TDS exemption on interest paid by a co-operative bank to another co-operative society under section 194A(3)(v) upheld.

Interest paid by a co-operative bank on time deposits to another co-operative society falls within the exemption in section 194A(3)(v) of the Income-tax Act, 1961. The amended wording and explanatory memorandum to the Finance Act, 2015 were read as preserving that exemption where the payer is a co-operative bank and the payee is a co-operative society. On that construction, no tax was required to be deducted at source under section 194A, and the consequential liability as an assessee in default under section 201 did not arise.

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Issues: Whether a co-operative bank paying interest on time deposits to other co-operative societies was required to deduct tax at source under section 194A of the Income-tax Act, 1961, and whether it could be treated as an assessee in default under section 201.

Analysis: The assessee was a co-operative society carrying on banking business and held a banking licence. The dispute turned on the scope of section 194A(3)(v), which exempts interest credited or paid by a co-operative society to a member thereof and also interest paid by a co-operative society to any other co-operative society. The amended wording and the explanatory memorandum to the Finance Act, 2015 were read as showing that the exemption continued to apply where the payer was a co-operative bank and the payee was a co-operative society. On that construction, the assessee was not required to deduct tax at source on such interest payments. As the primary TDS obligation did not arise, the consequential demand and interest under section 201 also could not survive.

Conclusion: The assessee was not liable to deduct tax at source on the impugned interest payments and could not be treated as an assessee in default.

Ratio Decidendi: Interest paid by a co-operative bank to another co-operative society on time deposits falls within the exemption under section 194A(3)(v) of the Income-tax Act, 1961, and no liability under section 201 arises for non-deduction of tax in such a case.

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