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TMI Blog2025 (5) TMI 1071X X X X Extracts X X X X X X X X Extracts X X X X ..... ality in such transaction. 3) The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal." 3. Facts of the case, in brief, are that the assessee bank is assessed to tax under the Status AOP (Co-operative Society). The assessee did not file its original return of income for the AY 2013-14. The AO received information that the assessee bank made a time deposit of Rs. 2,00,00,000/- with Cosmos Bank Ltd. and also received interest income u/s 194A from SBI amounting to Rs. 66,50,548/- but did not file its return of income. Acting on this information, the AO initiated proceedings u/s 147 of the Act by issuing notice u/s 148 of the Act on 26-03-2018. Meanwhile, the assessee had filed its return of income on 20-03-2018 declaring total income at Rs. 1,22,45,510/-, notice u/s 143(2) of the Act was issued on 03-12-2018. The AO completed the assessment u/s 143(3)/147 of the Act on 21-12-2018 determining the assessee's total income at Rs. 1,85,09,580/- by making addition of Rs. 62,64,068/- on account of non-deduction of tax as per section 40(a)(ia) r.w.s. 194A(3)(v) of the IT Act. 4. In first appeal, after considering the reply of the assessee, Ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "6. I have considered the facts of the case, assessment order, appellant's written submissions and case-laws relied on by the AO and the appellant. The AO made the addition of Rs. 62,64,068/- on account of non deduction of TDS on interest credited/ paid to co-operative societies u/s. 40(a)(ia) of the Act. The appellant has submitted that in its case TDS provisions are not attracted in view of exemption provided u/s 194A(3)(v) available to appellant co-operative bank as this provision stood before 01.06.2015. The appellant has contended that the AO erred in not considering the "nominal membership" of cooperatives societies and only considered the definition of "Person" who are eligible for membership as per Clause No. 4(ix) and Rule 9(d) of the By-laws of the appellant co-operative society. The appellant referred to provisions of sec. 194A(3)(v) of the Act as these stood before 01.06.2015 and Memorandum explaining the aforesaid provisions to emphasize that a cooperative bank was not required to deduct tax from the payment of interest on time deposits of its members and/or other co-operative societies, paid or credited before 01/06/2015. Further to buttress its contention, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was justified in sustaining disallowance made by the AO u/s.40(a)(ia) of the Act towards interest paid to some Members without deduction of tax at source in terms of section 194A. The raison d'etre assigned for making such a disallowance 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 apply in certain situations narrated therein. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 8. In view of the quashing of the said circular, which is even otherwise not binding on the Tribunal, the position which stands is that the exception carved out in clause (v) of section 194A(3) applies to all types of Members of the eligible co-operative Banks - whether or not they were admitted to the Membership in accordance with the bye laws and rules of the co-operative bank. A plain reading of section 194A(3)(v) deciphers that the legislature has not added any adjective to the term `Member', such as, nominal or associate or sympathizer, so as to restrict the application of clause (v) only to the regular and participating members. The corollary which now stands is that so long as a depositor is enrolled as a Member of a co-operative Bank, payment of any interest to such depositor-Member will not require deduction of tax at source as it will fall within the domain of clause (v) u/s.194A(3) of the Act. 9. Adverting to the facts of the extant case, we find that the authorities below have denied the benefit of deduction of interest of Rs. 4,20,773/- by making disallowance u/s.40(a)(ia) of the Act only on the ground that the assessee ought to have deducted tax at source u/s.19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 extent. 12. In the result, the appeal is allowed." From the above facts and findings, it is seen that in the case of Nilkanth Urban Co-operative Bank Ltd. (supra), the AO did not treat HUF and unregistered firm as "Member" of the Co-operative Bank and thus, held that the assessee was required to deduct TDS on interest payment. However, the Hon'ble ITAT noted that these 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 extent of their admission as members of the bank in its Board of Directors meeting, thus relief was granted to the assessee. In the instant ca ..... 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