2019 (10) TMI 1520 - HC - Income Tax

Exemption provided u/s 194A(3)(v) - deduction of tax at source would not apply in cases where the income is paid by a Co-operative Society - HELD THAT - The petitioners are Primary Agricultural Credit Society registered under the provision of the Kerala Co-operative Societies Act. In the writ petition, the petitioners are aggrieved by Exts.P1 and P3 communications received from the General Manager, Kottayam District Co-operative Bank, intimating them, based on the advice received from the Income Tax Department, that the interest payable to them on the Fixed Deposits maintained with the Bank is not exempt from the procedure for tax deduction at source (TDS) and that tax would be deducted at source and remitted to the Government on such interest payments. It is the case of the petitioners that the interest income accruing to it is from the deposits made by the petitioners with the kottayam District Co-operative Bank and hence, as per the provisions of Section 194A(3)(v), the provisions of sub section (1) thereof, which contemplate a deduction of tax at source would not apply in cases where the income is paid by a Co-operative Society to any other Co- operative Society. It is the case of the petitioners that the payment of interest from the Kottayam District Co-operative Bank to the petitioner has to be viewed as a payment of income by a Co-operative Society to another Co-operative Society and hence the provisions of Section 194A (3)(v) would apply to exclude the receipts of interest income by the petitioners from the requirement of tax deduction at source. Through a statement filed by the learned Standing Counsel appearing on behalf of the 1st respondent, it is conceded that the petitioners would get the benefit of the exemption provided under Section 194A(3)(v) of the Income Tax Act. Taking note of the statement, we allow the writ petition by declaring that there will be no requirement of deducting tax at source in the case of payment of interest from the District Co-operative Bank Kottayam to the petitioners.

Summary

Issues: Interpretation of Section 194A(3)(v) of the Income Tax Act regarding tax deduction on interest payments made by a Co-operative Society to another Co-operative Society.

Analysis:
The petitioners, a Primary Agricultural Credit Society registered under the Kerala Co-operative Societies Act, challenged the communications received from the General Manager of the Kottayam District Co-operative Bank regarding tax deduction at source (TDS) on interest payments received by the petitioners on Fixed Deposits. The petitioners contended that as per Section 194A(3)(v) of the Income Tax Act, the provisions for tax deduction at source should not apply when the income is paid by a Co-operative Society to another Co-operative Society. They argued that the interest income received from the District Co-operative Bank should be exempt from TDS under this provision.

In response to the petition, the learned Standing Counsel representing the respondents conceded that the petitioners are entitled to the exemption provided under Section 194A(3)(v) of the Income Tax Act. The Court, after considering the statement made by the Standing Counsel, allowed the writ petition by declaring that there is no requirement to deduct tax at source on the interest payments made by the District Co-operative Bank Kottayam to the petitioners. This judgment clarifies that the provisions of Section 194A(3)(v) apply to exclude the interest income received by the petitioners from the requirement of tax deduction at source, as the payment is considered as income from one Co-operative Society to another Co-operative Society, thus upholding the petitioners' position based on the specific provision of the Income Tax Act.