2022 (8) TMI 778 - AT - Income Tax

TDS on interest u/s 194A - addition made u/s 40(a)(ia) - Exemption to cooperative society from deducting TDS - non-deduction of TDS on interest paid on deposit received from the nominal members of the society - HELD THAT - Whether a nominal member, who is not a registered member of the society, can be treated as a member of the cooperative society whether the exemption is available under clause (v) of sub-section (3) of section 194A - There is no dispute as to the fact that the above categories of persons mentioned above are nominal members of the societies as per bye-laws of the appellant society. The provisions of Maharashtra Cooperative Societies Act also permit admission of such nominal members. The term member has been defined by the Maharashtra Cooperative Societies Act to include a nominal members. The Hon ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT which dealt with the exemption u/s 80P in respect of society registered under the provisions of Kerala Cooperative Societies Act, while interpreting the term member of society after making reference to the judgement of the Hon ble Supreme Court in the case of U.P. Co- op. Cane Union Federation Ltd. 1997 (1) TMI 7 - SUPREME COURT In the present case also, the provisions of Maharashtra Cooperative Societies Act provides that the members includes nominal members and, therefore, we do not see any reason as to why the exemption under clause (v) of sub-section (3) of section 194A of the Act cannot be given in the case of members referred to above. Therefore, the reasoning of the lower authorities cannot be appreciated in the eyes of law. Accordingly, the orders of the lower authorities are hereby reversed and direct the Assessing Officer to delete the addition made u/s 40(a)(ia) of the Act for non-deduction of TDS on interest paid on deposit received from the nominal members of the society. Appeal of assessee allowed.

Summary

Issues:
Appeals against orders of ld. Commissioner of Income Tax (Appeals) for different assessment years.

Analysis:
The appeals were filed by different assessees challenging orders of the ld. Commissioner of Income Tax (Appeals) for various assessment years. The Tribunal consolidated the appeals due to identical facts and issues. The specific case discussed pertained to the assessment year 2010-11 of a cooperative bank registered under the Maharashtra Cooperative Act. The issue revolved around the non-deduction of TDS on interest paid to certain categories of depositors. The Assessing Officer contended that TDS was required under section 40(a)(ia) of the Income Tax Act, as the bank failed to deduct TDS on interest paid to non-members. The ld. CIT(A) upheld the AO's decision, leading to the appeal before the Tribunal.

The appellant argued that as per the bye-laws of the society, any person conducting banking transactions with the society could become a nominal member. The appellant contended that these nominal members should be considered as members of the cooperative society, thereby exempting the bank from TDS obligations under section 194A. The appellant relied on various judicial precedents, including decisions of the Bombay High Court and Pune Tribunal, to support their position. On the contrary, the ld. CIT-DR argued that members who lack voting rights cannot be treated as cooperative society members, thus disqualifying the bank from the exemption under section 194A(3)(v).

The Tribunal analyzed the issue concerning the applicability of the exemption under section 194A(3)(v) to a cooperative bank. It was established that cooperative banks, as a type of cooperative society, are entitled to the general exemption from TDS on interest payments to members. The key contention was whether nominal members, as per the society's bye-laws and the Maharashtra Cooperative Societies Act, could be considered as society members for the purpose of the exemption. Referring to relevant legal provisions and judicial decisions, including the Supreme Court's interpretation of the term "member" in a cooperative society, the Tribunal concluded that nominal members were indeed members under the law. Consequently, the Tribunal held that the bank was eligible for the exemption under section 194A(3)(v) for interest payments to nominal members, overturning the lower authorities' decisions.

As a result, the Tribunal allowed the appeal for the assessment year 2010-11 and directed the Assessing Officer to delete the addition made under section 40(a)(ia) for non-deduction of TDS on interest paid to nominal members. The Tribunal's decision in this case was deemed applicable mutatis mutandis to the remaining nine appeals of the assessee for different assessment years. Therefore, all ten appeals filed by the assessees were allowed by the Tribunal.