Co-op Society exempt from TDS on interest payments to another Co-op Society

The court allowed the writ petition, ruling that tax deduction at source should not apply to interest payments made by a Co-operative Society to another Co-operative Society under Section 194A(3)(v) of the Income Tax Act. The judgment clarified that the petitioner, a Primary Agricultural Credit Society, is exempt from TDS on interest income received from the Co-operative Bank, ensuring no unnecessary tax deductions on such payments.

---

---

Issues:
Interpretation of Section 194A(3)(v) of the Income Tax Act regarding tax deduction at source on interest income paid by a Co-operative Society to another Co-operative Society.

Analysis:
The petitioner, a Primary Agricultural Credit Society, challenged a communication from the General Manager of Kottayam District Co-operative Bank stating that tax would be deducted at source on interest payments received by the petitioner based on advice from the Income Tax Department. The petitioner argued that as per Section 194A(3)(v) of the Income Tax Act, tax deduction at source should not apply when income is paid by a Co-operative Society to another Co-operative Society. The petitioner contended that the interest income received from the bank should be exempt from TDS under this provision.

The learned Standing Counsel representing the Income Tax Department conceded that the petitioner is entitled to the exemption under Section 194A(3)(v) of the Income Tax Act. In light of this concession, the court allowed the writ petition, declaring that there is no requirement to deduct tax at source on interest payments made by Kottayam District Co-operative Bank to the petitioner. This judgment clarifies the application of the specific provision of the Income Tax Act in the context of payments between Co-operative Societies, ensuring that the petitioner is not subjected to unnecessary tax deductions on interest income.

---