TaxTMI 
TaxTMI 
2026 (6) TMI 502
X X X X Extracts X X X X
X X X X Extracts X X X X
....A 2845/2025, WA 2846/2025, WA 2847/2025, WA 2849/2025, WA 2850/2025, WA 2851/2025, WA 2852/2025, WA 2853/2025, WA 2856/2025, WA 2859/2025, WA 2860/2025, WA 2862/2025, WA 2864/2025, WA 2871/2025, WA 2874/2025, WA 2877/2025, WA 2878/2025, WA 2881/2025, WA 2883/2025, WA 2888/2025, WA 2891/2025, WA 2895/2025, WA 2897/2025, WA 2898/2025, WA 2900/2025, WA 2901/2025, WA 2905/2025, WA 2906/2025, WA 2907/2025, WA 2909/2025, WA 2916/2025, WA 2928/2025, WA 2932/2025, WA 2936/2025, WA 2937/2025, WA 2940/2025, WA 2943/2025, WA 2946/2025, WA 2953/2025, WA 2956/2025, WA 2958/2025, WA 2959/2025, WA 2960/2025, WA 2972/2025, WA 2979/2025, WA 2982/2025, WA 2984/2025, WA 2989/2025, WA 2990/2025, WA 2992/2025, WA 2993/2025, WA 2998/2025, WA 3007/2025, WA 3008/2025, WA 3013/2025, WA 3021/2025, WA 3028/2025, WA 3032/2025, WA 3036/2025, WA 3040/2025, WA 3044/2025, WA 3047/2025, WA 3055/2025, WA 3056/2025, WA 3058/2025, WA 3066/2025, WA 3067/2025, WA 3068/2025, WA 3071/2025, WA 3076/2025, WA 3080/2025, WA 3083/2025, WA 3085/2025, WA 3086/2025, WA 3089/2025, WA 3094/2025, WA 3102/2025, WA 3121/2025, WA 3122/2025, WA 3129/2025, WA 3134/2025, WA 3166/2025, WA 3167/2025, WA 3171/2025, WA 3174/2025, WA 3178/202....
X X X X Extracts X X X X
X X X X Extracts X X X X
....204/2026, WA 206/2026, WA 207/2026,WA 210/2026, WA 211/2026, WA 213/2026, WA 214/2026, WA 220/2026, WA 221/2026, WA 222/2026, WA 224/2026, WA 225/2026,WA 230/2026, WA 231/2026, WA 232/2026, WA 233/2026, WA 234/2026, WA 235/2026, WA 236/2026, WA 237/2026, WA 239/2026, WA 240/2026, WA 241/2026, WA 243/2026, WA 245/2026, WA 246/2026, WA 248/2026, WA 249/2026, WA 252/2026, WA 253/2026, WA 254/2026, WA 255/2026, WA 258/2026, WA 259/2026, WA 261/2026, WA 268/2026, WA 271/2026, WA 273/2026, WA 274/2026, WA 275/2026, WA 288/2026, WA 289/2026, 290/2026, WA 292/2026, WA 293/2026, WA 296/2026, WA 297/2026, WA 298/2026, WA 299/2026, WA 300/2026, WA 301/2026, WA 302/2026, WA 303/2026, WA 304/2026, WA 305/2026, WA 306/2026, WA 307/2026, WA 308/2026, WA 311/2026, WA 323/2026, WA 324/2026, WA 338/2026, WA 339/2026, WA 341/2026, WA 342/2026, 343/2026, WA 345/2026, WA 351/2026, WA 352/2026, WA 355/2026, WA 356/2026, WA 357/2026, WA 359/2026, WA 361/2026, WA 364/2026, WA 366/2026, WA 368/2026, 385/2026, WA 386/2026, WA 388/2026, WA 389/2026, WA 390/2026, WA 396/2026, WA 401/2026, WA 402/2026, WA 405/2026, WA 407/2026, WA 408/2026, WA 410/2026, WA 413/2026, WA 416/2026, WA 417/2026, WA 423/2026, WA 42....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o-operative society (other than a cooperative bank) to a member thereof or to such income credited or paid by a cooperative society] to any other cooperative society; [Explanation:- For the purposes of this clause, "co-operative bank" shall have the same meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949);] Section 194A(3)(viia): to such income credited or paid in respect of,- (a) deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank; (b) deposits (other than time deposits made on or after the 1st day of July, 1995) with a Co-operative Society, other than a co-operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking;]" 5. The genesis of the controversy in these cases is in the fact that, the Finance Act, 2020, added a proviso to Section 194A(3) to the following effect: [Provided that a co-operative society referred to in clause (v) or clause (viia) shall be liable to deduct income-tax in accordance with the provisions of sub-section (1), if 2026: (a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... contend that, since they enjoy benefits under Section 80P(1), read with Section 80P(2)(d), of the "Act", deduction of Tax at source by the said Banks is impermissible and illegal. 12. The 2nd batch of Writ Appeals have been filed by Societies which are "Deductors" and who fall within the ambit of the afore mentioned Section 194A(3)(v) and 194A(3)(viia) of the "Act". Their imputation is that they have been unfairly and unnecessarily burdened with the obligation of making deductions of tax at source, when such a rigor has not been placed against the "Kerala Bank" - which is, by far, the biggest financial entity in the Co-operative Sector; or the Urban Banks, atleast qua its members which are Co-operative Societies. 13. The 3rd set of appeals are filed by the Tax Department, being aggrieved by a subsequent clarification added to the judgments by the learned Single Judge, that no action be taken against any society for not having deducted tax at source; and that such an obligation will operate against them only prospectively, namely subsequent to the date of the judgments. 14. As limpidly evident, under the sweep of Section 194A(3)(v) of the "Act", any income credited by a Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....heir account is the interest income that arises from the deposits made by them with another Cooperative Society such as the District Co-operative Bank. In view of the said stand taken by the revenue in these writ petitions, the entitlement of the petitioners to the benefit of the exemption under 194A(3)(iii)(v) is found in their favour and the writ petitions that impugn the circulars issued by the various District Cooperative Banks based on the instructions of the Income Tax Department are hereby quashed. In the result, these writ petitions are disposed by declaring that, in the case of deposits made by the petitioner societies with the Cooperative Banks, they would be entitled to the benefit of exemption under Section 194A(3)(iii)(v) of the Income Tax Act and, in respect of the deposits made by the petitioner societies with the Treasury, they will not be entitled to the benefit of exemption under Section 194A(3)(iii)(a) of the Income Tax Act. The legality of the circulars and notices impugned in these writ petitions shall stand determined on the basis of the above declarations." 18. Sri. Christopher Abraham, learned Standing Counsel for the Income Tax Department, howev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en issued by the 'CBDT'. 24. It consequently would brook no doubt that the obligation or exemption - as the case may be, of and in favour of the Co-operative Banks qua its Cooperative Society members (and not individual members), is underpinned on the statutory prescriptions of the Finance Act, 2015, read with the Explanatory Note and nothing else. 25. To paraphrase, without the Explanatory Note, no Co-operative Bank may stand entitled to exemption from the requirement to deduct Tax at source from the income on Term Deposits to their member societies; and hence the impugned proviso would have no bearing on them. 26. This is apodictic because, the proviso in question is intended solely to attenuate the sweep of the benefit earlier granted, and to confine it to certain categories of Societies alone, to thus remove the earlier blanket exemption. The Co-operative Banks or Urban Banks, never enjoyed such exemption, as per Sections 194A(3)(v) or 194A(3)(viia) of the "Act"; at least qua its member-societies; but obtained it through the Explanatory Note. 27. We will now deal with the further contentions in Batch 1 appeals. 28. On the amplitude of the impugned proviso, Sri A.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at, unless the appellants are to establish that it has been done without competence, or is in a manner perverse to the constitutional scheme, a challenge to it is not possible or permissible. 32. Undoubtedly, the proviso brings in a classification among certain types of societies. When one reads Sections 194A(3)(v) and 194A(3)(viia) of the 'Act', it becomes perspicuous that, apart from Co-operative banks and Urban Banks, the other Societies within its sweep would be the Primary Agricultural Credit Societies; Primary Credit Societies and Primary Co-operative Agricultural Rural Development Bank. The "KCS Act", defines the afore said societies through Sections 2(oaa),2(ob) and 2(oc) respectively. The defining characteristic in all these definitions is that these Societies cannot have Co-operative societies as its members, but only individuals and persons. 33. In contradistinction, going by Section 2(ka) of the "KCS Act", the State Co-operative Bank ("Kerala Bank") can enroll only Co-operative banks as their members; while, as per Section 2(ta) thereof, Urban Banks can enroll both Co-operative Societies and individuals as its members. 34. This is the cardinal difference betwee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by all other learned counsel for the "Deductee" - Societies; reinforcingly asserting that the impugned proviso takes away benefits reserved to their clients by the afore said two provisions, in an indirect manner. 41. We are afraid that we cannot find favour with the submissions above for more reasons than one, as we will presently enumerate. 42. As rightly argued by Sri. Christopher Abraham, the grant or withdrawal of exemptions under the Income Tax Act is one which fully falls within the policy realm of the legislature, into which, this Court cannot enter, unless it is found to be perverse and constitutionally impermissible. 43. The stipulations of Section 194A(1) of the 'Act' render it mandatory for every person, not being an individual or Hindu undivided family, to deduct Income Tax at the rates in force. It is merely an exemption, which has been carved out for the Cooperative Societies, through Section 194A(3)(v) and 194A(3)(viia). Prior to the Finance Act, 2020, their exemption was absolute; but it has now been constrained, through certain criteria as mentioned in the impugned proviso. 44. Interestingly, none of the appellants have a case that the Legislature di....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to legal recourse - as may be available - to any demand contrary to it, are always open to them to pursue. 49. Moving on to the second batch of appeals, they are filed by 'Deductor'-Societies, who impute that they are being unnecessarily put to prejudice by the alleged unreasonable classification, introduced by the proviso. 50. Dr. K.B. Pradeep - learned counsel for the appellants in these cases, vehemently argued that the classification introduced through the proviso is unreasonable, arbitrary and capricious; further reasserting that it answers to no intelligible differentia. He pointed out that, when the societies in question were earlier given full exemption from having to deduct tax at source, the attenuation of the same - at least with respect to certain among them - is illogical and irrational. He contended that this is more so when, by the admitted position afore seen, the 'Kerala Bank' - which is the biggest co-operative sector entity, in which all the 'Deductee'-Societies have substantial exposure - is still exempt from the burden of having to deduct tax at source; and consequently that, such obligation cast upon the 'Deductor'-Societies that fall into the categorie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e amounts which they are obligated to deduct at source do not belong to them. It is the payment they are enjoined to make on behalf and to the tax credit of their members. They cannot, hence, allege any prejudice in being asked to deduct tax at source of their members; and, at the best, all that they can possibly say is that, this would put them to some little administrative inconvenience. It does not require us to expatiate that this certainly is not a ground that can be projected by any appellant to challenge the constitutional vires of a provision. As said before, it is within the wisdom of the Legislature to offer exemptions, or to withdraw such; subject only to evaluation of whether it is constitutionally perverse or otherwise. 55. In this context, Sub Rule (b) of the impugned proviso is crucially relevant because, it allays the apprehension of prejudice caused to individuals or member - Societies, ensuring that the threshold income - which becomes amenable to deduction of tax at source - is over a lakh of rupees in the case of a senior citizen and Rs. 50,000/- in the case of others; thus rendering only larger payouts of interest and dividend to be subjected to such rigour.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....learned Standing Counsel for the Revenue, argued that the afore clarification offers an unfair and undeserving advantage to the 'Deductor' - Societies from having to face the consequences of violations under the 'Act'. He contended that, every interim order is only meant to be for the period when the Writ Petition is in force and not beyond it; and hence that the learned Single Judge neither could have confirmed it; nor, protected the 'Deductors' from necessary consequences as per the statutory prescriptions. 62. As unreservedly conceded, this Court had issued interim orders interdicting the 'Deductor' - Societies from deducting TDS from the interest income of their member - societies, at the time when each of the Writ Petitions were admitted. This was an affirmative injunction ordered by this Court; and obviously, the 'Deductors' could not have acted in any manner contrary to it. 63. Pertinently, the Revenue did not attempt to vary or modify these orders; and allowed them to be in force until the Writ Petitions were disposed of. 64. It is uncontestable and beyond pale of argument, that the majesty of the legal system is edificed upon the manner in which orders are impleme....