TaxTMI 
TaxTMI 
2025 (10) TMI 1218
X X X X Extracts X X X X
X X X X Extracts X X X X
.... treating the appellant as co-operative bank and not providing the benefits of Section 194A(3)(v) of the Act even though the appellant society accepts deposits only from its members. 3. The CIT(A) erred on facts and in law in confirming the action of the assessing officer in treating the appellant as "assessee in default" for Rs. 26,40,976/- under section 201(1) of the Act. 4. The CIT(A) erred on facts and in law in passing the impugned order without considering the orders passed in favor of the appellant in deciding that appellant is not a cooperative bank. 5. The assessing officer erred on facts and in law in levying interest under section 201(1A) of the Act. 6. That the assessing officer erred on facts and in law in initiating penalty proceedings under section 271C of the Act. 3. Facts in brief are that the assessee, a Co-operative society for the relevant year paid interest on Time deposits of its Members amounting to Rs. 1,58,05,328/-. The TDS authority found that no TDS was deducted by it on the interest exceeding Rs. 10,000/- paid, thus violating the provisions of section 201(1) and 201(1A) of the Act. He held that the assessee was enga....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Hon'ble Supreme Court in the case of Citizen Co-operative Society Limited v. ACIT [2017] 397 ITR 1 (SC) has held that co- operative credit societies carrying on banking business are to be treated as co-operative banks for the purpose of TDS provisions. e) Similarly, the Hon'ble Bombay High Court in CIT v. Jafari Momin Vikas Co-operative Credit Society Ltd. [2014] 369 ITR 328 (Bom) has held that a co-operative credit society engaged in banking activities is to be treated as a co-operative bank for tax purposes. 4.2 Accordingly, it was held by him that the appellant was rightly considered as a co-operative bank for the purpose of TDS provisions. Consequently, the exemption under section 194A(3)(v) of the Act was not applicable to it. The AO has correctly held the appellant to be an "assessee in default" under section 201(1) of the Act for non-deduction of tax at source on interest payments made to its members. The contention that it did not have facilities like cheque books etc. which are typical of banks, was not found relevant for determining its status as a co-operative bank. The nature of activities carried out by it i.e., accepting deposits and providing loans was t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed not deduct tax at source u/s 194A of the Act by virtue of exemption granted u/s 194A(3)(v) of the Act. The learned DR relied on the stand taken by the revenue in the grounds of appeal filed before the Tribunal. 13. We have considered the rival submissions. This Tribunal in the case of Bagalkot District Central Co-operative Bank (supra) dealt with identical issue and identical stand taken by the revenue and the Assessee in the case of co- operative society engaged in banking business and have upheld identical order of CIT(A). The relevant observations of the Tribunal in this regard were as follows: "15. We have given a very careful consideration to the rival submissions. We are of the view that the submissions made by the learned counsel for the Assessee deserves to be accepted. As rightly contended by him sec. 194A(3)(i)(b) of the Act is a provision which mandates deduction of tax at source by a co-operative society carrying on the business of banking, where the income in the form of interest which is paid by such society is in excess of ten thousand rupees. sec. 194A(3)(v) of the Act provides that tax need not be deducted at source where the income in the form....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ies registered under the Kerala Co- operative Societies Act. In view of the specific provisions of sec. 194A(3)(viia) of the Act, they claimed that they need not deduct tax at source on interest paid. It was submitted by the petitioner that sub-s.194A(3)(v) deals with such income credited or paid by a co-operative society to a member whereas sub.s (3)(viia)(a) provides a total exemption to deposits with the primary credit society. The Hon'ble Kerala High Court accepted their plea and in their judgment have observed that sec. 194A(3)(i) exemption limit of Rs. 10,000/- to interest paid on time deposits with co- operative societies engaged in carrying on in business of banking is allowed but that does not mean that all co-operative societies who have credited or paid exceeding Rs. 10,000/- are liable to deduct tax at source. The Court held that co- operative society engaged in carrying on business of banking and primary credit societies stand on different footing and belong to different class. That does not mean that sec. 194A(3)(v) of the Act is applicable only to co-operative societies other than co-operative societies carrying on the business of banking as observed in para 37 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nly to such members who have joined in application for the registration of the co-operative society and those who are admitted to membership after registration in accordance with the bye-laws and rules. A member eligible for exemption under section 194A(3)(v) must have subscribed to and fully paid for at least one share of the co-operative bank, must be entitled to participate and vote in the General Body Meetings and/or Special General Body Meetings of the co-operative bank and must be entitled to receive share from the profits of the co-operative bank.[F. No. 275/106/2000-IT(B)] (2002) 177 CTR (St) 1" 18. It can be seen from para 2 of the Circular referred to above that the CBDT has very clearly laid down that co-operative societies carrying on banking business when it pays interest on deposits by its members need not deduct tax at source. The above interpretation of the provision by the CBDT which is in favour of the Assessee, in our view is binding on the tax authorities. 19. In the case decided by ITAT Panaji Bench in Bailhongal Uraban Co-op Bank Ltd. v. JCIT order dated 28.08.2013, the Tribunal proceeded on the footing that the aforesaid Circular has been qu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s other than the deposits with such co-operative society need not deduct tax at source Under Section 194A by virtue of the exemption granted vide Clause (V) of Sub-Section (3) of the said section" 14. In our view the above decision rendered by the co- ordinate bench is squarely applicable to the facts of the present case. In fact the CIT(A) in cancelling the order of the AO has placed reliance on the aforesaid decision. Respectfully following the decision of the co-ordinate bench referred to above, we uphold the order of the CIT(A).' 3. The aforesaid shows that the Tribunal was bound by its earlier decision in case of Bagalkot District Central Co-op. Bank v. Jt. CIT [2014] 48 taxmann.com 117 (Bang.). When we further enquired from the learned counsel for the Revenue as to whether the decision of the Tribunal was carried by the Department before this Court or not and in response thereto, the learned counsel for the appellants has brought to our notice the decision of this Court dated 16.12.2015 in ITA 100116/2014 whereby, the view taken by the Tribunal has not been interfered with. We may record that this Court in the above referred decision observed thus: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ucted by the respondent-assessee in the present case which is a co-operative bank. 6. As such, we are not impressed by the submission that there is any specific provision and therefore general exemption would not apply for the simple reason that the word 'Members' is missing in clause (b). Further, in Circular No. 19/2015 dated 27.11.2015 at paragraph 42.5 it has been inter alia mentioned as under: ". . . . . . . . . . Hence, the Co-operative Bank was not required to deduct tax from the payment of interest on the time-deposits of its members paid or credited before first June 2015". 7. Under the circumstances, the question of specific provision as against general provision would not arise for further consideration. Hence, we find that no substantial questions of law would arise for consideration." 6.2 In the case of Vasavi Credit Co-Operative dated 18.01.2021 in ITA 412 & 413/Bang/2020,exactly similar issue was decided in favour of the assessee with following observations: 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 revenu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 201(1) of the Act and Rs. 10,19,440/- as interest u/s 201(1A) of the Act. 4. The Ld. CIT(A) confirmed the orders passed by the A.O. He noticed that though the associate members hold shares and entitled to dividend, yet they do not have right to vote and to become office bearers of the society. Accordingly, the Ld. CIT(A) held that the principles of mutuality will not apply to associate members. With regard to the principles of mutuality, the Ld CIT(A) placed his reliance on the decision rendered in the case of CIT vs. Bankipur Club (226 ITR 97) and Chelmsford Club (243 ITR 89). Accordingly, he held that the associate members are distinctly different and they cannot be equated with regular members. Accordingly, th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sion "members" used in sec. 80P of the Act:- "46. It must also be mentioned here that unlike the Andhra Act that Citizen Cooperative Society Ltd. (supra) considered, 'nominal members' are 'members' as defined under the Kerala Act. This Court in U.P. Cooperative Cane Unions' Federation Ltd., Lucknow v. Commissioner of Income Tax, Lucknow-I (1997) 11 SCC 287 referred to section 80P of the IT Act and then held: "8. The expression "members" is not defined in the Act. Since a cooperative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression "members" in Section 80- P(2)(a)(i) must, therefore, 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. 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 regi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ules 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 office bearer of the Society." 10. We notice that the decision in the case of Citizen Co-operative Society (supra) and The Mavilayi Service Co-operative Bank Ltd & Ors (supra) have been rendered in the context of deduction claimed by them u/s 80P of the Act. Even in that situation also, the Hon'ble Supreme Court has expressed the view that the expression "member" should be construed as defined in the respective co- operative Societies Act. 11. We are concerned with the liability of the assessee for deduction of tax at source u/s 194A of the Act from the interest paid by the assessee. The assessee herein has paid interest to its "associate members" without deduction of tax at source. As per the definition of the term "member" given in sec. 2(f) of the Karnataka Co-operative Societies Act, 1959, "member" includes an associate member. Hence the assessee is able to collect deposit from them and also lend the m....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... AO to delete the demand raised u/s 201(1) and 201(1A) of the Act 6.3 The coordinate bench of ITAT, Mumbai has dealt with similar case in Shree Sidhivinayak Nagari Sahakari Bank Ltd. Vs. Dy. Commissioner of Income Tax in ITA 2741/Mumbai /2017 dated 28.02.2019. Relevant parts are extracted below": "7. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that our indulgence in the present appeal has been sought by the assessee for adjudicating as to whether a co-operative bank as per the pre- amended sec. 194A(3)(v) remained under a statutory obligation to deduct tax at source on the interest paid to its members, or not. As per sec. 194A(1) of the IT Act, any person not being an individual or a HUF, who is responsible for paying to a resident any income by way of interest other than income [by way of interest of securities], shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. Sub-secti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e prospectively w.e.f 01.06.2015, therefore, a co-operative bank was not required to deduct tax at source on interest that was paid or credited on time deposits of its members before 01.06.2015. On a similar line the Hon'ble High Court of Madras in the case of Coimbatore District Central Co-operative Bank Ltd. Vs. ITO, TDS Ward-1(5), Coimbatore (2016) 382 ITR 266 (Mad) had concluded that as the amendment made to sub- section (3) of sec. 194A w.e.f 01.06.2015 had a prospective operation, therefore, prior to the said amendment no obligation was cast upon a co- operative society carrying on banking business with the approval of Reserve Bank of India to deduct tax at source under sec. 194A on the interest paid to its members. Further, we find that the Hon'ble High Court of Bombay in the case of Jalgaon District Central Co- operative Bank Ltd. Vs. Union of India (2004) 265 ITR 423 (Bom), while deliberating on the scope and gamut of the CBDT Circular No. 9/2002, dated 11.09.2002, had observed that sec. 194A(3)(v) suggests that the provisions relating to TDS are inapplicable to the income credited or paid by the co-operative society to a member thereof or to any other co-operative society....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mended clause v) to sec. 194A(3) of the IT Act (i.e prior to its amendment vide the Finance Act, 2015 w.e.f 01.06.2015), a co-operative bank was underno obligation to deduct tax at source on the interest credited or paid to a member prior to 01.06.2015. We thus after considering the aforesaid CBDT Circular No.19/2015, dated 27.11.2015 and respectfully following the aforementioned judicial pronouncements which seizes the issue under consideration, therein conclude that as per the mandate of law as was available on the statute during the year under consideration viz. A.Y 2012-13, no statutory obligation was cast upon the assessee co-operative society to deduct tax at source on the interest of Rs. 1,15,21,357/- that was paid or credited by it on the time deposits of its members. On the basis of our aforesaid observations, the disallowance of the interest expenditure of Rs. 1,15,21,357/- made by the A.O under sec. 40(a)(ia) of IT Act for the alleged failure on the part of the assessee to deduct tax at source on the said amount under sec. 194A is vacated. 10. We thus in terms of our aforesaid observations set aside the order of the CIT(A) and delete the disallowance of Rs. 1,15....