TDS on co-operative bank interest and amortization of government securities deductions were both upheld on statutory and consistency grounds.

Interest paid by a co-operative bank to its members was treated as exempt from TDS under section 194A(3)(v) and section 194A(3)(viia), read with the CBDT clarification, so disallowance under section 40(a)(ia) was not sustainable; the later amendment to section 194A was regarded as prospective and inapplicable to the year in question. The amortization of premium on government securities was also held allowable as a deduction because it arose from statutory liquidity requirements under section 24 of the Banking Regulation Act, 1949, was supported by RBI treatment, and was consistent with the assessee's earlier years' treatment on similar facts. The Revenue's challenge therefore failed on both issues.

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Issues: (i) Whether interest paid by a co-operative bank to its members was liable for tax deduction at source so as to attract disallowance under section 40(a)(ia) of the Income-tax Act, 1961. (ii) Whether the claim for amortization of premium on government securities was admissible as a deduction.

Issue (i): Whether interest paid by a co-operative bank to its members was liable for tax deduction at source so as to attract disallowance under section 40(a)(ia) of the Income-tax Act, 1961.

Analysis: The deduction issue was examined in the light of section 194A(3)(v) and section 194A(3)(viia) of the Income-tax Act, 1961, together with the CBDT circular clarifying that interest paid by a co-operative bank to its members is covered by the exemption for payments to members. The later amendment to section 194A was treated as prospective and not applicable to the year in question. The matter was also governed by the assessee's own earlier decisions on identical facts.

Conclusion: The interest payment to members was not liable for TDS, and the disallowance under section 40(a)(ia) was not justified; the issue was decided in favour of the assessee.

Issue (ii): Whether the claim for amortization of premium on government securities was admissible as a deduction.

Analysis: The claim arose from the statutory liquidity requirement under section 24 of the Banking Regulation Act, 1949 and the RBI-mandated treatment of premium paid on government securities. The Tribunal applied the rule of consistency and followed its earlier view that the matter should be allowed in line with the prevailing regulatory framework and prior decisions on the same assessee and similar facts.

Conclusion: The amortization claim was held allowable and the Revenue's challenge failed; the issue was decided in favour of the assessee.

Final Conclusion: The Revenue's challenge failed on both substantive issues, and the assessee's position on the disputed deductions was sustained.

Ratio Decidendi: Where the statute and the CBDT's clarification exempt interest paid to members of a co-operative bank from TDS, disallowance under section 40(a)(ia) cannot be sustained; similarly, an amortization claim supported by banking regulatory requirements and consistent prior treatment is allowable on the same facts.

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