HIMACHAL MITRA MANDAL CO OPERATIVE CREDIT SOCIETY LIMITED ,MUMBAI vs. INCOME TAX OFFICER TDS, WARD 1(2)(3), MUMBAI

IN THE INCOME-TAX APPELLATE TRIBUNAL“E” BENCH,
MUMBAI
BEFORE SHRI NARENDER KUMAR CHOUDHRY, JUDICIAL MEMBER
&
SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER
Himachal
Mitra
Mandal
Cooperative Credit Society
Limited
C/o Vaish Associates, 106,
Peninsula Centre, Dr. S.S.
Rao Road, Parel, Mumbai –
400 012, Maharashtra v/s.
बनाम
Income
Tax
Officer,
TDS
Ward – 1(2)(3), Room No.
419, 4th Floor, Cumballa Hill
MTNL TE Building, Peddar
Road,
Dr.
Gopalrao
Deshmukh Marg, Mumbai –
400051, Maharashtra
स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAAAH0613D
Appellant/अपीलार्थी
..
Respondent/प्रतिवादी

Appellant by :
Ms. Priyanka Jain, AR
Respondent by :
Shri Hemanshu Joshi,(Sr. DR)

Date of Hearing
29.07.2025
Date of Pronouncement
06.10.2025

आदेश / O R D E R

PER PRABHASH SHANKAR [A.M.] :-

The present appeal is filed by the assessee against the order passed by the Learned Commissioner of Income-tax, Appeal,
ADDL/JCIT(A)-2, Noida[hereinafter referred to as “CIT(A)”] pertaining to the order passed u/s. 201(1)/201(1A) of the Income-tax Act, 1961
[hereinafter referred to as “Act”] dated 31.03.2021 for the Assessment
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Himachal Mitra Mandal Cooperative Credit Society Limited

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Himachal Mitra Mandal Cooperative Credit Society Limited rejected the contention and held it as a defaulter in terms of above sections.
4. In the subsequent appeal before the ld.CIT(A),the assessee reiterated the same contentions submitting Member wise details called for by the AO during the assessment proceedings, break up of name, address, PAN and amount of interest paid to each recipient during the assessment proceedings. It was stated that it was not given opportunity of getting and submitting the details of Members, who had filed the return, declared and offered the said interest income in their individual income tax returns. It also submitted break up of interest paid above the threshold limit of Rs. 10,000/- of Rs. 1,34,74,722/- to the Members. No opportunity was given to the assessee to furnish the certificate under proviso to Section 201(1) of the Act.
4.1 As regard the contention that it was not liable to deduct tax at source on interest paid to its members as it is a co-operative credit society and not a co-operative bank, it was not found tenable by the ld.CIT(A) for the following reasons:
a) As per the assessment order for A.Y. 2012-13, it was evident that the appellant was carrying out the business of lending money and accepting deposits, which is the primary objective of a co-operative credit society and in line with banking business.

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Himachal Mitra Mandal Cooperative Credit Society Limited b) The definition of “co-operative bank” under section 5(cci) of the Banking Regulation Act, 1949 includes a primary co-operative bank.
Further, section 5(ccv) of the said Act defines a primary co-operative bank as a co-operative society whose primary object or principal business is the transaction of banking business.
c) The appellant’s main activities of accepting deposits and providing loans to members clearly fell within the ambit of banking business.
The mere fact that these activities are restricted to members does not alter the nature of the business.
d) The Hon’ble Supreme Court in the case of Citizen Co-operative
Society Limited v. ACIT [2017] 397 ITR 1 (SC) has held that co- operative credit societies carrying on banking business are to be treated as co-operative banks for the purpose of TDS provisions.
e) Similarly, the Hon’ble Bombay High Court in CIT v. Jafari Momin
Vikas Co-operative Credit Society Ltd. [2014] 369 ITR 328 (Bom) has held that a co-operative credit society engaged in banking activities is to be treated as a co-operative bank for tax purposes.
4.2 Accordingly, it was held by him that the appellant was rightly considered as a co-operative bank for the purpose of TDS provisions.
Consequently, the exemption under section 194A(3)(v) of the Act was not applicable to it. The AO has correctly held the appellant to be an “assessee in default” under section 201(1) of the Act for non-deduction of tax at source on interest payments made to its members. The contention that it did not have facilities like cheque books etc. which are typical of banks, was not found relevant for determining its status as a P a g e | 5
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Himachal Mitra Mandal Cooperative Credit Society Limited co-operative bank. The nature of activities carried out by it i.e., accepting deposits and providing loans was the crucial factor in this determination. He also placed reliance on of Kerala State Co-operative
Bank Ltd. v. CIT [1998] 231 ITR 814 (SC) and Mehsana Urban Co-op.
Bank Ltd. v. IΤΟ [2018] 409 ITR 606 (Guj). Thus, the order treating the assessee as an “assessee in default” under section 201(1)/201(1A) of the Act was upheld.

Himachal Mitra Mandal Cooperative Credit Society Limited dealing with public at large. We find that plethora of decisions of courts and Tribunals which have held similar issue in favour of the assessees by holding that even as per CBDT Circular No. 19/2015, before introduction of the said circular, as per the provisions of section 194A(3)(v) of the Act, interest paid to members was not liable to deduct TDS.
6.1 In this regard, we refer to the decision in the case of CIT v.
National Co-operative Bank Ltd. 71 taxmann.com 352 (Kar) reproducing the relevant extracts as below:-
“2. We have heard Mr. Aravind K.V., learned counsel appearing for the appellants. As such, if we see the observations of the Tribunal in this regard, the considerations are at paragraphs 12 to 14 which read as under:
12. We have heard the rival submissions. At the time of hearing of the appeal, it was brought to our notice by the learned counsel for the assessee that the Bangalore Bench of ITAT in the case of Bagalkot District Central
Co-op. Bank v. CIT [2014] 48 taxmann.com 117 (Bangalore - Trib.) held that Co-operative Societies carrying on banking business while paying interest to members on time deposit and deposits other than time deposits need not deduct tax at source u/s 194A of the Act by virtue of exemption granted u/s 194A(3)(v) of the Act.
The learned DR relied on the stand taken by the revenue in the grounds of appeal filed before the Tribunal.
13. We have considered the rival submissions. This Tribunal in the case of Bagalkot District Central Co-operative Bank (supra) dealt with identical issue and identical stand taken by the revenue and the Assessee in the case of co- operative society engaged in banking business and have upheld identical order of CIT(A). The relevant observations of the Tribunal in this regard were as follows:
"15. We have given a very careful consideration to the rival submissions. We are of the view that the submissions made by the learned counsel for the Assessee deserves to be accepted. As rightly contended by him Sec.
194A(3)(i)(b) of the Act is a provision which mandates deduction of tax at source by a co-operative society carrying on the business of banking, where the income in the form of interest which is paid by such society is in excess of ten thousand rupees. Sec. 194A(3)(v) of the Act provides that tax need not be deducted at source where the income in the form of interest is credited or paid by a co-operative society to a member thereof or to any other co- operative society. This provision therefore applies to all co-operative societies including co- operative society engaged in the business of banking.

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It is not possible to exclude co-operative society engaged in the business of banking from the provisions of sec. 194A(3)(v) of the Act on the ground that the same is covered by the provisions of sec. 194A(3)(i)(b) of the Act. Sec.
194A(3)(v) of the Act refers to payment by a co-operative society to a member and payment by a co-operative society to non-member continue to be governed by the provisions of Sec. 194A(3)(i)(b) of the Act. Similarly u/s 194A(3)(viia)(b) interest on deposits other than time deposits even if the payment is made to a non- member by a co-operative society, the co- operative society need not deduct tax at source. Thus this section carves out another exception to Sec. 194A(3)(i)(b) of the Act. We do not think that any of the above provisions can be called a general provision and other provision called specific provisions. Each provision overlap and if read in the manner as indicated above, there is perfect harmony to the various provisions. We do not agree with the view expressed by the Pune ITAT SMC in the case of Bhagani Nivedita Sahakari Bank Ltd. (supra) when it says that co- operative society as mentioned in cl.(v) is a general species, whereas the other five categories of co-operative societies which are specifically referred to in other provisions are specific co-operative societies. The further conclusion in the said decision that the term 'co-operative society' in cl.(v) of S.194A(3) as to be interpreted as co- operative society other than co- operative bank, is again unsustainable. The law is well settled that by a process of interpretation one cannot add-on words that are not found in the text of the statute. Such a course is permitted only when there is "causes omisus". We do not think that the provisions of Sec. 194A(3)(v) suffers from any causes omisus as has been interpreted by the ITAT Pune Bench SMC.
16. We are also of the view that the decision of the Hon'ble Kerala High Court in the case of Moolamattom Electricity Board Employees Co-op Bank
Ltd. (supra) supports the plea of the Assessee before us. The petitioners in that case were primary credit societies registered under the Kerala Co- operative Societies Act. In view of the specific provisions of Sec.
194A(3)(viia) of the Act, they claimed that they need not deduct tax at source on interest paid. It was submitted by the petitioner that sub-s.194A(3)(v) deals with such income credited or paid by a co-operative society to a member whereas sub.s (3)(viia)(a) provides a total exemption to deposits with the primary credit society. The Hon'ble Kerala High Court accepted their plea and in their judgment have observed that Sec. 194A(3)(i) exemption limit of Rs. 10,000/- to interest paid on time deposits with co- operative societies engaged in carrying on in business of banking is allowed but that does not mean that all co-operative societies who have credited or paid exceeding Rs. 10,000/- are liable to deduct tax at source. The Court held that co- operative society engaged in carrying on business of banking and primary credit societies stand on different footing and belong to different class. That does not mean that Sec. 194A(3)(v) of the Act is applicable only to co-operative societies other than co-operative societies carrying on the business of banking as observed in para 37 of its judgment the Pune ITAT in the case of Bhagani Nivedita Sahakari Bank Ltd. (supra). In fact in para 2 of Circular No. 9 dated 11.09.2002, the CBDT has very clearly laid down that co-operative societies carrying on banking business when it pays interest on deposits by its members need not deduct tax at source in view of the provisions of Sec. 194A(3)(v) of the Act. CBDT Circular dated 11.09.2002
clarified certain aspects which are relevant to the present case. The same reads thus:

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"Sub: Tax deduction at source under section 194A of the Income-tax Act
1961--Applicability of the provisions in respect of income paid or credited to a member of co-operative bank - Reg.11.09.2002 TDS 194A
Under Section 194A of the Income-tax Act, 1961, Tax is deductible at source from any payment of income by way of interest other than income by way of interest on securities. Clause (V) of Sub- Section (3) of Section 194A exempts such income credited or paid by a co-operative society to a member thereof from the requirement of TDS. On the other hand, clause(viia) of Sub-Section (3) of Section 194A exempts from the requirement of TDS such income credited or paid in respect of deposits (other than time-deposits made on or after 1st July, 1995) with a co-operative society engaged in carrying on the business of banking.
2. Representations have been received in the Board seeking clarification as to whether a member of a co-operative bank may receive without TDS interest on time-deposit made with the co-operative bank on or after 1st
July, 1995. The Board has considered the matter and it is clarified that a member of a co-operative bank shall receive interest on both time deposits and deposits other than time- deposits with such co-operative bank without
TDS under section 194A by virtue of exemption granted vide clause (v) of sub-section (3) of the said section. The provisions of clause (viia) of the said sub-section are applicable only in case of a non-member depositor of the co- operative bank, who shall receive interest only on deposits other than time deposits made on or after 1st July, 1995 without TDS under section 194A.
3. A question has also been raised as to whether normal members, associate members and sympathiser members are also covered by the exemptions under section 194A(3)(v). It is hereby clarified that the exemption is available only to such members who have joined in application for the registration of the co-operative society and those who are admitted to membership after registration in accordance with the bye-laws and rules. A member eligible for exemption under section 194A(3)(v) must have subscribed to and fully paid for at least one share of the co-operative bank, must be entitled to participate and vote in the General Body Meetings and/or Special General Body Meetings of the co-operative bank and must be entitled to receive share from the profits of the co-operative bank.[F.No.
275/106/2000-IT(B)] (2002) 177 CTR (St) 1"
18. It can be seen from para 2 of the Circular referred to above that the CBDT has very clearly laid down that co-operative societies carrying on banking business when it pays interest on deposits by its members need not deduct tax at source. The above interpretation of the provision by the CBDT which is in favour of the Assessee, in our view is binding on the tax authorities.
19. In the case decided by ITAT Panaji Bench in Bailhongal Uraban Co-op
Bank Ltd. v. JCIT order dated 28.08.2013, the Tribunal proceeded on the footing that the aforesaid Circular has been quashed by the Hon'ble Bombay
High Court in the case of the Jalgaon District Central Co-operative Bank
Ltd. v. Union of India 265 ITR 423 (Bom.) and therefore choose to follow the decision rendered by Pune ITAT SMC in the case of Bhagani Nivedita
Sahakari Bank Ltd. (supra). In our view the Hon'ble Bombay High
Court in the case of Jalgaon District Central Co- operative Bank
Ltd. was dealing with a case of challenge to para 3 of CBDT Circular No. 9

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Himachal Mitra Mandal Cooperative Credit Society Limited dated 11.09.2002 which tried to interpret the word "member" as given in sec.
194A(3)(v) of the Act. It is only that part of the Circular that had been quashed by the Hon'ble Bombay High Court and the other paragraphs of the Circular had no connection with the issue before the Hon'ble Bombay High
Court. How could it be said that the entire Circular has been quashed by the Hon'ble Bombay High Court? In our view para 2 of the Circular still holds good and the conclusion of the ITAT Pune Bench in the case of the Bailhongal
Uraban Co-op Bank Ltd. (supra) are not factually correct. Consequently, the conclusions drawn in the aforesaid decision also contrary to facts and hence cannot be considered as precedent.
20. The learned counsel for the Assessee as brought to our notice that the ITAT Vishakapatnam Bench in the case of the Vishakapatnam Co- operative Bank ITA No. 5 and 19 of 2011 order dated 29.08.2011 as held that co-operative societies carrying on banking business when it pays interest to its members on deposits it need not deduct tax at source in view of the provisions of Sec. 194A(3)(v) of the Act. Similar view has also been expressed by the Pune Bench of the ITAT in the case of Ozer Merchant Co- operative Bank ITA No. 1588/PN/2012 order dated 30.10.2013. We may add that in both these decisions the discussion did not turn on the interpretation of sec. 194A(3)(i)(b) of the Act vis-à-vis sec. 194A(3)(v) of the Act. It is thus clear that the preponderance of judicial opinion on this issue is that co-operative societies carrying on banking business when it pays interest to its members on deposits need not deduct tax at source in view of the provisions of sec.
194A(3)(v) of the Act.
21. For the reasons given above, we hold that the Assessee which is a co- operative society carrying on banking business when it pays interest income to a member both on time deposits and on deposits other than the deposits with such co-operative society need not deduct tax at source Under Section 194A by virtue of the exemption granted vide Clause (V) of Sub-Section (3) of the said section"
14. In our view the above decision rendered by the co- ordinate bench is squarely applicable to the facts of the present case. In fact the CIT(A) in cancelling the order of the AO has placed reliance on the aforesaid decision. Respectfully following the decision of the co-ordinate bench referred to above, we uphold the order of the CIT(A).'
3. The aforesaid shows that the Tribunal was bound by its earlier decision in case of Bagalkot District Central Co-op. Bank v. Jt. CIT [2014] 48
taxmann.com 117 (Bang.). When we further enquired from the learned counsel for the Revenue as to whether the decision of the Tribunal was carried by the Department before this Court or not and in response thereto, the learned counsel for the appellants has brought to our notice the decision of this Court dated 16.12.2015 in ITA 100116/2014 whereby, the view taken by the Tribunal has not been interfered with. We may record that this Court in the above referred decision observed thus:
'In this appeal by the Revenue, the issue involved is for consideration whether the Co-operative Bank was required to deduct tax while

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Himachal Mitra Mandal Cooperative Credit Society Limited paying interest to its members on time-deposits under Section 194-
A of the Income-tax Act.
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 1.7.2015. The relevant portion of the circular reads as under:
"42.5. In view of this, the provisions of the section 194A(3)(v) of the Income-tax Act have been amended so as to expressly provide 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 Income-tax Act shall not apply to the payment of interest on time- deposits by the co-operative banks to its members. As this amendment is effective from the prospective date of 1st June, 2015, the co- operative bank shall be required to deduct tax from the payment of interest on time deposits of its members, on or after the 1st June, 2015. Hence, a co-operative bank was not required to deduct tax from the payment of interest on time deposits of its members paid or credited before 1st June, 2015."
3. In view of the aforesaid circular, this appeal does not survive for consideration and is accordingly dismissed. No costs.'
4. As such, in view of the referred decision of this Court in case of Bagalkot
District Central Co-op. Bank (supra) referred when the question is already covered by the decision of this Court, it cannot be said that any substantial question of law would arise for consideration.
5. However, the learned counsel appearing for the appellants- Revenue made an attempt to contend and reiterate the same contention that in view of special provision section 194A(3)(b), the general exemption as provided under 194A(3)(v), would not be applicable for the Co-operative Banks and he contended that the view taken by the Tribunal cannot be said as correct view and this Court may independently consider the matter and may hold that in view of specific provision, general exemption would not be available to co- operative bank. Hence the TDS from the interest exceeding the amount of Rs.
10,000/- was required to be deducted by the respondent-assessee in the present case which is a co-operative bank.
6. As such, we are not impressed by the submission that there is any specific provision and therefore general exemption would not apply for the simple reason that the word 'Members' is missing in clause (b). Further, in Circular
No. 19/2015 dated 27.11.2015 at paragraph 42.5 it has been inter alia mentioned as under:
". . . . . . . . . . Hence, the Co-operative Bank was not required to deduct tax from the payment of interest on the time-deposits of its members paid or credited before first June 2015".

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Himachal Mitra Mandal Cooperative Credit Society Limited

Hon'ble Supreme Court in the case of the Citizen Co-operative Society Vs.
ACIT (Civil Appeal Noi.10245 of 2017) and observed that the decision rendered by Hon'ble Supreme Court of India clearly classifies members and non-members and hence the above said decision shall apply to the instant case. Accordingly, the A.O. held that the assessee is liable to deduct tax at source from the interest payments made to associate members. The assessee had paid interest of Rs.2,61,74,593/- to the associate members, which were above the threshold limit of Rs.10,000/- prescribed for not deducting tax at source. Accordingly, the AO raised demand of Rs.261,74,593/- u/s 201(1) of the Act and Rs.10,19,440/- as interest u/s 201(1A) of the Act.
4. The Ld. CIT(A) confirmed the orders passed by the A.O. He noticed that though the associate members hold shares and entitled to dividend, yet they do not have right to vote and to become office bearers of the society.
was justified in raising the impugned demands. Aggrieved, the assessee has filed these appeals before us, i.e., one against the demand raised u/s 201(1) and another on the interest charged u/s 201(1A) of the Act.
5. We heard the parties and perused the record. In the instant case, the assessee is contending that it is not required to deduct tax at source from the interest paid to its members in view of sec.194A(3)(v). The said section reads as under:-
"194A(3) The provisions of sub-section (1) shall not apply--
(i) .........
(ii) .........
(iii) .........
(iv) .........
(v) to such income credited or 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 to any other co-operative society."
There should not be any dispute that the interest paid by a co- operative society to its members is not liable for deduction of tax at source u/s 194A of the Act. The dispute is whether "an associate member"
would fall under the category of "member" as mentioned in sec.194A of the Act.
6. The tax authorities have taken the view that the "member" should be construed as a person who has subscribed to the shares and he should be entitled to participate in profits, entitled to vote and entitled to participate in the management of the society. Admittedly the Associate members are not P a g e | 13
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Himachal Mitra Mandal Cooperative Credit Society Limited entitled to become office bearers of the society. The Ld CIT(A) has expressed the view that the associate members are not entitled to vote also.
7. We noticed earlier that the AO has relied upon the decision rendered by Hon'ble Supreme Court in the case of Citizen Co- operative Society (supra).
However, the said decision was rendered in the context of sec.80P of the Act.
The Ld CIT(A) also held that the Principles of Mutuality should be followed and hence associate members cannot be equated with regular members.
8. Hence the controversy is whether the associate members would fall under the category of "members" used in sec. 194A(3)(v) of the Act. We notice that the Hon'ble Supreme Court in a recent case of The Mavilayi Service Co- operative Bank Ltd & Ors vs. CIT (Civil Appeal Nos.7343 - 7350 of 2019 dated
January, 21, 2021 has observed as under with regard to the expression
"members" used in sec.80P of the Act:-
"46. It must also be mentioned here that unlike the Andhra Act that Citizen
Cooperative Society Ltd. (supra) considered, 'nominal members' are 'members' as defined under the Kerala Act. This Court in U.P. Cooperative
Cane Unions' Federation Ltd., Lucknow v. Commissioner of Income Tax,
Lucknow-I (1997) 11 SCC 287 referred to section 80P of the IT Act and then held:
"8. The expression "members" is not defined in the Act. Since a cooperative society has to be established under the provisions of the law made by the State
Legislature in that regard, the expression "members" in Section 80-
P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. It is, therefore, necessary to construe the expression "members" in Section 80-P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the cooperative Societies Act. The said provision reads as under:
"2. (n) 'Member' means a person who joined in the application for registration of a society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being in force but a reference to 'members' anywhere in this Act in connection with the possession or exercise of any right or power or the existence or discharge of any liability or duty shall not include reference to any class of members who by reason of the provisions of this Act do not possess such right or power or have no such liability or duty;"
Considering the definition of 'member' under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i).
47. Further, unlike the facts in Citizen Cooperative Society Ltd, (supra), the Kerala Act expressly permits loans to non-members under section 59(2) and (3), which reads as follows:

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"59. Restrictions on loans.- (1) A society shall not make a loan to any person or a society other than a member:
Provided that the above restriction shall not be applicable to the Kerala State
Co-operative Bank.
Provided further that, with the general or special sanction of the