Introduction

The case of The Jhingran Coop Multipurpose Service Society Ltd. v. Income Tax Officer (TDS), Jalandhar adjudicated by the Income Tax Appellate Tribunal (ITAT) Amritsar Bench on June 20, 2023, marks a significant development in the interpretation of Tax Deducted at Source (TDS) provisions as they apply to cooperative societies. The appellant, The Jhingran Coop Multipurpose Service Society Ltd., challenged the order of the Commissioner of Income Tax (Appeals) (CIT[A]) NFAC Delhi, which had treated the society as being in default for non-deduction of TDS on interest payments to nominal members exceeding ₹5,000.

The crux of the dispute centered around whether nominal members of a cooperative society qualify as 'members' under Section 194A(3)(v) of the Income Tax Act, 1961, thereby exempting such interest payments from TDS obligations.

Summary of the Judgment

The ITAT Amritsar Bench dismissed the appellant's challenge, ruling in favor of recognizing nominal members as bona fide members of the cooperative society. Consequently, the tribunal held that the cooperative society was not liable to deduct TDS under Section 194A(3)(v) on interest payments to these nominal members. The decision overturned the CIT[A] NFAC Delhi's earlier stance, declaring it arbitrary and contrary to the prevailing legal framework.

The tribunal emphasized that the CBDT Circular No. 9 of 2022, which the CIT[A] relied upon to treat nominal members differently, exceeded the authority granted under Section 119 of the Income Tax Act, 1961. Furthermore, the tribunal underscored the principle of res judicata, noting that previous judgments had already settled the status of nominal members within cooperative societies.

Analysis

Precedents Cited

The tribunal extensively referenced several key precedents to fortify its decision:

• CIT vs Punjab State Cooperative Bank Ltd (2008): The Punjab & Haryana High Court held that nominal members are to be recognized as members of a cooperative society, thereby strengthening their position within the organization.
• Mavilayi Service Co-operative Bank Ltd vs Commissioner of Income Tax (2021): The Supreme Court reiterated that the term "member" should be construed as defined in the respective cooperative societies Act, affirming that nominal and associate members fall under this definition.
• Jalagaon District Central Co-operative Bank Ltd. vs Union of India: The Bombay High Court quashed a CBDT Circular that attempted to redefine "members," emphasizing that CBDT cannot override statutory definitions.
• The Rurkee Coop Agri M/P Society Ltd vs Jt CIT(OSD) Phagwara Circle: ITAT Amritsar Bench reiterated that nominal members are protected under existing legal definitions, aligning with the Punjab State Cooperative Bank judgment.

These precedents collectively established a robust legal foundation for recognizing the rights and status of nominal members within cooperative societies.

Legal Reasoning

The tribunal's legal reasoning was multifaceted:

• Definition of 'Member': It was clarified that under the Punjab Co-operative Societies Act, 1961, the term "member" explicitly includes nominal and associate members. A nominal member does not necessarily subscribe to the share capital but fulfills membership criteria as per the society's bye-laws.
• Limitations of CBDT Authority: The tribunal held that the Central Board of Direct Taxes (CBDT) cannot issue circulars that effectively amend or override statutory provisions. Circular No. 9 of 2022 was deemed beyond CBDT's remit as it conflicted with Section 194A(3)(v) of the Income Tax Act.
• Principle of Res Judicata: By relying on established judgments that recognize nominal members as legitimate members, the tribunal dismissed the CIT[A] NFAC Delhi's attempt to reclassify them, emphasizing that the matter had already been judicially settled.
• Exemption Clause Interpretation: The tribunal interpreted Section 194A(3)(v) strictly, noting that any liberal or expansive interpretation by subordinate authorities like the CIT[A] without legislative backing is impermissible.

Impact

This judgment has far-reaching implications:

• Clarity on Membership: Cooperative societies now have clear judicial backing to classify nominal members as full-fledged members, relieving them from undue TDS burdens.
• Limit on CBDT's Interpretative Powers: The ruling reinforces the principle that CBDT cannot unilaterally redefine statutory terms, ensuring that administrative bodies operate within their legal confines.
• Future Litigation: This precedent will serve as a cornerstone for future disputes involving the interpretation of membership within cooperative societies, promoting consistency and legal certainty.
• Tax Compliance: Cooperative societies can now manage their TDS obligations with greater confidence, focusing on compliance without the fear of arbitrary redefinitions affecting their financial operations.

Complex Concepts Simplified

Conclusion

The ITAT Amritsar Bench's decision in The Jhingran Coop Multipurpose Service Society Ltd. v. ITO (TDS), Jalandhar serves as a pivotal affirmation of the status of nominal members within cooperative societies under Indian tax law. By upholding established judicial interpretations and delineating the boundaries of CBDT's authority, the tribunal has not only provided relief to cooperative societies burdened by ambiguous TDS obligations but also reinforced the integrity of statutory interpretations against administrative overreach. This judgment is poised to streamline tax compliance processes for cooperative societies and ensure equitable treatment of all members, thereby contributing significantly to the stability and growth of the cooperative sector in India.