LOKMANGAL CO-OPERATIVE BANK LTD,SOLAPUR vs. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -2, SOLAPUR

Lokmangal Co-Operative Bank Ltd., iii) A co-operative society registered under the Act shall not be eligible and as such, shall not be admitted to nominal membership in terms of the provisions of this by law,” The appellant further relied on the section 2(19) of Maharashtra State Cooperative Societies Act as per which Member includes Nominal member, Associate member and Sympathizer member. Relying on this, the appellant had claimed that the AO had erred in treating the above mentioned entities as non-members. 5.2 Various claims made by the appellant have been examined. It is a fact that the by-laws of the appellant bank have defined as to which persons are entitled to the members of the society. The AO has the mandate to determine the tax liability of the appellant bank and also to ensure that the appellant bank has complied with the provisions of the IT Act. The IT Act provides for exemption from deduction of TDS on interest paid to members of the society. In view of this provision, it is incumbent upon the AO to determine and find as to who are the members of the society for allowing the exemption from deduction of TDS. It is in pursuance of this power, the AO has examined the by-laws of the society and found that the society has violated its own by-laws in admitting some persons as nominal members and not deducting TDS on the interest payments made to them, It is further seen that the entities nominal taken as members do not have the right to vote, not entitled to dividends, do not hold shares of the society. The exemption provided under the Act is to those society members who are covered by the concept of mutuality. It is applicable only to those members who are both contributors and beneficiaries. The nominal members are not beneficiaries to the surplus of the society and therefore the concept of mutuality does not apply to them. Therefore the action of the AO in treating such nominal members as not entitled to exemption u/s. 194A(3)(v) of the Act is to be upheld as appropriate under the law. The Lokmangal Co-Operative Bank Ltd., various decision relied upon the by the appellant have no application to the facts of the appellant's case. It is only the Karta who can act on behalf of the HUF and not any co-parcener. Therefore there is no merit in making the claim that if co-parcener is a member, HUF is deemed to be a member. Similar is the case of a Trust as the Trustee has two roles both as a Trustee and also in his individual capacity. The actions in the individual capacity have no bearing as a Trustee to affect the Trust. Therefore these- claims are dismissed as not legally tenable.

5.2.1 As regards the interest paid to other cooperative societies, there is merit in the appellant’s claim. In view of the Circular No. 19/2015 explaining the provisions of the Finance Act 2015, the appellant bank is not required to deduct TDS on the payments made to other cooperative societies. The AO shall verify and allow the exemption to all such cooperative societies. No distinction is made between credit and non credit cooperative societies in the section and therefore the AO shall allow the exemption to all cooperative societies. Even otherwise it is not the responsibility of the bank to find whether cooperative societies to whom interest is paid are actually cooperative societies in the true sense as laid down by the Supreme Court decision in the case of Citizen Cooperative Society and it is only mandated to ensure that they are registered as cooperative societies under the Maharashtra Cooperative Society Act before making the payments without TDS. Further the AO has also erred in treating all the credit cooperative societies as not cooperative societies without making any enquiry of activities of such credit cooperative societies. It may also be noted that the cooperative societies need not be members of the appellant bank for claiming this exemption. With these directions this ground is treated as partly allowed.”

Lokmangal Co-Operative Bank Ltd., strongly supported the learned lower authorities’ conclusion that the assessee had failed to deduct TDS on its interest payments. We find no merit in the Revenue’s instant arguments as we are in assessment year 2010-11 whereas “a cooperative bank” has been excluded from the purview of section 194(A)(3)(v) vide Finance Act 2015 w.e.f. 01.06.2015 only. This tribunal’s Special Bench decision is The Virudhunagar Central District Co-Operative Bank Ltd., V/s. ITO, & 2056/CHNY/2014; dated 09/10/2014 (Chennai) has followed hon’ble Madras high court’s judgment M/s. Coimbatore District Central Co-Operative Bank Ltd. V/s. ITO, Tax case (Appeal) Nos. 588-645/2015 dated 15/10/2015 while adjudicating the very issue against the department. This is coupled with the fact that hon’ble jurisdictional high court in (2004) 134 taxmann.com 1 (BOM) Jalgaon district Central Co-operative Bank Ltd., V/s Union Of India has quashed the CBDT’s circular dated 11.09.2002 as ultra vires violating section 119 of the Act. Their lordship’s further decisions in ITA No. 100001 of 2014 dated 16.12.2015 in The Bailhongal Urban Cooperative Bank Ltd., V/s. CIT and Tax Appeals No. 3 to 9 and 11 of 2015 dated 07.03.2017 in Saraswat co-operative Bank V/s. ITO take note of forgoing legislation developments to hold that a co-operative bank/ assessee has no liability to deduct TDS on interest payments made to members. We thus delete the impugned section 194A r.w.s. 40 (a)(ia) disallowance of Rs.3,49,386/- in very terms therefore. The assessee’s third substantive grievance is accepted.

Lokmangal Co-Operative Bank Ltd.,