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2018 (10) TMI 1170 - AT - Income TaxTDS u/s 194A - liability of TDS on Co-operative Society, carrying on banking business with approval of the Reserve Bank of India on interest paid to its members - distinction between a cooperative bank and a co-operative society carrying on banking business - Held that - The issue raised before us is the same as the substantial question of law considered by the Hon ble Jurisdictional High Court in the case of The Coimbatore District Central Co-operative Bank Ltd 2016 (1) TMI 370 - MADRAS HIGH COURT and it stands answered in favour of the assessee. Having answered the question raised, in the normal course the appeals should have been reverted to the division Bench for disposal. However the only issue raised by the assessee in the impugned appeals having been answered, no useful purpose will be served in following such process. We therefore hold that the assessee was not obliged to deduct tax at source on the interest payments made to its members for the impugned assessment years. - Decided in favour of assessee.
Issues Involved:
1. Whether a Co-operative Society, carrying on banking business with the approval of the Reserve Bank of India, is liable to deduct tax under Section 194A on interest paid to its members. Detailed Analysis: 1. Background and Context: The case concerns a Co-operative Society engaged in banking, which did not deduct tax at source on interest paid to its members, claiming exemption under Section 194A(3)(v) of the Income Tax Act, 1961. The lower authorities rejected this claim, leading to a demand for unpaid taxes and interest under Sections 201 and 201(1A) of the Act. The authorities cited Sections 194A(3)(i)(b) and 194A(3)(viia) to argue that tax should be deducted once interest payments exceed ?10,000. 2. Assessee’s Argument: The assessee referenced a judgment by the Hon’ble Jurisdictional High Court in the case of The Coimbatore District Central Co-operative Bank Ltd vs. ITO, which had ruled that a Co-operative Society carrying on banking business with RBI approval is not required to deduct tax under Section 194A on interest paid to its members. The assessee argued that this ruling covered their case. 3. Department’s Argument: The Department argued that the Panaji Bench of the Tribunal in Saraswat Co-operative Bank Ltd vs. ITO had ruled in favor of the Revenue, stating that clause (viia) of Section 194A(3), not clause (v), applied to co-operative banks. The Department contended that the High Court had not considered amendments introduced by the Finance Act, 1995, which were crucial to the case. 4. Tribunal’s Analysis: The Tribunal noted that the question before them was identical to the one addressed by the Hon’ble Jurisdictional High Court in The Coimbatore District Central Co-operative Bank Ltd case. The High Court had thoroughly examined the statutory provisions and various amendments to Section 194A, concluding that there is no distinction between a co-operative bank and a co-operative society engaged in banking business for the purposes of Section 194A. 5. Statutory Provisions and Amendments: The Tribunal reviewed the statutory provisions and amendments to Section 194A, highlighting the following key points: - Sub-section (1) of Section 194A mandates tax deduction at source on interest payments, with certain exclusions listed in sub-section (3). - Clause (v) of Section 194A(3) exempts interest paid by a co-operative society to its members. - Clause (viia) of Section 194A(3) exempts interest on deposits with specific types of co-operative societies, but not co-operative banks. - The amendments by the Finance Act, 1995, reintroduced the requirement for tax deduction on interest payments by co-operative banks. 6. High Court’s Judgment: The High Court had ruled that the legislative intent and statutory provisions did not distinguish between a co-operative society engaged in banking and a co-operative bank. The amendments and exclusions under Section 194A were interpreted to mean that co-operative societies engaged in banking were not required to deduct tax on interest paid to their members. 7. Conclusion: The Tribunal concluded that the issue raised was already settled by the Hon’ble Jurisdictional High Court in favor of the assessee. The Tribunal held that the assessee was not obliged to deduct tax at source on interest payments made to its members for the assessment years in question. 8. Final Order: The appeals of the assessee for both assessment years were allowed, and the Tribunal pronounced the order on October 9, 2018, at Chennai.
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