2016 (5) TMI 345 - AT - Income Tax

TDS u/s 194A - interest payment to a member - assessee is a co-operative society engaged in the business of banking - Held that - Clause (v) of sub section (3) of section 194(1) of the Act provides for exemption in respect of interest on deposits paid to a member of a co-operative society including co operative bank. Prior to the amendment of section 194(1)(3)(v) of the Act w.e.f. 1.6.2015, there was no distinction between a member of a cooperative society and member of a co-operative bank. Therefore, we are of the opinion that the assessee is not liable to deduct TDS on interest payment to its members. We further noticed that in case of non members, the assessee stated that it has complied with the TDS provisions, where the interest payment exceeds ₹ 10,000/. In few cases, where interest exceeds ₹ 10,000/-, the depositors have furnished declaration in form no.15G/15H, therefore, no TDS is deducted. The CIT(A) during the course of appellate proceedings, after examining the declaration form furnished by the assessee has accepted the claim of assessee and deleted the additions. Therefore, we are of the opinion that the CIT(A) has rightly deleted the additions. - Decided in favour of assessee

Summary

Issues:
Non-deduction of TDS on interest payments to members and non-members by a cooperative society under the Income Tax Act, 1961.

Analysis:
1. The revenue appealed against the CIT(A) order holding the cooperative society as an assessee in default for not deducting TDS on interest payments to members and non-members. The society argued it complied with TDS provisions for non-members and that interest payments to members were exempt from TDS as per section 194A(1)(3)(v) of the Act. The CIT(A) deleted the additions based on this exemption.

2. The revenue contended that interest payments to cooperative society members should not be tax-exempt under section 194A(3)(vii)(a)(b) based on court precedents. However, the CIT(A) upheld the exemption citing the decision of ACIT Vs. Visakhapatnam Co-operative Bank Ltd. The Tribunal agreed with the CIT(A) and dismissed the revenue's appeal.

3. The Tribunal noted that section 194A(3) does not differentiate between cooperative societies engaged in banking and others. The exemption under section 194A(3) applies to interest payments to members or other cooperative societies. The Tribunal found the cooperative society's claim valid as all interest payments were made to its members, thus exempt from TDS provisions.

4. The revenue cited the ITAT, Panaji Bench decision in a different context, arguing no distinction between members and non-members of a cooperative bank for TDS purposes. However, the Tribunal found this case law not applicable to the present scenario, where section 194A(3) specifically deals with interest payments to members, not deposits by cooperative societies with other cooperatives.

5. Ultimately, the Tribunal upheld the CIT(A) order, stating that TDS is not applicable on interest payments to members by a cooperative society, including cooperative banks, as per section 194A(3)(v) of the Act. The Tribunal found no errors in the CIT(A) decision and dismissed the revenue's appeal.

This detailed analysis of the legal judgment highlights the issues, arguments presented by both parties, relevant legal provisions, court precedents, and the final decision reached by the Tribunal.