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

3. Facts in brief are that the assessee, a Co-operative society for the relevant year paid interest on Time deposits of its Members amounting to Rs.1,58,05,328/-. The TDS authority found that no TDS was deducted by it on the interest exceeding Rs 10,000/- paid, thus violating the provisions of section 201(1) and 201(1A) of the Act. He held that the assessee was engaged in money lending activity in the nature of banking and was under obligation to deduct TDS. Before him, it was contented that the assessee was not a bank and the interest paid only to the Member was not liable to TDS as per section 194A(3)(v) of the Act. It was also submitted that as per section 5 clause (CCV) of Banking Regulations Act,1949 ,it was not a Primary Co-operative Bank as none of the conditions therein were applicable to it. However, the TDS authority P a g e | 3 A.Y. 2014-15 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.

P a g e | 4 A.Y. 2014-15 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 A.Y. 2014-15 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.

5. Before us, the ld.DR has relied on the orders of authorities below while the ld.AR has reiterated the same contentions as made before the ld.CIT(A). It is claimed that the assessee was paying interest only to Members and not to any member of public. Its case was also covered by the CBDT Circular no.19/2015.He has also placed reliance on certain decisions of High Courts claiming to be directly applicable to its facts i.e CIT v. National Co-operative Bank Ltd., 71 taxmann.com 352 (Kar), Bagalkot District Central Co-op. Bank v. CIT [2014] 48 taxmann.com 117 (Bangalore - Trib.).

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: "

P a g e | 7 A.Y. 2014-15 Himachal Mitra Mandal Cooperative Credit Society Limited 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.

P a g e | 8 A.Y. 2014-15 Himachal Mitra Mandal Cooperative Credit Society Limited "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"

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."

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".

P a g e | 11 A.Y. 2014-15 Himachal Mitra Mandal Cooperative Credit Society Limited 7. Under the circumstances, the question of specific provision as against general provision would not arise for further consideration. Hence, we find that no substantial questions of law would arise for consideration." 6.2 In the case of Vasavi Credit Co-Operative dated 18.01.2021 in ITA 412 & 413/Bang/2020,exactly similar issue was decided in favour of the assessee with following observations:

3. The A.O. noticed that the assessee is having two types of members, viz., Regular Members and Associate Members. It has paid interest to both its regular members and also associate members. The AO noticed that associate members become members only for the purpose of making deposits and taking loans. They are not entitled to voting rights in the general body meetings. Hence the AO took the view that the associate members are not eligible for exemption u/s 194A(3)(v) of the Act. In this regard, the A.O., placed his reliance upon the CBDT Circular No.9/2002 dated 11.9.2002, wherein it was stated n paragraph 3 as under:- "3. A question has also been raised as to whether nominal members, associate members and sympathizer members are also covered by the exemption 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." Accordingly, the AO took the view that the exemption given u/s 194A(3)(v) of the Act for not deducting TDS will not apply to the interest given to the associate members. The A.O. also took support of the decision rendered by P a g e | 12 A.Y. 2014-15 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. Accordingly, the Ld. CIT(A) held that the principles of mutuality will not apply to associate members. With regard to the principles of mutuality, the Ld CIT(A) placed his reliance on the decision rendered in the case of CIT vs. Bankipur Club (226 ITR 97) and Chelmsford Club (243 ITR 89). Accordingly, he held that the associate members are distinctly different and they cannot be equated with regular members. Accordingly, the Ld CIT(A) held that the A.O. 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 A.Y. 2014-15 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.

P a g e | 14 A.Y. 2014-15 Himachal Mitra Mandal Cooperative Credit Society Limited "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