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2021 (1) TMI 831 - AT - Income TaxTDS u/s 194A - Associate Members of Co-operative Society - assessee has not deducted tax at source from the payment of interest made on deposits - Demand u/s 201(1) & 201(1A) - assessee submitted that it has paid interest to its members only and hence, as per the provisions of section 194A(3)(v) the assessee is not required to deduct TDS - AO noticed that the assessee is having two types of members, viz., Regular Members and Associate Members AND the associate members are not eligible for exemption u/s 194A(3)(v) as they are not entitled to voting rights in the general body meetings - HELD THAT:- 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 money to them. Hence, we are of the view that the associate members should be construed as “members” only for the purpose of sec.194A since the definition of the term “member” should be construed as given in sec. 2(f) of the Karnataka Co-operative Societies Act, 1959. In the case of M/s The Government Employees Co-Operative Bank Limited [2021 (1) TMI 748 - ITAT BANGALORE] liability to deduct tax at source u/s 194A of the Act cannot be equated with the provisions of sec.80P of the Act. This view combined with the decision of Hon’ble Supreme Court holding that the term “members” should be construed as defined in the respective co-operative societies Act would lead us to the conclusion that the associate members should be considered as included in the term “members” used in sec.194A(3)(v) of the Act. We notice that paragraph 3 of CBDT Circular No.9/2002 dated 11.9.2002 has been quashed by Hon’ble Bombay High Court in the case of Jalagaon District Central Co-operative Bank Ltd. Vs. Union of India [2003 (9) TMI 56 - BOMBAY HIGH COURT]. Accordingly, we hold that the assessee is not liable to deduct tax at source from the interest payments made to Associate members as per sec.194A(3)(v) of the Act - We set aside the orders passed by Ld CIT(A) and direct the AO to delete the demand raised u/s 201(1) and 201(1A) of the Act. - Decided in favour of assessee.
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