Cooperative Society Wins: ITAT Rules Nominal Members Count for TDS Exemption Under Section 194A, Overturns CIT(A) Decision.

The ITAT Amritsar Bench ruled in favor of the assessee, a cooperative society, determining that nominal members should be considered as members under Section 194A of the Income Tax Act, 1961. Consequently, the society was not required to deduct TDS on interest payments to nominal members. The CIT(A) NFAC's decision, which relied on the CBDT Circular, was overturned. The principle of Res-judicata was upheld, as prior rulings had recognized nominal members as eligible for TDS exemption. The appeal was allowed, and the order treating the assessee as in default and charging interest under Section 201(1A) was quashed.

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Issues Involved:

1. Treating the assessee in default for TDS to the tune of Rs. 41,89,719/-.
2. Overlooking the principle of Res-judicata.
3. Charging of interest under Section 201(1A).

Summary:

1. Treating the assessee in default for TDS:
The appellant, a cooperative society, paid interest exceeding Rs. 5,000 to non-members/nominal members without deducting TDS. The Ld. CIT(A) confirmed the AO's action, citing Section 194A(3)(v) of the Income Tax Act, 1961, which exempts TDS only for members of a cooperative society. The CBDT Circular No. 9 of 2022 was referenced to define 'member.' The appellant's reliance on the case of CIT vs Punjab State Cooperative Bank Ltd (2008) was dismissed as it pertained to Section 80P, not TDS provisions. The CIT(A) dismissed the appellant's appeal, emphasizing that allowing TDS exemption for non-members could lead to tax evasion.

2. Overlooking the principle of Res-judicata:
The appellant argued that the CIT(A) NFAC, Delhi, erred in overlooking the principle of Res-judicata, as the same issue had been adjudicated in their favor for the preceding Assessment Year 2014-15. The CIT(A) had previously accepted nominal members as members, exempting interest paid to them from TDS under Section 194A. The ITAT Amritsar Bench and other judicial precedents, including the Hon'ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. vs. Commissioner of Income Tax, Calicut, supported the appellant's position that nominal members should be considered members for TDS exemption purposes.

3. Charging of interest under Section 201(1A):
The appellant contended that the CIT(A) erred in confirming the AO's action of charging interest under Section 201(1A) for non-deduction of TDS. The appellant cited various judicial precedents, including the Hon'ble High Court of Bombay in The Jalgon District Central Bank vs. Union of India, which quashed the CBDT Circular No. 9 of 2002, asserting that the exemption under Section 194A(3)(v) cannot be taken away by distinguishing between duly registered and nominal members.

Conclusion:
The ITAT Amritsar Bench concluded that nominal members are to be considered as members of the cooperative society, and thus, the assessee was not required to deduct tax at source on interest payments to nominal members. The CIT(A) NFAC's reliance on the CBDT Circular was deemed against the law. The impugned order was quashed, and the appeal was allowed in favor of the assessee.

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