The Income Tax Appellate Tribunal (ITAT), Bangalore has ruled that, that Credit Co-operative Societies are not liable to deduct tax at source from the interest payments made to Associate Members as per sec.194A(3)(v) of the Income Tax Act, 1961.
The assessee, Vasavi Credit Co-operative Society is engaged in the business of accepting deposits from its members and lending loan to its members. The revenue carried out a survey operation in the hands of the assessee. It was noticed that the assessee has not deducted tax at source from the payment of interest made on deposits by associate members. Hence, the proceedings under section 201 was initiated against them. The society submitted before the Assessing Officer (AO) that it has paid interest to its members only and hence, as per the provisions of section 194A(3)(v) of the Act, the assessee is not required to deduct tax at source from the interest paid to its members.
Judicial Member Beena Pillai and Accountant Member B.R. Bhaskaran allowed the appeal by the assessee and leaned on the findings of the Bombay High Court in the case of Jalagaon District Central Co-operative Bank Ltd. Vs. Union of India (265 ITR 423). They observed, “We are concerned with the liability of the assessee for deduction of tax at source u/s 194A of the Act from the interest paid by the assessee. The assessee herein has paid interest to its “associate members” without deduction of tax at source. As per the definition of the term “member” given in sec. 2(f) of the Karnataka Co-operative Societies Act, 1959, “member” includes an associate member. Hence the assessee is able to collect deposit from them and also lend the 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 of the Act, since the definition of the term “member” should be construed as given in sec. 2(f) of the Karnataka Co-operative Societies Act, 1959. . . . We notice that paragraph 3 of CBDT Circular (referred supra) has been quashed by Hon’ble Bombay High Court in the case of Jalagaon District Central Co-operative Bank Ltd. Vs. Union of India (265 ITR 423). 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.194A(3)(v) of the Act.. “
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