2021 (1) TMI 831 - AT - Income Tax

Tribunal rules Credit Co-op Society not liable for TDS on interest payments to associate members

Vasavi Credit Co-Operative Society Ltd. Versus ITO (TDS) Ward-3 (4) Bangalore

Vasavi Credit Co-Operative Society Ltd. Versus ITO (TDS) Ward-3 (4) Bangalore - TMI Issues:Challenge to demand raised under section 201(1) & 201(1A) of the Income-tax Act, 1961 for non-deduction of tax at source from interest payments made to associate members of a Credit Co-operative Society.Detailed Analysis:1. Issue of Non-Deduction of TDS: The appellant, a Credit Co-operative Society, challenged the demand raised by the Assessing Officer (AO) under section 201(1) & 201(1A) of the Income-tax Act, 1961 for not deducting tax at source from interest payments made to associate members. The AO initiated proceedings as the society did not deduct TDS from interest payments to members. The AO relied on a CBDT Circular and a Supreme Court decision to hold that the exemption under section 194A(3)(v) does not apply to associate members. The society contended that as per section 194A(3)(v), TDS is not required on interest paid to members.2. Interpretation of 'Member': The key issue revolved around whether 'associate members' should be considered 'members' for the purpose of section 194A(3)(v) of the Act. The AO and CIT(A) argued that associate members are not entitled to voting rights and hence do not qualify as members. The CIT(A) relied on the principles of mutuality to differentiate between regular and associate members. The appellant argued that as per the Karnataka Co-operative Societies Act, 'associate members' are included in the definition of 'members,' allowing them to receive interest without TDS deduction.3. Judicial Precedents: The Tribunal referred to a recent Supreme Court decision in a similar context and emphasized that the term 'member' should be defined as per the respective Co-operative Societies Act. Another case involving a Co-Operative Bank highlighted the distinction between TDS provisions and deduction under section 80P of the Act. The Tribunal concluded that the liability to deduct TDS cannot be equated with other provisions, supporting the appellant's contention that 'associate members' should be considered 'members' under section 194A(3)(v).4. Decision: Considering the legal interpretations and precedents, the Tribunal set aside the orders of the CIT(A) and directed the AO to delete the demand raised under section 201(1) and 201(1A) of the Act. The Tribunal held that the appellant was not liable to deduct TDS from interest payments made to associate members as per section 194A(3)(v) of the Act. Both appeals of the appellant were allowed based on the definition of 'member' in the Karnataka Co-operative Societies Act.In conclusion, the Tribunal's judgment clarified the interpretation of 'member' in the context of TDS deductions for interest payments to associate members of a Co-operative Society, emphasizing the importance of legal definitions and precedents in determining tax liabilities.