2024 (3) TMI 1430 - HC - Income Tax

Cooperative society gets TDS exemption under section 194A(3)(v), SCN quashed as without jurisdiction

M/s. Udaya Souhardha Credit Co Operative Limited Versus The Income Tax Officer Ward-3 (3) Bengaluru.

Karnataka HC quashed SCN issued under sections 201(1) and 201(1A) against a cooperative society registered under Karnataka Souharda Sahakari Act, 1997. ... TDS exemption u/s 194A(3)(V) to petitioner society as registered under the provisions of The Karnataka Souharda Sahakari Act, 1997 - SCN issued u/s 201 (1) and 201 (1A) - HELD THAT:- As petitioner society being undisputedly Cooperative Society registered under The Karnataka Souharda Sahakari Act, 1997, the exemption for TDS u/s 194A (3) V of the IT Act, is clearly admissible in so far as the petitioner society is concerned and consequently the impugned show cause notice is clearly without jurisdiction or authority of law and the same is being illegal and arbitrary, no useful purpose would be served by continuing the service pursuant to the impugned show cause notice. In the light of the judgment of the Hon’ble Division Bench in Karnataka State Souharda Federal Co-operative Ltd. [2022 (1) TMI 540 - KARNATAKA HIGH COURT] and the wide and expansive definition contained in Section 2 (19) which includes the petitioner society which has been registered under the provisions of The Karnataka Souharda Sahakari Act, 1997, the impugned show cause notice deserves to be quashed. ISSUES PRESENTED and CONSIDEREDThe primary issue considered in this judgment was whether the petitioner, a Co-operative Society registered under The Karnataka Souharda Sahakari Act, 1997, was entitled to the exemption from Tax Deducted at Source (TDS) under Section 194A(3)(V) of the Income Tax Act, 1961. The secondary issue was whether the show cause notice issued by the respondent was valid and within jurisdiction.ISSUE-WISE DETAILED ANALYSIS1. Exemption from TDS under Section 194A(3)(V) of the Income Tax ActRelevant legal framework and precedents: Section 2(19) of the Income Tax Act defines a 'co-operative society' as one registered under the Co-operative Societies Act, 1912, or any state law for the registration of co-operative societies. Section 194A(3)(V) provides for TDS exemption for certain co-operative societies. The Karnataka Souharda Sahakari Act, 1997, under which the petitioner is registered, is a state law that governs such societies.Court's interpretation and reasoning: The Court relied on the judgment of the Division Bench in Govt. of India Vs Karnataka State Souharda Federal Co-operative Ltd., which clarified that societies registered under the Souharda Act are included within the definition of 'co-operative society' under Section 2(19) of the Income Tax Act. The Court noted that the Souharda Act and the Karnataka Co-operative Societies Act, 1959, both promote the co-operative movement and should not be interpreted in a way that excludes societies registered under the Souharda Act from the benefits available to co-operative societies under the Income Tax Act.Key evidence and findings: The petitioner society was undisputedly registered under the Souharda Act, and the Division Bench had previously established that such societies are entitled to the benefits under Section 80P of the Income Tax Act, which includes the TDS exemption under Section 194A(3)(V).Application of law to facts: The Court applied the expansive definition of 'co-operative society' from Section 2(19) and the precedent set by the Division Bench to conclude that the petitioner was entitled to the TDS exemption.Treatment of competing arguments: The respondent argued that the petitioner could raise its contentions in response to the show cause notice. However, the Court found this unnecessary given its determination that the notice was issued without jurisdiction.Conclusions: The Court concluded that the petitioner was entitled to the TDS exemption and that the show cause notice was issued without proper jurisdiction.2. Validity of the Show Cause NoticeRelevant legal framework and precedents: The validity of a show cause notice is contingent on it being issued within the jurisdiction and authority of law. A notice issued without jurisdiction is deemed illegal and arbitrary.Court's interpretation and reasoning: The Court determined that since the petitioner was entitled to the exemption under Section 194A(3)(V), the basis for the show cause notice was flawed. The notice was issued on the erroneous premise that the petitioner was not a co-operative society under the Income Tax Act.Key evidence and findings: The Court found that the Division Bench's judgment and the statutory provisions clearly supported the petitioner's status as a co-operative society entitled to the exemption.Application of law to facts: The Court applied its findings to conclude that the show cause notice lacked jurisdiction and was thus invalid.Treatment of competing arguments: The respondent's argument regarding the petitioner's ability to respond to the notice was deemed irrelevant given the notice's lack of jurisdiction.Conclusions: The Court concluded that the show cause notice was illegal and without jurisdiction, warranting its quashing.SIGNIFICANT HOLDINGSThe Court held that the petitioner, as a Co-operative Society registered under The Karnataka Souharda Sahakari Act, 1997, is entitled to the TDS exemption under Section 194A(3)(V) of the Income Tax Act. The Court emphasized the expansive definition of 'co-operative society' under Section 2(19) and the precedent set by the Division Bench, which included societies registered under the Souharda Act.The Court's significant legal reasoning included the following verbatim quote: 'No hyper technical view can be taken to exclude the entities registered under the Souharda Act as not falling under the definition of 'Co-operative Society' as defined in Section 2[19] of the Act.'The Court quashed the impugned show cause notice, determining it to be issued without jurisdiction or authority of law. The final determination was that the petitioner was entitled to the benefits under the relevant provisions of the Income Tax Act, and no further proceedings pursuant to the show cause notice were necessary.