Cooperative society exempt from tax on interest payments to members

The Tribunal ruled in favor of the appellant, holding that as a cooperative society engaged in banking, it was exempt from deducting tax at source on interest payments to its members under section 194A(3)(v) of the Income Tax Act. The Tribunal referred to relevant provisions and past decisions, emphasizing the exemption for cooperative societies. The order set aside previous decisions, directing verification of membership status of depositors by the Assessing Officer for statistical purposes only.

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Issues:
Applicability of section 194A(3)(v) of the Income Tax Act regarding tax deduction at source by a cooperative society on interest payments to its members.

Analysis:
The appellant challenged the order of CIT(A) regarding the obligation to deduct tax at source on payments made by the assessee. The Assessing Officer (AO) observed that the assessee had not deducted tax on term deposits, leading to a demand under section 201(1)/201(1A). The appellant contended that as a cooperative society engaged in banking, it was exempt from TDS under section 194A(3)(v) of the IT Act. The AO directed the assessee to pay for the default, which was upheld by the CIT(A), prompting the appeal before the Tribunal.

The appellant argued that various Tribunal orders supported their position, citing cases like Kashipur Urban Co-operative Bank Ltd., Bagalkot District General Co-operative Bank, and others. They also mentioned retrospective amendments in the Act addressing the issue. The Senior DR, however, raised concerns about the primary or secondary membership of the cooperative bank members.

The Tribunal analyzed the relevant provisions and previous decisions. Referring to the case of Kashipur Urban Co-operative Bank Ltd. vs. ITO, it held that the appellant was not required to deduct TDS on interest paid on time deposits under section 194A. The Tribunal highlighted the exemption provided to cooperative societies under section 194A(3)(v) for interest payments to members. It also referenced the decision in Bagalkot District Central Co-op. Bank, supporting the exemption. The Tribunal emphasized the interpretation of the law and the prevailing judicial opinions favoring cooperative societies not deducting TDS on interest payments to members.

Consequently, the Tribunal ruled in favor of the appellant, directing verification of facts regarding the membership status of depositors. The order set aside the previous decision and restored the matter to the AO for verification purposes only. The appeal was allowed for statistical purposes, and the judgment was pronounced on 10.6.2015.

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