MUNDELA SERVICE CO-OPERATIVE BANK LIMITED vs. ADDITIONAL COMMISSIONER OF INCOME TAX

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WP(C)/10369/2019HC KeralaKLHC01025749201918 October 2019Author: HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR4 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 for the 1st respondent (Additional Commissioner of Income Tax). Based on this concession, the Court declared that there would be no requirement for deducting tax at source in the case of payment of interest from the Thiruvananthapuram District Co-operative Bank to the petitioner. The reasoning is directly founded on the admission by the revenue that the petitioner is eligible for the exemption under Section 194A(3)(v). The ratio decidendi is that where the revenue concedes the applicability of a specific exemption provision, the court will uphold that concession and grant the relief sought. The operative direction is the declaration of no requirement for TDS. No issue was expressly left undecided.

What were the facts?

The petitioner, Mundela Service Co-operative Bank Limited, is a Primary Agricultural Credit Society. It received communications (Exts.P2 and P3) from the General Manager of Thiruvananthapuram District Co-operative Bank. These communications, based on advice from the Income Tax Department, stated that interest payable to the petitioner on its Fixed Deposits with the Bank would not be exempt from Tax Deducted at Source (TDS). The petitioner argued that such interest payments should be exempt from TDS under Section 194A(3)(v) of the Income Tax Act, as it represents income paid by one co-operative society to another. The assessment year(s) are not explicitly stated. The order or action under challenge is the intimation of TDS applicability and the subsequent deduction of tax. The authority that passed the initial advice is the Income Tax Department, and the communication was issued by the Thiruvananthapuram District Co-operative Bank. The amount in dispute is not specified. The procedural history involves the petitioner filing a writ petition challenging the TDS applicability.

What were the issues?

1. Whether the interest income earned by the petitioner, a Primary Agricultural Credit Society, on its Fixed Deposits with the Thiruvananthapuram District Co-operative Bank is exempt from Tax Deducted at Source (TDS) under Section 194A(3)(v) of the Income Tax Act, 1961. The Assessee (Petitioner) contended that the interest paid by the Thiruvananthapuram District Co-operative Bank to the petitioner should be treated as payment of income by a co-operative society to another co-operative society. Therefore, the exemption under Section 194A(3)(v) of the Income Tax Act should apply, meaning TDS is not required. The Revenue (1st Respondent) conceded, through its Standing Counsel, that the petitioner would indeed be entitled to the benefit of the exemption provided under Section 194A(3)(v) of the Income Tax Act. No specific authorities, circulars, or precedents were named by either side in the judgment.

Which sections of the Income-tax Act were involved?

Section 194A(3)(v)

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.10369 OF 2019(U) PETITIONER: MUNDELA SERVICE CO-OPERATIVE BANK LIMITED NO.2433,REPRESENTED BY ITS SECRETARY RAHUL.P.S,AGED 27 YEARS,S/O SARACHANDRA KUMARAN,THIRUVANANTHAPURAM DISTRICT,KERALA,PIN-695543. BY ADV. SMT.MARY BENJEMIN RESPONDENTS: 1 ADDITIONAL COMMISSIONER OF INCOME TAX (TDS),DEPARTMENT OF INCOME TAX,AAYAKAR BHAVAN, KOWDIAR,THIRUVANANTHAPURAM-695003. 2 THIRUVANANTHAPURAM DISTRICT CO-OPERATIVE BANK, REPRESENTED BY ITS MANAGER,OFFICE OF THE DISTRICT CO OPERATIVE BANK,MAIN BRANCH,NEDUMANGAD,THIRUVANANTHAPURAM-695541. R1 BY SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT R2 BY SRI.THOMAS ABRAHAM SC THIRUVANANTHAPURAM DIST. CO.OP BANK OTHER PRESENT: 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.10369 OF 2019 2

JUDGMENT The petitioner is a Primary Agricultural Credit Society registered under the provision of the Kerala Co-operative Societies Act. In the writ petition, the petitioner is aggrieved by Exts.P2 and P3 communications received from the General Manager, Thiruvananthapuram 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 petitioner that the interest income accruing to it is from the deposits made by the petitioner with the Thiruvananthapuram 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 Thiruvananthapuram District Co-operative Bank to the petitioner has 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 petitioner 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 petitioner would get

WP(C).No.10369 OF 2019 3 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 Thiruvananthapuram to the petitioner. A.K.JAYASANKARAN NAMBIAR JUDGE SJ

WP(C).No.10369 OF 2019 4

Appendix — schedule of exhibits
APPENDIX PETITIONER'S/S EXHIBITS: EXHIBIT P1 TRUE COPY OF THE CIRCULAR DATED 26.12.2018 OF THE 1ST RESPONDENT. EXHIBIT P2 TRUE COPY OF CIRCULAR DATED NIL ISSUED BY THE MAIN BRANCH OF THE 2ND RESPONDENT WITH ITS ENGLISH TRANSLATION. EXHIBIT P3 TRUE COPY OF THE CIRCULAR DATED NIL ISSUED BY THE MORNING AND EVENING BRANCH OF THE 2ND RESPONDENT WITH ITS ENGLISH TRANSLATION.

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