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Facts
The assessee, a co-operative bank, did not deduct Tax Deducted at Source (TDS) on interest paid to other co-operative societies on time deposits. The Assessing Officer (AO) and CIT(A) treated the assessee as an 'assessee in default' under Section 201(1)/(1A) of the Income-tax Act, 1961, arguing that the exemption under Section 194A(3)(v) did not apply to co-operative banks and consequently raised a demand for TDS along with interest.
Held
The Tribunal held that, based on the Finance Act, 2015 amendment to Section 194A(3)(v) and its Explanatory Memorandum, a co-operative bank is not required to deduct tax at source on interest payments made to other co-operative societies. It clarified that the waiver under Section 194A(3)(v) continues to apply to co-operative banks when the depositor is also a co-operative society, thus overturning the lower authorities' decision.
Key Issues
Whether a co-operative bank is obligated to deduct Tax Deducted at Source (TDS) under Section 194A on interest paid to other co-operative societies, considering the exemption provided under Section 194A(3)(v) of the Income-tax Act, 1961, as amended by the Finance Act, 2015.
Sections Cited
194A, 194A(3)(v), 201(1), 201(1A), 80P
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
O R D E R PER BENCH: All these captioned 20 appeals filed by the assessee are against the common order of Ld. CIT(A) vide order no. ITBA/APL/S/250/2024- 25/1074957920(1) dated 24.03.2025, passed against the respective orders by Income Tax Officer, TDS Ward 1(1)(1), Mumbai for proceedings u/s 201(1)/(1A) of the Income-tax Act, 1961 (hereinafter referred to as the Act), dated 28.12.2022 / 29.12.2022, for Assessment Year 2016-17.
1.1. TANs of all the 20 appeals are noted as under: MUMA00968C, MUMA06838G, MUMA06841C, MUMA20090A, MUMA20091B, MUMA20092C, MUMA20094E, MUMA22310B, to 2590/Mum/2025 Abhyudaya Co-operative Bank Ltd. AY 2016-17 MUMA22312D, MUMA45113F, MUMA06826B, MUMA06836E, MUMA12372D, MUMA20082G, MUMA21853G, MUMA37709A, MUMA38477F, MUMA39732A, MUMA43528C, MUMA45138C
Grounds taken by the assessee are identical in each of the appeal except for variation in the amount of demand raised. Accordingly, for the sake of brevity, grounds of appeal
raised by the assessee in of the appeals in are reproduced as under:
1. In the facts and circumstances of the case, the lower authorities have erred in law as well as in fact treating assessee in default in respect alleged non- deduction of tax from interest paid to co-operative societies u/s. 194A of the Income Tax Act 1961.
2. Without prejudice to Ground No 1 above, the lower authorities have erred in law as well as in fact that interest received by co-operative societies is deductible u/s. 80P of the Act. Therefore, the requirement of TDS u/s. 194A is redundant hence TDS applicability u/s. 194A is infructuous.
3. The appellant craves leave to add, alter, omit or substitute any of the grounds at the time of hearing of the appeal.”
Common issue is involved in all these 20 appeals which are identical in nature expect for various in the quantum of tax liability imposed on the assessee by holding the assessee as ‘assessee in default’ for non-deduction of tax at source from payment of interest to various co-operative societies as per Section 194A of the Act. Since the issue involved is common, we take up all these appeals together for adjudication to pass a consolidated order. As a lead case, we take up appeal in to draw the basic facts so as to address the issue raised before us. Our observations and findings in this appeal shall apply mutatis mutandis to all the other 19 appeals.
Brief facts of the case are that assessee is a co-operative society registered under the Multistate Co-operative Societies Act, 2002 carrying on the business of banking. Assessee holds license from Reserve Bank of India (RBI) required for carrying banking business. The to 2590/Mum/2025 Abhyudaya Co-operative Bank Ltd. AY 2016-17 status of the assessee is a co-operative society which is assessed as ‘Association of Persons’ (AoP). Different branches of the assessee had received show cause notices u/s.201(1)/201(1A), requiring the assessee to show cause as to why the assessee should not be treated as ‘assessee in default’ in respect of payment of interest made without deduction of tax at source or at lower rate of deduction. Assessee made its detailed submissions explaining the facts and applicable law, but were not accepted by the Ld. AO, holding the assessee as assessee in default and raising demand for the non-deduction/ lower rate of deduction of tax at source as well as towards interest u/s.201(1)/(1A). Thus, the sole issue involved is in respect of Ld. AO holding that assessee is required to deduct tax at source on u/s.194A and 194A(3)(i) on the interest paid by it to various co-operative societies. Case of the Ld. AO is that assessee is a co-operative bank engaged in the business of banking and thus, is thus operating as an urban commercial bank.
According to ld. AO, assessee does not fall under the purview of ‘Co-operative Society as referred in Section 80P(2)(d). Per him, it is obligatory on the part of the assessee to deduct tax at source on the payment of interest on deposits, to various co-operative societies. According to the Ld. AO, section 194A(3)(v) which was amended by the Finance Act, 2015 with effect from 01.06.2015 mandated a co-operative bank to deduct tax at source on interest paid or credited to its members. Further, provision contained in section 194A(1) r.w.s. 194A(3) requires deduction of tax at source from interest payments on time deposits, if the amount of such interest payment exceeds specified threshold of Rs.10,000/-. Ld. AO did take note of provision contained in section 194A(3)(v) which provides a general exemption on making tax deduction from payment of interest by all the co-operative societies to its members and according to him, the same is not available to the assessee since it to 2590/Mum/2025 Abhyudaya Co-operative Bank Ltd. AY 2016-17 is a co-operative bank. He also took note of the amendment made under the Finance Act, 2020 wherein it is stated that co-operative bank is required to deduct tax at source on payment of interest to co-operative society after 01.04.2020. Ld. AO also took note of the factual position by considering that customer of the assessee are co-operative housing societies registered under the state and are not in the business of banking. The uncontroverted fact is that payment of interest by the assessee being a co-operative bank is to its customers who are co- operative housing societies registered under the state.
Based on the above observations and after taking into account the submissions made by the assessee, ld. AO computed the TDS liability along with interest thereon by holding the assessee as assessee in default and passed the impugned order u/s.201 of the Act. Aggrieved, assessee went in appeal before the Ld. CIT(A). He also took the same view that both, co-operative bank and co-operative society are different and independent. According to him, co-operative bank is registered under the Banking Regulation Act, 1949 whereas a co-operative society is registered under the Co-operative Society Act, 1912 or under any other law for the time being in force in any state for the registration of co-operative societies. He drew the difference between co-operative bank and co-operative society and thus, came to the conclusion that term ‘co- operative society’ does not include ‘co-operative bank’. Further, he placed reliance on the principle that a special provision normally excludes the operation of the general provision. Thus, he held that assessee is required to deduct tax at source on interest paid by it to co- operative societies. The appeal was dismissed. Aggrieved, assessee is in appal before the Tribunal. to 2590/Mum/2025 Abhyudaya Co-operative Bank Ltd. AY 2016-17 7. We have heard both the parties and perused the material on record. We have also given our thoughtful consideration to the applicable provisions of the Act and gone through the facts of the case. Undisputed fact is that assessee is a co-operative society and was originally registered under the Maharashtra Co-operative Society Act, 1960 vide registration no. BON/RSR/186 dated 16.01.1964. The licence to carry on banking business was granted by RBI vide license no. ACD/MH/251/P dated 06.04.1981. Subsequently, assessee registered itself under Maharashtra Co-operative Society Act, 2002 vide registration no. MSCS/CR/249/2007 dated 11.01.2007.
7.1. It is imperative to take note of certain definitions – a) ‘Co-operative bank’ means a co-operative bank as defined under the Banking Regulations Act, 1949. For this, on reference to the Banking Regulations Act, 1949, co-operative bank as per Section 5(cci) of the Banking Regulations Act, 1949 means a State Co-operative Bank, a Central Co- operative Bank and a Primary Co-operative Bank. b) ‘Co-operative society’ u/s.2(19) of the Act means a co- operative society registered under the Co-operative Societies Act, 1912 or under any other law for the time in force, in any state, for the registration of co-operative societies.
7.2. In the present case, it is evident that assessee is a co-operative society registered under the Co-operative Societies Act of the respective state for the purpose of registration of cooperative society. In order to carry on the business of the banking, it has been granted a banking licence from RBI and thus, is referred to as a co-operative bank. It is also a fact on record that assessee has made payment of interest to its customers who are co-operative housing societies on which tax 5 to 2590/Mum/2025 Abhyudaya Co-operative Bank Ltd. AY 2016-17 deduction at source has not been done or if done, it is at lower rate than prescribed.
7.3 To deal with the issue in hand, it is worthwhile to refer to the provisions contained in section 194A which is reproduce below:
“Interest other than “Interest on securities”. 72194A. 73 (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying 74 to a resident any income 74 by way of interest other than income 75[by way of interest on securities], shall, at the time of credit of such income to the account of the payee 76 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 :
77[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 78[one crore rupees in case of business or fifty lakh rupees in case of profession] 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.]
79[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) 80[Omitted by the Finance Act, 1992, w.e.f. 1-6-1992.]
(3) The provisions of sub-section (1) shall not apply- 81[(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, 82[does not exceed- (a) 83 [ fifty ] thousand rupees, where the payer is a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution, referred to in section 51 of that Act); (b) 83 [ fifty ] thousand rupees, where the payer is a co-operative society engaged in carrying on the business of banking; (c) 83 [ fifty ] thousand rupees, on any deposit with post office under any scheme framed by the Central Government and notified 84 by it in this behalf; and to 2590/Mum/2025 Abhyudaya Co-operative Bank Ltd. AY 2016-17
(d) 84a [ ten ] thousand rupees in any other case]:] 85[Provided that in respect of the income credited or paid in respect of- (a) time deposits with a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); or (b) time deposits with a co-operative society engaged in carrying on the business of banking; (c) deposits with a public company which is formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes 86[and which is eligible for deduction under clause (viii) of sub-section (1) of section 36] 87[***]; 88[***] the aforesaid amount shall be computed with reference to the income credited or paid by a branch of the banking company or the co-operative society or the public company, as the case may be :] 89[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:] 90[Provided also that in case of payee being a senior citizen, the provisions of sub-clause (a), sub-clause (b), and sub-clause (c) shall have effect as if for the words “ 91[fifty] thousand rupees”, the words “ 91a[one lakh] rupees” had been substituted. Explanation.- 92[***]] (ii) 93[***] (iii) to such income credited or paid to- (a) any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank), or (b) any financial corporation established by or under a Central, State or Provincial Act, or (c) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or (d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963)* , or (e) any company or co-operative society carrying on the business of insurance, or to 2590/Mum/2025 Abhyudaya Co-operative Bank Ltd. AY 2016-17
(f) such other institution, association or body 94[or class of institutions, associations or bodies] which the Central Government may, for reasons to be recorded in writing, notify 95 in this behalf in the Official Gazette: 96[Provided that no notification under this sub-clause shall be issued on or after the 1st day of April, 2020;] 97[(iv) to such income credited or paid by a firm to a partner of the firm;] (v) to such income credited or 98[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.] 99[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);] 1[(vi) to such income credited or paid in respect of deposits under any scheme framed by the Central Government and notified 2 by it in this behalf in the Official Gazette; 3[(vii) to such income credited or paid in respect of deposits (other than time deposits made on or after the 1st day of July, 1995) with a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); (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 co-operative 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;] 4[(viii) to such income credited or paid by the Central Government under any provision of this Act or the Indian Income-tax Act, 1922 (11 of 1922), or the Estate Duty Act, 1953 (34 of 1953), or the Wealth-tax Act, 1957 (27 of 1957), or the Gift-tax Act, 1958 (18 of 1958), or the Super Profits Tax Act, 1963 (14 of 1963), or the Companies (Profits) Surtax Act, 1964 (7 of 1964), or the Interest-tax Act, 1974 (45 of 1974);] 5[(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;] 6[(x) to such income which is paid or payable by an infrastructure capital company or infrastructure capital fund or 7[infrastructure debt fund or] a public sector company 8[or scheduled bank] in relation to a zero coupon bond issued on or after the 1st day of June, 2005 by such company or fund or public sector company 8[or scheduled bank];] to 2590/Mum/2025 Abhyudaya Co-operative Bank Ltd. AY 2016-17
9[(xi) to any income by way of interest referred to in clause (23FC) of section 10:] 10[Provided that a co-operative society referred to in clause (v) or clause (viia) shall be liable to deduct income-tax in accordance with the provisions of sub-section (1), if- (a) the total sales, gross receipts or turnover of the co-operative society exceeds fifty crore rupees during the financial year immediately preceding the financial year in which the interest referred to in sub-section (1) is credited or paid; and (b) the amount of interest, or the aggregate of the amounts of such interest, credited or paid, or is likely to be credited or paid, during the financial year is more than 10a[one lakh] rupees in case of payee being a senior citizen and 10b[fifty] thousand rupees in any other case.] 11[Explanation 1.-For the purposes of clauses (i), (vii) and (viia), “time deposits” means deposits ( 12[including] recurring deposits) repayable on the expiry of fixed periods.
13[Explanation 2.-For the purposes of this sub-section, “senior citizen” means an individual resident in India who is of the age of sixty years or more at any time during the relevant previous year.]]
14[(4) The person responsible for making the payment referred to in sub-section (1) may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year.]
15[(5) The Central Government may, by notification in the Official Gazette, provide that the deduction of tax shall not be made or shall be made at such lower rate, from such payment to such person or class of persons, as may be specified in the said notification.] Explanation.-[Omitted by the Finance Act, 1992, w.e.f. 1-6-1992.]”
7.4. Finance Act, 2015 made an amendment in clause (v) of sub- section (3) to Section 194A with effect from 01.06.2015. Prior to the said amendment, relevant portion of Section 194A read as under:
“(v) to such income credited or paid by a co-operative society to a member thereof.”
7.5. In respect of the amendment brought in by the Finance Act, 2015, assessee contended that the phrase ‘Other than Co-operative Bank’ is inserted in the first part/limb of the amended clause (v). Thus, in the first part/limb, the requirement for deduction of tax at source is waved to 2590/Mum/2025 Abhyudaya Co-operative Bank Ltd. AY 2016-17 on interest credited or paid by co-operative society to its members and the payer co-operative society is other than a co-operative bank. In the second part/limb, the waver is provided in respect of such interest credited or paid by a co-operative society to any other co-operative society. In this second part of the amended clause (v), the phrase ‘Other than Co-operative Bank’ is not included when compared with the first part. Thus, when the payment of interest is from a co-operative society to any other co-operative society, there is no requirement of deduction of tax at source.
In view of this it was thus submitted that assessee is a co- operative society duly registered under co-operative societies Act, holding banking licence issued by RBI for the conduct of its banking business. It has paid interest to other co-operative societies and no deduction of tax at source has been done in view of the provisions contained in clause (v) of Section 194A(3).
8.1. Reference is also made to clause 42 of the Explanatory Memorandum to Finance Bill, 2015 by which the amendment was introduced under the Act. While explaining the amendment, in clause 42, it is stated that “The existing exemption provided u/s.194A(3)(v) of the Act from deduction of tax from interest paid by a co-operative 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 the depositor being a co-operative society.”
8.2. From the reading of the Memorandum of Finance Bill, 2015, it is clear that waver provided u/s.194A(3)(v) with regard to deduction of tax at source from interest payment by a co-operative society to another co- to 2590/Mum/2025 Abhyudaya Co-operative Bank Ltd. AY 2016-17 operative society existed before the amendment and continues to apply to the co-operative bank even after the amendment. In the said memorandum it is clarified that such a waver to a co-operative bank is available when the depositor is a co-operative society and interest is paid to such co-operative society. In view of this, even though it is categorically stated in the explanation given in the explanatory memorandum in clause 42 of the Finance Bill, 2015 that a co-operative society shall not be required to deduct tax for the payment of interest on time deposit to a co-operative society, ld. AO has incorrectly held the assessee as assessee in default and imposed a tax liability towards deduction of tax at source along with interest thereon.
8.3. Further elucidating on the issue as to the status of assessee being a co-operative bank, we referee to the decision of Hon’ble Supreme Court in the case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. vs. Assessing Officer [2023] 154 taxmann.com 305 (SC) wherein observations made by the Hon’ble Court are relevant to the issue in the present case before us. Hon’ble Court dealt with the aspect of co-operative society conducting banking business and how the various provisions of the Banking Regulation Act, 1949 applied to it for the purpose of claim of deduction u/s.80P of the Act. It is observed by the Hon’ble Court in para 15.8 that it is only when a co-operative society is conducting baking business that it becomes a co-operative bank and in such a case, section 22 of the Baking Regulation Act, 1949 would apply wherein it would require a licence to run a co-operative bank. For this, section 22 of the Baking Regulation Act, 1949 speaks about licence to be obtained by a bank to do banking business which is modified as per clause (o) of Section 56 of the Banking Regulation Act, 1949 which states that no co-operative society shall carry on banking business in to 2590/Mum/2025 Abhyudaya Co-operative Bank Ltd. AY 2016-17 India unless it is a co-operative bank and holds a licence issued in that behalf by RBI.
8.4. Further, Hon’ble Supreme Court made similar observations in its another decision in the case of Mavilayi Service Co-operative Bank Ltd. vs. CIT [2021] 123 taxmann.com 161 (SC). It was observed by the Hon’ble Court that u/s.22(1)(b) of the Banking Regulation Act, 1949, as applicable to co-operative societies, no co-operative society shall carry on banking business in India, unless it is a co-operative bank and holds a licence issued in that behalf by the RBI. Also, Hon’ble High Court of Gujarat in the case PCIT v. Shree Aradhana Urban Co-operative Credit Society Ltd. [2025] 172 taxmann.com 537 (Guj) observed that co- operative banks are primarily cooperative societies.
8.5. Accordingly, in the given set of facts and discussion made above both, considering the applicable provisions of the Act as well as judicial precedents refereed above and considering explanation given in the explanatory memorandum to Finance Bill, 2015, we hold that by virtue of provisions contained in section 194A(3)(v), assessee is not required to deduct tax at source from the interest payment made by it on time deposits to other co-operative societies. Accordingly, the assessee cannot be treated as assessee in default u/s.201 of the Act. The demand raised by the Ld. AO in respect of non-deduction and short deduction of tax at source along with interest there on is deleted. For above finding, we also gainfully refer to the decision of Co-ordinate Bench of ITAT Chandigarh in the case of HP State Co-operative Bank Ltd vs. ITO in to 127/Chd/2020 dated 27.02.2025 wherein similar issue had come up and it was held that assessee was not required to deduct tax at source in view of Section 194A(3)(v). Thus, grounds raised by the assessee in this respect are allowed. to 2590/Mum/2025 Abhyudaya Co-operative Bank Ltd. AY 2016-17
Our observations and findings in apply mutatis mutandis to all the other 19 appeals since facts and circumstance of the case are identical and there is no change in applicable law. Accordingly, all the 19 appeals of the assessee are also allowed.
In the result, all the 20 appeals of the assessee are allowed.
Order pronounced in the open court on 26.06.2025