2022 (8) TMI 778 - AT - Income Tax

Cooperative bank exempt from TDS on interest to nominal members

Mandheshwari Urban Development Co-op. Bank Ltd., Solapur Janata Sahakari Bank Ltd., Solapur Siddeshwar Sahakari Bank, Samarth Sahakari Bank Ltd., Vyapari Sahakari Bank Maryadit, Versus ACIT, Circle-1, Solapur., ITO, Ward-2 (4) / Solapur/ ACIT, Circle-2, Solapur.

Mandheshwari Urban Development Co-op. Bank Ltd., Solapur Janata Sahakari Bank Ltd., Solapur Siddeshwar Sahakari Bank, Samarth Sahakari Bank Ltd., Vyapari ... Issues:Appeals against orders of ld. Commissioner of Income Tax (Appeals) for different assessment years.Analysis:The appeals were filed by different assessees challenging orders of the ld. Commissioner of Income Tax (Appeals) for various assessment years. The Tribunal consolidated the appeals due to identical facts and issues. The specific case discussed pertained to the assessment year 2010-11 of a cooperative bank registered under the Maharashtra Cooperative Act. The issue revolved around the non-deduction of TDS on interest paid to certain categories of depositors. The Assessing Officer contended that TDS was required under section 40(a)(ia) of the Income Tax Act, as the bank failed to deduct TDS on interest paid to non-members. The ld. CIT(A) upheld the AO's decision, leading to the appeal before the Tribunal.The appellant argued that as per the bye-laws of the society, any person conducting banking transactions with the society could become a nominal member. The appellant contended that these nominal members should be considered as members of the cooperative society, thereby exempting the bank from TDS obligations under section 194A. The appellant relied on various judicial precedents, including decisions of the Bombay High Court and Pune Tribunal, to support their position. On the contrary, the ld. CIT-DR argued that members who lack voting rights cannot be treated as cooperative society members, thus disqualifying the bank from the exemption under section 194A(3)(v).The Tribunal analyzed the issue concerning the applicability of the exemption under section 194A(3)(v) to a cooperative bank. It was established that cooperative banks, as a type of cooperative society, are entitled to the general exemption from TDS on interest payments to members. The key contention was whether nominal members, as per the society's bye-laws and the Maharashtra Cooperative Societies Act, could be considered as society members for the purpose of the exemption. Referring to relevant legal provisions and judicial decisions, including the Supreme Court's interpretation of the term 'member' in a cooperative society, the Tribunal concluded that nominal members were indeed members under the law. Consequently, the Tribunal held that the bank was eligible for the exemption under section 194A(3)(v) for interest payments to nominal members, overturning the lower authorities' decisions.As a result, the Tribunal allowed the appeal for the assessment year 2010-11 and directed the Assessing Officer to delete the addition made under section 40(a)(ia) for non-deduction of TDS on interest paid to nominal members. The Tribunal's decision in this case was deemed applicable mutatis mutandis to the remaining nine appeals of the assessee for different assessment years. Therefore, all ten appeals filed by the assessees were allowed by the Tribunal.