TDS on interest payments does not apply to specified co-operative societies covered by the statutory exemption.

Section 194A(1) imposes a general TDS obligation on interest payments, but section 194A(3)(viia)(a) excludes interest paid by specified co-operative credit institutions, including a primary agricultural credit society, primary credit society, co-operative land mortgage bank, or co-operative land development bank. The Kerala High Court noted that the assessee societies fell within this exempted category, so interest on deposits, including time deposits, did not attract deduction at source. The exemption therefore applied in their favour, and no tax was required to be deducted under section 194A(1).

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Issues: Whether a co-operative society falling within section 194A(3)(viia)(a) of the Income-tax Act, 1961 is liable to deduct tax at source on interest paid on deposits under section 194A(1).

Analysis: Section 194A(1) casts a general obligation to deduct tax at source on interest payments, but section 194A(3) expressly carves out exceptions. Clause (viia)(a) excludes deposits with a primary agricultural credit society, primary credit society, co-operative land mortgage bank, or co-operative land development bank from the sweep of section 194A(1). The court found that the assessee societies fell within the exempted category under section 194A(3)(viia)(a), and therefore the nature of the deposit, including time deposits, did not attract the deduction obligation. The same reasoning applied to both appeals.

Conclusion: The co-operative society was not liable to deduct tax at source under section 194A(1), and the exemption under section 194A(3)(viia)(a) applied in its favour.

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