Cooperative bank not liable to deduct TDS on interest payments over Rs. 10,000 to members. Specific exemption prevails.

The Tribunal held that the cooperative bank was not required to deduct TDS on interest payments exceeding Rs. 10,000 to its members for the assessment year 2012-13. The specific exemption under Section 194A(3)(v) for cooperative societies prevailed over the general provision of Section 194A(3)(i)(b). The appeal was allowed, directing the Assessing Officer to permit the expenditure of Rs. 1,09,16,354.

---

---

Issues Involved:
1. Whether interest on deposits paid in excess of Rs. 10,000 to its members by a cooperative bank is liable for tax deduction at source under Section 194A of the Income Tax Act.
2. Applicability of the amendment made in Finance Act, 2015 regarding TDS on interest exceeding Rs. 10,000 on deposits made by members of a cooperative bank from 01.06.2015.

Detailed Analysis:

1. TDS Liability on Interest Paid to Members:
The primary issue revolves around whether the interest on deposits paid in excess of Rs. 10,000 to its members by a cooperative bank is liable for tax deduction at source (TDS) under Section 194A of the Income Tax Act. The Commissioner of Income Tax (Appeals) [CIT (A)] held that the interest paid by the cooperative bank to its members was subject to TDS as per Section 194A(3)(i)(b) of the Act, which mandates TDS by a cooperative society engaged in banking if the interest exceeds Rs. 10,000. The assessee contended that it was exempt from TDS under Section 194A(3)(v) of the Act, which exempts cooperative societies from deducting TDS on interest paid to their members.

2. Amendment in Finance Act, 2015:
The assessee argued that the amendment made in the Finance Act, 2015, which clarified that cooperative banks are required to deduct TDS on interest exceeding Rs. 10,000 on deposits made by members only from 01.06.2015, was not considered by the CIT (A). The CIT (A) maintained that the provisions of Section 194A(3)(i)(b) were applicable for the assessment year 2012-13, and the failure to deduct TDS on interest payments attracted the provisions of Section 40(a)(ia) of the Act.

Tribunal's Findings:
The Tribunal analyzed the provisions of Sections 194A(3)(i)(b) and 194A(3)(v) in detail. It noted that Section 194A(3)(v) specifically exempts cooperative societies from deducting TDS on interest paid to their members. The Tribunal referenced the decision of the jurisdictional High Court in CIT v. Bijapur District Central Cooperative Bank, which held that the exemption under Section 194A(3)(v) applies to cooperative banks paying interest to their members on deposits before 01.06.2015.

The Tribunal also referred to the recent decision in the case of M/s. Vasavamba Cooperative Bank Ltd v. ACIT, where it was held that the amendment effective from 01.06.2015 mandates TDS on interest paid by cooperative banks to their members only from that date onwards. Therefore, for periods before 01.06.2015, cooperative banks were not required to deduct TDS on such interest payments.

Conclusion:
The Tribunal concluded that the specific provision under Section 194A(3)(v), which exempts cooperative societies from deducting TDS on interest paid to their members, overrides the general provision under Section 194A(3)(i)(b). As such, the cooperative bank was not required to deduct TDS on interest payments to its members exceeding Rs. 10,000 for the assessment year 2012-13. The appeal of the assessee was allowed, and the Assessing Officer was directed to allow the expenditure of Rs. 1,09,16,354/-.

Order:
The appeal of the assessee is allowed, and the order was pronounced in the open court on 4th July 2018.

---