Cooperative bank exempt from TDS deduction on interest payments to other cooperative societies under section 194A

ITAT Chandigarh held that cooperative bank was not liable to deduct TDS under section 194A on interest payments to other cooperative societies, regardless of membership status. Section 194A(3)(v) provides express exemption for payments between cooperative societies. Additionally, TDS was not required on interest paid to state government-run temple under section 194A(3)(iii)(f) notification exempting government-financed undertakings. Revenue's additions for non-deduction of TDS were deleted. Assessee's appeal allowed.

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ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the interest paid by the assessee co-operative bank to its members and other co-operative societies is liable to Tax Deducted at Source (TDS) under Section 194A of the Income Tax Act, 1961.
• Whether the exemption under Section 194A(3)(v) applies to interest payments made by a co-operative bank to another co-operative society after the amendments made by the Finance Act, 2015.
• Whether the interest paid to a government-run temple is exempt from TDS under Section 194A(3)(iii)(f).

ISSUE-WISE DETAILED ANALYSIS

1. Liability of TDS on Interest Payments to Co-operative Societies

Relevant Legal Framework and Precedents: The relevant provisions are found in Section 194A of the Income Tax Act, particularly subsections (3)(i)(b), (3)(viia), and (3)(v). The Finance Act, 2015, amended these provisions, affecting the applicability of TDS exemptions.

Court's Interpretation and Reasoning: The Tribunal examined whether the interest paid by the co-operative bank to other co-operative societies is subject to TDS. The Tribunal noted that Section 194A(3)(v) provides an exemption for interest payments from a co-operative society to another co-operative society, which remains intact even after the amendment.

Key Evidence and Findings: The Tribunal relied on previous decisions from the ITAT Chandigarh Bench, which held that co-operative societies are not required to deduct TDS from interest payments to other co-operative societies.

Application of Law to Facts: The Tribunal found that the assessee co-operative bank's payments to other co-operative societies fall under the exemption provided by Section 194A(3)(v).

Treatment of Competing Arguments: The Tribunal rejected the Revenue's argument that the exemption does not apply post-amendment, citing consistent interpretations in previous cases.

Conclusions: The Tribunal concluded that the assessee co-operative bank is not liable to deduct TDS on interest payments to other co-operative societies.

2. Exemption of TDS on Interest Paid to Government-Run Temple

Relevant Legal Framework and Precedents: Section 194A(3)(iii)(f) exempts TDS on interest payments to any undertaking or body wholly financed by the government.

Court's Interpretation and Reasoning: The Tribunal considered whether the temple, being run by the state government, qualifies for the exemption.

Key Evidence and Findings: The Tribunal noted the notification SO 3489 dated 22/10/1970, which supports the exemption for government-financed bodies.

Application of Law to Facts: The Tribunal found that the interest paid to Jagan Nath Temple Nahan falls under the exemption due to its government management.

Treatment of Competing Arguments: The Tribunal dismissed the Revenue's assertion that the exemption was not applicable, emphasizing the temple's government-run status.

Conclusions: The Tribunal concluded that the interest payments to the temple are exempt from TDS under the relevant notification.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The exemption provided under section 194A(3)(v) of the Act with regard to deduction of tax at source from interest payment by a cooperative society to another cooperative society existed before the amendment, and continue to apply to the cooperative bank even after the amendment."

Core Principles Established: The Tribunal reaffirmed that the exemption under Section 194A(3)(v) applies to interest payments between co-operative societies, irrespective of the Finance Act, 2015 amendments. It also established that interest payments to government-run entities are exempt under Section 194A(3)(iii)(f).

Final Determinations on Each Issue: The Tribunal allowed the appeal, deleting the additions made in the impugned order concerning TDS on interest payments to co-operative societies and the government-run temple.

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