Income Tax Appellate Tribunal - Bangalore
The Mandya District Co-Operative ... vs Assistant Commissioner Of Income Tax ... on 10 February, 2021
IN THE INCOME TAX APPELLATE TRIBUNAL
'C' BENCH : BANGALORE
BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT
MEMBER
AND
SMT. BEENA PILLAI, JUDICIAL MEMBER
ITA No.2116/Bang/2017
ITA No.1251/Bang/2019
Assessment Year : 2011-12 & 2015-16
The Mandya District Co- The Asst. Commissioner of
operative Central Bank Ltd., Income-tax,
Post Box No.14, Circle-2(1),
Mandya-571 401. Vs. Mysore.
PAN - AAAAT 1518 K
APPELLANT RESPONDENT
Assessee by : Shri S.V Ravishankar, Advocate
Revenue by : Smt. R Premi, JCIT (DR)
Date of Hearing : 28-01-2021
Date of Pronouncement : 10-02-2021
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER:
Present appeal is been filed by assessee against order dated 28/10/2016 and 29/03/2019 passed by the Ld.CIT(A), Mysore for assessment year 2011-12 and 2015-16 on following grounds of appeal:
Page 2 of 15 ITA No.2116/Bang/2019 ITA No.1251/Bang/2019 ITA No.2116/Bang/2017"1. The impugned order of the Commissioner of Income Tax (Appeals), Mysore passed under section 250 of the Income Tax Act, 1961 is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant's case.
2. The learned Commissioner (Appeals) erred in not quashing the assessment order passed by the assessing officer in the wrong status as a 'Company' on the facts and circumstances of the case.
3. The learned Commissioner (Appeals) failed to take note that the assessment completed in wrong status is not a curable defect under the provisions of section 292B of the Act on the facts of the case.
4. The Commissioner (Appeals) erred in upholding the disallowance made under section 40(a)(ia) in respect of amount of Rs. 73,71,646/- being the payments made to pigmy collectors on the facts and circumstances of the case.
5. The Commissioner (Appeals) failed to appreciate that the relationship between the pigmy collectors and the appellant co-operative bank is that of master-servant and not that of principal-agent as held by the Hon'ble Supreme Court in Indian Banks Association v. Workmen of Syndicate Bank & Ors. in Civil Appeal No. 3355 of 1998 decided on 13.02.2001 reported in 2001(1) SCR 1011.
6. The Commissioner (Appeals) also failed to take note of and follow CBDT's letter dated 03.03.2008 in F,No.275/25/2007/ITB to the Indian Banks' Association which has clarified that payments to pigmy collectors are to be made under section 192 of the Act as salary.
7. The Commissioner (Appeals) erred in holding that the appellant cooperative bank is only eligible for deduction in respect of provision for NPA of seven and half percent of the total income in terms of section 36(i)(viia) of the Act on the facts and circumstances of the case.
8. The Commissioner (Appeals) erred in denying the deduction available under the second limb of clause (a) of section 36(1)(viia) of the Act to the extent of 10% of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner on the facts and circumstances of the case.
9. The Commissioner (Appeals) failed to appreciate that the co- operative banks came to be treated at par with commercial/scheduled banks with the amendment made to the Act in 2007 and thereafter, the deductions available to commercial/scheduled banks ought to be extended to co-operative banks also.
10. The Commissioner (Appeals) ought to have followed the decision of the Nagpur Bench of the Income Tax Appellate Tribunal in the case of DCIT v. The Amravati District Central Co-operative Bank Ltd. ITA No. Page 3 of 15 ITA No.2116/Bang/2019 ITA No.1251/Bang/2019 29/Nag/2015 dated 17.06.2016 which has also been upheld by the Hon'ble Bombay High Court.
11. The appellant craves for leave of this Hon'ble Tribunal, to add, alter, delete, amend or substitute any or all of the above grounds of appeal as may be necessary at the time of hearing.
12. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.
Brief facts of the case are as under:
Assessment year 2011-12
2. The assessee is a co-operative society engaged in carrying on business of banking. For year under consideration, it filed its return of income on 24/09/2011 declaring total income of Rs.55,99,195/-. The return was revised on 30/03/2012 with the total income of Rs.28,85,763/-. The case was selected for scrutiny and notice under section 143(2) was issued to assessee.
3. In response to statutory notices, representatives of assessee appeared before the Ld.AO and filed requisite details. During the course of assessment proceedings the Ld.AO observed that, the assessee in its original return added pigmy deposit commission to the extent it was paid without deducting TDS under section 40(i)(a) of the Act. Subsequently, the said amount was claimed as deduction by assessee in the revised return. The Ld.AO while passing the order under section 143 (3) of the Act disallowed sum of Rs.73,71,646/- under section Page 4 of 15 ITA No.2116/Bang/2019 ITA No.1251/Bang/2019 40(a)(ia) of the Act to the extent TDS was not deducted on pigmy deposits commission.
4. Next issue considered by the Ld.AO was in respect of the provision made towards NPA debited to the extent of Rs.2Crores and reversal of NPA to the extent of Rs.10,98,57,395/- in the profit and loss account. The Ld.AO noticed that NPA provision made for the year under consideration was negative as the provision available in the balance sheet for financial year 2009- 10 was Rs.35,71,21,496/-and for financial year 2010-11 was Rs.26,45,67,095/-. The net provision for year was Rs.(- )8,98,57,395/-. The Ld.AO concluded that, there is no bad debts newly formed requiring further provision for NPA during the year and therefore the same was disallowed under section 36(1)(viia) of the Act.
5. Aggrieved by the order passed by Ld.AO, assessee preferred appeal before the Ld.CIT(A).
6. The Ld.CIT(A) while considering the issue of disallowance under section 40(a)(ia) of the Act for non-deduction of TDS on the pigmy deposit commission paid by assessee held as under:
"6.1 The aforesaid submissions of the appellant were duly considered. During the course of the appellate proceedings, the authorized representative placed reliance on the decision of the Honourable Supreme Court of India rendered in the case of Indian Banks Association Vs. Workmen of Syndicate Bank and others vide case no. Appeal (Civil) 3355o11998, dt. 1310212001 wherein the Honourable Supreme Court held that deposit collectors are workers within the meaning of the term as defined in the Industrial Disputes Act, though they are not regular employees of the Bank.Page 5 of 15 ITA No.2116/Bang/2019 ITA No.1251/Bang/2019
However, it would not be appropriate to extend such limited interpretation made under the provisions of the Industrial Disputes Act to the Income-tax Act, 1961 for the purpose of interpreting the relationship of Pigmy Deposit Collectors with the appellant because, the appellant has already treated such collection agents as commission agents in its books of account and not as wage earners having a master-servant relationship, with the appellant as their employer. Therefore, with regard to the disallowance made u/s. 40(a)(ia) of the Act, having already determined the nature of compensation paid/payable by the appellant to the 'Pigmy Deposit Collectors' as payment of commission, such commission is subject to TDS as per the provisions of section 194H of the Act and it must be taken in to consideration that the first proviso to section 194/1 of the Act prescribes that no deduction of tax under the provisions of section 194H of the Act shall be made "in a case where tile amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to tile account of or to, the payee, does not exceed five thousand rupees" Therefore, the Assessing Officer shall verify this aspect on the facts of the case and restrict the disallowance as per law, only to such amounts exceeding five thousand rupees paid to persons who received such commission. Accordingly, the Fifth, the Sixth and the Seventh Grounds of Appeal are partly allowed."
7. Regarding the next issue of provisions made towards NPA, the Ld.CIT(A) observed and held as under:
"The aforesaid submissions made on behalf of the appellant were duly considered. The fact remains that the appellant is a non scheduled co- operative bank and therefore, the appellant is not eligible for deduction of an amount not exceeding ten percent of the aggregate average advances made by its rural branches computed in the manner prescribed under Rule 6ABA of the Income-tax Rules, 1962. With due respect to the view taken by the Honourable Bombay High Court to the effect that where the substantive provision and the amended section extend the benefit at par to a co-operative bank and where the manner prescribed governing the scheduled banks was very much available, the insistence of the assessing officer on corresponding amendment to the Rules was unwarranted, in the instant case, it is held that such an authority for rendering a creative interpretation of the law, which is always available to the Honourable Courts of law, are not at all available either to the assessing officer and the First Appellate Authority under the Income-tax Act, 1961. The assessing officer and the First Appellate Authority under the Income-tax Act, 1961 are only empowered Page 6 of 15 ITA No.2116/Bang/2019 ITA No.1251/Bang/2019 to administer the law, as per the provisions of the statute. Therefore, after due consideration of the issue, it is held that the appellant is eligible only for a deduction equal to an amount not exceeding seven and one-half percent of the total income [computed before making any deduction under sub- clause (a) of clause (viia) of sub-section (1) of section 36 and Chapter VIA of the Income-tax Act, 1961, as per the extant provisions contained iii section 36(i)(viia) of the Act, read with Rule 6ABA of the Income-tax Rules, 1962. Accordingly, the Eighth, the Ninth and the Tenth Grounds of Appeal are partly Allowed."
8. Aggrieved by the observation of the Ld.CIT(A), assessee is in appeal before us now.
9. The Ld.AR at the outset, submitted that, by deciding Ground 4-8, the grievance of the assessee would be addressed. He submitted that, remaining grounds need not be adjudicated as they are in connection with the alleged disallowance.
10. Accordingly, we only adjudicate Grounds 4-8 amongst the grounds of appeal filed before us.
11. Ground 4-5 is in respect of the disallowance made under section 40(a)(ia) of the Act of Rs.73,71,646/-.
12. The Ld.AR submitted that, the amounts paid to the pigmy deposit collectors as commission under section 194H was considered to be liable to TDS by assessee, where aggregate amount paid during the year exceeded Rs.5000/-. And accordingly, the assessee voluntarily disallowed the amounts on which TDS was not made under section 40(a)(ia) of the Act. He submitted that, subsequently, assessee realised the error by treating the payments made to pigmy deposit collectors as commission instead of salary that is liable to TDS under section Page 7 of 15 ITA No.2116/Bang/2019 ITA No.1251/Bang/2019 192 as per CBDT Circular No.F.No.275/25/2007/ITB dated 03/03/2008.
13. The Ld.AR submitted that, subsequently assessee was covered by the CBDT circular and subsequent clarification issued in regards to the same, and that assessee filed revised return reversing the disallowance. The Ld.AR also placed reliance on decision of Hon'ble Supreme Court in case of Indian Banks Association vs. Workmen of Syndicate Bank & Ors. In Civil Appeal No.3355 of 1998, decided on 13/02/2001 reported in 2001 (1) SCR 1011, wherein pigmy deposit collectors were held to be 'workmen' of banks by Hon'ble Apex Court. The Ld.AR thus submitted that, remuneration paid to pigmy deposit collectors is not in the nature of commission within the meaning of Clause (i) of Explanation to section 194H of the Act. Reliance is also placed on decision of Hon'ble Delhi High Court in case of CIT vs Jai Drinks Pvt.Ltd., reported in 336 ITR 383. On the contrary, the Ld.Sr.DR submitted that, the decision of Hon'ble Supreme Court in case of Indian Banks Association vs Workmen of Syndicate Bank & Ors., was rendered in the context of Industrial Disputes Act, and therefore cannot be considered for the purpose of deciding the present issue under consideration. She submitted that in the present case assessee was liable to deduct TDS under section 194H and the Ld.CIT(A) was correct in upholding the disallowance in respect of the Page 8 of 15 ITA No.2116/Bang/2019 ITA No.1251/Bang/2019 payments on which TDS was not deducted that exceeded Rs. 5000/-.
14. We have perused submissions advanced by both sides in light of records placed before us.
15. The CBDT circular relied by the Ld.AR has been clarified vide letter dated 12/12/2007 by CBDT treating the remuneration (commission) earned by the pigmy deposit collectors as salary and subject to TDS under section 192 of the Act. The same has been placed at page 78 of paper book No.2. Vide letter dated 03/03/2008 the position has been reiterated and confirmed by CBDT followed by 01/12/2011 and 14/12/2011. The subsequent clarifications by CBDT States applicability of provisions of section 192 of the Act on the remuneration earned by pigmy deposit collectors, and that, the same will be treated as salary. In the light of the Circulars and subsequent clarifications issued by CBDT, in our view the authorities below could not have treated the payment made by assessee to the pigmy deposit collectors as commission for making disallowance under section 40(a)(ia) of the Act for non- deduction of TDS under section 194H of the Act.
16. We are therefore of the opinion that the disallowance deserves to be deleted.
Accordingly these grounds raised by assessee stands allowed.
Page 9 of 15 ITA No.2116/Bang/2019 ITA No.1251/Bang/201917. Ground No. 7-8 is in respect of the denial of deduction under section 36(1)(viia) of the Act in respect of provision for NPA of 10% of the aggregate average advances made by the rural branches.
18. The Ld.AR submitted that, the amount credited to profit and loss account of Rs.10,98,87,395/- regarding NPA provision made for assessment year 2007-08, which have been recovered during the year and hence necessary to be reversed. The Ld.AR submitted that provision made for year under consideration is Rs.2 crore, which is debited to the profit and loss account. He referred to page 18 of the paper book, wherein the said amount has been added as inadmissible expenses for the year under consideration for the purposes of computing income from business. The Ld.AR submitted that no disallowance could be made under section 36(1)(viia) of the Act, to the extent of Rs.64,49,179/-, which is upheld by the Ld.CIT(A).
19. On the contrary, the Ld.Sr.DR submitted that, no disallowance is confirmed the Ld.CIT(A). She submitted that, the Ld.CIT(A) directed the Ld.AO to verify the factual position that the claim of the assessee to the extent of Rs.64,49,179/- and then to adopt the correct amount of disallowance to be made. And therefore no grievance arises from the view taken by the Ld.CIT(A) on this issue.
Page 10 of 15 ITA No.2116/Bang/2019 ITA No.1251/Bang/201920. We have perused the submissions advanced by both sides in the light of records placed before us. We note that Ld.CIT(A) while concluding on this issue, held that assessee is eligible only for deduction equal to an amount not exceeding 7 ½% of the total income computed before making any deduction under section 36 (1) (viia) of the Act, read with Rule 6 ABA of Income tax Rules.
21. Section 36 of the Act deals with various deductions that could be allowed in computing income under section 28 of the Act. As per Section 36(1)(a)(viia), deduction could be claimed by banks referred to in clause (viia) in respect of bad and doubtful debts. It provides certain terms and conditions under which such deductions could be claimed by a particular bank. Section 36(1)(viia) commences with the following words "in respect of any provision for bad and doubtful debt made by" and sub- clause (a) reads as under :
"A scheduled bank not being a bank approved by the Central Government for the purposes of clause (viiia) or a bank incorporated by or under the laws of a country outside India or a non-scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, an amount not exceeding seven and one-half per cent. of the total income (computed before making any deduction under this clause and Chapter VI-A) and an amount not exceeding ten per cent. of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner."
Sub-clause (a) consists of two types of deductions:
Page 11 of 15 ITA No.2116/Bang/2019 ITA No.1251/Bang/2019• deduction of an amount not exceeding 7.5% of the total income (computed before making any deduction under this clause and Chapter VI-A);
• deduction of an amount not exceeding 10% of the aggregate average advances made by rural branches of such bank while computing in the prescribed manner.
22. So far as benefit of 7.5% of the total income, there is no condition that it should be in respect of any rural branch. In the paper book page 20, computation of deduction under section 36(1)(viia) of the Act and 10% of aggregate advances of rule rural branches have been placed. We note from page 19 of computation of income placed in paper book that the income from business of banking claiming any deduction under section 36(1)(viia) is Rs.64,49,179/- and that the Ld.AO disallowed the said sum under section 36(1)(viia) of the Act, thereby treating the deduction to be 'nil'. The Ld.CIT(A) directed the Ld.AO to verify the reversal of the opening balance of provision relating to that asset, which in our view cannot be found fault with. If the assessee created a new provision on a particular asset by fully reversing the opening balance of provision relating to that asset then the net recreation should be treated as a new provision which needs verification at the end of the Ld.AO.
Page 12 of 15 ITA No.2116/Bang/2019 ITA No.1251/Bang/201923. Accordingly this issue is remanded to the Ld.AO for verification on the lights of various judicial proceedings passed by this Tribunal and in accordance with law. Accordingly this ground stands allowed for statistical purposes.
In the result appeal for assessment year 2011-12 stands allowed as indicated hereinabove.
ITA No. 1251/Bang/2019Assessment year 2015-16
24. Following grounds have been raised by assessee in this appeal:
ITA No.1251/Bang/2019"1. The impugned order of the Commissioner of Income Tax (Appeals), Mysore passed under section 250 of the Income Tax Act, 1961 is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant's case.
2. The Commissioner (Appeals) grossly erred in dismissing the appeal of the appellant by relying on the irrelevant portions of the predecessor's appellate order for the assessment year 2011-12 on the facts and circumstances of the case.
3. The Commissioner (Appeals) effectively failed to adjudicate the grounds of appeal raised and 4 pressed by the appellant on the issue of. disallowance under section 40(a)(ia) of the Act and/ consequently the impugned appellate order is liable to be quashed on the facts and circumstance of the case.
4. The Commissioner (Appeals) erred in impliedly upholding the disallowance made under section 40(a)(ia) of Rs. 33,89,445/- in respect of the payments made to pigmy collectors on the facts and circumstances of the case.
5. The Commissioner (Appeals) ought to have appreciated that the relationship between the pigmy collectors and the appellant co- operative bank is that of master-servant and not that of principal-agent as held by the Hon'ble Supreme Court in Indian Banks Association v.Page 13 of 15 ITA No.2116/Bang/2019 ITA No.1251/Bang/2019
Workmen of Syndicate Bank & Ors. in Civil Appeal No. 3355 of 1998 decided on 13.02.2001 reported in 2001(1) SCR 1011.
6. The Commissioner (Appeals) ought to have taken note of and followed CBDT's letter dated 03.03.2008 in F.No.275/25/2007/ITB to the Indian Banks' Association which has clarified that payments to pigmy collectors are to be made under section 192 of the Act as salary.
7. Without prejudice, the Commissioner (Appeals) ought to have appreciated that the appellant has made deductions of tax at source u/s 192 of the Act wherever applicable and it is not a case of non- deduction of tax at source, but at the most of short deduction of tax at source for which provisions of section 40(a)(ia) of the Act are not attracted on the facts and circumstances of the case
8. Without prejudice, the Commissioner (Appeals) ought to have appreciated that the assessing officer has made disallowance u/s 40(a)(ia) of the Act even in respect of amounts which are below the threshold limit for TDS and hence not in accordance with law on the facts and circumstances of the case.
9. The appellant craves for leave of this Hon'ble Tribunal, to add, alter, delete, amend or substitute any or all of the above grounds of appeal as may be necessary at the time of hearing.
10. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and Equity.
25. Only issue raised by assessee is in respect of disallowance under section 40(a)(ia) for non-deduction of TDS under section 194H of the Act on the payments made by assessee to pigmy deposit collectors.
26. It has been admittedly submitted that, facts for year under consideration is identical and same as the facts for assessment year 2011-12 dealt with herein above on this issue. Both sides submitted identical arguments in respect of this ground. As we have already allowed the claim of assessee in Grounds 4- 6 hereinabove, the view taken therein is applied mutatis mutandis to these grounds in present appeal.
Page 14 of 15 ITA No.2116/Bang/2019 ITA No.1251/Bang/2019Accordingly grounds raised by assessee stands allowed. In the result appeal filed by assessee for assessment year 2015-16 stands allowed.
Order pronounced in the open court on 10th February, 2021 Sd/- Sd/-
(CHANDRA POOJARI) (BEENA PILLAI)
Accountant Member Judicial Member
Bangalore,
Dated, the 10th February, 2021.
/Vms/
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore
6. Guard file By order
Assistant Registrar, ITAT, Bangalore
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ITA No.2116/Bang/2019
ITA No.1251/Bang/2019
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