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TMI Blog2021 (1) TMI 831X X X X Extracts X X X X X X X X Extracts X X X X ..... money to them. Hence, we are of the view that the associate members should be construed as members only for the purpose of sec.194A since the definition of the term member should be construed as given in sec. 2(f) of the Karnataka Co-operative Societies Act, 1959. In the case of M/s The Government Employees Co-Operative Bank Limited [ 2021 (1) TMI 748 - ITAT BANGALORE] liability to deduct tax at source u/s 194A of the Act cannot be equated with the provisions of sec.80P of the Act. This view combined with the decision of Hon ble Supreme Court holding that the term members should be construed as defined in the respective co-operative societies Act would lead us to the conclusion that the associate members should be considered as included in the term members used in sec.194A(3)(v) of the Act. We notice that paragraph 3 of CBDT Circular No.9/2002 dated 11.9.2002 has been quashed by Hon ble Bombay High Court in the case of Jalagaon District Central Co-operative Bank Ltd. Vs. Union of India [ 2003 (9) TMI 56 - BOMBAY HIGH COURT] . Accordingly, we hold that the assessee is not liable to deduct tax at source from the interest payments made to Associate members as per sec.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stration of the co-operative society and those who are admitted to membership after registration in accordance with the byelaws and rules. A member eligible for exemption under section 194A(3)(v) must have subscribed to and fully paid for at least one share of the cooperative bank, must be entitled to participate and vote in the General Body Meetings and/or Special General Body Meetings of the co-operative bank and must be entitled to receive share from the profits of the cooperative bank. Accordingly, the AO took the view that the exemption given u/s 194A(3)(v) of the Act for not deducting TDS will not apply to the interest given to the associate members. The A.O. also took support of the decision rendered by Hon ble Supreme Court in the case of the Citizen Co-operative Society Vs. ACIT (Civil Appeal Noi.10245 of 2017) and observed that the decision rendered by Hon ble Supreme Court of India clearly classifies members and non-members and hence the above said decision shall apply to the instant case. Accordingly, the A.O. held that the assessee is liable to deduct tax at source from the interest payments made to associate members. The assessee had paid interest of ₹ 2,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. The Ld CIT(A) has expressed the view that the associate members are not entitled to vote also. 7. We noticed earlier that the AO has relied upon the decision rendered by Hon ble Supreme Court in the case of Citizen Cooperative Society (supra). However, the said decision was rendered in the context of sec.80P of the Act. The Ld CIT(A) also held that the Principles of Mutuality should be followed and hence associate members cannot be equated with regular members. 8. Hence the controversy is whether the associate members would fall under the category of members used in sec. 194A(3)(v) of the Act. We notice that the Hon ble Supreme Court in a recent case of The Mavilayi Service Co-operative Bank Ltd Ors vs. CIT (Civil Appeal Nos.7343 7350 of 2019 dated January, 21, 2021 has observed as under with regard to the expression members used in sec.80P of the Act:- 46. It must also be mentioned here that unlike the Andhra Act that Citizen Cooperative Society Ltd. (supra) considered, nominal members are members as defined under the Kerala Act. This Court in U.P. Cooperative Cane Unions Federation Ltd., Lucknow v.Commissioner of Income Tax, Lucknow-I (1997) 11 SCC 287 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociety to nonmembers is not illegal, unlike the facts in Citizen Cooperative Society Ltd. (supra). 9. The above said decision of Hon ble Supreme Court makes it clear that the term member has not been defied under the Income tax Act and hence its meaning should be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. As per sec. 2(f) of the Karnataka Co-operative Societies Act, 1959, the expression member is defined as under:- 2(f) Member means a person joining in the application for registration of co-operative society and a person admitted to membership after such registration in accordance with this Act, the rules and the by-laws and includes, a nominal and an associate member. Further, section 18 of the above said Co-operative Societies Act defines Associate Member as under:- An associate member may hold shares but shall not be entitled to become an office bearer of the Society. 10. We notice that the decision in the case of Citizen Co-operative Society (supra) and The Mavilayi Service Co-operative Bank Ltd Ors (supra) have been rendered i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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