TaxTMI 
TaxTMI 
2025 (7) TMI 2069
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....4/Mum/2025 as 'Lead case'. 2. The grounds of appeal are as under :- ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE LD. ADDL.JCIT(A)-3 BANGALURU ERRED IN :- 1. confirming the TDS default & interest of Rs. 54,257 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. 2,93,282 paid by the Appellant to other co-operative societies (not being members of the Appellant). 2. not appreciating the fact that- (a) interest of Rs. 2,93,282 was paid by the Appellant to other co-operative societies (not being members of the Appellant) and hence, no tax was required to be deducted at source on the same u/s. 194A(3)(v) of the I. T. Act, 1961. (b) the Appellant was a co-operative society u/s. 2(19) of I. T. Act, 1961 and hence, the Appellant was exempt from deducting the tax at source on the interest paid by the Appellant to any other co-operative society (not being members of the Appellant) u/s. 194A (3)(v) of I. T. Act, 1961. (c) even though the Appellant was a co-operative bank, it was a co-operative society first but carrying on the business o....
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....old, i.e. Rs.10,000/- for interest payment by banks and co-operative society engaged in banking business(co-operative bank). However, the assessee bank failed to deduct the TDS despite specific provision to do so. In response to the notice issued u/s. 201 of the Act, it furnished details of interest paid to members/account holders of the bank from which it was observed that in respect of the payments of interest made to different category of members / account holders, the assessee had stated that TDS u/s. 194A was not deducted in some cases being co-operative societies and in other cases there was default of short deduction of tax /non-deduction of tax. In response to a show cause notice u/s 201(1)/201(1A) of the Act for treating as assessee in default, detailed submission made has been rejected by the AO due to reasons reproduced below :- "(i) The customers/members of the co-operative bank wherein in the remarks column reflected as Co-operative Societies and TDS u/s 194A not deducted on the interest payments are "Housing Societies. Section 2(19) defines "co-operative society" means a co-operative society registered under the co-operative societies Act, 1912 (2 of 1912) or....
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.... 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 purpose 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. (iv) The assessee (Co-op. Bank) through its submission also drawn, attention to the amendment made under Finance Act 2020, wherein it is stated that the co-operative bank will deduct TDS on payment of interest paid to co-operative society after 01.04.2020. In this regard, it is stated that this provision is applied to the co-operative societies which are in the business of banking and not in the case of Co-operative housing societies. In the instant case the customers of the co-o....
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....ies, it was not under obligation to deduct tax as per above provisions. It was further stated that only w.e.f.01.04.2020 the assessee being a cooperative bank is liable to make TDS. 4.1 The ld. CIT(A) after detailed discussion concluded in paras 5.1.42 onwards of the order that the assessee is an urban Multi state cooperative bank since 1984being conferred the status of scheduled bank by RBI since 1998 and under compete control and supervision of RBI. It is at par with other commercial banks and not eligible for any benefit u/s 80P of the Act and consequently, it cannot avail the benefits of section 194A(3)(i) and section 194A(3)(v) of the Act. It also does not get any exemption u/s 194A(3)(iii)(a) which provides for exemption only if the income is credited or paid to any banking company or any cooperative society carrying on the business of banking including a cooperative land mortgage bank. He held that the assessee was making interest payment to housing cooperative societies which are neither banking companies nor cooperative societies engaged in banking business and is therefore liable to make TDS on interest paid to such cooperative societies. He further referred para 42.5 ....
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....A(3)(v) of the Act provide a general exemption from making tax deduction from payment of interest by all co-operative societies to its members, the co-operative banks tried to avail this exemption by making their depositors as members of different categories. This has led to dispute as to whether the co-operative banks, for which the specific provisions of tax deduction exist in the form of section 194A(1), Section 194A(3(1)(b) and section 194A(3)(viia)(b) of the Act, can take the benefit of general exemption provided to all co-operative societies from deduction of tax on payment of interest to members. The matter was 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 purpose 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....
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....ue has been dealt with and the relevant clause 42 of Finance Act 2015 relating to this has clarified the position that this amendment is applicable prospectively w.e.f. 01.06.2015. The relevant clause is reproduced as under: "Rationalisation of provisions relating to deduction of tax on interest (other than interest on securities) Section 194A(1) read with section 194A(3)(i) of the Act provide for deduction of tax on interest (other than interest on securities) over a specified threshold, i.e. Rs.10,000 for interest payment by banks, co-operative society engaged in banking business (co-operative bank) and post office and Rs.5,000 for payment of interest by other persons. Further, sub-section (3) of section 194A inter alia also provides for exemption from deduction of tax in respect of following interest payments by co- operative society: i) Interest payment by a co-operative society to a member thereof or any other co-operative society. [Section 194A(3)(v) of the Act] (ii) Interest payments on deposits by a primary agricultural credit society or primary credit society or co-operative land mortgage bank or co-operative land development bank. [Sect....
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.... 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 on time deposits by the co- operative banks to its members by claiming that general exemption provided is also applicable for payment of interest to member depositors. In view of this, it is proposed to amend the provisions of the section 194A of the Act to expressly provide from the prospective date of 1st June, 2015 that the exemption provided from deduction of tax from payment of interest to members by a co-operative society under section 194A(3)(v) of the Act shall not apply to the payment of interest on time deposits by the co-operative banks to its members. " 6.2 The Ministry of Finance, Government of India vide Circular No.19/2015 in F.No.142/14/2015-TPL, has held that the Co- operative Banks are not required to deduct tax at source on time deposits of its members paid or credited on or before 1.6.2015. The relevant portion of the circular read....
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....n (3), with effect from the 1st day of June, 2015, - (a) in clause (i), after the proviso, the following proviso shall be inserted namely :- 'Provided further that the amount referred to in the first proviso shall be computed with reference to 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'. (b) in clause (v), for the words 'paid by a co-operative society to a member thereof or', the words and brackets 'paid by a co-operative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a co-operative society' shall be substituted; (c) after clause (v), the following Explanation shall be inserted, namely :- 'Explanation .- For the purposes of this clause, "co-operative bank" shall have the same meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949); (d) for clause (ix), the following clauses shall be substituted, namely :- (ix) to such income cr....
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....ether the co- operative banks, for which the specific provisions of tax deduction exist in the form of section 194A(1), section 194A(3)(viia)(b) and section 194A(3)(viia)(b) of the Act, can take the benefit of general exemption provided to all co-operative societies from deduction of tax on payment of interest to members. The matter has been 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 co-operative 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 functioning of the co-operative banks and other commer....
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...." 7.3 Since the assessee bank is covered by the provisions of sub- clause(b) of clause(i) of Section 194A(3) as well as the provisions of clause (viia) of the Act which are specific in nature, the assessee cannot claim that it is covered under section 194(3)(v) which are general in nature. Rather, it is a co-operative society engaged in the business of banking, it is covered under these aforesaid specific clauses. There are a number of judicial pronouncements wherein it has been held that a specific provision overrides a general provision. For this purpose reliance was placed by the AO on Kirloskar Pneumatic Company Ltd Vs. Commissioner of Surtax (1994) 210 ITR 485 (Bom) and CIT vs. Mahanagar Telephone Nigam Ltd (2002) 254 ITR 627(Del). The Hon'ble Supreme Court in the case of South Indian Corporation (P) Ltd Vs. Secretary, Board of Revenue AIR 1964 SC 207 has held that the special provision should be given to the extent of its scope leaving the general provision to control cases where the special provision does not apply. 7.4 We find that the Co-operative is also interpreted by the Hon'ble Karnataka High Court, wherein in the case of CIT vs. Yeshwanthpur Credit Co- o....
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....the case of Moolamattom Electricity Board Employees Co-operative Bank Ltd. has made a clear distinction between primary credit society and a co-operative society engaged in banking business. We find that the assessee bank is covered by the provisions of sub-clause (b) of clause (i) of Sec.194A(3) as well as the provisions of clause (viia) of Section 194A(3) which are specific in nature and not section 194A(3)(v) which is general in nature. Respectfully following the ratio of the above case laws including that of the Supreme Court, we conclude that the assessee's case is covered by the specific provision in clause (i) & (vii), rather than the general provisions of clause (v) of Sec 194A(3) as rightly held by the AO. 7.6 We may mention here that the cited decision of coordinate bench of ITAT, Chandigarh in The H.P. State Co-Operative Bank in ITAT No.125/127/chd/202 dated 27.2.2025is distinguishable on facts of the case since in the instant case the recipients are housing cooperative societies which are neither cooperative banks nor cooperative societies engaged in banking business and are therefore liable to make TDS on interest paid to such cooperative societies. 7.7 To co....