying on banking activities. For the assessment year 2007-08, assessee originally field return of income on 29.10.2007 admitting loss of Rs. 4,73,54,180. The assessment was framed under S. 143(3) on 9.12.2009, determining the loss of the assessee at Rs. 1,15,28,930, after making certain disallowances of Rs. 3,58,84,050. The said assessment was thereafter reopened by issue of notice under S. 148 dated 20th January, 2012. The assessment was reopened to withdraw the house property loss wrongly adjusted and to recompute the business loss of the assessee. The Assessing Officer however completed the re-assessment determining the total income of the assessee at Rs. 5,25,22,858. While framing the re-assessment, the Assessing Officer inter alia made a disallowance of Rs. 6,37,64,249 being interest paid to individual members of the cooperative society and other institutions and societies and local bodies, without deduction of tax at source on such interest payments. The Assessing Officer observed that the assessee is not just a cooperative society, but a cooperative society engaged in the business of banking, as referred to in S. 194A(3)(i)(b) and therefore, the assessee-bank is required to deduct tax at source from the payments made to various persons. The Assessing Officer observed that the assessee could not produce any nil or lower deduction certificates issued by the income-tax officers of the respective deductees. The Assessing Officer also observed that Forms 15G/15H/60 etc. were also not furnished towards non-deduction. The Assessing Officer relied upon CBDT Circular No. 9 of 2002 dated 11.9.2009 and held that exemption under S. 194A(3)(v) would be available only to such members who have joined in application for the registration of the cooperative society and those who are admitted to membership after registration in accordance with the bye-laws and rules. He therefore held that interest paid to various persons requires to be disallowed for violation of S. 194A, in the light of provisions of S. 40a(ia). He accordingly inter alia disallowed the interest paid to the tune of Rs. 6,37,64,249 while framing re-assessment order.

4. Assessee preferred an appeal before the CIT (A) and raised two fold objections. The assessee firstly challenged that the reopening under S. 147 is not permissible since original assessment under S. 143(3) was made after verifying the relevant details and after certain sums were also disallowed. No new material/evidence has come to the notice of the Assessing Officer after the completion of the assessment. The entire assessment was reopened on the basis of the very same material, which is against the ratio laid down by the Apex Court in CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 . Therefore, the action of the Assessing Officer in invoking S. 147 is without jurisdiction and thus vitiated in law.

4.1 On merits, the assessee pointed out before the CIT (A) that the payment of interest was made to its members and therefore, there is no requirement of deduction of tax on such interest payments and also interest payments did not exceed Rs. 10,000 individually to each member and therefore, there was no requirement to deduct tax at source. The assessee also furnished relevant Forms 15G/16H/60 in appropriate cases before the CIT (A) as additional evidence.

4.2 The CIT (A) after obtaining remand report from the Assessing Officer came to the conclusion that for the default committed by the assessee in obtaining Form 15G/15H/60, a different remedy is available to the Revenue. Accordingly, the learned CIT (A) held that provisions of S. 40a(ia) cannot be invoked under the circumstances or non-deduction of TDS. The relevant operative portion of the order of the CIT (A) is reproduced hereunder—

‘5.3.4 I have perused the submissions made in the remand report. The appellant has filed copies of the despatch registers of its branches as evidence of the fact that Forms 15G, 15H and Form 60 were being submitted to the Income Tax Authorities. In some branches, the forms were submitted to the ACIT (CIB) while in other cases these forms have been submitted to the O/o. CIT/ACIT, Tirupati. The Hon’ble ITAT, Mumbai in Karwat Steel Traders v. ITO (2013) (37 taxmann.com 190) has held as under:

”Since separate provisions were prescribed on default for non-filing or delayed filing of Form 15G/15H to Commissioner. non filing of such form would not invoke disallowance under section 40(a)(ia) and that where person responsible to deduct TDS received declaration in form 15G/form 15h non-filing or delayed filing of such form before Commissioner would not result in disallowance under section 40(a)(ia).”

Further, the Hon’ble ITAT, Jaipur in Shyam Sunder Kailash Chand v. ITO(2012) (19 taxmann.com)(342(JP)(2011) 3 DJ 126 (JP), has held as under:

“Where Form 15G received by the appellant from depositors was submitted to the assessing officer late by few days but before framing of the assessment, interest paid by the appellant to the depositors without deduction of tax at source could not be disallowed since said forms were available to assessing officer while framing assessment”

5.3.5 The A.O., in his remand report has made a general statement that PAN has not been quoted, without pointing out cases where PAN has been allotted to the depositor and has not been quoted. Similarly, the appellant has pointed out that village adresss do not contain street names or door numbers and hence they canto be called incomplete addresses.

5.3.6 Based on the decisions of the Hon’ble ITAT, Mumbai and the Hon’ble ITAT, Jaipur in the cases cited above, I am of the opinion that disallowance u/s. 40(a)(ia) in the case of a cooperative bank on the grounds that Forms l5G and 15H have not been properly filled in or that have been delivered at the local Income Tax Office as against O/o.CIT(CIB), Hyderabad or ITO(CIB) Tirupati is unfair and unjust under law. The appellant’s appeal on this ground is allowed.’

4.3 However, as regards the legal ground challenging the assumption of jurisdiction under S. 147 by the Assessing Officer, the CIT (A) rejected the grounds of the Assessee. The relevant observations of the CIT (A) in this regard are reproduced hereunder—

‘4.3.2 I have perused the submissions made by the appellant. In the case of Kalyanji Mavji & Co. v. CIT (SC) 102 ITR 287, the Hon’ble Apex Court has held that the expression “has reason to believe” is wider than “is satisfied”. The reasons must have a live link with the formation of belief. The information based on which reopening is done would also include true and correct state of law derived from relevant judicial decisions either of the IT. Authorities or Courts of Law – Whether the ground on which the original assessment is based is held to be erroneous by Supreme Court in some other sense, that will also amount to a fresh information which comes into existence subsequent to the original assessment-tax payer would not be allowed to take advantage of an oversight to mistake committed by the taxing authority. In the case of CIT v. Bai Navajbai N. Gamadia (Bom.), 35 ITR 793, it was held that “retrospective amendment of IT. Act making certain receipts taxable as income which was not chargeable to tax earlier – is information for the purpose of reopening”. Moreover, in the case of Som Dutt Builders (P.) Ltd. v. DCIT (ITAT, Kol) 98 ITD 78, it has been held that “Change of opinion comes to rescue of assessee only when Assessing Officer has taken one of permissible views at the time of original proceedings – A wrong application of law cannot be held as permissible view and that can always be Changed for appreciating law’. Further, in the case of CIT v. Rinku Chakraborthy [2011] 56 DTR 227, it has been had that ” When an income liable to tax has escaped assessment in the original assessment proceedings due to oversight and inadvertence or a mistake committed by the ITO, he has jurisdiction to reopen the assessment. Re-assessment is permissible even if the information is obtained after proper investigation from the materials on record or from any enquiry or research into fats or law. Information need not be from external source”.

4.3.3 Thus, merely because certain information was available in the return of income, does not bar the assessing officer from reopening us. 147. Further, having issued notice u/s. 148, the assessing officer is within his rights and is in fact, duty bound to take into account any issue regarding escapement of income, which comes to light during the re-assessment proceedings. In the cases of CIT v. Sun Engineering Works P. Limited(SC) 198 ITR 297, V. Jaganmohan Rao & Ors. v. CIT(SC) 75 ITR 373, ITO v. Mewalal Dwarka Prasad(SC) 176 ITR 529, the Hon’ble Supreme Court has held that “ITO can bring to tax any income which escaped assessment and not only items which led to issuance of notice u/s. 148. Thus, the appellant’s appeal in respect of Ground No. 1 is dismissed and the A.O.’s action in reopening assessment by issue of notice u/s. 148 is upheld.’

5. Aggrieved by the order of the CIT (A) on merits, Revenue is in appeal before he Tribunal, whereas on the issue of legality of reopening of the assessment under S. 147, assessee has preferred the cross-objections.

6. The Learned Departmental Representative for the Revenue submitted that the assessee has not filed Form 15G/15H/60, etc. towards non-deduction before the appropriate authority, i.e. Commissioner of Income-tax. He relied upon the provisions of S. 194A and submitted that the assessee was under legal obligation to deduct TDS on interest payments to various depositors as mandated by law. He finally relied upon the order of the Assessing Officer and submitted that the Assessing Officer was fully justified in resorting to the provisions of S. 40a(ia) for non-deduction of tax at source.

7. The learned AR for the assessee, on the other hand, vehemently emphasised that the assessee is a cooperative society and interest was paid to its members and other cooperative societies. The assessee being a cooperative society carrying on banking activities is not obliged to deduct tax at source on interest payments to its members and other cooperative societies in view of S. 194A(3)(v) of the Act, and therefore, the Assessing Officer was wholly incorrect in applying the provisions of S. 40a(ia) in the case of the assessee. He further submitted that the reliance placed on the CBDT Circular No. 9 of 2002 dated 11.9.2002 by the Assessing Officer for denying exemption under S. 194A(3)(v) of the Act is misplaced. He pointed out that the aforesaid CBDT circular has been read down by the Hon’ble Bombay High Court in the case of Jalgaon District Central Co-operative Bank Ltd. v. Union of India [2004] 265 ITR 423 (Bom.) with regard to application of S. 194A to the co-operative societies. .

7.1 The learned AR on facts submitted that the payments have been made to other members or to other cooperative societies carrying on banking activities. He next submitted that the relevant prescribed forms were handed by the concerned depositors and the same were submitted to the Assessing Officer. Therefore, there is no warrant for disallowance of interest paid by the assessee to its depositors.

8. Learned AR thereafter adverted to the cross objections filed by the assessee and submitted that the action of the Assessing Officer in invoking the provisions of S. 147 is not sustainable, since such action is based on mere review of the exiting facts and records and merely owing to change of opinion thereon. For this proposition, he relied upon the decision of the Apex Court in the case of Kelvinator of India Ltd. (supra).

9. In rejoinder, the learned Departmental Representative, on the legality of reopening of the assessment by the Assessing Officer, strongly supported the order of the CIT (A).

10. We have carefully considered the rival submissions, orders of the authorities below and case-law cited. Substantive issue that arises for our consideration in the appeals of the Revenue is applicability of provisions of S. 194A in the facts of the case. The assessee is a cooperative society carrying on banking activities and stated to have paid interest on deposits received from its members and other cooperative societies carrying on similar banking activities.

10.1 The provisions of S.194A of the Act. 1961 deals with interest other than interest on securities. Sub-section (1) of S. 194A mandates deduction of income-tax at source in respect of payments by way of interest whereas sub-section 3 of S. 194A provides an exception to the applicability of the provisions of sub-section (1). S. 194A(3)(v) grants exemption from TDS to such person who is credited or paid interest by the cooperative society to a member thereof or to any other cooperative society. It is the case of the assessee that interest was paid to its members and other cooperative societies and therefore, it is not obliged to deduct tax at source on in the payments to its members and other cooperative societies in view of S. 194A(3)(v) of the Act. Therefore, S. 40A(ia) does not come in to play at all. In this context, we take note of Circular No. 9 of 2002 dated 11th September, 2002 relied upon by the Assessing Officer which restricts exemption under S. 194A(3)(v) only to such members, who have joined in application for registration of the cooperative society and those who are admitted to the members for the registration in accordance with bye laws and rules. We find that the Hon’ble Bombay High Court in the case of Jalgaon District Central Cooperative Bank (supra) has quashed and set aside the Board Circular No. 9 of 2002 relied upon by the Assessing Officer. The relevant portion of the head-note on page 424 of the Reports (265 ITR) as follows:—

“The Central Board of Direct taxes cannot issue a circular under Section119 of the Act which would override or detract form the provisions of the Income-tax Act. The Central board of Direct Taxes is empowered to issue only administrative instructions to its subordinate authorities for the purpose of proper administration and enforcement of the provisions of the Income Tax Act, 1961. Circular No. 9 of 2002 dated September 11, 2002, provides that the exemption is available only to such members who have joined in application for the registration of the cooperative society and those who are admitted to the membership after registration in accordance with the bye laws and rules; that the members eligible for exemption under section 194A(3)(v)must have subscribed to and fully paid for at least one share of the cooperative bank, must be entitled to participate and vote in general body meetings or special general body meetings of the co-operative bank and must be entitled to receive share from the profits of the cooperative ban. The circular which is in the form of a clarification with regard to the rights and privileges of a duly registered member and nominal member is outside the scope of section 119. What is not contemplated in the exemption clause under section 194A(3)(v) of the Act cannot be imported to deprive the exemption granted to the co-operative society by issuing the impugned circular. The circular is not valid and is liable to be quashed.”

Respectfully following the above decision of the Bombay High Court, we hold the reliance of the Assessing Officer on the above circular of the board as misplaced. The CIT (A) has granted relief to the assessee on the ground that the prescribed forms given by the depositors have been duly furnished by the assessee before the Assessing Officer albeit wrongly instead of CIT concerned. We do not find any infirmity in the conclusion of the CIT (A) on this regard. Thus, no interference with the order of CIT (A) is called for.

11. We have also examined the impugned issue from a different perspective, as sought to be canvassed by learned AR. The question is whether S. 40a(ia) can be invoked when the requisite forms as prescribed under statute for non-deduction has been obtained from the deductee although not filed before proper authority. The provisions of section 40(a)(ia) of the Act is reproduced hereunder to examine this aspect of the matter :—

“40. Amounts not deductible Notwithstanding anything to the contrary in Sections 30 to 38, the following mounts shall not be deducted in computing the income chargeable under the head “profits and gains of business or profession ,—

(a) In the case of any assessee –

(i). . . . . . . . . . . . . . .

(ii)

(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, [has not been paid. . . . . . . (only relevant portion extracted). ”

The provision noted above spells out that the amount cannot be allowed as deduction only in the event when tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid. In the present case, it is the case of the assessing officer that the assessee was required to deduct tax in terms of the provisions of section 194A. We note that Section 194A is further qualified by section 197A(1A) which is a non-obstante clause. Setion197A(1A) provides that liability to deduct tax under section 194A ceases when a declaration in writing in duplicate in prescribed form and verified in the prescribed manner received by a person responsible for paying income to the payee. The remedy towards default for non-furnishing of the declaration to the Commissioner of Income Tax as prescribed has been addressed under section 272A(2)(f) of the Act by imposing suitable penalty thereon. However, once Form No,15G/Form 15H were received by the persons responsible for deducting tax, there is no liability to deduct tax at source in view of section 194A r.w.s. 197 A. Once, it is held that tax is not deductible at source under section 194A on receipt of prescribed form, the mischief provided under section 40(a)(ia) is not attracted.

12. We find that no default can be said to have occurred in terms of the phraseology provided under section 40(a)(ia) of the Act in the facts of the case. Accordingly, we hold that the CIT (A) rightly cancelled the disallowance made by the assessing officer under section 40(a)(ia) of the Act due to mere non-filing of impugned Form No. 15G/15H etc. with the appropriate authority. We have also perused decision of the ITAT in the case of Karwat Steel Traders v. ITO [2013] 145 ITD 370  (Mum. – Trib.) relied upon by the CIT (A) in this regard. We find the facts in the present case are identical to the facts in the case of Karwat Steel Traders (supra) wherein the Tribunal has taken a favourable view on the similar facts. Respectfully, following the order of the Co-ordinate Bench of the Tribunal, we hold that TDS is not deductible on receipt of Form No. 15G etc., and accordingly, section 40(a)(ia) of the Act is not applicable in the facts of the case. Thus, assessee succeeds on this score also.

13. Adverting to the cross objections filed by the assessee challenging the legality and validity of the reopening under S. 147, we find that the learned AR, except for the reliance placed on the decision of the Apex Court in the case of Kelvinator of India Ltd. (supra), has not brought on record any factual evidence or plea to support the contentions raised in the cross-objections. No evidence/material has been furnished, before the Tribunal to substantiate the contentions of the assessee. Even the basic documents, such as reasons recorded by the Assessing Officer for reopening the assessment and also the original assessment order are not placed on record. In the absence of any material or evidence brought on record by the learned AR of the assessee the grounds are only abstract in nature. Therefore, we find no reason to interfere with the impugned order of the CIT (A) on this aspect also. We accordingly find no merit in the cross objections raised.

14. In the result, appeals of the Revenue as well as the cross objections of the assessee are dismissed.

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