Citizencredit Co-Operative Bank Limited Vs ITO (ITAT Mumbai)
A Co-operative Bank Does Not Lose Its Co-operative DNA: No TDS u/s 194A on Interest Paid to Another Co-operative Society
Summary:
Background
Citizencredit Co-operative Bank Ltd. paid interest on fixed deposits maintained by various co-operative societies which were neither its members nor eligible to become members under its bye-laws. The Bank did not deduct tax at source, claiming exemption under the second limb of s.194A(3)(v).
The AO disagreed. He held that an urban co-operative bank carrying on banking business stood outside the expression “co-operative society.” He also reasoned that the Finance Act, 2015 had excluded co-operative banks from the exemption under s.194A(3)(v) with effect from 01.06.2015.
According to the AO, the specific provisions of ss.194A(3)(i)(b) & 194A(3)(viia)(b), prescribing a monetary threshold for interest paid by a co-operative bank, prevailed over the general exemption in s.194A(3)(v). The Bank was consequently treated as an assessee-in-default u/s 201(1), with interest charged u/s 201(1A).
The JCIT(A) upheld the action by relying upon an earlier Tribunal order against the Bank for the same AY. Meanwhile, that very order was reversed by the Bombay High Court on 06.08.2026.
Two Distinct Limbs of s.194A(3)(v)
The ITAT followed the Bombay High Court’s judgment in Citizen Credit Co-operative Bank Ltd. v. ITO (TDS).
Section 194A(3)(v) has two independent limbs. The first covers interest paid by a co-operative society, other than a co-operative bank, to its member. Therefore, after the Finance Act, 2015 amendment, a co-operative bank cannot claim exemption for interest paid to its members on or after 01.06.2015.
The second limb covers interest paid by a co-operative society to any other co-operative society. Significantly, the words “other than a co-operative bank” do not appear in this limb.
The High Court held that this omission was deliberate. A co-operative bank does not cease to be a co-operative society merely because it conducts banking business. If Parliament intended to exclude co-operative banks from the second limb, it could have done so expressly, as it did in the first.
Accordingly, interest paid by a co-operative bank to another co-operative society continues to enjoy exemption from TDS.
CBDT Circular Confirms the Distinction
The ITAT also referred to CBDT Circular No. 19/2015 dated 27.11.2015.
Paragraph 42.5 explains the withdrawal of exemption for interest paid by a co-operative bank to its members from 01.06.2015. Paragraph 42.7 separately clarifies that the existing exemption for interest paid by one co-operative society to another continues to apply even where the payer is a co-operative bank.
The earlier Tribunal order had relied upon paragraph 42.5 without giving effect to paragraph 42.7. The Bombay High Court held that this approach wrongly merged two distinct parts of the provision.
Section 80P Cannot Decide TDS Liability
The AO had also reasoned that the recipient societies might not be entitled to deduction u/s 80P(2)(d) on interest received from a co-operative bank.
The ITAT rejected this approach. Section 80P operates at the stage of assessing the recipient’s income, whereas s.194A regulates the payer’s obligation at the transactional stage. The deductibility of income in the recipient’s assessment cannot determine whether the payer must deduct tax under a specific exemption.
Since the payments were made to non-member co-operative societies, the second limb of s.194A(3)(v) applied. The Bank could not be treated as an assessee-in-default, & the consequential interest u/s 201(1A) also failed.
NRE Deposit Interest Was Exempt
One appeal involved interest credited to fixed deposits of five NRE account holders. The Bank contended that the interest was exempt u/s 10(4)(ii).
The Tribunal observed that s.195 requires TDS only where the amount payable to a non-resident is chargeable to tax in India. Since the NRE interest was exempt, the basic condition for invoking s.195 was absent.
Accordingly, no TDS was deductible on the five NRE deposits.
Member’s Deposit Closed Before Amendment
Another dispute concerned interest paid to Shri Hendry Lobo, a resident member of the Bank. His fixed deposit was shown as having been closed before 01.06.2015.
The amendment withdrawing exemption for interest paid by co-operative banks to members operated prospectively from 01.06.2015. Following Saraswat Co-operative Bank Ltd. v. ITO, the ITAT held that interest paid or credited before that date remained covered by the unamended exemption.
Therefore, the Bank had no TDS obligation on that deposit.
Form 26A Issue Restored
In another appeal, the Bank relied upon the first proviso to s.201(1), asserting that the resident deductee had filed its return, included the interest income & paid the resulting tax. It produced Form No. 26A with an accountant’s certificate for the first time before the Tribunal.
Since the evidence required verification, this limited issue was restored to the AO. If the prescribed conditions are satisfied, the Bank cannot be treated as an assessee-in-default, thereby preventing double recovery of the same tax.
Final Verdict
The common grounds in all four appeals concerning interest paid to non-member co-operative societies were allowed. The NRE-interest ground & pre-amendment member-deposit ground were also allowed. The Form 26A ground was restored for verification & allowed for statistical purposes.
Author’s Comments
The ruling decisively separates the two limbs of s.194A(3)(v). After 01.06.2015, a co-operative bank must ordinarily deduct TDS on taxable interest paid to its members, subject to applicable thresholds & exceptions. But interest paid to another co-operative society remains protected by the second limb.
The decision also correctly prevents s.80P disputes from contaminating the TDS analysis. The payer need not predict the recipient’s final assessment when the TDS provision itself grants a clear exemption.
The order contains an inconsistency regarding Shri Hendry Lobo’s deposit: one part mentions closure on 30.03.2015, while the detailed adjudication records 30.05.2015. Both dates precede 01.06.2015, so the result remains unaffected.
A co-operative bank may be a bank for business, but it remains a co-operative society for the second limb of s.194A(3)(v).
Cases Discussed
- Citizen Credit Co-operative Bank Ltd. v. Income Tax Officer, TDS, IT Appeal (L) No. 2533 of 2026 and connected appeals, dated 06.08.2026
- Saraswat Co-operative Bank Ltd. v. ITO and Union of India, Tax Appeal Nos. 3, 4, 5, 6, 7, 8, 9 and 11 of 2015, dated 07.03.2017
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT MUMBAI
These four appeals have been filed by the assessee against the respective orders passed by the learned Additional Commissioner/Joint Commissioner of Income-tax (Appeals), arising out of the orders passed by the Income Tax Officer, TDS Ward, Mumbai, under section 201(1)/201(1A) of the Income-tax Act, 1961 (“the Act”). Since the appeals involve interconnected issues and arise out of the similar proceedings, they were heard together and are being disposed of by this consolidated order. For the sake of convenience and clarity, ITA No. 1482/Mum/2026 is taken as the lead appeal and the facts and submissions in the said appeal are referred to, wherever necessary, for adjudication of the common issue arising in the connected appeals.
2. Before proceeding to adjudicate the issues, it would be appropriate to briefly record the nature of the grounds raised in the respective appeals. ITA Nos. 1482/Mum/2026 and 1485/Mum/2026 contain five grounds each and all the five grounds in both the appeals are identical. The common issue arising from these grounds is whether the assessee, being a co-operative bank, is entitled to the benefit of the exemption contained in section 194A(3)(v) of the Act and, consequently, whether there was any obligation upon the assessee to deduct tax at source under section 194A in respect of the interest paid/credited to the concerned co-operative societies. ITA No. 1483/Mum/2026 contains seven grounds. Grounds No. 1 to 5 therein are identical to Grounds No. 1 to 5 raised in ITA No. 1482/Mum/2026 and ITA No. 1485/Mum/2026 and, therefore, involve the same controversy relating to the applicability of section 194A(3)(v). Ground No. 6 relates to the question whether the assessee was required to deduct tax at source in respect of interest on NRE fixed deposits pertaining to five NRE account holders, while Ground No. 7 relates to interest on a fixed deposit which was closed on 30.03.2015, prior to the amendment to section 194A(3)(v), which was made effective from 01.06.2015. ITA No. 1484/Mum/2026 contains six grounds. Grounds No. 1 to 5 are identical to the corresponding grounds raised in the other appeals and relate to the applicability of section 194A(3)(v), whereas Ground No. 6 raises the issue as to whether the assessee could be treated as an assessee in default where the deductee had filed its return of income, admitted the income therein and paid the taxes thereon, having regard to the proviso to section 201 of the Act.
3. The basic facts, insofar as Grounds No. 1 to 5 are concerned, are that on verification of the assessee’s TDS records, it was noticed that the assessee, being a co-operative bank, had paid/credited interest on fixed deposits maintained with it by depositors who are co-operative societies, but who are not members of the assessee and who, under the bye-laws of the assessee, are ineligible to become its members, without deducting tax at source under section 194A of the Act. The AO accordingly issued a show-cause notice under section 201(1)/201(1A) of the Act calling upon the assessee to explain the non-deduction. In its reply, the assessee submitted that the interest so paid was exempt from the requirement of deduction of tax at source in view of the second part of clause (v) of section 194A(3) of the Act. Not being satisfied with the explanation furnished, the AO passed an order under section 201(1)/201(1A) of the Act, holding the assessee to be an assessee-in-default for non-deduction of tax at source under section 194A of the Act, and raising a consequent demand of tax and interest thereon.
4. In arriving at this conclusion, the AO reasoned, firstly, that the assessee, being an urban co-operative bank carrying on the business of banking at par with commercial banks, stood outside the ambit of a “co-operative society” for the purposes of section 80P of the Act, and that the depositor co-operative societies were themselves not entitled to claim the deduction available under section 80P(2)(d) of the Act in respect of the interest income received by them from the assessee; on this basis, the AO held that the assessee was obliged to deduct tax at source on such interest. The AO reasoned, secondly, that clause (v) of section 194A(3) of the Act, having been amended by the Finance Act, 2015 with effect from 1st June 2015 so as to expressly exclude a co-operative bank from the exemption available in respect of interest paid to members, no longer permitted a co-operative bank to claim the said exemption. The AO reasoned, thirdly, that clause (v) of section 194A(3) of the Act, being in the nature of a general exemption applicable to co-operative societies as a whole, stood overridden, in the case of a co-operative bank, by the specific provisions contained in clauses (i)(b) and (viia)(b) of section 194A(3) of the Act, which prescribe a monetary threshold of Rs. 10,000/- for exemption from deduction of tax in the case of interest paid by a co-operative bank, the specific provision being held to prevail over the general exemption; and that, for this purpose, no distinction could be drawn between interest paid to members and interest paid to non-members of the co-operative bank. On the cumulative strength of this reasoning, the AO held that the assessee was liable to deduct tax at source on the entire interest paid/credited by it to the co-operative societies in question, and passed the order under section 201(1)/201(1A) of the Act accordingly.
5. Being aggrieved, the assessee carried the matter in appeal before the learned JCIT(A). Before the learned JCIT(A), the assessee reiterated the aforesaid submissions regarding the true scope and applicability of section 194A(3)(v) of the Act. The learned JCIT(A), however, confirmed the order passed by the AO, following the order dated 15th July 2025 passed by this Tribunal in the assessee’s own case for Assessment Year 2016-17, wherein an identical issue arising on identical facts had been decided against the assessee. Proceeding on this basis, the learned JCIT(A) held that the assessee was not entitled to the exemption under section 194A(3)(v) of the Act and upheld the order passed under section 201(1)/201(1A) of the Act.
6. During the course of hearing before us, the learned Authorised Representative (“learned AR”) submitted, that the very order of this Tribunal dated 15th July 2025, which was relied upon by the learned JCIT(A) in confirming the impugned order, was thereafter carried by the assessee in appeal before the Hon’ble Jurisdictional High Court at Bombay and that the Hon’ble High Court, by its common judgment in Citizen Credit Co-operative Bank Ltd. v. Income Tax Officer, TDS, IT Appeal (L) No. 2533 of 2026 and connected appeals, dated 6th August 2026, passed in the assessee’s own case for Assessment Year 2016-17, has quashed and set aside the very order of this Tribunal on which the learned JCIT(A) placed reliance. It was submitted that in the said judgment, the Hon’ble jurisdictional High Court has considered the very same controversy relating to the obligation of a co-operative bank to deduct tax at source under section 194A in respect of interest paid to non-member co-operative societies. The facts considered by the Hon’ble High Court were that the assessee therein was a co-operative bank and the dispute related to interest paid by the assessee to co-operative societies which were not its members. The assessee had contended that the second part of section 194A(3)(v), which refers to income credited or paid by a co-operative society to any other co-operative society, continued to grant exemption even after the amendment made by the Finance Act, 2015.
7. The learned AR further submitted that the Hon’ble Bombay High Court, after examining the provisions of section 194A(3)(v), has categorically held that the said clause is required to be understood in two parts. The first part refers to income credited or paid by a co-operative society, other than a co-operative bank, to a member thereof. The exclusion of a co-operative bank in this part is express. The second part, however, refers to income credited or paid by a co-operative society to any other co-operative society and does not contain any exclusion of a co-operative bank. The Hon’ble High Court held that a co-operative bank does not, merely because it carries on banking business, cease to be a co-operative society. Therefore, when a co-operative bank pays interest to another co-operative society which is not its member, such payment falls within the second part of section 194A(3)(v) and continues to enjoy the exemption from deduction of tax at source. The Hon’ble High Court further held that if the legislature intended to exclude co-operative banks from the second part of the provision, it could have expressly provided such exclusion in the same manner in which it had done so in the first part.
8. The learned AR also invited our attention to paragraph 42.7 of CBDT Circular No. 19/2015 dated 27.11.2015. It was submitted that the said paragraph specifically clarifies that the existing exemption under section 194A(3)(v) from deduction of tax on interest paid by a co-operative society to another co-operative society would continue to apply to a co operative bank and, consequently, a co-operative bank would not be required to deduct tax from interest paid on time deposits to a depositor being a co-operative society. It was therefore submitted that the Revenue could not rely upon paragraph 42.5 of the Circular, since paragraph 42.5 deals with the first part of section 194A(3)(v), namely, interest paid by a co-operative bank to its members, whereas the present appeals concern interest paid to co-operative societies which are not members of the assessee and are consequently governed by the second part of the provision. The Hon’ble Bombay High Court has specifically noticed this distinction and has held that paragraph 42.7 of the Circular fully supports the contention of the assessee that the exemption continues in respect of interest paid by a co-operative bank to non-member co-operative societies. On the other hand, the ld. Departmental Representative (“ld.DR”) relied upon the orders passed by the lower authorities.
9. We have considered the rival submissions and perused the material available on record. We have also carefully gone through the judgment of the Hon’ble Bombay High Court dated 06.08.2026 relied upon by the learned AR. The statutory position considered by the Hon’ble High Court is that section 194A(1) contains the general obligation to deduct tax at source from interest other than interest on securities, whereas sub-section (3) carves out specified exceptions from the operation of sub-section (1). Clause (v) of section 194A(3), as relevant for the present controversy, provides that the provisions of sub-section (1) shall not apply to income credited or paid by a co-operative society, other than a co-operative bank, to a member thereof or to income credited or paid by a co-operative society to any other co-operative society. The Explanation to the said clause provides that the expression “co-operative bank” shall have the same meaning as assigned to it in Part V of the Banking Regulation Act, 1949. The Hon’ble High Court, on a plain reading of the provision, has held that the two parts of clause (v) operate differently and that the exclusion of a co-operative bank in the first part cannot be read into the second part when the legislature has consciously omitted such exclusion.
10. The distinction drawn by the Hon’ble High Court is material for deciding the issue before us. The first part of section 194A(3)(v) concerns interest paid by a co-operative society, other than a co-operative bank, to a member. Thus, after the amendment made by the Finance Act, 2015 with effect from 01.06.2015, the exemption contained in this part was not available to a co-operative bank in respect of interest paid to its members. The second part, however, concerns interest paid by a co-operative society to any other co-operative society. The legislature has not used the expression “other than a co-operative bank” in this second part. The Hon’ble Bombay High Court has held that this omission is deliberate and significant and that the inherent legal character of a co-operative bank as a co-operative society is not extinguished merely because it is carrying on banking business. Accordingly, a co-operative bank remains covered by the expression “co-operative society” occurring in the second part of section 194A(3)(v).
11. The aforesaid interpretation also finds direct support from paragraph 42.7 of CBDT Circular No. 19/2015. The Circular, while explaining the amendment made by the Finance Act, 2015, separately dealt with the interest paid to members and the interest paid to other co-operative societies. Paragraph 42.5 clarified that the exemption in respect of interest on time deposits paid by a co-operative bank to its members was withdrawn prospectively with effect from 01.06.2015. At the same time, paragraph 42.7 expressly clarified that the existing exemption under section 194A(3)(v) from deduction of tax on interest paid by a co-operative society to another co-operative society would continue to apply to co-operative banks and that a co-operative bank would not be required to deduct tax on interest paid on time deposits to a depositor being a co-operative society. The Hon’ble Bombay High Court has specifically held that there can be nothing clearer than the language employed in paragraph 42.7 and that the said paragraph fully supports the interpretation of the second part of section 194A(3)(v).
12. We also take note of the observation of the Hon’ble Bombay High Court that the Tribunal in the matter before it had relied upon paragraph 42.5 of the CBDT Circular while failing to give effect to paragraph 42.7. The Hon’ble High Court held that such an approach was erroneous because paragraph 42.5 dealt with the first part of section 194A(3)(v), relating to interest paid by a co-operative bank to its members, whereas paragraph 42.7 dealt with the second part concerning interest paid by a co-operative bank to another co-operative society. The Hon’ble High Court accordingly held that the Tribunal was not correct in treating the second part of clause (v) on the same footing as the first part.
13. The Hon’ble Bombay High Court has also considered the contention relating to section 80P of the Act and held that the provisions of section 80P operate at the stage of assessment of the income of the recipient co-operative society, whereas section 194A operates at the transactional stage and governs the obligation to deduct tax at source. Therefore, the applicability or otherwise of section 80P to the recipient society cannot determine the obligation of the payer under section 194A(3)(v). The Hon’ble High Court accordingly held that the Assessing Officer’s approach of intermixing the operation of section 80P with the obligation arising under section 194A was not well-founded.
14. In the present case, the interest payments in dispute are made by the assessee, being a co-operative bank, to co-operative societies which were not its members. Therefore, the issue before us falls within the second part of section 194A(3)(v). Respectfully following the judgment of the Hon’ble jurisdictional High Court dated 06.08.2026, we hold that the exemption contained in the second part of section 194A(3)(v) is applicable to interest paid or credited by a co-operative bank to another co-operative society. Consequently, the assessee was not required to deduct tax at source under section 194A in respect of such interest payments. The assessee, therefore, cannot be treated as an assessee in default under section 201(1) on account of non-deduction of tax in respect of such payments and the consequential interest under section 201(1A) also cannot survive.
15. In view of the above discussion, Grounds No. 1 to 5 raised by the assessee in ITA No. 1482/Mum/2026 are allowed. Since Grounds No. 1 to 5 in ITA No. 1485/Mum/2026 are identical to the grounds adjudicated herein and arise from the same issue, the findings recorded above shall apply mutatis mutandis to the said appeal. Grounds No. 1 to 5 of ITA No. 1485/Mum/2026 are accordingly allowed. Likewise, Grounds No. 1 to 5 of ITA Nos. 1483/Mum/2026 and 1484/Mum/2026, being identical to the grounds adjudicated above, are also allowed.
16. We now proceed to adjudicate Ground No. 6 of ITA No. 1483/Mum/2026, which relates to the interest paid on NRE fixed deposits pertaining to five NRE account holders. The learned AR took us through the show-cause notice issued by the Income Tax Officer, TDS Ward, and the reply submitted by the assessee in connection with the NRE accounts and NRE deposits. The learned AR submitted that the interest arising from these deposits is exempt in terms of section 10(4)(ii) of the Act and, therefore, since the income itself is exempt from tax, there was no requirement for deduction of tax at source in respect of such interest. The learned AR further referred to the provisions of section 195 of the Act and submitted that there was consequently no obligation upon the assessee to deduct tax at source in respect of the interest arising from the NRE deposits. The learned DR relied upon the orders of the lower authorities.
17. We have considered the rival submissions and perused the material placed before us, including the show-cause notice issued by the Income Tax Officer, TDS Ward and the reply furnished by the assessee in relation to the NRE accounts and deposits. The specific case made out by the assessee is that the interest arising on the five NRE fixed deposits in question is exempt under section 10(4)(ii) of the Act. We find merit in the contention of the learned AR. Section 195 of the Act comes into operation only where the sum payable to a non-resident is chargeable to tax under the provisions of the Act. In other words, the obligation to deduct tax at source under section 195 arises only in respect of a sum which is chargeable to tax in India in the hands of the non-resident. In the present case, the interest credited to the NRE accounts of the non-resident account holders is exempt from tax under section 10(4)(ii) of the Act and, consequently, the said interest does not constitute income chargeable to tax in India. Therefore, the basic condition for attracting the provisions of section 195 is not satisfied and, accordingly, no obligation to deduct tax at source arises under the said provision. In view of the specific factual position placed before us and the statutory exemption applicable to the interest arising from the NRE deposits, we hold that the assessee was not required to deduct tax at source in respect of the interest credited to the five NRE fixed deposits referred to in this ground. Accordingly, Ground No. 6 of ITA No. 1483/Mum/2026 is allowed.
18. Ground No. 7 of ITA No. 1483/Mum/2026 pertains to the interest credited/paid to Shri Hendry Lobo, a resident individual who was a member of the assessee-society. The Ld. AR invited our attention to page 11 of the Paper Book, which shows that the fixed deposit standing in the name of Shri Hendry Lobo was closed on 30th May 2015. The Ld. AR further invited our attention to the letter dated 6th March 2023 addressed by the assessee to the ITO, TDS, wherein these facts were placed on record before the AO.
19. The Ld. AR submitted that the amendment made to section 194A(3)(v) of the Act by the Finance Act, 2015, excluding a co-operative bank from the exemption in respect of interest paid to its members, is prospective and came into effect only from 1st June 2015. It was submitted that, since the fixed deposit of Shri Hendry Lobo was closed on 30th May 2015, i.e., prior to the effective date of the amendment, the interest paid/credited to him falls to be governed by the unamended provisions of section 194A(3)(v) of the Act, under which the exemption from deduction of tax at source, being then available to a co-operative bank paying interest to its members without exclusion, was available to the assessee.
20. We find merit in this submission. As has already been noticed hereinabove, paragraph 42.5 of CBDT Circular No. 19 of 2015 dated 27 November 2015 expressly clarifies that the amendment to section 194A(3)(v) of the Act, excluding a co-operative bank from the exemption qua interest paid to its members, is effective prospectively from 1st June 2015, and that “a co-operative bank was not required to deduct tax from the payment of interest on time deposits of its members paid or credited before 1st June, 2015.” Since it is not in dispute that the fixed deposit of Shri Hendry Lobo was closed, and the interest thereon consequently paid/credited, prior to 1st June 2015, the assessee was under no obligation, in law, to deduct tax at source on the said interest. The Ld. AR also placed reliance on the decision of the Hon’ble Bombay High Court at Goa in Saraswat Co-operative Bank Ltd. v. ITO and Union of India, Tax Appeal Nos. 3, 4, 5, 6, 7, 8, 9 and 11 of 2015, dated 7th March 2017, wherein the Hon’ble High Court held that a co-operative bank is not liable to deduct tax at source on interest paid on deposits received from its members prior to 1st June 2015, the amendment to section 194A(3)(v) of the Act being prospective in operation.
21. In view of the above, and respectfully following the decision of the Hon’ble Bombay High Court at Goa in Saraswat Co-operative Bank Ltd. v. ITO and Union of India (supra), the essence of which squarely covers the facts of the present ground, we hold that the assessee was not liable to deduct tax at source on the interest paid/credited to Shri Hendry Lobo on the fixed deposit closed on 30th May 2015, the same being prior to the effective date, viz. 1st June 2015, of the amendment to section 194A(3)(v) of the Act. Ground No. 7 raised in ITA No. 1483/Mum/2026 is allowed.
22. Ground No. 6 pertains to whether the assessee can be treated as an assessee-in-default under section 201(1) of the Act in a case where the deductee has filed its return of income under section 139, has admitted the income in question therein, and has paid the tax due thereon. The Ld. AR submitted that, on the facts of this ground, the deductee had duly filed its return of income under section 139 of the Act, had included the interest income received from the assessee in computing its total income disclosed in such return, and had paid the tax due on the income so returned, and that the assessee was accordingly entitled to the benefit of the proviso to sub-section (1) of section 201 of the Act, which stipulates that a person who fails to deduct the whole or any part of the tax on a payment made to a resident payee shall not be deemed to be an assessee-in-default in respect of such failure if the resident payee has furnished his return of income under section 139, has taken into account such sum for computing income in such return of income, and has paid the tax due on the income declared by him in such return of income. The Ld. AR further submitted that, in support of the above, the assessee had filed before us Form No. 26A, together with the certificate of an accountant, as Annexure ‘A’, in terms of Rule 31ACB of the Income-tax Rules, 1962. The Ld. AR fairly submitted that the said Form No. 26A and the accountant’s certificate had not been filed before the authorities below, and accordingly prayed that, being additional evidence, the matter may be restored to the file of the AO for necessary verification, with a direction to allow the benefit of the proviso to section 201(1) of the Act upon such verification being found to be in order.
23. We have considered the submissions of the Ld. AR. The proviso to sub-section (1) of section 201 of the Act was inserted with the object of obviating double recovery of the same tax, once from the deductor by treating him as an assessee-in-default, and again from the deductee upon whom the primary liability to pay tax on his income rests, where the deductee has, in fact, already discharged the tax due on the income in question. The benefit of the said proviso is required to be established by the deductor by furnishing a certificate of an accountant in Form No. 26A, in terms of Rule 31ACB of the Income-tax Rules, 1962, evidencing that the resident payee has furnished a return of income under section 139 of the Act, has taken into account the sum received from the deductor in computing the income declared in such return, and has paid the tax due on the income so declared. Since the said Form No. 26A, together with the accountant’s certificate, is filed by the assessee for the first time before us and has admittedly not been examined or verified by the AO, we are of the view that it would be in the interest of justice to restore this issue to the file of the AO for fresh adjudication. We accordingly set aside the order of the learned JCIT(A) on this ground and restore the matter to the file of the AO, with a direction to verify Form No. 26A and the accountant’s certificate filed by the assessee, being additional evidence, in terms of the first proviso to section 201(1) of the Act, and thereafter to decide the issue afresh in accordance with law, after affording the assessee a reasonable opportunity of being heard. Ground No. 6 raised in ITA No. 1484/Mum/2026 is allowed for statistical purposes.
24. To summarise, Grounds No. 1 to 5 in all the four appeals, which involve the common issue relating to the applicability of section 194A(3)(v), are allowed in view of the judgment of the Hon’ble Bombay High Court dated 06.08.2026. Ground No. 6 of ITA No. 1483/Mum/2026 relating to interest on the five NRE fixed deposits is allowed. Ground No. 7 of the said appeal relating to the fixed deposit closed on 30.03.2015, prior to the effective date of the amendment, is also allowed. Ground No. 6 of ITA No. 1484/Mum/2026 relating to the benefit of the proviso to section 201 is allowed for statistical purposes.
25. Before parting, we may also observe that Grounds No. 6 and 7 of ITA No. 1483/Mum/2026 and Ground No. 6 of ITA No. 1484/Mum/2026 were raised by the assessee before the learned CIT(A), but the same have not been adjudicated upon in the respective impugned orders. Since the said grounds have been raised before us and the issues arising therefrom are capable of being adjudicated on the basis of the material available on record, we have proceeded to adjudicate the same on merits in the foregoing paragraphs. The omission on the part of the learned CIT(A) to adjudicate these grounds, therefore, does not come in the way of our adjudicating the issues raised before us.
26. Accordingly, the respective impugned orders are modified to the above extent and the Assessing Officer is directed to give consequential effect to this order.
Order pronounced in the open court on 02.09.2026.
