TaxTMI 
TaxTMI 
2026 (8) TMI 566
X X X X Extracts X X X X
X X X X Extracts X X X X
....026 With Interim Application No. 3432 Of 2026, Income Tax Appeal (L) No. 2548 Of 2026 With Interim Application No. 3172 Of 2026, Income Tax Appeal (L) No. 2549 Of 2026 With Interim Application No. 3435 Of 2026, Income Tax Appeal (L) No. 2554 Of 2026 With Interim Application No. 3433 Of 2026, Income Tax Appeal (L) No. 2555 Of 2026 With Interim Application No. 3431 Of 2026, Income Tax Appeal (L) No. 2556 Of 2026 With Interim Application No. 3434 Of 2026, Income Tax Appeal (L) No. 2558 Of 2026 With Interim Application No. 3437 Of 2026. JUDGMENT (PER G. S. KULKARNI, J.):- 1. These are eight appeals filed under Section 260A of the Income Tax Act, 1961 (for short, "the Act") by the appellant-Citizen Credit Co-operative Bank Ltd., against a common order dated 15 July 2025 passed by the Income Tax Appellate Tribunal, Bench at Mumbai, whereby the appellant's (for short referred to as 'the assessee') appeals, arising from the orders passed by the Commissioner of Income Tax (Appeals), have been rejected. As the assessee is a co-operative bank having different branches and the assessment of each of the branches being independent, these appeals pertain to a common assessment year namel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....olding deposit of tax deducted at source (TDS), on interest paid by the assessee on the fixed deposits maintained by the co-operative societies with the assessee. It is the case of the assessee that the co-operative societies who had deposited the amounts with the assessee were not the members of the assessee/bank, as also, they cannot be members in view of the bye-laws of the assessee. 6. For the assessment year in question, a notice dated 19 January 2023 was issued under Section 201(1)/201(1A) of the Act, in respect of one of the branches of the assessee namely the Turner Road branch inter alia recording that information was received that tax had not been deducted under Section 194A of the Act in respect of the interest paid to co-operative housing societies and in connection therewith, certain details were called for. Similar notices under Section 201(1)/201(1A) of the Act were issued in respect of seven other branches. All such branches submitted their replies which were similar to the one filed in the case of the assessee's Turner Road branch. 7. Further responding to the said notices, the assessee by its letter dated 20 February 2023 inter alia filed the relevant detail....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rban commercial bank, hence, it does not fall within the purview of the co-operative society for the purpose of Section 80P of the Act. The Assessing Officer further held that the co-operative societies earning income from the assessee, were not entitled to deduction under Section 80P(2)(d) of the Act and, therefore, it was obligatory on the assessee to deduct tax at source on the interest paid to such societies. It was further held that Section 194A(3)(v) was amended by the Finance Act, 2015 with effect from 1 June 2015, so as to mandate a co-operative bank to deduct tax at source on the interest paid or credited to its members. Also, reliance was placed by the assessee on Section 194A(3)(i) and Section 194A(3)(viia)(b) to hold that the said two provisions are specific provisions, while the exemption granted under Section 194A(3)(v) is a general provision and the special provision would override the general provision. 9. Similar orders were passed by the Assessing Officer for the other seven branches of the assessee, holding the assessee to be an assessee-in-default under Section 201(1)/201(1A) of the Act, for not deducting tax at source on the interest paid to other co-operati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e's case that the CIT(A) in making such observations, had overlooked the fact that eligibility of the assessee to claim benefit under Section 80P of the Act had no relevance to the issue in hand about the requirement to deduct tax at source. In regard to the assessee's reliance on paragraph 42.7 of Circular No. 19/2015 issued by CBDT, the CIT(A), however, did not consider the effect of the said paragraph, but referred to paragraph 42.5 of the said circular to observe that in view of the said paragraph, the tax was required to be deducted at source without appreciating that paragraph 42.5 dealt with the first limb of Section 194A(3)(v) i.e. interest on time deposits paid to members which, according to the assessee, was not the subject matter in issue. Thus, on such reasoning on the appeals filed by the assessee qua its different branches, the appeals filed by the assessee came to be rejected by the CIT(A). 12. In the above circumstances, the assessee approached the Tribunal challenging the orders passed by the CIT (Appeals) for the assessment year in question. The appeals were consolidated and heard together as common questions of law and facts had arisen except for the differenc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h income credited or paid by a co-operative society and to any other co-operative society" is applicable to the assessees case, inasmuch as the assessee is concerned only in regard to the interest which is paid/credited to the co-operative societies which are not its members, and which cannot be members of the assessee as per its bylaws. It is thus, Mr. Mistri's submission that it was the plain applicability of clause (v) of Section 194A(3) which was required to be considered by the Tribunal which it has failed to do. It is thus a mistake apparent on the face of the Tribunal's order. 16. Mr. Mistri would next submit that the aforesaid interpretation of clause (v) of Section 194A(3) was explained by the CBDT in its Circular No. 19 of 2015 dated 27 November 2015, and more particularly, in paragraph no.42.7 of the said circular. It is submitted that there is no iota of doubt when an explanation was offered by the CBDT to the said provisions, which were introduced by the 2015 Finance Act, which categorically provided that there is no requirement for a cooperative bank to deduct tax at source, in regard to interest amounts paid to the non-members co-operative societies. It is therefo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... banking business not only to cater to its members but also qua non members which includes co-operative societies. It also appears to be not in dispute that insofar as the payment of interest on deposits as made by the members of the assessee is concerned, the assessee has deducted tax on such amounts credited/paid to its members. The dispute however is, considering the provisions of Section 194A(3)(v), whether the assessee would be liable to deduct tax at source and deposit the same with the department on interest paid to its non-member co-operative societies. To examine the issue, it would be necessary to note the relevant provisions of the Act which stand attracted, namely, definition of co-operative society as defined under Section 2(19) and the provisions of Section 194A(3)(v): "2(19) "co-operative society" means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies." Section 194A Interest other than "Interest on securities". (1) Any person, not being an individual or a Hindu undivided family, who is respo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ciety, other than a co-operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking;] (emphasis supplied) 20. From a plain reading of the aforesaid provision, it is evident that any person, other than an individual or a Hindu Undivided Family, who is responsible for paying to a resident any income by way of interest, other than income by way of interest on securities, is required to deduct income tax thereon at the rates in force. Such deduction is to be made at the time of credit of such income to the account of the payee or at the time of payment thereof, whether in cash, by cheque, draft, or by any other mode, whichever is earlier. Sub-section (3) of the said provision carves out certain exceptions by providing that the provisions of sub-section (1) shall not apply, inter-alia, to the payments specified in the various sub-clauses. In the present context, the relevant provision is subclause (v) of sub-section (3), which stipulates that the obligation to deduct tax under sub-section (1) of Section 194A shall not apply to income credited or paid by a co-operative society (other than a co-operative bank) to its members or to income cr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... provision reveals substance in the contentions as urged on behalf of the assessee. To appreciate such contentions as urged on behalf of the assessee, it is necessary to have a holistic reading of sub-clause (v) of Section 194A(3). The first part of the provision categorically excludes a cooperative bank in relation to income credited or paid by a co-operative society to its members. However, when we consider the second part, it becomes evident that the legislature has consciously refrained from referring to a "co-operative bank", which is explicitly included in the first part and making the provision applicable to all the co-operative societies, which include a co-operative bank. The reason being that the inherent legal character of the co-operative bank to be a co-operative society does not in any manner stand extinguished or obliterated. The legislature in not excluding the co-operative banks in the second part has made such intention clear to grant the benefit to co-operative banks to remain exempted from the applicability of sub-section (1) of Section 194A. The sequel, therefore being where a co-operative bank pays interest to its non-members, the co-operative bank inherently ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aling with rationalisation of provisions relating to deduction of tax on interest (other than interest on securities), the following has been provided in relation to exemption from deduction of tax in respect of interest payments by a co-operative society, inter alia, in the context of interest payment by a cooperative society to its non-members and as specifically set out in paragraph 42.7. It would be necessary to note the contents of paragraph 42 of the said circular along with the sub-paragraphs so as to appreciate paragraph 42.7 thereof, in regard to the clear purport as attributed to the second part of clause (v) of Section 194A(3), to include a co-operative bank within the meaning of a co-operative society being not obligated to deposit tax deducted at source, in making payment of interest to its non-members co-operative societies. Paragraph 42 along with sub-paragraphs is required to be noted, which read thus:- "42. Rationalisation of provisions relating to deduction of tax on interest (other than interest on securities) 42.1 Section 194A(1) read with section 194A(3)(i) of the Income-tax Act provides for deduction of tax on interest (other than interest on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by taking the plea of the general exemption provided under section 194A(3)(v) of the Income-tax Act. This is because the specific provision of tax deduction provided under section 194A(3) (i) (b) and 194A(3) (viia)(b) of the Income-tax Act for cooperative banks override the general exemption provided to all co-operative societies for non-deduction of tax from interest payment to members under section 194A(3)(v) of the Income-tax Act. 42.4 As there is no difference in the functioning of the co-operative banks and other commercial banks, the Finance Act, 2006 and Finance Act, 2007 amended the provisions of the Income-tax Act to provide for co-operative banks a taxation regime which is similar to that for the other commercial banks. Therefore, there is no rationale for treating the co-operative banks differently from other commercial banks in the matter of deduction of tax and allowing them to avail the exemption meant for smaller credit co-operative societies formed for the benefit of small number of members. However, as mentioned earlier, a doubt has been created regarding the applicability of the specific provisions mandating deduction of tax from the payment of interest o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ut in paragraph 42.7 by the CBDT circular, which fully supports the contention as urged on behalf of the assessee. 29. However, it appears that surprisingly, the effect required to be given to the plain applicability of clause (v) of Section 194A(3), as stipulated by the CBDT in the said circular, has been completely misconstrued and/or overlooked by the Tribunal, inasmuch as the Tribunal has failed to apply its mind to the specific effect brought about by the clarification issued by the CBDT in paragraph 42.7, it has instead chosen to emphasize the applicability of clause 42.5 while making the following observations:- "7. We have considered the rival submissions and perused the record of the case. It is seen that the assessee is an urban cooperative bank and was enjoying the exemption from payment of tax at source on interest paid on the deposits. However, vide Finance Act, 2015 w.e.f. 1.6.2015, same has been withdrawn and sub-clause (v) of sub-section (3) of Section 194A has been amended whereby it has been specifically inserted that the cooperative banks are not eligible for this exemption. Further, in the memorandum explaining the provisions, this issue has been dea....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... carried to judicial forums and in some cases a view has been taken that the provisions of section 194A(3)(viia)(b) of the Act makes no distinction between members and non-members of co-operative banks for the purposes of deduction of tax, hence, the cooperative banks are required to deduct tax on payment of interest on time deposit and cannot avoid the same by taking the plea of the general exemption provided under section 194A(3)(v) of the Act. This is because the specific provision of tax deduction provided under section 194A(3)(i)(b) and 194A(3)(viia)(b) of the Act for co-operative banks override the general exemption provided to all co-operative societies for non-deduction of tax from interest payment to members under section 194A(3)(v) of the Act. As there is no difference in the functioning of the co-operative banks and other commercial banks, the Finance Act, 2006 and Finance Act, 2007 amended the provisions of the Act to provide for co-operative banks a taxation regime which is similar to that for the other commercial banks. Therefore, there is no rational for treating the cooperative banks differently from other commercial banks in the matter of deduction of tax and allow....
X X X X Extracts X X X X
X X X X Extracts X X X X
....x at source up to an amount of Rs.10,000/-. Therefore, exemption for interest is up to Rs 10,000/-. Thus, we can see a threshold limit of Rs 10,000/- has been prescribed by the said provision, meaning any interest disbursal above Rs 10,000/- attracts TDS. The ld. AR's contention that since section 194A(3)(v) exempt any interest paid by co-operative society to its members irrespective of nature of deposit or amount, the action of the assessee society engaged in banking, not to deduct Tax at source is valid, is according to us not correct and it may be noted that section 194A(3)(v) is a general provision which encompasses with it co-operative society as a whole." (emphasis supplied) 30. We are, thus, not in agreement with the aforesaid observations of the Tribunal, for the reason that, in the second part (supra) of clause (v) of Section 194A(3), the legislature has neither circumscribed nor restricted the exemption intended to be granted to co-operative societies in general, including to the cooperative banks. As noted hereinabove, the legislature has consciously refrained from using the words "co-operative bank" in the second part of sub-clause (v) of Section 194A(3). Acco....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... them, based on the advice received from the Income Tax Department, that the interest payable to them on the Fixed Deposits maintained with the Bank is not exempt from the procedure for tax deduction at source (TDS) and that tax would be deducted at source and remitted to the Government on such interest payments. It is the case of the petitioners that the interest income accruing to it is from the deposits made by the petitioners with the Kottayam District Cooperative Bank and hence, as per the provisions of Section 194A(3)(v), the provisions of sub-section (1) thereof, which contemplate a deduction of tax at source would not apply in cases where the income is paid by a Co-operative Society to any other Co-operative Society. It is the case of the petitioner that the payment of interest from the Kottayam District Co-operative Bank to the petitioners have to be viewed as a payment of income by a Co-operative Society to another Co-operative Society and hence, the provisions of Section 194A(3)(v) would apply to exclude the receipts of interest income by the petitioners from the requirement of tax deduction at source. Through a statement filed by the learned Standing Counsel ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....between a co-operative society engaged in carrying on banking business and a co-operative bank. 46. Since there is a reference to the Co-operative societies Act, 1912 in Section 2(19) of the Act, we have also gone to the Co-operative Societies Act, 1912. It was a central legislation of the colonial past, which also does not define a co-operative bank. It only deals with co-operative societies registered under the Act. Therefore, our answer to the second question may not undergo a change even if we make a reference to the Co-operative Societies Act, 1912, which in any case has no application to the societies registered in terms of the State enactments." 34. The aforesaid observations of the Madras High Court would support the view which we have taken in regard to the intention of the legislation as reflected in the plain language of Clause (v) of Section 194A(3) of the Act. 35. In concluding the aforesaid discussion, we need to also delve on another issue namely of the Assessing Officer's reference to the provisions of Section 80P(2)(d) of the Act. In our opinion, such reference in the context of the applicability of Section 194A(1) read with sub-section (3)(v) was no....