We are a co-operative bank. The TDS officer says we should have deducted tax under s.194A on fixed deposit interest paid to co-operative housing societies that are not our members, and has treated us as an assessee in default. Is he right?
No, on the Bombay High Court's reading. Clause (v) of s.194A(3) has two limbs, and the words 'other than a co-operative bank' appear only in the first limb, which deals with interest paid by a society to its members; the second limb — interest 'credited or paid by a co-operative society to any other co-operative society' — carries no such exclusion, so a co-operative bank, which remains a co-operative society, is not obliged to deduct tax on interest paid to non-member co-operative societies. Paragraph 42.7 of CBDT Circular No. 19 of 2015 says the same thing in terms.
Decided by the High Court (G. S. Kulkarni J and Aarti Sathe J) on 2026-08-06, reported as Income Tax Appeal (L) Nos. 2533, 2547, 2548, 2549, 2554, 2555, 2556 and 2558 of 2026; neutral citation 2026:BHC-OS:17608-DB; reserved 24 July 2026, pronounced 6 August 2026. It bears on section 194A(3)(v), section 194A(1), section 194A(3)(i), section 194A(3)(viia), section 201(1), section 201(1A), section 2(19), section 80P(2)(d), section 254(2), section 260A, section 133(6), section 115BAD of the Income Tax Act 1961, in TDS Defaults, Co-operative Societies and Deductions & Disallowances matters.
This is the single most common s.201 exposure for an urban or multi-State co-operative bank: survey action, branch-wise TAN, and eight or more parallel s.201(1)/201(1A) orders on the same point. The Revenue's argument — and the Tribunal's — rests on paragraph 42.5 of the same circular, which deals only with the first limb (time deposits of members). Identifying which limb the payment falls under decides the case. The judgment also disposes of the Assessing Officer's habit of importing s.80P(2)(d) into a TDS proceeding: whether the payee society will get a deduction is irrelevant to whether the payer must withhold.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The appellant is a multi-State co-operative society registered under the Multi-State Co-operative Societies Act, 2002, holding a banking licence from the Reserve Bank of India under s.22(1) read with s.56(o) of the Banking Regulation Act, 1949; it is therefore both a co-operative society and a co-operative bank. Each of its branches held a separate TAN and filed separate TDS returns. Following a survey and notices under s.133(6), the Income Tax Officer (TDS) issued notices under s.201(1)/201(1A) for assessment year 2016-17 to eight branches, alleging failure to deduct tax under s.194A on interest paid on fixed deposits held by co-operative housing societies. In the case of the Turner Road branch the interest was Rs 2,40,89,521. The depositor societies were not members of the bank and, under its bye-laws, could not become members. The bank had deducted tax on interest paid to its own members. The Assessing Officer held the bank to be an assessee in default, reasoning that it was an urban commercial bank, that it did not fall within s.80P, that the depositor societies were not entitled to deduction under s.80P(2)(d), and that the specific provisions in s.194A(3)(i)(b) and 194A(3)(viia)(b) override the general exemption in s.194A(3)(v). The Commissioner (Appeals) dismissed the appeals on 5 February 2025 and the Tribunal on 15 July 2025, both relying on paragraph 42.5 of CBDT Circular No. 19 of 2015. A rectification application under s.254(2) was rejected on 11 November 2025.
The appeals were allowed. The assessee is entitled to the exemption in s.194A(3)(v) in respect of interest paid to its depositor non-member co-operative societies, and consequently cannot be treated as an assessee in default under s.201(1) read with s.201(1A). The Tribunal's common order was quashed and set aside, with no costs (paras 31, 35 and 36).
The Court read s.194A(3)(v) as two parts (para 21). The first part — income credited or paid by a co-operative society (other than a co-operative bank) to a member — did not arise, because the bank had deducted tax on interest credited to its members. The second part — income credited or paid by a co-operative society to any other co-operative society — carries no exclusion of a co-operative bank, and the Court held that the legislature consciously refrained from repeating in the second limb the exclusion it had spelt out in the first, because the inherent legal character of a co-operative bank as a co-operative society is not extinguished by its banking licence (paras 22 to 24). In a taxing statute the Court cannot read in words the legislature has not used, and to exclude a co-operative bank from the expression 'co-operative society' in the second limb would be to read in something alien to its plain language (para 26). That construction is fortified by CBDT Circular No. 19 of 2015 dated 27 November 2015, whose paragraph 42.7 states that the existing exemption from deduction on interest paid by a co-operative society to another co-operative society continues to apply to a co-operative bank; the Tribunal had looked only at paragraph 42.5, which addresses the first limb and the withdrawal of the members' exemption from 1 June 2015 (paras 27 to 31). The Court relied on the Kerala High Court in Kaipuzha Service Co-operative Bank, where the Revenue conceded the point, and on the Madras High Court in Coimbatore District Central Co-operative Bank for the proposition that no enactment draws a dichotomy between a co-operative bank and a co-operative society carrying on banking business (paras 32 to 34). Finally, the Court held the Assessing Officer's reference to s.80P(2)(d) inadmissible: s.80P operates at the stage of assessment of the payee society, s.194A(1) at the transactional stage of the payer, and s.194A(3) is a self-operating mechanism (para 35).
Thus, Section 80P and Section 194A operate distinctly. They have a different effect.
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Handle my notice → Ask a CA on WhatsAppNo, on the Bombay High Court's reading. Clause (v) of s.194A(3) has two limbs, and the words 'other than a co-operative bank' appear only in the first limb, which deals with interest paid by a society to its members; the second limb — interest 'credited or paid by a co-operative society to any other co-operative society' — carries no such exclusion, so a co-operative bank, which remains a co-operative society, is not obliged to deduct tax on interest paid to non-member co-operative societies. Paragraph 42.7 of CBDT Circular No. 19 of 2015 says the same thing in terms. This was decided by the High Court (G. S. Kulkarni J and Aarti Sathe J) and bears on section 194A(3)(v), section 194A(1), section 194A(3)(i), section 194A(3)(viia), section 201(1), section 201(1A), section 2(19), section 80P(2)(d), section 254(2), section 260A, section 133(6), section 115BAD of the Income Tax Act 1961. It is reported as Income Tax Appeal (L) Nos. 2533, 2547, 2548, 2549, 2554, 2555, 2556 and 2558 of 2026; neutral citation 2026:BHC-OS:17608-DB; reserved 24 July 2026, pronounced 6 August 2026. This is the single most common s.201 exposure for an urban or multi-State co-operative bank: survey action, branch-wise TAN, and eight or more parallel s.201(1)/201(1A) orders on the same point. The Revenue's argument — and the Tribunal's — rests on paragraph 42.5 of the same circular, which deals only with the first limb (time deposits of members). Identifying which limb the payment falls under decides the case. The judgment also disposes of the Assessing Officer's habit of importing s.80P(2)(d) into a TDS proceeding: whether the payee society will get a deduction is irrelevant to whether the payer must withhold. If it applies to you, the first step is this: Segregate the interest into three buckets before answering the show cause notice: (i) paid to members, (ii) paid to non-member co-operative societies, (iii) paid to everyone else. Only bucket (ii) is protected by this judgment.
The appellant is a multi-State co-operative society registered under the Multi-State Co-operative Societies Act, 2002, holding a banking licence from the Reserve Bank of India under s.22(1) read with s.56(o) of the Banking Regulation Act, 1949; it is therefore both a co-operative society and a co-operative bank. Each of its branches held a separate TAN and filed separate TDS returns. Following a survey and notices under s.133(6), the Income Tax Officer (TDS) issued notices under s.201(1)/201(1A) for assessment year 2016-17 to eight branches, alleging failure to deduct tax under s.194A on interest paid on fixed deposits held by co-operative housing societies. In the case of the Turner Road branch the interest was Rs 2,40,89,521. The depositor societies were not members of the bank and, under its bye-laws, could not become members. The bank had deducted tax on interest paid to its own members. The Assessing Officer held the bank to be an assessee in default, reasoning that it was an urban commercial bank, that it did not fall within s.80P, that the depositor societies were not entitled to deduction under s.80P(2)(d), and that the specific provisions in s.194A(3)(i)(b) and 194A(3)(viia)(b) override the general exemption in s.194A(3)(v). The Commissioner (Appeals) dismissed the appeals on 5 February 2025 and the Tribunal on 15 July 2025, both relying on paragraph 42.5 of CBDT Circular No. 19 of 2015. A rectification application under s.254(2) was rejected on 11 November 2025. The matter was decided on 2026-08-06 by the High Court (G. S. Kulkarni J and Aarti Sathe J). On those facts the High Court held as follows. The appeals were allowed. The assessee is entitled to the exemption in s.194A(3)(v) in respect of interest paid to its depositor non-member co-operative societies, and consequently cannot be treated as an assessee in default under s.201(1) read with s.201(1A). The Tribunal's common order was quashed and set aside, with no costs (paras 31, 35 and 36).
The Court read s.194A(3)(v) as two parts (para 21). The first part — income credited or paid by a co-operative society (other than a co-operative bank) to a member — did not arise, because the bank had deducted tax on interest credited to its members. The second part — income credited or paid by a co-operative society to any other co-operative society — carries no exclusion of a co-operative bank, and the Court held that the legislature consciously refrained from repeating in the second limb the exclusion it had spelt out in the first, because the inherent legal character of a co-operative bank as a co-operative society is not extinguished by its banking licence (paras 22 to 24). In a taxing statute the Court cannot read in words the legislature has not used, and to exclude a co-operative bank from the expression 'co-operative society' in the second limb would be to read in something alien to its plain language (para 26). That construction is fortified by CBDT Circular No. 19 of 2015 dated 27 November 2015, whose paragraph 42.7 states that the existing exemption from deduction on interest paid by a co-operative society to another co-operative society continues to apply to a co-operative bank; the Tribunal had looked only at paragraph 42.5, which addresses the first limb and the withdrawal of the members' exemption from 1 June 2015 (paras 27 to 31). The Court relied on the Kerala High Court in Kaipuzha Service Co-operative Bank, where the Revenue conceded the point, and on the Madras High Court in Coimbatore District Central Co-operative Bank for the proposition that no enactment draws a dichotomy between a co-operative bank and a co-operative society carrying on banking business (paras 32 to 34). Finally, the Court held the Assessing Officer's reference to s.80P(2)(d) inadmissible: s.80P operates at the stage of assessment of the payee society, s.194A(1) at the transactional stage of the payer, and s.194A(3) is a self-operating mechanism (para 35). In the words reproduced by the source cited on this page: "Thus, Section 80P and Section 194A operate distinctly. They have a different effect." The decision followed or applied Kaipuzha Service Co-operative Bank Ltd. and others v. Commissioner of Income Tax (TDS) and others (Kerala High Court) — relied upon; extract reproduced at para 32; Coimbatore District Central Co-operative Bank Ltd. v. Income-tax Officer, TDS Ward I(5), Coimbatore (Madras High Court) — relied upon; paras 45 and 46 of that judgment reproduced at para 33; CBDT Circular No. 19 of 2015 dated 27 November 2015, paragraph 42.7 — applied.
It was decided by the High Court on 2026-08-06 and is reported as Income Tax Appeal (L) Nos. 2533, 2547, 2548, 2549, 2554, 2555, 2556 and 2558 of 2026; neutral citation 2026:BHC-OS:17608-DB; reserved 24 July 2026, pronounced 6 August 2026. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 194A(3)(v), section 194A(1), section 194A(3)(i), section 194A(3)(viia), section 201(1), section 201(1A), section 2(19), section 80P(2)(d), section 254(2), section 260A, section 133(6), section 115BAD, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeals were allowed. The assessee is entitled to the exemption in s.194A(3)(v) in respect of interest paid to its depositor non-member co-operative societies, and consequently cannot be treated as an assessee in default under s.201(1) read with s.201(1A). The Tribunal's common order was quashed and set aside, with no costs (paras 31, 35 and 36). It arises in TDS Defaults, Co-operative Societies and Deductions & Disallowances matters, on section 194A(3)(v), section 194A(1), section 194A(3)(i), section 194A(3)(viia), section 201(1), section 201(1A), section 2(19), section 80P(2)(d), section 254(2), section 260A, section 133(6), section 115BAD of the Income Tax Act 1961, and was decided by G. S. Kulkarni J and Aarti Sathe J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Produce the bye-laws to show that the depositor societies are not, and under the bye-laws cannot be, members — that fact was central here. Quote paragraph 42.7 of CBDT Circular No. 19 of 2015 in the reply, and say expressly that paragraph 42.5 governs the first limb only. If the Assessing Officer has denied the exemption because the payee society is said not to qualify under s.80P(2)(d), take the point that s.80P operates at assessment on the payee and s.194A at the transactional stage on the payer. Where the Tribunal has already gone against you on this, consider both a s.254(2) rectification and a s.260A appeal — the assessee here ran both, and the appeal is what succeeded.
Searched for later treatment; none was found. That is not the same as a source affirming it. Two searches, nothing found. The citedby search on the doc id is empty. A search combining the party name with '194A' returns 26 results, of which the top entries are simply the several doc ids under which this same judgment of 6 August 2026 is indexed for the eight connected appeals; nothing outside the batch considers it. No later decision has adopted, doubted or distinguished the reading of clause (v) of s.194A(3) as having two limbs, with the words 'other than a co-operative bank' qualifying only the first. Whether the Revenue has filed a special leave petition could not be established; nothing appeared. The judgment is six weeks old and, as already noted, is consistent with the Madras High Court in Coimbatore District Central Co-operative Bank (2015). No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Read from the raw judgment text (CNR HCBM020025602026; the PDF carries the registry stamp 'P. V. Rane' and a TCPDF footer, which interrupts the text of paragraph 23 mid-way — the key_quote is taken from paragraph 35, which is unbroken). The judgment runs to 36 numbered paragraphs; paragraph 36 is the disposal. Caution on locators: the passages numbered 45 and 46 that appear inside this judgment belong to the Madras High Court's judgment in Coimbatore District Central Co-operative Bank, and the block numbered 7, 6.2 and 7.1 belongs to the Tribunal's order under appeal — none of those are this Court's paragraph numbers. The Court records at paragraph 13 that a separate challenge to the Tribunal's refusal to rectify was pending as Writ Petition No. 2234 of 2026; the disposal at paragraph 36 does not say what became of it. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were allowed. The assessee is entitled to the exemption in s.194A(3)(v) in respect of interest paid to its depositor non-member co-operative societies, and consequently cannot be treated as an assessee in default under s.201(1) read with s.201(1A). The Tribunal's common order was quashed and set aside, with no costs (paras 31, 35 and 36).
TaxSphere, “Citizen Credit Co-operative Bank Ltd v ITO (TDS Ward), Mumbai”, https://taxnotice.vittsphere.com/caselaw/case/citizen-credit-co-operative-bank-v-ito-tds-194a-3-v-non-member-societies/ (validity last checked 2026-09-08)
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Our co-operative society pays interest to members, to other co-operative societies and to outsiders. Which of these payments carry a TDS obligation under s.194A?
The department has raised s.201 demands on our co-operative bank for not deducting tax on time deposit interest paid to members in years before June 2015. Does the Finance Act 2015 amendment to s.194A(3)(v) apply to those years?
My bank has deducted tax on my fixed deposit interest and I was told the limit had gone up. My father is a senior citizen and his bank deducted too. There is also a loan I took from a friend on which I pay interest, and a co-operative society that pays me interest on a deposit. Who exactly has to deduct under section 194A, on what amount, and what are the limits as they stand now?
My co-operative credit society filed Form 10-IF opting into s.115BAD and then claimed deduction under s.80P in the same return. CPC has disallowed the whole s.80P deduction under s.143(1). Is there anything to be said?
