TaxTMI 
TaxTMI 
2026 (8) TMI 362
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.... 2. The grounds of appeal in ITA No.6038/M/2025 are as under: "ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE LD. ADDL. JCIT(A)-10 DELHI ERRED IN: - 1. confirming the TDS u/s. 201(1) of Rs. 4,38,903 & interest u/s. 201(1A) of Rs. 3,73,066, aggregating to Rs. 8,11,969 u/s. 201(1)/(1A) of I.T. Act, 1961, on the ground that the Appellant had failed to deduct the tax at source u/s. 194A on the interest of Rs. 44,07,683 paid by the Appellant to other Co-operative societies (not being members of the Appellant) and one trust. 2. not deciding on the second ground of appeal that in respect of interest payment of Rs. 1,61,537 to a trust (included in Rs. 44,07,683), the said trust had offered the said interest for taxation in their hands by including the same in the Income Tax Return filed and hence, there was no default in respect of TDS in terms of first proviso to S. 201(1). And hence, TDS u/s. 201(1) of Rs. 14,288 & interest u/s. 201(1A) of Rs. 12,144 was not payable. Further the Appellant had also paid interest u/s. 201(1A) of Rs. 1,143 on the same. 3. not appreciating the fact that- (a) the Appellant is a Co-operative society duly regist....
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....ture & referring to objects of the bank which was totally incorrect and irrelevant. 5. Relying on the ITAT order dated 15.07.2025 in the case of the Appellant for A. Y. 2016-17, which in the opinion of the passed without (e) proviso to Sec 194A(3) making Co-operative society covered under Cl. (v) liable to deduct tax at source under certain circumstances was inserted w.e.f. 01.04.2020 & hence, did not apply for the A. Y. 2016-17. 6. Observing in Para 20.1 of the order dated 05.09.2025 that the primary issue was about the liability of the Appellant for TDS u/s. 194A on interest payments made to its members totally overlooking the fact that the interest was paid to the Co. operative Housing Societies which were not the members of the Appellant bank. And hence, the TDS Default of Rs. 4,38,903/- (4,24,615 + 14,288) and Interest of Rs. 3,73,066/- (3,60,922 + 12,144) u/s. 201(1)/201(1A) of the I.T. Act, 1961, aggregating to Rs. 8,11,969/- deserves to be deleted in toto. Your Appellant craves leave, to add, alter, modify or delete all or any of the grounds of the appeal." ITA No.6038/M/2025 (AY 2016-17): 3. The facts of the case in brief are that ....
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....educted TDS u/s. 194A of the Act on the interest payments to housing societies. The interest income of the housing societies from the Co-op. bank was not eligible for deduction u/s. 80P(2)(d) of the Act. Hence, it was obligatory on part of the assessee to deduct tax on the interest income on the fixed or time deposits paid to the concerned Co-op. societies. The AO further referred to provisions of section 194A(1) r.w.s. 194A(3)(i) of the Act and held that these two provisions are specific provisions while exemption granted u/s. 194A(3)(v) of the Act is a general provision. The special provisions override the general provision. Regarding the reliance placed by the appellant on the proviso below section 194A(3) to the effect that by Finance Act, 2020 w.e.f. 01.04.2020, interest payable by the assessee to its customer in excess of specified limit would be liable for deduction of tax at source, the AO observed that the said amendment would apply to such recipients of interests, which are in the business of banking and not to Co-op. societies. The AO referred to the CBDT Circular No.18/2017 and stated that the appellant does not find a reference in the said Circular. 3.1 The AO also ....
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....or AY 2016-17, dated 15.07.2025. The CIT(A) has reproduced the bye-laws of the appellant at para 14 (pages 12 to 14) of the appellate order and observed that no objects of the society are related to agricultural or farmer related activities. All the objects of the society are related to banking and commercial activities. The appellant bank primarily focuses on urban centric financial activities and was not for the beneficiary of agriculture economy. Consequently, the banking transactions and deposits by the institutions have no direct nexus with the primary objects of Co-op. society. The CIT(A) also observed that the bye-laws and membership conditions revealed that the appellant Co-op. bank is engaged in banking services similar to those of the nationalized banks. He relied upon the decision of ITAT, Mumbai in its own case in ITA Nos.2374 to 2381/Mum/2025 (supra) and held that there was no merit in appellant's argument seeking exemption from TDS liabilities u/s. 194A(3)(v) of the Act. Hence, the order of AO was upheld and the appeal of the appellant was dismissed. 5. Aggrieved by the order of CIT(A), the assessee filed appeal before the Tribunal. The learned authorized represent....
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....lant's case fell within the second part of section 194A(3)(v) of the Act, it was under no obligation to deduct tax at source on credit or payment of such interest to the Co-op. housing societies de hors the quantum of such interest. The ld. AR relied on paragraph 42.7 of Circular No.19/2015, dated 27.11.2015, explaining the provisions of the Finance Act, 2015, that the existing exemption u/s. 194A(3)(v) of the Act from TDS on interest paid by Co-op. society to another Co-op. society shall continue to apply to the Co-op. bank and therefore, a Co-op. bank shall not be required to deduct tax from payment of interest on time deposit to a Co-op. society. The ld. AR submitted this position has been accepted by various Benches of the Tribunal while dealing with similar issue post 01.06.2015, such as (i) HP State Co-op. Bank Ltd. vs. ITO(TDS), 172 taxmann.com 470 (Chd.), (ii) Abhyudaya Co-op. Bank Ltd. (supra), (iii) Bombay Merchantile Co-op. Bank Ltd. vs. ITO, ITA Nos.1306 to 1307/Mum/2025, dated 26.08.2025, (iv) Darjeeling District Central Co-op. Bank Ltd. vs. ACIT(OSD)(TDS), ITA Nos.766, 767 & 768/Kol/2023, dated 26.06.2024 (v) Kadakkavoor Services Co-op. Bank Ltd. vs. ACIT, WP(C) No.11....
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.... Colaba Bench in ITA No. 6038/M/2025 and Amboli Bench in ITA No.6422/M/2025. He requested that a direction may be given to the AO that if the appellant is able to show fulfilment of conditions in proviso below section 201(1) of the Act, then, the appellant cannot be treated as an "assessee in default" to such extent. 7. On the other hand, the learned Senior Departmental Representative (ld. Sr. DR) for the revenue relied on the orders of lower authorities and submitted that after amendment w.e.f. 01.06.2015, the Co-op. banks were mandated to deduct tax at source on interest paid or credited to their members, if the amount of such payment exceeds specified threshold of Rs. 10,000/-. He submitted that the Co-op. banks tried to avail this exemption by making the depositors their members of different categories. This benefit has been taken away by amendment w.e.f. 01.06.2015, so as to exclude the payment exceeding Rs. 10,000/- from exemption of TDS, if it was made to members by Co-op. bank. The ld. Sr. DR also submitted that the word 'Member' has not been removed after amendment. Hence, even after amendment all Co-op. banks have to deduct tax from members as well as non-members. Only....
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....are not members of the bank, provisions of section 194A of the Act are applicable and the assessee is not exempted from the said provisions of u/s. 194A(3)(i)(b), 194A(viia)(b) and also not u/s. 194A(3)(v) of the Act. He also submitted, without prejudice to the above, as regards the CBDT circular No. 19/2015 dated 27.11.2015, that even if it is assumed that the payment of interest by a Co-op. bank to a Co-op. society, which is a non-member is eligible for exemption u/s. 194A(v), the said Circular in contrary to the provisions u/s. 194A(3)(i)(b) and 194A(viia)(b) of the Act. Hence, the same does not prevail over the statute He has relied on the decisions in cases of Citizen Co-op. Bank Ltd. (supra), Saraswat Co-op. Bank Ltd. vs. ITO (TDS), (2015) 54 taxmann.com 297 (Panaji - Trib.), and Noida Commercial Co-op. Bank Ltd. vs. ITO(TDS), (2015) 64 taxmann.com 158 (Del - Trib.). 8. We have heard both the parties and perused the materials available on record. We have also deliberated on the decisions relied upon by both parties. The issue for consideration is whether the appellant, which is a multi-state cooperative bank, was under an obligation to deduct tax at source in respect of th....
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....adequacy, risk management, lending norms and financial supervision. On the other hand, RCS overseas managerial aspects under the State/Central government including incorporation, registration, governance, audit, board suppression and liquidation of Co-operative banks. It is, therefore, clear that "Co-operative society" and "Co-operative bank" are not identical. There are several distinguishing features between the two. The RBI does not have any control over the "co-operative society" whereas "co-operative bank" are supervised and controlled by RBI in respect of all banking specific operations. The RBI has also the power to revoke banking license of co-operative banks. This duality has been recognized in the statute and distinct and specific provisions have been made for them. It is also a fact on record that assessee bank has made payment of interest to its customers, who are Co-operative housing societies, without any TDS. 8.3 The provisions contained in section 194A, to the extent relevant for the instant appeal, read as under: "[Interest other than "Interest on securities". 194A. (1) Any person, not being an individual or a Hindu undivided family, who is res....
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.... the income credited or paid by the banking company or the Co-operative society or the public company, as the case may be, where such banking company or the Co-operative society or the public company has adopted core banking solutions:] ............................................... (v) to such income credited or [paid by a Co-operative society (other than a cooperative bank) to a member thereof or to such income credited or paid by a Co-operative society] to any other Co-operative society.] Explanation.- For the purposes of this clause, "Co-operative bank" shall have the same meaning as assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949);] .......................................... (viia) to such income credited or paid in respect of, - (a) deposits with a primary agricultural credit society or a primary credit society or a Co-operative land mortgage bank or a Co-operative land development bank; (b) deposits (other than time deposits made on or after the 1st day of July, 1995) with a Co-operative society, other than a Co-operative society or bank referred to in sub-clause (a), engaged in carrying....
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....ew of this, even though it is categorically stated in the explanation given in the Explanatory Memorandum in clause 42 of the Finance Bill, 2015 that a Co-operative society shall not be required to deduct tax for the payment of interest on time deposit to a Co-operative society, the AO has incorrectly treated the assessee "as assessee in default" and imposed a tax liability towards non-deduction of tax at source along with interest thereon. 8.8 The ld. AR relied upon the decision of Co-ordinate Bench of ITAT Chandigarh in case of HP State Co-operative Bank Ltd. (supra), wherein similar issue had come up and it was held that assessee was not required to deduct tax at source in view of Section 194A(3)(v) of the Act. He also placed reliance in cases of Kadakkavoor Services Co-op. Bank Ltd. vs. ACIT, WP(C) No.11176 of 2019 (Kerala), Kaipuzha Services Co-op. Bank Ltd. vs. CIT(TDS), WP(C) No.10712 of 20196 (Kerala), Abhyudaya Co-op. Bank Ltd. (supra) and Darjeeling District Central Co-op Bank Ltd. (Supra). 8.9 On the reliance placed by the CIT(A) on the decision of the Co-ordinate Bench of ITAT in appellant's own case in ITA Nos.2374 to 2381/Mum/2025 (supra), the ld. AR submitted t....
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....to a resident any income by way of interest other than income by way of interest on 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: (3) The provisions of sub-section (1) shall not apply- (i) where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed- (a) ....................... (b) ten thousand rupees, where the payer is a Co-operative society engaged in carrying on the business of banking; ............... (v) to such income credited or [paid by a Co-operative society (other than a cooperative bank) to a member thereof or to such income credited or paid by a Co-operative society] to any other Co-operative society.] ............... (viia) to such income credited or paid in respect of, - (a) .....
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....unt of the payee. Sub-section (3) of 194A provides exemption from deduction in certain cases. Provisions of section 194A(3)(i)(b) of the Act makes it clear that provisions of sub-section (1) of section 194A(1) shall not apply to such income if the amount does not exceed "ten thousand rupees where the payer is a Co-op. society engaged in carrying on the business of banking". This clause is directly applicable in case of the appellant because it is a Co-operative society engaged in carrying on the business of banking. Hence, the appellant bank was exempted from TDS liability only upto payment of interest of Rs. 10,000/-. Beyond the above amount, it was obliged to deduct tax on credit or payment of interest to the respective payees. In the instant appeal, all payments were more than Rs. 10,000/-. Hence, the appellant was required to deduct tax on such interest payments. Further, provisions of section 194A(3)(viia)(b) also excludes payment of interest on deposits by a Co-op. society or bank, engaged in carrying on the business of banking from waiver of TDS. Since the assessee is a Co-op. society engaged in the business of banking, the exemption from TDS is not available to it while cre....
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....tatute or not. It also reinforced the principle that executive orders cannot override statutory regulations unless explicitly permitted by law. 15. There is no reason as to why the ratio will not be applicable to the facts of the instant appeal. In the present case, the provisions relating to a "Co-operative society engaged in carrying on the business of banking" will be applicable; rather than the provisions in respect of "a Co-operative society". Therefore, we do not find any reason to deviate from the finding of the lower authorities and observation of the Co-ordinate Bench in appellant's own case (supra) where, after detailed discussion on the facts, provisions of section 194A of the Act, amendment to section 194A(3) of the Act w.e.f 01.06.2015 and precedents on the issue including decision relied upon by ld. AR in case of H. P. Co-op Bank Ltd (supra), it was held that the assessee bank was covered by provisions of sub-clause (b) of clause (i) of section 194A(3) as well as provisions of sub-clause(b) of clause (viia) of the Act. For ready reference, the relevant para may be reproduced below: "7.3 Since the assessee bank is covered by the provisions of sub-clause(b) ....
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.... on exclusively banking business and if it does not possess a license from the Reserve Bank of India to carry on business, then it is not a Co-operative bank. It is a Co-operative society which also carries on the business of lending money to its members which is covered under Section 80P(2)(a)(i) i.e., carrying on the business of banking for providing credit facilitates to its members. The object of the aforesaid amendment is not to exclude the benefit extended under Section 80P(i) to the society.Looking to the facts and circumstances of the case the Hon'ble High Court has interpreted the difference between Co-operative Bank and Co-operative Society. 7.5 The Co-operative Bank and Co-operative Society are also interpreted in the case of Bhagani Nivedita Sahakari Bank Ltd. vs. ACIT (2003) 87 ITD 567 where in it is held that Co-operative Society mentioned in Section 194A(3)(v) should be interpreted as Co-operative Society other than Co-operative Bank. We find that hon'ble ITAT Pune Bench has interpreted the word Co-operative and Co-operative Society and further the hon'ble Kerala High Court in the case of Moolamattom Electricity Board Employees Co-operative Bank Ltd.....
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....t the appellant is covered by provisions of section 194A(1), 194A(3)(i)(b) and 194A(3)(viia)(b) of the Act and not under provisions of section 194A(3)(v) of the Act. The decisions relied upon by the ld. AR are not applicable because in those cases the impugned issue had not been examined in the light of the specific provisions of section 194A(3)(i)(b) and 194A(3)(viia)(b) of the Act. The said decisions were based on interpretation of the provisions of clause (v) of section 194A(3) of the Act and Circular No. 19/2015 (supra). In case of Abhyudaya Co-op Bank Ltd. (supra), the Tribunal decided in favour of the appellant by observing that waver provided u/s. 194A(3)(v) of the Act from interest payment by a Co-op society to another Co-op society existed before amendment and continues to apply to co-operative bank even after the amendment. It relied on the Explanatory Memorandum (supra). It also relied on the decision in case of H. P. state co-operative Bank Ltd. (supra). In case of Kadakkaboor Services Co-op Bank Ltd. (supra), the interest payment was by the District Co-operative Bank to the Primary Agricultural Credit Society. Hence, the facts are not similar. In H. P. State Co-oper....