Before the prospective amendment on June 1, 2015, cooperative societies were not mandated to deduct tax at source on interest paid to their members, regardless of whether the society was classified as a cooperative bank.

आदेश / O R D E R

PER PRABHASH SHANKAR [A.M.] :-

The present appeal is filed by the assessee against the order passed by the Learned Commissioner of Income-tax, Appeal, ADDL/JCIT(A)-2, Noida[hereinafter referred to as “CIT(A)”] pertaining to the order passed u/s. 201(1)/201(1A) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 31.03.2021 for the Assessment Year [A.Y.] 2014-15.

2. The grounds of appeal are as under:

1. The impugned order dated 07.12.2024, passed by the CIT(A) under section 250 of the Income Tax Act, 1961 (“Act”) is perverse, arbitrary and bad in law.

2. The CIT(A) erred on facts and in law in confirming the action of the assessing officer in treating the appellant as co-operative bank and not providing the benefits of Section 194A(3)(v) of the Act even though the appellant society accepts deposits only from its members.

3. The CIT(A) erred on facts and in law in confirming the action of the assessing officer in treating the appellant as “assessee in default” for Rs. 26,40,976/- under section 201(1) of the Act.

4. The CIT(A) erred on facts and in law in passing the impugned order without considering the orders passed in favor of the appellant in deciding that appellant is not a cooperative bank.

5. The assessing officer erred on facts and in law in levying interest under section 201(1A) of the Act.

6. That the assessing officer erred on facts and in law in initiating penalty proceedings under section 271C of the Act.

3. Facts in brief are that the assessee, a Co-operative society for the relevant year paid interest on Time deposits of its Members amounting to Rs.1,58,05,328/-. The TDS authority found that no TDS was deducted by it on the interest exceeding Rs 10,000/- paid, thus violating the provisions of section 201(1) and 201(1A) of the Act. He held that the assessee was engaged in money lending activity in the nature of banking and was under obligation to deduct TDS. Before him, it was contented that the assessee was not a bank and the interest paid only to the Member was not liable to TDS as per section 194A(3)(v) of the Act. It was also submitted that as per section 5 clause (CCV) of Banking Regulations Act, 1949 ,it was not a Primary Co-operative Bank as none of the conditions therein were applicable to it. However, the TDS authority rejected the contention and held it as a defaulter in terms of above sections.

4. In the subsequent appeal before the ld.CIT(A),the assessee reiterated the same contentions submitting Member wise details called for by the AO during the assessment proceedings, break up of name, address, PAN and amount of interest paid to each recipient during the assessment proceedings. It was stated that it was not given opportunity of getting and submitting the details of Members, who had filed the return, declared and offered the said interest income in their individual income tax returns. It also submitted break up of interest paid above the threshold limit of Rs. 10,000/- of Rs. 1,34,74,722/- to the Members. No opportunity was given to the assessee to furnish the certificate under proviso to Section 201(1) of the Act.

4.1 As regard the contention that it was not liable to deduct tax at source on interest paid to its members as it is a co-operative credit society and not a co-operative bank, it was not found tenable by the ld.CIT(A) for the following reasons:

a) As per the assessment order for A.Y. 2012-13, it was evident that the appellant was carrying out the business of lending money and accepting deposits, which is the primary objective of a co-operative credit society and in line with banking business.

b) The definition of “co-operative bank” under section 5(cci) of the Banking Regulation Act, 19