2016 (11) TMI 1766 - AT - Income Tax

Cooperative society not required to deduct TDS under section 194A on interest payments to other cooperative societies

The Income Tax Officer (TDS) -1, Ludhiana Versus The Ludhiana Central Co-operative Bank Ltd.

ITAT Chandigarh ruled that cooperative society engaged in banking was not required to deduct TDS under section 194A on interest payments made to other ... TDS u/s 194A - assessee cooperative society engaged in the business of banking had made interest payments to other cooperative societies without deducting tax at source - whether a cooperative society engaged in banking is required to deduct tax at source on interest payments made to other cooperative societies? - HELD THAT:- We find that identical issue has been decided in the case of The Punjab State Coop Bank Ltd., Chandigarh [2016 (7) TMI 205 - ITAT CHANDIGARH] wherein it was held that on reading of memorandum of Finance Bill, 2015, the exemption provided u/s 194A(3)(v) with regard to deduction of tax at source from interest payments by a cooperative society to another cooperative society existed before the amendment and continued to apply even after the amendment. Thus assessee would enjoy immunity from deduction of tax at source under the provisions of section 194A(3)(v) of the Act on such payments of interest i.e. from one cooperative society to another cooperative society - Assessee is not an assessee in default under section 201(1) of the Act and consequently interest under section 201(1A). Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe core legal issue in this judgment is whether a cooperative society engaged in banking is required to deduct tax at source on interest payments made to other cooperative societies under section 194A of the Income Tax Act, 1961. Specifically, the judgment examines the applicability of section 194A(3)(v) which provides an exemption from tax deduction at source for interest payments between cooperative societies, versus section 194A(3)(viia)(b), which mandates tax deduction at source on time deposits by cooperative societies.ISSUE-WISE DETAILED ANALYSIS1. Relevant legal framework and precedentsThe legal framework involves section 194A of the Income Tax Act, 1961, which deals with the deduction of tax at source on interest other than interest on securities. Section 194A(3)(v) specifically exempts interest payments made by a cooperative society to another cooperative society from tax deduction at source. However, section 194A(3)(viia)(b) requires cooperative societies to deduct tax at source on time deposits. The judgment also references various precedents, including decisions from the I.T.A.T. Chandigarh Bench and the Bangalore Bench, which have interpreted these provisions.2. Court's interpretation and reasoningThe Tribunal interpreted that the exemption provided under section 194A(3)(v) for interest payments between cooperative societies existed before the amendment and continued to apply even after the amendment. The Tribunal relied on the memorandum of the Finance Bill, 2015, which clarified that the exemption for cooperative societies paying interest to other cooperative societies was intended to continue. The Tribunal emphasized that specific provisions for tax deduction should not override the general exemption provided to cooperative societies.3. Key evidence and findingsThe Tribunal found that the assessee, a cooperative society, had made interest payments to other cooperative societies without deducting tax at source. The Tribunal noted that the assessee relied on section 194A(3)(v) for exemption, while the Assessing Officer argued for tax deduction under section 194A(3)(viia)(b). The Tribunal considered previous decisions, including those of the I.T.A.T. Chandigarh Bench and Bangalore Bench, which supported the assessee's position.4. Application of law to factsThe Tribunal applied the law by determining that the exemption under section 194A(3)(v) continued to apply to the assessee's case. The Tribunal concluded that the specific provisions for tax deduction on time deposits did not override the general exemption for cooperative societies, particularly when the interest payments were made to other cooperative societies.5. Treatment of competing argumentsThe Tribunal considered the Revenue's argument that section 194A(3)(viia)(b) should override section 194A(3)(v), but ultimately rejected this position. The Tribunal found that the general exemption for cooperative societies was intended to continue, as clarified by the Finance Bill, 2015. The Tribunal also noted that previous judicial decisions supported the assessee's interpretation of the law.6. ConclusionsThe Tribunal concluded that the assessee was not liable to deduct tax at source on interest payments made to other cooperative societies under section 194A(3)(v). Consequently, the assessee was not an 'assessee in default' under section 201(1), and interest under section 201(1A) could not be levied.SIGNIFICANT HOLDINGSThe Tribunal held that the exemption under section 194A(3)(v) for interest payments between cooperative societies existed before and continued after the amendment. The Tribunal emphasized that specific provisions for tax deduction should not override the general exemption provided to cooperative societies. The Tribunal upheld the decision of the CIT (Appeals) and dismissed the Revenue's appeal. The judgment reinforces the principle that general exemptions for cooperative societies should not be negated by specific provisions unless explicitly stated by the legislature.