TDS on interest to members by a co-operative banking society was not required for pre-amendment years.

A co-operative society carrying on banking business with RBI approval was not liable to deduct tax at source on interest paid to its members under section 194A for the relevant assessment years. The statutory exclusions in section 194A(3), read with the banking and co-operative law framework, were applied consistently with the earlier jurisdictional High Court ruling. The later amendment effective from 1 June 2015 was treated as prospective, confirming that the pre-amendment position governed the years in question. The TDS demand was therefore unsustainable and the appeals were allowed.

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Issues: Whether a co-operative society carrying on banking business with the approval of the Reserve Bank of India is liable to deduct tax at source under section 194A of the Income-tax Act, 1961 on interest paid to its members.

Analysis: The liability under section 194A(1) is subject to the exclusions in section 194A(3). The statutory scheme, read with the connected banking and co-operative enactments, did not create a clear distinction between a co-operative bank and a co-operative society engaged in banking for the relevant assessment years. The exclusionary clauses, particularly section 194A(3)(v), were construed in the light of the earlier jurisdictional High Court ruling answering the same question. The later amendment with effect from 1 June 2015 was expressly treated as prospective, showing that prior years were governed by the earlier regime.

Conclusion: The assessee was not liable to deduct tax at source on interest paid to its members for the years in question.

Final Conclusion: The appeals were allowed and the TDS demand could not be sustained for the impugned assessment years.

Ratio Decidendi: For the period prior to the prospective amendment effective from 1 June 2015, a co-operative society engaged in banking business was not to be treated differently from a co-operative bank for the purpose of deducting tax at source on interest paid to its members under section 194A.

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