ITO(TDS)-1(2)(1), MUMBAI, MUMBAI vs. DATTATRAY MAHARAJ KALAMBE JAOLI SAH. BANK, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “H(SMC)” BENCH; MUMBAI BEFORE SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER AND MS. DEBJANI MITRA NEOGY, JUDICIAL MEMBER ITA Nos. 7350, 7404, 7407, 7409, 7413, 7415, 7419, 7421, 7422, 7424, 7427 & 7428/Mum/2026 (Assessment Year: 2018-19) ITA Nos. 7403, 7405, 7410, 7411, 7412, 7416, 7417, 7418, 7420, 7423, 7426 & 7372/Mum/2026 (Assessment Year: 2019-20) ITA Nos. 7406, 7408, 7414, 7425 & 7429/Mum/2026 (Assessment Year: 2017-18)

ITO(TDS)-1(2)(1), Mumbai Dattatraya Maharaj Kalambe Room no. 417, 4th floor, Jaoli Sahakari Bank Cumballa Hill Tel. Exchange vs. 27, Interlink Industrial Estate, Bldg., Peddar Road, Mumbai, Gumfa Road Mumbai, Girgaon Maharashtra, 400026 S.O, Mumbai, Maharashtra, 400004. PAN: MUMD09997B (Appellant) (Respondent) For Assessee : Shri Tanzil Padvekar, ADV a/w Shri Prathmesh Chavan, ADV For Revenue : Shri Pravin Salunkhe, Sr. DR Date of Hearing : 09.09.2026 Date of Pronouncement : 21.09.2026 O R D E R PER BENCH:

These are batch of appeals filed by the Revenue against the respective orders of the Learned Additional/Joint Commissioner of Income Tax (Appeals) [‘Ld.Addl/JCIT(A)’] as per details tabulated below: ITA 7350/MUM/2026 AY: 2018-19 11.07.2025 ADDL/JCIT (A)-2 JAIPUR ITA 7372/MUM/2026 AY: 2019-20 ADDL/JCIT (A)-2 11.07.2025 JAIPUR

ITA 7403/MUM/2026 AY: 2019-20 ADDL/JCIT (A)-2 11.07.2025 JAIPUR ITA 7404/MUM/2026 AY: 2018-19 ADDL/JCIT (A)-2 03.07.2025 JAIPUR ITA 7405/MUM/2026 AY: 2019-20 ADDL/JCIT (A)-2 11.07.2025 JAIPUR ITA 7406/MUM/2026 AY: 2017-18 ADDL/JCIT (A) 26.03.2025 PANCHKULA ITA 7407/MUM/2026 AY: 2018-19 ADDL/JCIT (A)-2 25.06.2025 JAIPUR ITA 7408/MUM/2026 AY: 2017-18 ADDL/JCIT (A) 26.03.2025 PANCHKULA ITA 7409/MUM/2026 AY: 2018-19 ADDL/JCIT (A)-2 11.07.2025 JAIPUR ITA 7410/MUM/2026 AY: 2019-20 ADDL/JCIT (A)-2 11.07.2025 JAIPUR ITA 7411/MUM/2026 AY: 2019-20 ADDL/JCIT (A)-2 30.06.2025 JAIPUR ITA 7412/MUM/2026 AY: 2019-20 ADDL/JCIT (A)-2 11.07.2025 JAIPUR ITA 7413/MUM/2026 AY: 2018-19 ADDL/JCIT (A)-2 11.07.2025 JAIPUR ITA 7414/MUM/2026 AY: 2017-18 ADDL/JCIT (A) 26.03.2025 PANCHKULA ITA 7415/MUM/2026 AY: 2018-19 ADDL/JCIT (A)-2 11.07.2025 JAIPUR ITA 7416/MUM/2026 AY: 2019-20 ADDL/JCIT (A)-2 11.07.2025 JAIPUR ITA 7417/MUM/2026 AY: 2019-20 ADDL/JCIT (A)-2 11.07.2025 JAIPUR ITA 7418/MUM/2026 AY: 2019-20 ADDL/JCIT (A)-2 30.06.2025 JAIPUR ITA 7419/MUM/2026 AY: 2018-19 ADDL/JCIT (A)-2 26.06.2025 JAIPUR ITA 7420/MUM/2026 AY: 2019-20 ADDL/JCIT (A)-2 11.07.2025 JAIPUR

ITA 7421/MUM/2026 AY: 2018-19 ADDL/JCIT (A)-2 03.07.2025 JAIPUR ITA 7422/MUM/2026 AY: 2018-19 ADDL/JCIT (A)-2 30.07.2025 JAIPUR ITA 7423/MUM/2026 AY: 2019-20 ADDL/JCIT (A)-2 11.07.2025 JAIPUR ITA 7424/MUM/2026 AY: 2018-19 ADDL/JCIT (A)-2 11.07.2025 JAIPUR ITA 7425/MUM/2026 AY: 2017-18 ADDL/JCIT (A) 26.03.2025 PANCHKULA ITA 7426/MUM/2026 AY: 2019-20 ADDL/JCIT (A)-2 11.07.2025 JAIPUR ITA 7427/MUM/2026 AY: 2018-19 ADDL/JCIT (A)-2 11.07.2025 JAIPUR ITA 7428/MUM/2026 AY: 2018-19 ADDL/JCIT (A)-2 26.06.2025 JAIPUR ITA 7429/MUM/2026 AY: 2017-18 ADDL/JCIT (A) 26.03.2025 PANCHKULA

by the ld AR on behalf of the assessee, we find that there was a reasonable cause for the delay in filing these appeals and the same is hereby condoned and all these appeals are admitted for adjudication.

2025 held that the specific provisions of sections 194A(3)(i)(b) and 194A(3) (viia) (b) of the Act would prevail over the general provisions contained in section 194A(3)(v) of the Act and therefore, the co-operative bank is required to deduct TDS from interest payment on time deposits exceeding Rs. 10,000/-. 4. Briefly, the facts of the case are that the assessee is a society registered under the Maharashtra Co-operative Society Act and has been granted license by the Reserve Bank of India to carry on banking business. Proceedings under section 133(6) were initiated in the case of the assessee bank and a list of customers to whom interest has been paid was sought from the assessee bank and in response, the assessee submitted list of customers to whom the interest paid or credited exceeded Rs. 10,000/- during financial year 2017-18 relevant to A.Y. 2018-19. The assessee submitted that it has paid total interest on time deposits of Rs. 3,96,99,853/- out of which it has done TDS on interest paid of Rs. 44,32,883/- under section 194A of the Act and in respect of interest of Rs. 3,30,90,474/-, it has not done TDS on account of receipt of Form 15G/H and in respect of interest amount of Rs. 21,76,496/-, TDS provisions are not applicable in light of section 194A(3)(v) of the Act.

Act and in respect of balance amount of Rs. 3,92,859/-, it is paid to other co-operative societies which are exempt under section 194A(3)(v) of the Act.

registered under the State Co-operative Societies Act. It is also undisputed fact that the interest payment of Rs.21,76,496/- has been paid to other entities which are also co-operative societies. Therefore, it is clearly evident that the appellant co-operative society has paid interest to other co-operative societies totalling to Rs.21,76,496/-.

No. 6035/Mum/2025 & others dated 19/01/2026) reported in (2026) 182 taxmann.com 693 and reference was drawn to the relevant findings of the Coordinate Bench which are contained at para 11 to 16.2 of its order which read as under: “11. We find that the revenue has relied on provisions of section 194A(1), 194A(3)(i)(b) and 194A(3)(viia)(b) of the Act, whereas the appellant has relied on the second limb of section 194A(3)(v) of the Act. At the cost of repetition, the same may be reproduced below for ready reference and clarity: "[Interest other than "Interest on securities". 194A. (1) 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 other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct incometax thereon at the rates in force: (3) The provisions of sub-section (1) shall not apply- (i) where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed- (a).................. (b) ten thousand rupees, where the payer is a Co-operative society engaged in carrying on the business of banking; .................................... (v) to such income credited or [paid by a Co-operative society (other than a cooperative bank) to a member thereof or to such income credited or paid by a Co-operative society] to any other Co-operative society.] (viia) to such income credited or paid in respect of, - (a)......... (b) deposits (other than time deposits made on or after the 1st day of July, 1995) with a Co-operative society, other than a Co-operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking;]" 12. It is clear from the reading of the relevant provisions of the Act reproduced above that provisions of sections 194A(1), 194A(3)(i)(b), 194A(3)(v) and 194A(3)(viia)(b) of the Act are relevant to decide the issue at hand. There is no dispute that the appellant is a multi-state credit Co-op. society, which is engaged in the business of banking after obtaining license

from RBI. It is a Scheduled Bank carrying on the business of banking at various places in Mumbai and other cities. During the year under consideration (A.Y. 2016-17), the appellant bank had paid interest to various Co-op. housing societies and other persons, above the threshold limit of Rs.10,000/-. There is no dispute that the assessee did not deduct TDS on such interest payment. The ITO(TDS) and the CIT(A) treated the assessee bank as an "assessee in default" for not deducting TDS u/s 201 of the Act. It is the contention of the ld. Sr. DR that there are specific provisions, which require the assessee to deduct TDS. He has referred to the provisions of section 194A(3)(1)(b) and 194A(3)(viia)(b) of the Act and submitted that these are specific provisions directly dealing with the fact situation of the assessee, which is a Cooperative bank. On the other hand, the provisions of section 194A(3)(v) of the Act provide general exemption to concerned payers from deducting tax at source and has no relevance in deciding case of the assessee. 13. On the other hand, the ld. AR of the assessee submitted that the assessee is covered by the second limb of section 194A(3)(v), which remained untouched by the amendment by the Finance Act, 2015 w.e.f. 01.06.2015. The assessee is a Co-op. society carrying on the business of banking which has paid interest to other Co-op. housing societies. Therefore, it was not required to deduct Tax u/s 194A of the Act. 13.1 In view of the rival contention by the parties, we have again perused provisions of section 194A(1), 194A(3)(i)(b), 194A(3)(v) and 194A(3)(viia)(b) of the Act. Section 194A(1) requires any person, other than individual or HUF, to deduct tax at the time of credit or payment of interest to the account of the payee. Subsection (3) of 194A provides exemption from deduction in certain cases. Provisions of section 194A(3)(i)(b) of the Act makes it clear that provisions of subsection (1) of section 194A(1) shall not apply to such income if the amount does not exceed "ten thousand rupees where the payer is a Co-op. society engaged in carrying on the business of banking". This clause is directly applicable in case of the appellant because it is a Co-operative society engaged in carrying on the business of banking. Hence, the appellant bank was exempted from TDS liability only upto payment of interest of Rs.10,000/-. Beyond the above amount, it was obliged to deduct tax on credit or payment of interest to the respective payees. In the instant appeal, all payments were more than Rs.10,000/-. Hence, the appellant was required to deduct tax on such interest payments. Further, provisions of section 194A(3)(viia)(b) also excludes payment of interest on deposits by a Co-op. society or bank, engaged in carrying on the business of banking from waiver of TDS. Since the assessee is a Co-op. society engaged in the business of banking, the exemption from TDS is not available to it while crediting or making payment of interest to other Co-op. societies. On the other hand, provisions of 194A(3)(v) provides exemption from TDS u/s 194A(1) to Co-op. societies other than a Co-op. bank to a member thereof or to such income credited or paid by a Co-op. society to any other Co-op. society. The second limb of 194A(3)(v) exempts a "Co-op. society" from TDS on payment made to another "Co-op. society". The second limb does not deal with a "Co-op. society engaged in carrying on the business of banking" and, therefore, it

is a general provision exempting Co-op. society from TDS on interest to other Co-op. societies. On the other hand, the provisions of section 194A(3)(i)(b) and 194A(3)(viia)(b) of the Act are specific provisions dealing with Co-op. society engaged in carrying on business of banking. Therefore, we agree with the contention of the ld. Sr. DR that the specific provisions of section 194A(3)(i)(b) and 194A(3)(viia)(b) related to Co-op. society engaged in carrying on the business of banking will prevail over the general provisions of section 194A(3)(v) of the Act dealing with credit or payment of interest by Co-operative society to other Co-operative society. 14. It is well established principle of statutory interpretation that a specific provision will prevail over a general provision when there is conflict between the two. This is embodied in the maxim "generalia specialibus non derogant", i.e., general things do not derogate from special things. When both general and special provisions cover the same issue, the special provision is considered an exception to the general one and applies to that specific situation. It is assumed that the legislature by enacting a specific provision intended the specific rule to govern the particular situation, excluding the operation of general provision. In taxation matters, the Courts have consistently applied this principle in various fact situations. Reference may be made to the decision of Hon'ble Supreme Court in case of Commercial Tax Officer v. Binani Cements Ltd. [2014] 42 taxmann.com 529/68 VST 459/44 GST 103 (SC)/(2014) 8 SCC 319, where the judgement established and reinforced the legal principle that a specific provision relating to a specific and defined subject would prevail over a general provision relating to a broad subject. It also held that equity is out of place in tax law; a particular income in eligible to tax under the taking statute or not. It also reinforced the principle that executive orders cannot override statutory regulations unless explicitly permitted by law. 15. There is no reason as to why the ratio will not be applicable to the facts of the instant appeal. In the present case, the provisions relating to a "Co-operative society engaged in carrying on the business of banking" will be applicable; rather than the provisions in respect of "a Co-operative society". Therefore, we do not find any reason to deviate from the finding of the lower authorities and observation of the Co-ordinate Bench in appellant's own case (supra) where, after detailed discussion on the facts, provisions of section 194A of the Act, amendment to section 194A(3) of the Act w.e.f 01.06.2015 and precedents on the issue including decision relied upon by ld. AR in case of H. P. Co-op Bank Ltd (supra), it was held that the assessee bank was covered by provisions of subclause (b) of clause (i) of section 194A(3) as well as provisions of sub-clause(b) of clause (viia) of the Act. For ready reference, the relevant para may be reproduced below: "7.3 Since the assessee bank is covered by the provisions of sub- clause(b) of clause(i) of Section 194A(3) as well as the provisions of clause (viia) of the Act which are specific in nature, the assessee cannot claim that it is covered under section 194(3)(v) which are general in nature. Rather, it is a Co-operative society engaged in the business of banking, it is covered under these aforesaid specific clauses. There are a number of judicial pronouncements wherein it has been held that a specific provision overrides a general provision. For

this purpose reliance was placed by the AO on Kirloskar Pneumatic Company Ltd v. Commissioner of Surtax (1994) 210 ITR 485 (Bom)and CIT v. Mahanagar Telephone Nigam Ltd (2002) 254 ITR 627(Del). The Hon'ble Supreme Court in the case of South Indian Corporation (P) Ltd v. Secretary, Board of Revenue AIR 1964 SC 207 has held that the special provision should be given to the extent of its scope leaving the general provision to control cases where the special provision does not apply. 7.4 We find that the Co-operative is also interpreted by the Hon'ble Karnataka High Court, wherein in the case of CIT v. Yeshwanthpur Credit Co- operative Society Limited in ITA No. 237/2012, wherein the Court has interpreted the Cooperative Bank by inter alia observing that banks give credit, do discounting bills of exchange, cheque, demand issue cheques, drafts, pay orders, demand drafts, gift cheques, Pay orders, bank cheques, lockers, bank guarantees etc. all of which Cooperative Society cannot. Banks are bound to follow the rules and regulations as per RBI. Moreover, we find that in the said judgment the hon'ble Court has held as under: — If a Co-operative Bank is exclusively carrying banking business, then the income derived from the said business cannot be deducted in computing the total income of the assessee. The said income is liable for tax. A Cooperative bank as defined under the Banking Regulation Act includes the primary agricultural credit society or a primary co-operative agricultural rural development bank.The Legislature did not want to deny the said benefit to a primary agricultural credit society or a primary cooperative agricultural and rural development bank. They did not want to extend the said benefit to a co-operative bank which is exclusively carrying on banking business i.e., the purport of the amendment. If the assessee is not a Co-operative bank carrying on exclusively banking business and if it does not possess a license from the Reserve Bank of India to carry on business, then it is not a Co- operative bank. It is a Co-operative society which also carries on the business of lending money to its members which is covered under Section 80P(2)(a)(i) i.e., carrying on the business of banking for providing credit facilitates to its members. The object of the aforesaid amendment is not to exclude the benefit extended under Section 80P(i) to the society.Looking to the facts and circumstances of the case the Hon'ble High Court has interpreted the difference between Co-operative Bank and Co-operative Society. 7.5 The Co-operative Bank and Co-operative Society are also interpreted in the case of Bhagani Nivedita Sahakari Bank Ltd. v. ACIT (2003) 87 ITD 567 where in it is held that Co-operative Society mentioned in Section 194A(3)(v) should be interpreted as Co-operative Society other than Co-operative Bank. We find that hon'ble ITAT Pune Bench has interpreted the word Co-operative and Co-operative Society and further the hon'ble Kerala High Court in the case of Moolamattom Electricity Board Employees Co-operative Bank Ltd. has made a clear

distinction between primary credit society and a Co-operative society engaged in banking business. We find that the assessee bank is covered by the provisions of subclause (b) of clause (i) of Sec.194A(3) as well as the provisions of clause (viia) of Section 194A(3) which are specific in nature and not section 194A(3)(v) which is general in nature. Respectfully following the ratio of the above case laws including that of the Supreme Court, we conclude that the assessee's case is covered by the specific provision in clause (i) & (vii), rather than the general provisions of clause (v) of Sec 194A(3) as rightly held by the AO. 7.6 We may mention here that the cited decision of coordinate bench of ITAT, Chandigarh in The H.P.State Co-Operative Bank in ITAT No.125/127/chd/202 dated 27.2.2025 is distinguishable on facts of the case since in the instant case the recipients are housing cooperative societies which are neither cooperative banks nor cooperative societies engaged in banking business and are therefore liable to make TDS on interest paid to such cooperative societies. 7.7 To conclude, we are of the considered opinion that the issue is no longer res integra in view of the CBDT Circular (supra) holding that such Co-operative Banks were not required to deduct tax at source an interest paid on one time deposits by its members, paid or credited on or before 01.06.2015.In view of these facts and looking to the intention of the legislature while making amendment to clause of section 194A, it is very much clear that the said amendment is prospective in nature and, therefore, is applicable w.e.f. 01.06.2015 and onwards. There is no dispute that assessee is a co-operative society engaged in banking business and the exemption for deducting tax at source for payment of interest is only up to Rs.10,000/-. So the assessee was liable to deduct TDS for payment of interest above this threshold. The above amendment is clearly applicable to the years under appeal and, therefore, the ld.CIT(A) has rightly upheld the action of the AO. Accordingly, we decline to interfere with the orders of the ld.CIT(A), which are hereby upheld. Therefore, all the grounds of appeal of the assessee are dismissed." 16. We find no reason to differ from the findings of the Co-ordinate Bench in appellant's own case (supra) for the same year. We hold that the appellant is covered by provisions of section 194A(1), 194A(3)(i)(b) and 194A(3)(viia)(b) of the Act and not under provisions of section 194A(3)(v) of the Act. The decisions relied upon by the ld. AR are not applicable because in those cases the impugned issue had not been examined in the light of the specific provisions of section 194A(3)(i)(b) and 194A(3)(viia)(b) of the Act. The said decisions were based on interpretation of the provisions of clause (v) of section 194A(3) of the Act and Circular No. 19/2015 (supra). In case of Abhyudaya Co-op Bank Ltd. (supra), the Tribunal decided in favour of the appellant by observing that waver provided u/s. 194A(3)(v) of the Act from interest payment by a Co-op society to another Co-op society existed before amendment and continues to apply to co-operative bank even after the amendment. It relied on the Explanatory Memorandum (supra). It also relied on the decision in case of H. P. state co-operative Bank Ltd. (supra). In case of Kadakkaboor Services Co-op Bank Ltd. (supra),

the interest payment was by the District Co-operative Bank to the Primary Agricultural Credit Society. Hence, the facts are not similar. In H. P. State Co-operative Bank Ltd. (supra), the Tribunal held that by virtue of provisions of section 194A(3)(v), a Co-op bank is not required to deduct tax at source on interest paid to another Co-op society. We have already discussed the above issue and held that provisions of sections 194A(3)(i)(b) and 194A(3)(viia) are relevant to decide the issue and not the provisions of section 194A(3)(v). This case was also considered by the Tribunal in appellant's own case cited supra. 16.1 Therefore, we are of the considered view that the decisions relied upon by the ld. AR are distinguishable either on facts or based on general provisions of exemption rather than the specific provisions of section 194A(3) of the Act fastening TDS liability on the assessee. We have already held that the specific provisions applicable to the appellant would prevail over the general provisions contained in section 194A(3)(v) of the Act. No amendment has been made in the specific provisions contained in section 194A(3)(i)(b) and 194A(3)(viia)(b) of the Act dealing with "Co-operative society engaged in carrying on the business of banking". Hence, the decisions relied upon would not come to the rescue of the appellant. 16.2 At this stage, it may be mentioned that the Circular, Instruction, Order or Direction issued by the CBDT cannot override or detract from the provisions of the Act, as held by the Hon'ble Supreme Court in case of Kerala Financial Corpn. v. Commissioner of Income-tax [1994] 119 CTR 164/210 ITR 129/75 Taxman 573 (SC). The Hon'ble SC held that "Such an order, instruction on direction cannot override the provisions of the Act; that would be destructive of all known principles of law as the same would really amount to giving power to a delegated authority to even amend the provision of law enacted by the Parliament. Such a contention cannot seriously be even raised.". In view of the above factual and legal positions, we do not find any infirmity in the order of CIT(A), which we confirm. The grounds are accordingly dismissed.”

banking business in absence of any specific exclusion as in the first limb of section 194A(3)(v) of the Act.

i.) State Cooperative Bank Ltd vs. ITO (TDS) [(2025) 172 taxmann.com 470 (Chandigarh – Trib.)]

ii.) Abhyudaya Co-operative Bank Ltd. vs. ITO (TDS) Ward 1(1)(1), Mumbai [ITA Nos. 2571 to 2590/MUM/2025] following the aforesaid decision of ITAT Chandigarh Bench in HP State Co-operative Bank Ltd.

Sr. TAN Branch A.Y. Order DIN Order Dt. 1. MUMD12396G Bhayander 15-16 ITBA/APL/S/250/20 10.07.2024 24- 25/1066579019(1) 2. MUMD22657F Malad 16-17 ITBA/APL/S/250/20 26.03.2025 24- 25/1075049003(1)

the Revenue be accepted wherein it has been contended that specific provisions of section 194A(3)(i)(b) and 194A(3)(viia)(b) relating to co- operative society engaged in carrying on the business of banking will prevail over the general provisions of section 194A(3)(v) which deals with interest payment by co-operative society to other co-operative society.

“18. We have heard learned counsel for the parties. With their assistance, we have perused the record and the impugned orders, as also Circular No.19 of 2015 dated 27 November 2015 issued by the CBDT, which has been the primary bone of contention on behalf of the parties. 19. At the outset, it is not in dispute that the assessee is a co-operative bank registered under the Multi-State Co-operative Societies Act, 2002. It is thus a Multi-State Co-operative Society as defined under clause (p) of Section 3 of the Multi-State Co-operative Societies Act, 2002, which defines multi-state cooperative society as a society registered or deemed to be registered under the said Act and includes a national co-operative society and a federal co-operative society. The assessee has been granted a banking license by the Reserve Bank of India under Section 22(1) read with Section 56(o) of the Banking Regulation Act, 1949, and is accordingly engaged in the banking business not only to cater to its members but also qua non members which includes co-operative societies. It also appears to be not in dispute that insofar as the payment of interest on deposits as made by the members of the assessee is concerned, the assessee has deducted tax on such amounts credited/paid to its members. The dispute however is, considering the provisions of Section 194A(3)(v), whether the assessee would be liable to deduct tax at source and deposit the same with the department on interest paid to its non-member co-operative societies. To examine the issue, it would be necessary to note the relevant provisions of the Act which stand attracted, namely, definition of co- operative society as defined under Section 2(19) and the provisions of Section 194A(3)(v): "2(19) "co-operative society" means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies." Section 194A Interest other than "Interest on securities".

(1) 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 other than income [by way of interest on securities], shall, at the time of credit of such income to the account of the payee" or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force: [Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of Section 44AB during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income tax under this section.] [Explanation. For the purposes of this section, where any income by way of interest as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.] (2) [Omitted by the Finance Act, 1992, w.e.f. 1-6-1992.] (3) The provisions of sub-section (1) shall not apply- [(i) where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, [does not exceed- ............................... (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; [Explanation - For the purposes of this clause, "co-operative bank" shall have the same meaning as assigned to it in part-V of the Banking Regulation Act, 1949 (10 of 1949);] (viia) to such income credited or paid in respect of,- (a) deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a cooperative land development bank; (b) deposits (other than time deposits made on or after the 1st day of July, 1995) with a co-operative society, other than a co- operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking;]

20. From a plain reading of the aforesaid provision, it is evident that any person, other than an individual or a Hindu Undivided Family, who is responsible for paying to a resident any income by way of interest, other than income by way of interest on securities, is required to deduct income tax thereon at the rates in force. Such deduction is to be made at the time of credit of such income to the account of the payee or at the time of payment thereof, whether in cash, by cheque, draft, or by any other mode, whichever is earlier. Sub-section (3) of the said provision carves out certain exceptions by providing that the provisions of sub-section (1) shall not apply, inter-alia, to the payments specified in the various sub-clauses. In the present context, the relevant provision is subclause (v) of sub-section (3), which stipulates that the obligation to deduct tax under sub-section (1) of Section 194A shall not apply to income credited or paid by a co-operative society (other than a co-operative bank) to its members or to income credited or paid by one co-operative society to another co-operative society. The explanation below sub-clause (v) further provides that, for the purposes of this clause, the expression "co-operative bank" shall have the same meaning as assigned to it in Part V of the Banking Regulation Act, 1949. It is also relevant to note that sub-clause (viia) grants an exemption in respect of income credited or paid on deposits with a primary agricultural credit society, or a primary credit society, or a co-operative land mortgage bank or a co-operative land development bank. The same sub- clause also exempts income credited or paid on deposits (other than time deposits made on or after 1 July 1995) with a co-operative society, other than a co-operative society or bank referred to in subclause (a), engaged in the business of banking. 21. Considering the nature of the provision, we are in agreement with the assessee's contention that clause (v) of Section 194A(3) is required to be divided into two parts. The first part which is to the effect "to such income credited or paid by a co-operative society (other than a co-operative bank) to a member thereof"', would pertain to interest credited or paid by a co- operative society, which is not a co-operative bank, to a member. In other words, if it is a cooperative bank, which credits the income to any member, such exemption would not be available. Accordingly, this part of Section 194A(3)(v) is not the subject matter of consideration in the present proceedings, since there is no dispute that the assessee is a co-operative bank and, while crediting interest income to its members, it has been deducting tax at source. 22. The question is in regard to the second part of Section 194A(3)(v), which is to the effect "to such income credited or paid by a co-operative society to any other co-operative society" The assessee's contention is that the expression "cooperative society" as used in the second part of the provision includes the assessee, notwithstanding that it is a co-operative bank. According to the assessee, a co-operative bank, in law, does not cease to be a co-operative society. Therefore, the interest paid by the assessee to depositors that are co-operative societies, even though such depositors are not members of the assessee, would stand covered by the exemption under Section 194A(3)(v).

23. A careful reading of the provision reveals substance in the contentions as urged on behalf of the assessee. To appreciate such contentions as urged on behalf of the assessee, it is necessary to have a holistic reading of sub-clause (v) of Section 194A(3). The first part of the provision categorically excludes a cooperative bank in relation to income credited or paid by a co-operative society to its members. However, when we consider the second part, it becomes evident that the legislature has consciously refrained from referring to a "co-operative bank", which is explicitly included in the first part and making the provision applicable to all the co- operative societies, which include a co-operative bank. The reason being that the inherent legal character of the co-operative bank to be a co- operative society does not in any manner stand extinguished or obliterated. The legislature in not excluding the co-operative banks in the second part has made such intention clear to grant the benefit to co- operative banks to remain exempted from the applicability of sub-section (1) of Section 194A. The sequel, therefore being where a co-operative bank pays interest to its non-members, the co-operative bank inherently being co-operative society, the exemption would undoubtedly apply. Consequently, by applicability of the second part of clause (v) of sub- section (3) [supra], a co-operative bank would not be under an obligation to deduct tax at source in making interest payments to non-member co- operative societies. 24. In the present case, the assessee has paid interest to co-operative societies which are not its members and, under its bye-laws, such societies cannot become members. Had the legislature intended to exclude co- operative banks from the scope of the second part of clause (v) of Section 194A(3), it could have done so by expressly excluding them, as it did in the first part. However, such exclusion has been kept away in the second part of clause (v), in other words, the intention of the legislature was to exclude the co-operative banks making payments of interest to non-member co- operative societies, then the wording of the second part would have been completely different or it would have been akin to the first part of clause (v). 25. Thus, if the contention as urged on behalf of the Revenue is to be accepted, namely, that clause (v) would include the deduction of tax at source by co-operative banks, in the co-operative banks paying interest to their nonmember co-operative societies, in such event, the provision would have read differently. 26. In interpreting a taxing statute, the Court cannot read or include such words, which the legislature has not incorporated and thereby change the purport and meaning of the provision, so as to bring about a different intention other than the intention as plainly reflected by the provision. In other words, the second part of clause (v) of Section 194A(3) cannot be read in the manner as urged by the Revenue so as to exclude the co-operative bank within the meaning of the 'Co-operative society', such interpretation would amount to the Court reading something completely alien to the plain language of clause (v). This, in our opinion, is the plain consequence as brought about by Section 194A(3)(v).

27. The aforesaid interpretation as discerned on a strict reading of the provision, also stands fortified in the CBDT applying its mind, when it issued Circular No.19 of 2015 dated 27 November 2015, being the "explanatory notes to the provisions of the Finance Act, 2015", wherein, in paragraph 42 of the said circular dealing with rationalisation of provisions relating to deduction of tax on interest (other than interest on securities), the following has been provided in relation to exemption from deduction of tax in respect of interest payments by a co-operative society, inter alia, in the context of interest payment by a cooperative society to its non-members and as specifically set out in paragraph 42.7. It would be necessary to note the contents of paragraph 42 of the said circular along with the sub- paragraphs so as to appreciate paragraph 42.7 thereof, in regard to the clear purport as attributed to the second part of clause (v) of Section 194A(3), to include a co-operative bank within the meaning of a co- operative society being not obligated to deposit tax deducted at source, in making payment of interest to its non-members co-operative societies. Paragraph 42 along with sub-paragraphs is required to be noted, which read thus:- "42. Rationalisation of provisions relating to deduction of tax on interest (other than interest on securities) 42.1 Section 194A(1) read with section 194A(3)(i) of the Income-tax Act provides for deduction of tax on interest (other than interest on securities) over a specified threshold, i.e. Rs.10,000 for interest payment by banks, co-operative society engaged in banking business (co-operative bank) and post office and Rs.5,000 for payment of interest by other persons. Further, sub-section (3) of section 194A inter alia also provides for exemption from deduction of tax in respect of following interest payments by co-operative society: (i) Interest payment by a co-operative society to a member thereof or any other cooperative society. [Section 194A(3](v) of the Income-tax Act] (ii) Interest payments on deposits by a primary agricultural credit society or primary credit society or co-operative land mortgage bank or cooperative land development bank. [Section 194A(3)(viia) (a) of the Income-tax Act] (iii) Interest payment on deposits other than time deposit by a cooperative society engaged in the business of banking other than those mentioned in section 194A(3)(viia) (a) of the Act. [Section 194A(3) (viia)(b) of the Income-tax Act]

42.2 Therefore, as per the provisions of section 194A(1) read with provisions of sections 194A(3)(i)(b) and 194A(3)(viia)(b), co-operative bank is required to deduct tax from interest payment on time deposits if the amount of such payment exceeds specified threshold of Rs.10,000/-. However, as the provisions of section 194A(3)(v) of the Income-tax Act provide a general exemption from making tax deduction from payment of interest by all co-operative societies to its members, the co-operative banks tried to avail this exemption by making their depositors as members of different categories. 42.3 This has led to dispute as to whether the co-operative banks, for which the specific provisions of tax deduction exist in the form of section 194A (1), section 194A(3)(i)(b) and section 194A(3)(viia)(b) of the Income-tax Act, can take the benefit of general exemption provided to all co-operative societies from deduction of tax on payment of interest to members. The matter has been carried to judicial forums and in some cases a view has been taken that the provisions of section 194A(3)(viia) (b) of the Income-tax Act makes no distinction between members and non-members of cooperative banks for the purposes of deduction of tax, hence, the co-operative banks are required to deduct tax on payment of interest on time deposit and cannot avoid the same by taking the plea of the general exemption provided under section 194A(3)(v) of the Incometax Act. This is because the specific provision of tax deduction provided under section 194A(3) (i) (b) and 194A(3) (viia)(b) of the Income-tax Act for cooperative banks override the general exemption provided to all co-operative societies for non- deduction of tax from interest payment to members under section 194A(3)(v) of the Income-tax Act. 42.4 As there is no difference in the functioning of the co-operative banks and other commercial banks, the Finance Act, 2006 and Finance Act, 2007 amended the provisions of the Income-tax Act to provide for co- operative banks a taxation regime which is similar to that for the other commercial banks. Therefore, there is no rationale for treating the co-operative banks differently from other commercial banks in the matter of deduction of tax and allowing them to avail the exemption meant for smaller credit co-operative societies formed for the benefit of small number of members. However, as mentioned earlier, a doubt has been created regarding the applicability of the specific provisions mandating deduction of tax from the payment of interest on time deposits by the cooperative banks to its members by claiming that general exemption is also applicable for payment of interest to member depositors. 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 cooperative 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. 42.6 However, the existing exemption provided under section 194A(3) (viia)(a) of the Income-tax Act to primary agricultural credit society or a primary credit society or a cooperative land mortgage bank or a cooperative land development bank from deduction of tax in respect of interest paid on deposit shall continue to apply. Therefore, these cooperative credit societies/banks referred to in said clause (viia)(a) of section 194A(3) of the Income-tax Act shall not be required to deduct tax on interest payment to depositors even after the said amendment. 42.7 Further, the existing exemption provided under section 194A(3)(v) of the Income-tax Act from deduction of tax from interest paid by a cooperative society to another co-operative society shall continue to apply to the co-operative bank and, therefore, a co-operative bank shall not be required to deduct tax from the payment of interest on time deposit to a depositor being a co-operative society." (emphasis supplied) 28. Thus, the CBDT has clarified that the existing exemption under Section 194A(3)(v) of the Act from the deduction of tax on interest paid by one cooperative society to another co-operative society continues to apply to cooperative banks. Consequently, a co-operative bank is not required to deduct tax at source on interest paid on time deposits where the depositor, is a co-operative society. There can be nothing clearer than what has been set out in paragraph 42.7 by the CBDT circular, which fully supports the contention as urged on behalf of the assessee. 29. However, it appears that surprisingly, the effect required to be given to the plain applicability of clause (v) of Section 194A(3), as stipulated by the CBDT in the said circular, has been completely misconstrued and/or overlooked by the Tribunal, inasmuch as the Tribunal has failed to apply its mind to the specific effect brought about by the clarification issued by the CBDT in paragraph 42.7, it has instead chosen to emphasize the applicability of clause 42.5 while making the following observations:- "7. We have considered the rival submissions and perused the record of the case. It is seen that the assessee is an urban cooperative bank and was enjoying the exemption from payment of tax at source on interest paid on the deposits. However, vide Finance Act, 2015 w.e.f. 1.6.2015, same has been withdrawn and sub-clause (v) of sub-section (3) of Section 194A has been amended whereby it has been specifically inserted that the cooperative banks are not eligible for this exemption. Further, in the memorandum explaining the provisions, this issue has been dealt with and the relevant clause 42 of Finance Act 2015 relating to this has clarified the position that this amendment is applicable prospectively w.e.f. 01.06.2015. The relevant clause is reproduced as Rationalisation of provisions relating to deduction of tax on interest (other than interest on securities)

Section 194A(1) read with section 194A(3)(i) of the Act provide for deduction of tax on interest (other than interest on securities) over a specified threshold, i.e. Rs.10,000 for interest payment by banks, cooperative society engaged in banking business (co-operative bank) and post office and Rs.5,000 for payment of interest by other persons. Further, sub-section (3) of section 194A inter alia also provides for exemption from deduction of tax in respect of following interest payments by co- operative society: (i) Interest payment by a co-operative society to a member thereof or any other co-operative society. [Section 194A(3)(v) of the Act] (ii) Interest payments on deposits by a primary agricultural credit society or primary credit society or co-operative land mortgage bank or cooperative land development bank. [Section 194A(3)(viia)(a) of the Act] (iii) Interest payment on deposits other than time deposit by a cooperative society engaged in the business of banking other than those mentioned in section 194A(3)(viia)(a) of the Act. [Section 194A(3)(viia) (b) of the Act] Therefore, as per the provisions of section 194A(1) read with provisions of sections 194A(3)(i)(b) and 194A(3)(viia)(b), co-operative bank is required to deduct tax from interest payment on time deposits if the amount of such payment exceeds specified threshold of Rs. 10,000/-. However, as the provisions of section 194A(3)(v) of the Act provide a general exemption from making tax deduction from payment of interest by all co-operative societies to its members, the co-operative banks tried to avail this exemption by making their depositors as members of different categories. This has led to dispute as to whether the co- operative banks, for which the specific provisions of tax deduction exist in the form of section 194A (1), section 194A(3)(i)(b) and section 194A(3)(viia)(b) of the Act, can take the benefit of general exemption provided to all cooperative societies from deduction of tax on payment of interest to members. The matter has been carried to judicial forums and in some cases a view has been taken that the provisions of section 194A(3)(viia) (b) of the Act makes no distinction between members and non-members of co-operative banks for the purposes of deduction of tax, hence, the cooperative banks are required to deduct tax on payment of interest on time deposit and cannot avoid the same by taking the plea of the general exemption provided under section 194A(3)(v) of the Act. This is because the specific provision of tax deduction provided under section 194A(3)(i) (b) and 194A(3)(viia)(b) of the Act for co-operative banks override the general exemption provided

to all co-operative societies for non deduction of tax from interest payment to members under section 194A(3)(v) of the Act. As there is no difference in the functioning of the co-operative banks and other commercial banks, the Finance Act, 2006 and Finance Act, 2007 amended the provisions of the Act to provide for co-operative banks a taxation regime which is similar to that for the other commercial banks. Therefore, there is no rational for treating the cooperative banks differently from other commercial banks in the matter of deduction of tax and allowing them to avail the exemption meant for smaller credit co-operative societies formed for the benefit of small number of members. However, as mentioned earlier, a doubt has been created regarding the applicability of the specific provisions mandating deduction of tax from the payment of interest on time deposits by the cooperative banks to its members by claiming that general exemption provided is also applicable for payment of interest to member depositors. In view of this, it is proposed to amend the provisions of the section 194A of the Act to expressly provide from the prospective date of 1st June, 2015 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 Act shall not apply to the payment of interest on time deposits by the co-operative banks to its members...................." 6.2 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 1.6.2015. 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 cooperative 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." 7.1 From the above clarification issued by the CBDT, it is very clear that cooperative banks are required to deduct tax on interest on time deposits paid or credited to its members only on or after 1st June, 2015. A plain reading of the provisions of Section 194A(3)(i)(b) clearly indicates that exemption for interest paid by co-operative society engaged in banking business is exempt from deduction of tax at source up to an amount of Rs.10,000/-. Therefore, exemption for interest is up to Rs 10,000/-. Thus, we can see a threshold limit of Rs 10,000/- has been prescribed by the said provision, meaning any interest disbursal above Rs 10,000/-attracts TDS. The ld. AR's contention that

since section 194A(3)(v) exempt any interest paid by co-operative society to its members irrespective of nature of deposit or amount, the action of the assessee society engaged in banking, not to deduct Tax at source is valid, is according to us not correct and it may be noted that section 194A(3)(v) is a general provision which encompasses with it co-operative society as a whole." (emphasis supplied) 30. We are, thus, not in agreement with the aforesaid observations of the Tribunal, for the reason that, in the second part (supra) of clause (v) of Section 194A(3), the legislature has neither circumscribed nor restricted the exemption intended to be granted to co-operative societies in general, including to the cooperative banks. As noted hereinabove, the legislature has consciously refrained from using the words "co-operative bank" in the second part of sub-clause (v) of Section 194A(3). Accordingly, it cannot be contended that the legislature in the same breath, was unaware of its intention, when, in the first part of clause (v), it specifically excluded co- operative banks, while, at the same time, extending the exemption in respect of income credited by a co-operative society to a member by a co- operative society under the second part of clause (v). A similar intention of the legislature can also be discerned from the reading of clause (viia) of Section 194A(3), which pertains to income credited or paid in respect of deposits with a primary agricultural credit society, a primary credit society, a co-operative land mortgage bank, or a co-operative land development bank. 31. The aforesaid discussion, in our opinion, would reflect on the intention of the legislature, which is also clear in the CBDT Circular (particularly paragraph 42.7) and clearly brings about the position that, in respect of interest credited by a co-operative bank to its non-member co-operative societies, the provisions relating to deduction of tax at source are not applicable. However, at the same time, under the first part of clause (v) of Section 194A(3), there is an obligation on a co-operative bank to deduct and deposit tax at source in accordance with the provisions of sub-section (1) of Section 194A(3). Thus, the Tribunal is not correct in holding that the second part of clause (v) of Section 194A(3) operates on the same footing as the first part of clause (v). This constitutes the legal fallacy in the Tribunal's reasoning, as the observations made therein are also without due consideration of the relevant provisions of the CBDT Circular, namely paragraph 42.7 (supra) thereof. 32. In such context, Mr. Mistri, learned Senior Counsel for the assessee, has drawn our attention to a decision of the Kerala High Court in the case " Kaipuzha Service Co-operative Bank Ltd. (supra), wherein a similar view was taken by the Kerala High Court and has conceded on behalf of the Revenue. The relevant extract of the said judgment reads thus: " The petitioners are Primary Agricultural Credit Society registered under the provisions of the Kerala Co-operative Societies Act. In the writ petition, the petitioners are aggrieved by Exts. P1 and P3 communications received from the General, Kottayam District Cooperative Bank, intimating them, based on the advice received from the Income Tax Department, that the interest payable to them on the

Fixed Deposits maintained with the Bank is not exempt from the procedure for tax deduction at source (TDS) and that tax would be deducted at source and remitted to the Government on such interest payments. It is the case of the petitioners that the interest income accruing to it is from the deposits made by the petitioners with the Kottayam District Cooperative Bank and hence, as per the provisions of Section 194A(3)(v), the provisions of sub section (1) thereof, which contemplate a deduction of tax at source would not apply in cases where the income is paid by a Co-operative Society to any other Co- operative Society. It is the case of the petitioner that the payment of interest from the Kottayam District Co-operative Bank to the petitioners have to be viewed as a payment of income by a Co-operative Society to another Co-operative Society and hence, the provisions of Section 194A(3)(v) would apply to exclude the receipts of interest income by the petitioners from the requirement of tax deduction at source. Through a statement filed by the learned Standing Counsel appearing on behalf of the 1st respondent, it is conceded that the petitioners would get the benefit of the exemption provided under Section 194A(3)(v) of the Income Tax Act. Taking note of the statement, I allow the writ petition by declaring that there will be no requirement of deducting tax at source in the case of payment of interest from the District Co-operative Bank Kottayam to the petitioners." 33. As to whether there is any distinction between a co-operative society engaged in the co-operative banking business and a co-operative bank, was the issue for consideration of the Division Bench of the Madras High Court in Coimbatore District Central Co-operative Bank Ltd. (supra)' In such context the Court considering the provisions of the Banking Regulation Act, 1949 as also the Act and also the provisions of other ancillary laws, held that none of the State or Central enactments such as Tamil Nadu Co-operative Societies Act 1983, Banking Regulation Act 1949, Reserve Bank of India Act, 1934, National Bank for Agriculture and Rural Development Act, 1981, make any distinction in cooperative society engaged in carrying on banking business and a co-operative bank. The relevant observations in that regard are required to be noted, which read thus: "45. The second substantial question of law that we have framed for consideration is as to whether there exists a substantial or marked difference between a co-operative society engaged in carrying on banking business and a co-operative bank and if so, under which category the appellant would fall. The answer is too obvious in view of the foregoing discussion. Except the provisions of sub-clause (b) of clause (I), sub-clause (a) of clause (iii) and sub-clauses (a) and (b) of clause (viia) of sub-section (3) of Section 194A, we do not find anywhere a dichotomy created between a co-operative bank and a co- operative society engaged in carrying on banking businesses. Therefore, our answer to the second substantial question of law would be that none of the State or Central enactments such as the Tamil Nadu Co-operative Societies Act, 1983, the Multi-State Co-operative Societies Act, 2002, the Reserve Bank of India Act, 1934, the Banking

Regulation Act, 1949 and the National Bank for Agriculture and Rural Development Act, 1981 make any distinction between a co-operative society engaged in carrying on banking business and a co-operative bank. 46. Since there is a reference to the Co-operative societies Act, 1912 in Section 2(19) of the Act, we have also gone to the Co-operative Societies Act, 1912. It was a central legislation of the colonial past, which also does not define a co-operative bank. It only deals with co-operative societies registered under the Act. Therefore, our answer to the second question may not undergo a change even if we make a reference to the Co-operative Societies Act, 1912, which in any case has no application to the societies registered in terms of the State enactments." 34. The aforesaid observations of the Madras High Court would support the view which we have taken in regard to the intention of the legislation as reflected in the plain language of Clause (v) of Section 194A(3) of the Act. 35. In concluding the aforesaid discussion, we need to also delve on another issue namely of the Assessing Officer's reference to the provisions of Section 80P(2)(d) of the Act. In our opinion, such reference in the context of the applicability of Section 194A(1) read with sub-section (3)(v) was not an acceptable course of action, inasmuch as Section 80P is a provision which stipulates a deduction in respect of income of co-operative societies. Hence, Section 80P operates at the stage of assessment, so as to determine the final tax liability of a payee society receiving interest amount. On the other hand, Section 194A(1) operates at the transactional stage and governs the discharge of the obligation to deduct tax at source. Thus, the applicability of Section 194A(1) is certainly not controlled by the operation of Section 194A(3)(v) which creates a self operating mechanism when the provisions of sub-section (1) would not be made applicable in specific cases as specified under sub-section (3). Thus, Section 80P and Section 194A operate distinctly. They have a different effect. Thus, to read the effect of Section 80P(2)(d) which is in respect of any income by way of interest or dividends derived by a co-operative society from its investment in any other co-operative society has a different application and legal character, than an obligation of a co-operative society in terms of what has been provided under Section 194A(1) read with sub-section (3)(v) as in the present context. Thus, the Assessing Officer's approach of intermixing the effect of these two provisions, in our opinion, was not well-founded. 36. In the light of the above discussion, the appeals deserve to be allowed in terms of the following order:- "(I) The impugned judgment and order passed by the Tribunal is quashed and set aside. (II) The substantial questions of law are answered in the following terms:

(a) The Assessee is held entitled to an exemption from deduction of tax at source under the provisions of sub-section (3)(v) of Section 194A qua the interest amounts paid to its depositors / non- member co-operative societies. (b) Consequent to the aforesaid, the assessee cannot be held to be an assessee-in-default under Section 201 (1) read with Section 201 (1A) of the Income Tax Act, 1961. (III) The Appeals stand allowed in the aforesaid terms. No costs.

to whether specific provisions of section 194A(3)(i)(b) and 194A(3)(viia)(b) relating to co-operative society engaged in carrying on the business of banking will apply or the general provisions of section 194A(3)(v) which deals with interest payment to members will apply and thereafter, in paragraph 42.5, the CBDT has stated that the provisions of 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 w.e.f 01.06.2015 and in paragraph 42.7, the CBDT has held that the existing exemption provided under section 194A(3)(v) of the Income-tax Act from deduction of tax from interest paid by a cooperative society to another co-operative society shall continue to apply to the co-operative bank and, therefore, a co-operative bank shall not be required to deduct tax from the payment of interest on time deposit to a depositor being a co-operative society and taking note of the said, the Hon’ble Bombay High Court has held that there cannot be anything more clearer that what has been stated in paragraph 42.7 of the CBDT Circular which supports the case of the assessee. In effect, the controversy regarding specific provisions vis-à-vis general provisions have been laid to rest by the Hon’ble Bombay High Court.

non-deduction of TDS on interest payments on deposits placed by such non-members co-operative societies. We accordingly upheld the findings of the ld CIT(A) wherein he has rightly set-aside the findings of the AO. The grounds of appeal so taken by the Revenue are thus dismissed.

Order pronounced in the Open Court on 21.09.2026

Sd/- Sd/- DEBJANI MITRA NEOGY VIKRAM SINGH YADAV (JUDICIAL MEMBER) (ACCOUNTANT MEMBER)

Mumbai, Dated: 21.09.2026 Karishma J. Pawar, SR. PS

Copy to : 1) The Appellant 2) The Respondent 3) The CIT concerned 4) The D.R, ITAT, Mumbai 5) Guard file

By Order Dy./Asst. Registrar I.T.A.T, Mumbai