2015 (7) TMI 760 - AT - Income Tax

T.D.S. liability u/s 194A on interest due on Time Deposit received - assessee is a cooperative society - Held that - ACIT vs Visakhapatnam Cooperative Bank Ltd. (2011 (8) TMI 319 - ITAT VISAKHAPATNAM) has held that the assessee was not obliged to deduct TDS on the interest paid on time deposits u/s 194A of the Act. Neither sec. 2(19) nor sec. 194A(3) makes any discrimination between the cooperative societies carrying on banking business and other cooperative societies. However as per sec. 194A(3) the said exemption is available only to the interest payments made to its members or to any other cooperative society. In the instant case it is the claim of the assessee that all the interest payments have been made only to its members. In that case the assessee is squarely covered by the exemption provided u/s 194A(3)(v) of the Act - Decided in favour of assessee.

Summary

Issues:
- Whether the appellant was liable to deduct TDS on interest paid on time deposit under sec. 194A of the Income Tax Act.

Analysis:
1. The appellant, a cooperative society, was held liable by the ITO(TDS) to deduct TDS on interest paid on time deposit under sec. 194A of the Act. The ITO directed the appellant to pay a total tax liability of Rs. 69,950 on interest paid amounting to Rs. 6,24,564 on time deposit.

2. The CIT(A) confirmed the ITO(TDS)'s action, stating that Circular 9, which exempted certain payments from TDS, was no longer valid as it had been quashed by the Bombay High Court. The CIT(A) emphasized that the Circular's quashing rendered it irrelevant for considering the issue at hand regarding TDS deduction on interest payments by cooperative societies.

3. The appellant raised a ground challenging the CIT(A)'s decision, arguing that as a cooperative society, it was exempt from TDS deduction under sec. 194A(3)(v) of the Act for interest payments made to its members. The appellant contended that the exemption under sec. 194A(3)(v) applied to all cooperative societies without discrimination based on the nature of their operations.

4. The ITAT, following the decision in Vishakapatnam Co-operative Bank vs. DIT, held that the appellant, being a cooperative society, was covered by the exemption under sec. 194A(3)(v) for interest payments made to its members. The ITAT emphasized that the exemption applied irrespective of whether the cooperative society was engaged in banking business or other activities.

5. Consequently, the ITAT ruled in favor of the appellant, stating that it was not obligated to deduct TDS on the interest paid to its members on time deposits under sec. 194(A) of the Act. The ITAT set aside the CIT(A)'s order, and the demand for TDS payment was deleted.

6. Therefore, the appeal was allowed in favor of the appellant, and the order was pronounced in open court on 14.11.2014.