Tax deduction at source exemption for primary credit societies applies on the plain text of section 194A.

Section 194A requires deduction of tax from interest payments, but its exemption clause applies to deposits with a primary credit society. The Kerala High Court noted that the Income-tax Act contains its own definition of "co-operative society" in section 2(19), so the Banking Regulation Act definition should not be imported to narrow the exemption. Reading section 194A(3)(viia) on its plain text, and construing the exemption liberally in favour of the assessee, the Court concluded that primary credit societies are not liable to deduct tax at source on the interest in question and that the notices were unsustainable.

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Issues: Whether primary credit societies registered under the Kerala Co-operative Societies Act are liable to deduct tax at source on interest under section 194A of the Income-tax Act, 1961, or whether they fall within the statutory exemption.

Analysis: Section 194A obliges deduction of tax from interest payments, but sub-section (3) carves out specific exemptions. The term "co-operative society" is expressly defined in section 2(19) of the Income-tax Act, 1961, and that definition governs the provision. On a plain reading of section 194A(3)(viia), deposits with a primary credit society fall within the exempt category, and the proviso relating to time deposits with co-operative societies engaged in banking cannot be extended to deny the exemption to primary credit societies. The Court also held that importing the definition from the Banking Regulation Act, 1949 was unwarranted where the Income-tax Act itself contained a specific definition, and exemption provisions in a fiscal statute must receive a liberal construction in favour of the assessee.

Conclusion: Primary credit societies were held not liable to deduct tax at source under section 194A on the interest in question, and the notices were held unsustainable.

Ratio Decidendi: Where the Income-tax Act contains an express definition of "co-operative society" and a specific exemption for deposits with a primary credit society, that exemption must be applied on the plain statutory text and construed liberally in favour of the assessee, without importing a different definition from another enactment.

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