KAIPUZHA SERVICE CO-OPERATIVE BANK LTD.NO.3793, vs. THE COMMISSIONER OF INCOME TAX (TDS),

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WP(C)/10712/2019HC KeralaKLHC01026571201918 October 2019Author: HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR5 pages
AI SummaryAllowed

What did the High Court hold?

The High Court of Kerala allowed the writ petition. The Court took note of the concession made by the learned Standing Counsel appearing for the first respondent (Commissioner of Income Tax (TDS)). Based on this concession, the Court declared that there would be no requirement of deducting tax at source in the case of payment of interest from the Kottayam District Co-operative Bank to the petitioners. The reasoning was directly predicated on the revenue's admission that the exemption under Section 194A(3)(v) was applicable. The ratio decidendi is that where the revenue concedes the applicability of a statutory exemption, the Court will grant relief accordingly. The operative direction was to allow the writ petition and declare the exemption from TDS.

What were the facts?

The petitioners, three Primary Agricultural Credit Societies, challenged communications from the Kottayam District Co-operative Bank. These communications, based on Income Tax Department advice, stated that interest payable to the petitioners on their Fixed Deposits with the Bank would be subject to Tax Deducted at Source (TDS). The petitioners contended that as per Section 194A(3)(v) of the Income Tax Act, interest paid by one Co-operative Society to another is exempt from TDS. They argued that the interest income from the Kottayam District Co-operative Bank to them should be treated as a payment between two Co-operative Societies, thus falling under the exemption. The assessment years are not specified. The dispute centers on the applicability of TDS provisions to interest income received by the petitioner societies.

What were the issues?

1. Whether the interest income paid by the Kottayam District Co-operative Bank to the petitioner Primary Agricultural Credit Societies is exempt from Tax Deducted at Source (TDS) under Section 194A(3)(v) of the Income Tax Act, 1961. Assessee's Contention: The petitioners argued that the interest paid by the Kottayam District Co-operative Bank to them constitutes income paid by a Co-operative Society to another Co-operative Society. Therefore, the exemption under Section 194A(3)(v) should apply, meaning TDS is not required on such interest payments. They relied on the plain reading of the provision which exempts income paid by a co-operative society to any other co-operative society. Revenue's Contention: The revenue, through a statement filed by its Standing Counsel, conceded that the petitioners would be entitled to the benefit of the exemption provided under Section 194A(3)(v) of the Income Tax Act. No specific authorities or precedents were cited by the revenue in the judgment.

Which sections of the Income-tax Act were involved?

Section 194A(3)(v),Section 194A

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE A.K.JAYASANKARAN NAMBIAR FRIDAY, THE 18TH DAY OF OCTOBER 2019 / 26TH ASWINA, 1941 WP(C).No.10712 OF 2019(L) PETITIONERS: 1 KAIPUZHA SERVICE CO-OPERATIVE BANK LTD.NO.3793, KAIPUZHA (P.O), KOTTAYAM 686 602 REPRESENTED BY ITS SECRTARY JAYALAKSHMI P.S. 2 NATTAKOM SERVICE CO-OPERATIVE BANK LTD NO. 3839, PAKKIL (P.O), KOTTAYAM 686 023. REPRESENTED BY ITS SECRTARY T.R SATHYADEVAN. 3 BRAHMAMANGALAM GRAMA SWARAJ SERVICE COP-OPERATIVE BANK LTD NO. 2966, BRAHMAMANGALAM (P.O), THALAYOLAPARAMBU, KOTTAYAM 686 614 REPRESENTED BY ITS SECRETARY JAYALAKSHMI A.G BY ADVS. SRI.T.A.SHAJI (SR.) SHRI.NIKHIL SUNNY MOOKEN SRI.S.ABHILASH VISHNU RESPONDENTS: 1 THE COMMISSIONER OF INCOME TAX (TDS), CENTRAL REVENUE BUILDING, IS PRESS ROAD, COCHIN 682 018 2 THE ADDL. COMMISSIONER OF INCOME TAX, TDS RANGE, 3RD FLOOR, AYAKAR BHAWAN, KAWADIAR, TRIVANDRUM 695 003 3 INCOME TAX OFFICER, WARD-1, KOTTAYAM 686 001 4 INCOME TAX OFFICER, WARD-2, KOTTAYAM 686 001 5 INCOME TAX OFFICER, WARD-4, KOTTAYAM 686 001 6 THE PRINCIPAL CHIEF COMMISSIONER OF INCIME TAX, KERALA REGION, MINISTRY OF FINANCE, GOVERNMENT OF WP(C).No.10712 OF 2019 2 INDIA, CENTRAL REVENUE BUILDINGS, IS PRESS ROAD, KOCHI 682 018 7 THE CENTRAL BOARD OF DIRECT TAXES, DEPARTMENT OF REVENUE, MINISTRY OF FINANCE, GOVERNMENT OF INDIA, NORTH BLOCK, NEW DELHI 110 001, REPRESENTED BY ITS CHAIRMAN. 8 THE KOTTAYAM DISTRICT CO-OPERATIVE BANK LTD, DISTRICT CO-OPERATIVE BANK BUILDING, T.B ROAD, CENTRAL JUNCTION, KOTTAYAM 686 001 REPRESENTED BY ITS GENERAL MANAGER. 9 STATE OF KERALA, REPRESENTED BY THE PRINCIPAL SECRETARY TO GOVT. CO- OPERATION (C) DEPARTMENT, THIRUVANANTHAPURAM 695 001 R1 BY SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT OTHER PRESENT: GP MM JASMINE, SC CHRISTOPHER ABRAHAM THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 18.10.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C).No.10712 OF 2019 3

JUDGMENT The petitioners are Primary Agricultural Credit Society registered under the provision of the Kerala Co-operative Societies Act. In the writ petition, the petitioners are aggrieved by Exts.P1 and P3 communications received from the General Manager, Kottayam District Co-operative Bank, intimating them, based on the advice received from the Income Tax Department, that the interest payable to them on the Fixed Deposits maintained with the Bank is not exempt from the procedure for tax deduction at source (TDS) and that tax would be deducted at source and remitted to the Government on such interest payments. It is the case of the petitioners that the interest income accruing to it is from the deposits made by the petitioners with the kottayam District Co-operative Bank and hence, as per the provisions of Section 194A(3)(v), the provisions of sub section (1) thereof, which contemplate a deduction of tax at source would not apply in cases where the income is paid by a Co-operative Society to any other Co- operative Society. It is the case of the petitioner that the payment of interest from the Kottayam District Co-operative Bank to the petitioners have to be viewed as a payment of income by a Co-operative Society to another Co- operative Society and hence the provisions of Section 194A (3)(v) would apply to exclude the receipts of interest income by the petitioners from the requirement of tax deduction at source. Through a statement filed by the learned Standing Counsel appearing on behalf of the 1st respondent, it is conceded that the petitioners would get

WP(C).No.10712 OF 2019 4 the benefit of the exemption provided under Section 194A(3)(v) of the Income Tax Act. Taking note of the statement, I allow the writ petition by declaring that there will be no requirement of deducting tax at source in the case of payment of interest from the District Co-operative Bank Kottayam to the petitioners. A.K.JAYASANKARAN NAMBIAR JUDGE SJ

WP(C).No.10712 OF 2019 5

Appendix — schedule of exhibits
APPENDIX PETITIONER'S/S EXHIBITS: EXHIBIT P1 TRUE COPY OF THE COMMON LETTER DATED 14.1.2019 ISSUED TO PETITIONER BANKS, ALONG WITH ITS ENGLISH VERSION. EXHIBIT P2 TRUE COPY OF THE LETTER DATED 26.12.2018 ISSUED BY THE 2ND RESPONDENT TO THE KOTTAYAM DISTRICT CO-OPERATIVE BANK. EXHIBIT P3 TRUE COPY OF THE CIRCULAR NO.40/2018-19 DATED 14.2.2019 ISSUED BY THE KOTTAYAM DISTRICT CO-OPERATIVE BANK, ALONG WITH ITS ENGLISH VERSION. EXHIBIT P4 TRUE COPY OF THE LETTER DATED 31.1.2019 ISSUED BY THE IST RESPONDENT TO THE KOTTAYAM DISTRICT CO-OPERATIVE BANK. EXHIBIT P5 TRUE COPY OF THE ORDER DATED 29.1.2018 OF THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH IN ITA NO.596/COCH/2017. EXHIBIT P6 TRUE COPY OF THE ORDER DATED 25.10.2018 OF THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH IN ITA NO.420/COCH/2018.

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