Deposit Received From Nominal Members Of Society, Non-Deduction Of TDS On Interest Paid By Them. ITAT Deletes Addition Of Income.
The Income Tax Appellate Tribunal (ITAT) of the Pune Bench struck down the addition made under section 40(a)(ia) of the Income Tax Act for the non-deduction of TDS on interest paid on deposits received from nominal members of the society. The two-member bench of S. S. Viswanethra Ravi (Judicial Member) and Inturi Rama Rao have observed that the cooperative bank is also a species...
The Income Tax Appellate Tribunal (ITAT) of the Pune Bench struck down the addition made under section 40(a)(ia) of the Income Tax Act for the non-deduction of TDS on interest paid on deposits received from nominal members of the society.
The two-member bench of S. S. Viswanethra Ravi (Judicial Member) and Inturi Rama Rao have observed that the cooperative bank is also a species of cooperative society, and is entitled to the benefit of the general exemption provided to all cooperative societies from the deduction of tax on payment of interest to its members.
The appellant/assessee is a cooperative bank registered under the provisions of the Maharashtra Cooperative Act. It is in the business of banking. The return of income for the assessment year 2010–11 was filed, declaring total income. The assessment was completed and a notice under section 148 of the Income Tax Act, 1961 was issued on 20.03.2017 and served upon the appellant. The Assessing Officer formed an opinion that the income had escaped assessment to tax as the assessee had failed to deduct TDS on the interest paid on deposits received from people who were not members of the appellant society.
The AO was of the opinion that an addition under the provisions of section 40(a)(ia) was required to be made. Accordingly, the assessment was completed by the Assessing Officer after disallowing the interest paid on deposits received from non-members. The AO rejected the contention of the appellant that the categories of persons are nominal members of the society who are also members of the society.
Clause (v) of the sub-section (3) of section 194A specifies that a co-operative society is not required to deduct tax at source, if the interest is paid or credited to the members of the society or any other co-operative society.
The issue raised was 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 of the Income Tax Act.
The assessee submitted that any person who had transacted any business with the appellant society was entitled to become a nominal member as per the bye-laws of the appellant society. The term "member of a co-operative society" includes "nominal members" as per the provisions of the Maharashtra Cooperative Societies Act. It was submitted that the Assessing Officer was not justified in treating the categories of persons as non-members and not allowing the exemption under clause (v) of sub-section (3) of section 194A of the Income Tax Act.
The department contended that a member who is not entitled to vote cannot be treated as a member of the cooperative society. Therefore, the exemption under clause (v) of sub-section (3) of section 194A of the Income Tax Act cannot be applied to the cooperative bank.
The ITAT noted that 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 member. Therefore, the exemption under clause (v) of sub-section (3) of section 194A can be given in the case of nominal members.
The ITAT allowed the appeal of the assessee.
Case Title: Mandheshwari Urban Development Bank Ltd. Versus ACIT
Citation: 1153/PUN/2018
Dated: 18.07.2022
Counsel For Appellant: Pramod Shingte
Counsel For Respondent: M. G. Jasnani