TMI Blog2020 (9) TMI 461X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of non-deduction of tax at source on interest paid to some of the members, which were held to be not legal members. 3. Briefly stated, the facts of the case are that the assessee is a Co-operative Bank, who filed its return declaring total income of ₹ 97,40,280/-. During the course of assessment proceedings, the AO required the assessee to submit data relating to `Person-wise deposits held by the bank as on 31-03-2013 and interest credited or paid to them along with a copy of Bye-laws of the bank, elaborating the scope of its Members. The assessee furnished `Person-wise data of the depositors with the break-up in the terms of Individual, Hindu Undivided Family (HUF), Partnership firm (registered), Partnership firm (unregist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance is that the HUFs and Unregistered firms could not have been legally inducted as Members within the definition of the term `Person as given in the bye-laws of the assessee bank and hence, payment of interest to them was liable for deduction of tax at source u/s.194A of the Act. 5. Section 194A of the Act deals with deduction of tax at source on Interest other than interest on securities. Sub-section (1) provides that any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest shall at the time of payment, deduct income-tax thereon. Sub-section (3) is exception to sub-section (1), which mandates that the provisions of sub-section (1) shall not app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 194A(3) applies to only such members who have either joined in the application for the registration of the society or those who are admitted after the registration in accordance with the bye-laws and rules. Going by the Circular, if a `Person has been admitted as a `Member contrary to the bye-laws and rules of the co-operative society, such a person will not be entitled to be covered within section 194A(3)(v). 7. This circular came up for consideration before the Hon ble jurisdictional High Court in the Jalgaon District Central Cooperative Bank Ltd. and Another Vs. Union of India (2004) 265 ITR 423. The Hon ble High Court quashed the circular by holding that it restricts the exemption under section 194A(3)(v) only to such members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act only on the ground that the assessee ought to have deducted tax at source u/s.194A on interest paid to HUF and Unregistered firms, who were not legal Members in accordance with the bye-laws of the assessee inasmuch as the definition of Person in clause 4(ix) of the bye-laws did not include HUF and unregistered firms. It is not the case of the AO that such HUFs and unregistered firms were not otherwise the Members of the assessee-bank. The assessee made it explicitly known to the authorities below, as has been recorded on page 8 of the impugned order that: `Both the above entities are members of the bank and they have been admitted as `Members by way of an application made by them to the bank and then passing a resolution to the exten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 4,20,773/- 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) of the Act. The impugned order is set aside to this e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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