TaxTMI 
TaxTMI 
2021 (1) TMI 831
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..... 2. The assessee is a Credit Co-operative Society and it is engaged in the business of accepting deposits from its members and lending loan to its members. The revenue carried out a survey operation in the hands of the assessee. It was noticed that the assessee has not deducted tax at source from the payment of interest made on deposits. Hence, the proceedings u/s 201 of the Act was initiated against the assessee for the year under consideration. The assessee submitted before the A.O. that it has paid interest to its members only and hence, as per the provisions of section 194A(3)(v) of the Act, the assessee is not required to deduct tax at source from the interest paid to its members. 3. The A.O. noticed that the assessee is having two ....
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....t given to the associate members. The A.O. also took support of the decision rendered by Hon'ble Supreme Court in the case of the Citizen Co-operative Society Vs. ACIT (Civil Appeal Noi.10245 of 2017) and observed that the decision rendered by Hon'ble Supreme Court of India clearly classifies members and non-members and hence the above said decision shall apply to the instant case. Accordingly, the A.O. held that the assessee is liable to deduct tax at source from the interest payments made to associate members. The assessee had paid interest of Rs. 2,61,74,593/- to the associate members, which were above the threshold limit of Rs. 10,000/- prescribed for not deducting tax at source. Accordingly, the AO raised demand of Rs. 261,74,593/- u/s....
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....y a co-operative society to any other co-operative society." There should not be any dispute that the interest paid by a cooperative society to its members is not liable for deduction of tax at source u/s 194A of the Act. The dispute is whether "an associate member" would fall under the category of "member" as mentioned in sec.194A of the Act. 6. The tax authorities have taken the view that the "member" should be construed as a person who has subscribed to the shares and he should be entitled to participate in profits, entitled to vote and entitled to participate in the management of the society. Admittedly the Associate members are not entitled to become office bearers of the society. The Ld CIT(A) has expressed the view that the associ....
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....aw enacted by the State Legislature under which the cooperative society claiming exemption has been formed. It is, therefore, necessary to construe the expression "members" in Section 80-P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the cooperative Societies Act. The said provision reads as under: "2. (n) 'Member' means a person who joined in the application for registration of a society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being in force but a reference to 'members' anywhere in this Act in connection with the possession or exercise of any right or power or the existence or....
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....hence its meaning should be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. As per sec. 2(f) of the Karnataka Co-operative Societies Act, 1959, the expression "member" is defined as under:- 2(f) "Member" means a person joining in the application for registration of co-operative society and a person admitted to membership after such registration in accordance with this Act, the rules and the by-laws and includes, a nominal and an associate member." Further, section 18 of the above said Co-operative Societies Act defines "Associate Member" as under:- "An associate member may hold shares but shall not be entitled to become an of....
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....embers. The CIT(A) has, however, made a reference to the decision of Hon'ble Supreme Court in the case of Citizens Co-operative Society Ltd., Vs. ACIT in appeal No.10245 of 2017 Dt. 08.08.2017 which was a decision referred in the context of allowing deduction u/s. 80P(2)(a)(i) of the Act. 12. We are of the view that the analogy so drawn by the CIT(A) is erroneous. The provisions of Sec.194A which are in relation to deduction of tax at source cannot be equated with the provisions of Sec. 80P(2)(a)(i) of the Act, which deals with deduction while computing total income. The admitted position is that the sum of Rs. 93,36,928/- has been paid to Associate Members and CIT(A) has equated it and named them as nonmembers. In our view this approach....