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Facts
The assessee, Citizen Credit Cooperative Bank, was held to be in default for not deducting TDS under Section 194A on interest paid to various co-operative societies, primarily housing cooperative societies, exceeding Rs. 10,000/- for Assessment Year 2016-17. The bank contended that it was exempt under Section 194A(3)(v) as a co-operative society, and the relevant amendments making co-operative banks liable for TDS were not applicable for the impugned assessment year.
Held
The Tribunal confirmed that the assessee, as an urban multi-state cooperative bank and a scheduled bank, is on par with commercial banks and thus not eligible for the general exemption under Section 194A(3)(v). It ruled that specific provisions of Section 194A requiring TDS deduction override the general exemption, and the amendments by Finance Act, 2015, mandating TDS on interest payments by co-operative banks on time deposits above Rs. 10,000/-, are prospective and applicable from June 1, 2015, covering A.Y. 2016-17. Therefore, the assessee was liable to deduct TDS.
Key Issues
Whether a co-operative bank, in its capacity as a scheduled bank, was liable to deduct TDS under Section 194A on interest payments to other co-operative societies (specifically housing societies) for Assessment Year 2016-17, considering the amendments to Section 194A by Finance Act, 2015, and the interplay between specific and general exemption provisions.
Sections Cited
Section 2(19), Section 10, Section 194A, Section 194A(1), Section 194A(3), Section 194A(3)(i), Section 194A(3)(i)(b), Section 194A(3)(v), Section 194A(3)(viia), Section 194A(3)(viia)(a), Section 194A(3)(viia)(b), Section 201(1), Section 201(1A), Section 80P, Section 80P(2)(d)
AI-generated summary — verify with the full judgment below
Before: SHRI SANDEEP GOSAIN & SHRI PRABHASH SHANKAR
P a g e | 2 2375, 2376, 2377, 2378, 2379, 2380, 2381/Mum/2025 A.Y. 2016-17 Citizen Credit Cooperative Bank Limited आदेश / O R D E R PER BENCH The above captioned appeals have been filed by the assessee against the appellate order of even date as passed by the Learned Commissioner of Income-tax, Appeal, ADDL/JCIT(A)-3, Bengaluru [hereinafter referred to as “CIT(A)”] pertaining to the orders passed u/s. 201(1)/201(1A) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for the Assessment Year [A.Y.] 2016-17.Since the issues and grounds of appeal are common barring variation in quantum and also the fact that appeals were heard together, they are being taken up together for adjudication vide this composite order for the sake of brevity. We take up ITA No.2374/Mum/2025 as ‘Lead case’.
The grounds of appeal
are as under:- 2 . ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE LD. ADDL.JCIT(A)
3. BANGALURU ERRED IN :- 1. confirming the TDS default & interest of Rs. 54,257 u/s. 201(1)/(1A) of I. T Act, 1961 on the ground that the Appellant had failed to deduct the tax at source u/s. 194A on the interest of Rs. 2,93,282 paid by the Appellant to other co-operative societies (not being members of the Appellant). 2. not appreciating the fact that-
(a) interest of Rs. 2,93,282 was paid by the Appellant to other co-operative societies (not being members of the Appellant) and hence, no tax was required to be deducted at source on the same u/s. 194A(3)(v) of the I. T. Act, 1961. P a g e | 3 2375, 2376, 2377, 2378, 2379, 2380, 2381/Mum/2025 A.Y. 2016-17 Citizen Credit Cooperative Bank Limited
(b) the Appellant was a co-operative society u/s. 2(19) of I. T. Act, 1961 and hence, the Appellant was exempt from deducting the tax at source on the interest paid by the Appellant to any other co-operative society (not being members of the Appellant) u/s. 194A (3)(v) of I. T. Act, 1961. (c) even though the Appellant was a co-operative bank, it was a co-operative society first but carrying on the business of banking.
(d) the exemption u/s. 194A(3)(v) was in 2 parts 1 part related to income credited by a Co-operative society (other than a co-operative bank) to a member thereof and the 2nd part related to income credited by a co- operative society to any other co-operative society & the Appellant was covered by the 2nd part of the exemption.
(e) proviso to S. 194A making co-operative society covered under Cl. v liable to deduct tax at source under certain circumstances was inserted w.e.f. 1.4.2020 & hence, did not apply for the A. Y. 2016-17. (f) if at all the Appellant being a co-operative bank was not entitled for exemption u/s. 194A(3)(v) of I. T. Act, 1961 as contended by the Respondent, there was no need for inserting the proviso u/s. 194A w.e.f. 1.4.2020. (g) co-operative societies were not the members of the Appellant bank and hence, even after 1.6.2015, Appellant was not required to deduct the tax at source on the interest paid to other co-operative societies. 3. referring to definition from various acts which were irrelevant. And hence, the TDS Default of Rs. 29,328 and Interest of Rs. 24,929 u/s 201(1)/201(1A) of the I. T. Act, 1961, aggregating to Rs. 54,257 deserves to be deleted in toto.
According to the order passed by the TDS authority, consequent to a of survey proceedings, it was noticed that the assessee, being a Cooperative bank had not deducted and deposited TDS u/s.194A on interest paid to certain entities. Details of parties to whom interest in P a g e | 4 2375, 2376, 2377, 2378, 2379, 2380, 2381/Mum/2025 A.Y. 2016-17 Citizen Credit Cooperative Bank Limited excess of Rs.10,000/- had been paid vis-à-vis TDS deducted u/s.194A during F.Y.2015-16were examined which revealed that the assessee was a defaulter in terms of section 201(1) and 201(1A) of the Act.
3.1 The assessee is a Co-operative bank engaged in banking business having several branches. The TAN under consideration is one among the branch wise TANs allotted to the assessee bank. It was seen that the assessee bank had not deducted TDS u/s.194Aon the interest paid to Registered Housing Co Op Societies and other persons. Further it was observed that in case of certain individuals, where the TDS was deducted, the same were at lower rates on the interest payment.
3.2 The AO has stated that section 194A(1) read with section 194A(3)(i) of the 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 and co-operative society engaged in banking business(co-operative bank). However, the assessee bank failed to deduct the TDS despite specific provision to do so. In response to the notice issued u/s.201 of the Act, it furnished details of interest paid to members/account holders of the bank from which it was observed that in respect of the payments of interest made to different category of members / account holders, the assessee had stated that TDS u/s. 194A P a g e | 5 2375, 2376, 2377, 2378, 2379, 2380, 2381/Mum/2025 A.Y. 2016-17 Citizen Credit Cooperative Bank Limited was not deducted in some cases being co-operative societies and in other cases there was default of short deduction of tax /non-deduction of tax. In response to a show cause notice u/s 201(1)/201(1A) of the Act for treating as assessee in default, detailed submission made has been rejected by the AO due to reasons reproduced below:-
“(i) The customers/members of the co-operative bank wherein in the remarks column reflected as Co-operative Societies and TDS u/s 194A not deducted on the interest payments are “Housing Societies. Section 2(19) defines “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. It is clear that a co-operative bank is a urban commercial bank and does not fall under the purview of a “Co-operative Society” referred in section 80P(2)(d) of the Income tax Act, 1961. In the present case, the Co-operative housing societies earned interest income from such co-operative bank, the deduction u/s. 80P(2)(d) of the Act, is not allowed as the provisions relating to concessions are ordinarily expected to be rigidly interpreted. Therefore, it is an obligatory on the part of the assessee to deduct tax at source on the interest income on Fixed / Time Deposits given to the concerned co-operative societies.
(ii) It is reiterated that as per section 194A(1) read with section 194A(3)(1) of the Act which 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 and co-operative society engaged in banking business(co-operative bank). However, it failed to deduct the TDS despite specific provision of the Act.
(iii) Secondly, a close view of section 194A(3)(v) clarifies that the provisions of this section were amended in the Finance Act, 2015 P a g e | 6 2375, 2376, 2377, 2378, 2379, 2380, 2381/Mum/2025 A.Y. 2016-17 Citizen Credit Cooperative Bank Limited w.e.f. 1st June 2015 so as to mandate a co-operative bank to deduct tax at source on interest paid or credited to its members. 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(1)(b) and section 194A(3)(viia)(b) of the 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 was 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 purpose 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.
(iv) The assessee (Co-op. Bank) through its submission also drawn, attention to the amendment made under Finance Act 2020, wherein it is stated that the co-operative bank will deduct TDS on payment of interest paid to co-operative society after 01.04.2020. In this regard, it is stated that this provision is applied to the co-operative societies which are in the business of banking and not in the case of Co-operative housing P a g e | 7 2375, 2376, 2377, 2378, 2379, 2380, 2381/Mum/2025 A.Y. 2016-17 Citizen Credit Cooperative Bank Limited societies. In the instant case the customers of the co-operative bank is co- operative housing societies registered under the State and not in the business of banking.
(v) As per CBDT Circular 18/2017, a list of entities exempted from TDS has been drawn by adding entities in the first category mentioned in the Circular no 4/2002 and Circular No. 7/2015 and removing entities in second and third categories from the list of existing entities eligible for exemption from TDS. These entities are the entities whose income is exempted under section 10 of the Income Tax Act, 1961. A Co-operative society’s interest earned from the Co-operative bank are also not exempted u/s 80P(2)(d) of the Act.
(vi) Further, the assessee bank in cases of other customers / members default of non-deduction of tax i.e. some individuals and trusts, it was contended that since they have included the income in the ITR filed, the bank is not in default as the interest income was offered in their respective ITRs. The explanation of the assessee is considered, however, the same is not admissible since it is an obligatory on the part of the assessee to deduct the TDS u/s.194A in time and deposit the same to the Govt. Treasury, which the assessee failed in the respective cases where the above explanation was offered. Accordingly, the explanation of the assessee is without merits.
9. In view of the above detailed discussion and considering the exemption available for TDS in respect of the interest payments to members / account holders wherein remarks of “FORM 15H”, “FORM 15G”, “Senior Citizen”, “NRE deposit”, “Exemption” are reflected, the said reasons are accepted. However, in respect of the entries wherein TDS not deducted / lower deduction of tax on account of “COOPERATIVE SOCIETY”, “Tax, short deducted – default”, the explanation of the assessee is not acceptable and the assessee is held as 'assessee in default'. 4. In the subsequent appeal, theld.CIT(A) has stated that the assessee is a Multi State Cooperative Society being Cooperative Bank as P a g e | 8 2375, 2376, 2377, 2378, 2379, 2380, 2381/Mum/2025 A.Y. 2016-17 Citizen Credit Cooperative Bank Limited per Banking Regulations Act. Before him, it was mainly contented that the assessee is Cooperative Bank and all relevant provisions of cooperative society would be applicable. It is claimed that the assesse did not deduct TDS as its case is covered by the provisions of section 194A(3)(v) of the Act. Since the interest has been paid to registered cooperative societies, it was not under obligation to deduct tax as per above provisions. It was further stated that only w.e.f.01.04.2020 the assessee being a cooperative bank is liable to make TDS. 4.1 The ld.CIT(A) after detailed discussion concluded in paras 5.1.42 onwards of the order that the assessee is an urban Multi state cooperative bank since 1984being conferred the status of scheduled bank by RBI since 1998 and under compete control and supervision of RBI. It is at par with other commercial banks and not eligible for any benefit u/s 80P of the Act and consequently, it cannot avail the benefits of section 194A(3)(i) and section 194A(3)(v) of the Act. It also does not get any exemption u/s 194A(3)(iii)(a) which provides for exemption only if the income is credited or paid to any banking company or any cooperative society carrying on the business of banking including a cooperative land mortgage bank. He held that the assessee was making interest payment to housing cooperative societies which are neither banking companies nor cooperative societies engaged in banking P a g e | 9 2375, 2376, 2377, 2378, 2379, 2380, 2381/Mum/2025 A.Y. 2016-17 Citizen Credit Cooperative Bank Limited business and is therefore liable to make TDS on interest paid to such cooperative societies. He further referred para 42.5 to CBDT Circular no.19/2015 dated 27.11.2015 which clarified that section 194A(3)(v) was amended so as to expressly provide that exemption provided from TDS from payment of interest to members by a cooperative society shall not apply to payment of interest on time deposits by cooperative bank to its members. The amendment was effective from 01.06.2015.Thus, cooperative banks were required to make TDS on payment of interest to its members from 01.06.2015.Therefore,from AY 2016-17 onwards, the Cooperative Banks have been mandated to deduct TDS on interest payments to cooperative societies.
Before us, in the course of hearing the ld.AR has made detailed written as well as oral submissions. It is contented that the assessee is a cooperative society as per 2(19) of the Act doing banking business. It is submitted that its case is covered by the second part of exemption in terms of section 194A(3)(v) since the income was credited by a cooperative society to any other cooperative society not being a member. He has referred to the CBDT Circular 19 of 2015 dated 27.11.2015, para 42.7 wherein it is stated that the exemption from TDS from interest from cooperative society to another cooperative society shall continue to apply on time deposits. It is contented that it was only after the insertion P a g e | 10 ITA No. 2374, 2375, 2376, 2377, 2378, 2379, 2380, 2381/Mum/2025 A.Y. 2016-17 Citizen Credit Cooperative Bank Limited of proviso to section 194A making cooperative societies covered under clause(v) liable to TDS w.e.f.1.4.2020 that all cooperative societies became liable to TDS. Reliance is placed on ITA NO.125S/127/Chd/2025 dated 27.02.2025 on H.P. State Cooperative Bank(ITAT-Chandigarh).
The ld.DR on the other hand argued and also submitted written submission relying on the orders of the authorities below. He drew our attention to para 6(iii) on page no.7 of the order passed by the AO which reads as under:
(iii) Secondly, a close view of section 194A(3)(v) clarifies that the provisions of this section were amended in the Finance Act, 2015 w.e.f. 1st June 2015 so as to mandate a co-operative bank to deduct tax at source on interest paid or credited to its members. 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(1)(b) and section 194A(3)(viia)(b) of the 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 was 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 P a g e | 11 2375, 2376, 2377, 2378, 2379, 2380, 2381/Mum/2025 A.Y. 2016-17 Citizen Credit Cooperative Bank Limited distinction between members and non-members of co-operative banks for the purpose 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.
6.1 It is submitted that section 194A(3)(i)(b) reads as under: (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)xxxxxxxxxxxxxxxxxxxxxxxxx (b)(ten) thousand rupees, where the payer is a co-operative society engaged in carrying on the business of banking; Further section 194A(3)(viia)(b) reads as under: “(viia) to such income credited or paid in respect of (a) xxxxxxxxxx (b) Deposits(other than time depositsmade on a or after 1st day of July 1995) with a cooperative society other than cooperative society or bank referred to in sub clause(a) engaged in carrying on the business of banking.” 6.1 It is submitted that above two sections do not allow any exemption for interest payment made to cooperative societies. There is no amendment to above sections. He relied on the case of SARASWAT Coop Bank(2015) 54 Taxmann.com 297 (Panaji-ITA),Noida Commercial P a g e | 12 2375, 2376, 2377, 2378, 2379, 2380, 2381/Mum/2025 A.Y. 2016-17 Citizen Credit Cooperative Bank Limited co-operative Ban Ltd 64 Taxman.com(Del-ITAT) and Hubbali Shimoga District Cooperative Central Bank Ltd in ITA No.295/Bang/2019 (ITAT,Bang) which are stated to be squarely applicable to the facts of the case. It is also submitted that the applicability of above section though referred by the AO were not challenged before the ld.CIT(A) by the assessee. Therefore, there is nothing mentioned about the same in the appellate order.
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 under:
P a g e | 13 2375, 2376, 2377, 2378, 2379, 2380, 2381/Mum/2025 A.Y. 2016-17 Citizen Credit Cooperative Bank Limited "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, 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 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 co-operative land development bank. [Section 194A(3)(viia)(a) of the Act] (iii) Interest payment on deposits other than time deposit by a co-operative 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 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 Act makes no distinction between members and non-members of co-operative 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 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 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 P a g e | 14 2375, 2376, 2377, 2378, 2379, 2380, 2381/Mum/2025 A.Y. 2016-17 Citizen Credit Cooperative Bank Limited 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 co- operative 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 P a g e | 15 2375, 2376, 2377, 2378, 2379, 2380, 2381/Mum/2025 A.Y. 2016-17 Citizen Credit Cooperative Bank Limited 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.
7.2 Hon’ble Madras High Court in the case of Coimbatore District Central Co-operative Bank Ltd. vs. ITO (382 ITR 266) had an occasion to go into the provisions of sec. 194A(3) of the Act which is similar to the issue before us. In that case, after elaborate discussion, the High Court opined as under:
“61. With effect from June 1, 2015, sub-section(3) of section 194A stands amended. Clause 42 of the Finance Bill, 2015, reads as follows: 42. In section 194A of the Income-tax Act, in sub-section (3), with effect from the 1st day of June, 2015, - (a) in clause (i), after the proviso, the following proviso shall be inserted namely:- 'Provided further that the amount referred to in the first proviso shall be computed with reference to the income credited or paid by the banking company or the co- operative society or the public company, as the case may be, where such banking company or the co-operative society or the public company has adopted core banking solutions'. (b) in clause (v), for the words 'paid by a co-operative society to a member thereof or', the words and brackets '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' shall be substituted; P a g e | 16 2375, 2376, 2377, 2378, 2379, 2380, 2381/Mum/2025 A.Y. 2016-17 Citizen Credit Cooperative Bank Limited (c) after clause (v), the following Explanation shall be inserted, namely :- 'Explanation.- For the purposes of this clause, "co-operative bank" shall have the same meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949); (d) for clause (ix), the following clauses shall be substituted, namely:- (ix) to such income credited by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal; (ixa) to such income paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income paid during the financial year does not exceed fifty thousand rupees,' (e) in Explanation 1 below clause (xi), for the word 'excluding', the word 'including' shall be substituted." 62.The relevant portion of the memorandum explaining the clauses in the Finance Bill reads as follows "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, 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 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 co-operative land development bank. (section 194A(3)(viia)(a) of the Act). (iii) Interest payment on deposits other than time deposit by a co-operative 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 al 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)(viia)(b) and section 194A(3)(viia)(b) of the Act, can take the benefit of general exemption P a g e | 17 2375, 2376, 2377, 2378, 2379, 2380, 2381/Mum/2025 A.Y. 2016-17 Citizen Credit Cooperative Bank Limited 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 Act makes no distinction between members and non-members of co-operative 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 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 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 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 co-operative 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 June 1, 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."
It can be seen from the last part of the portion extracted above that the very note explaining the clause was specific to the effect that the proposal was to bring forth an amendment with prospective effect from June 1, 2015. There is no dispute now that on and from June 1, 2015 the appellant cannot escape the liability from deduction of tax at source.
Once an amendment is introduced, for the purpose of removing the anomalous situation or for the purpose of removing the confusions both in the manner in which the provisions stood and the manner in which they were understood, the same could be taken only to have prospective effect. It must be pointed out that Parliament did not choose to answer a question. Rather it chose to amend the provisions. It is now well- settled that an amendment can only be prospective unless it is made retrospective by express language or necessary implication. Apart from the fact that the express language of section 194A after amendment does not indicate any retrospectivity, the note explaining the clauses goes one step further in making it clear that it was intended to have prospective effect from June 1, 2015.”
P a g e | 18 2375, 2376, 2377, 2378, 2379, 2380, 2381/Mum/2025 A.Y. 2016-17 Citizen Credit Cooperative Bank Limited 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 Vs. Commissioner of Surtax (1994) 210 ITR 485 (Bom) and CIT vs. Mahanagar Telephone Nigam Ltd (2002) 254 ITR 627(Del). The Hon'ble Supreme Court in the case of South Indian Corporation (P) Ltd Vs. 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 vs. Yeshwanthpur Credit Co- operative Society Limited in wherein the Court has interpreted the Co-operative Bank by P a g e | 19 ITA No. 2374, 2375, 2376, 2377, 2378, 2379, 2380, 2381/Mum/2025 A.Y. 2016-17 Citizen Credit Cooperative Bank Limited 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 Co-operative 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. vs. 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 P a g e | 20 2375, 2376, 2377, 2378, 2379, 2380, 2381/Mum/2025 A.Y. 2016-17 Citizen Credit Cooperative Bank Limited 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 sub-clause (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 27.2.2025is 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.
P a g e | 21 2375, 2376, 2377, 2378, 2379, 2380, 2381/Mum/2025 A.Y. 2016-17 Citizen Credit Cooperative Bank Limited 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.
8. In view of the above decision applying mutatis mutandis to all other above captioned appeals involving identical grounds and P a g e | 22 2375, 2376, 2377, 2378, 2379, 2380, 2381/Mum/2025 A.Y. 2016-17 Citizen Credit Cooperative Bank Limited emanating from the same impugned appellate order, are also dismissed.
In the results, all the appeals of the assessee are dismissed. Order pronounced in the open court on 15.07.2025. SANDEEP GOSAIN PRABHASH SHANKAR (न्याययक सदस्य /JUDICIAL MEMBER) (लेखाकार सदस्य/ACCOUNTANT MEMBER)