The Tax Publishers2021 TaxPub(DT) 0516 (Bang-Trib)

INCOME TAX ACT, 1961

Section 194A(3)(v)

Since definition of the term 'member' was to be construed as given in section 2(f) of the Karnataka Co-operative Societies Act, 1959 and not as per section 194A, therefore, assessee Credit Co-operative Society was not liable to deduct tax at source from interest payments made to associate members as per section 194A(3)(v).

Tax deduction at source - Under section 194A - Interest paid by co-operative society to associate members -

Assessee, a Credit Co-operative Society, was engaged in the business of accepting deposits from its members and lending loan to its members. AO treated assessee as one-in-default under section 201(1) and 201(1A) for making payment of interest on deposits without deducting tax under section 194A. Assessee submitted that it had paid interest to its members only and, as per section 194A(3)(v), it was not required to deduct tax at source from interest paid to members. AO noticed that assessee had paid interest to both its regular members and also associate members and held that associate members were not eligible for exemption under section 194(3)(v). Held: As per definition of term 'member' given in section 2(f) of the Karnataka Co-operative Societies Act, 1959, 'member' includes an associate member. Hence, assessee was able to collect deposit from them and also lent money to them. Hence, the associate members should be construed as 'members' only for the purpose of section 194A, since definition of the term 'member' was to be construed as given in section 2(f) of the Karnataka Co-operative Societies Act, 1959. Accordingly, assessee was not liable to deduct tax at source from interest payments made to associate members as per section 194A(3)(v).

Supported by:Jalagaon District Central Co-operative Bank Ltd. v. UOI (2004) 265 ITR 423 (SC) : 2004 TaxPub(DT) 908 (Bom-HC) and Government Employees Co-Operative Bank Ltd. v. Asstt. CIT [ITA No. 1485/Bang/2019 dt. 31-12-2020]

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2016-17



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