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2020 (9) TMI 461 - AT - Income TaxTDS u/s 194A - Disallowance u/s.40(a)(ia) - non-deduction of tax at source on interest paid to some of the members, which were held to be not legal members - whether nominal members, associate members and sympathizer members were also covered by the exemption under section 194A(3)(v)? - HELD THAT:- We are primarily concerned with clause (v) of sub-section (3) of section 194A which provides that sub-section (1) shall not apply: `to such income credited or paid by a co- operative society to a member thereof or to any other co-operative society’. On a harmonious reading of sub-sections (3) and (1) of section 194A, it becomes apparent that a co-operative society is required to deduct tax at source from any interest paid by it except where the interest is paid to its Member or to any other Cooperative society. In other words, if interest is paid by it to its Members, the same does not require any deduction of tax at source. It is manifest that the question of deduction of tax at source u/s 194A was nowhere before the Hon’ble Supreme Court in THE CITIZEN CO-OPERATIVE SOCIETY LIMITED, THROUGH ITS MANAGING DIRECTOR, HYDERABAD VERSUS ASSISTANT COMMISSIONER OF INCOME TAX [2017 (8) TMI 536 - SUPREME COURT] which is currently under consideration. In view of the categorical judgment of Hon’ble jurisdictional High Court in Jalgaon District Central Cooperative Bank Ltd. [2003 (9) TMI 56 - BOMBAY HIGH COURT] setting aside circular No.9/2002, which, in turn, made a distinction between various classes of members and entitled only some classes to the benefit of section 194A(3)(v) of the Act, there remains no doubt whatsoever that payment of interest by a cooperative bank to its Members, whether admitted in accordance with the bye-laws or otherwise, does not require deduction of tax at source. So long as any person is a “Member”, payment of interest to him has to be covered within the mandate of clause (v) of section 194A(3) requiring no deduction of tax at source. Since the assessee made payment of interest amounting to HUF and unregistered firms, which happened to be its “Members”, we hold that the authorities below were not justified in making and confirming disallowance u/s.40(a)(ia). - Decided in favour of assessee.
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