No disallowance us 40aia if Form 15G 15H not furnished to Commissioner as there is no liability to deduct TDS – ITAT

No disallowance us 40aia if Form 15G 15H not furnished to Commissioner as there is no liability to deduct TDS. In such cases remedy has been provided u/s 272A(2)(f) – ITAT

ABCAUS Case Law Citation:
972 2016 (07) ITAT
Assessment Year(s) : 2007-08, 2010-11
Date/Month of Judgment : July, 2016

Brief Facts of the Case:
The assessee was a cooperative society engaged in the business of banking.  The assessment was originally completed u/s 143(3) and was thereafter reopened by issue of notice u/s 148. The assessment was reopened to withdraw the house property loss wrongly adjusted and to recompute the business loss of the assessee. However, the Assessing Officer (AO) while framing the re-assessment, inter alia made a disallowance of interest paid without deduction of tax at source on such interest payments. The Assessing Officer observed that the assessee was 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 was 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 Section 194A, in the light of provisions of S.40a(ia). He accordingly inter alia disallowed the interest paid.

Before CIT(A), the assessee challenged the reopening u/s 147 since original assessment u/s 143(3) was made after verifying the relevant details and no new material/evidence had come to the notice of the Assessing Officer.  The assessee pointed out that the payment of interest was made to its members and therefore, there was no requirement of TDS 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.

The CIT(A) came to the conclusion that for the default committed by the assessee in furnishing Form 15G/15H etc to Commissioner, a different remedy was available to the Revenue and provisions of Section 40a(ia) cannot be invoked under the circumstances or non-deduction of TDS.  However CIT(A) rejected other grounds of appeal by the assessee.

Aggrieved by the order of CIT(A) both Revenue and the assessee approached the Tribunal in the present case.

Contentions of the Revenue:
The Revenue submitted that the assessee had not filed Form 15G/15H/60, etc. towards non-deduction before the appropriate authority, i.e. Commissioner of Income-tax and hence it constitute a default giving jurisdiction to invoke the provisions of section 40a(ia).

Observations by ITAT:

The Tribunal observed that  the Bombay High Court in the case of Jalgaon District Central Cooperative Bank (supra) had quashed and set aside the Board Circular No.9 of 2002 which was relied upon by the Assessing Officer.

Regarding the question whether Section 40a(ia) can be invoked when the requisite form 15G/15H as prescribed under statute for non-deduction had been obtained from the deductee although not filed before proper authority, the Tribunal upheld the order of CIT(A) as under:

Section 194A is further qualified by section 197A(1A) which is a non-obstante clause. Section 197A(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.