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Facts
The appellant cooperative bank argued that it was not required to deduct TDS on interest paid to other cooperative societies, citing exemption under Section 80P and Section 194A(3)(v) of the Income Tax Act. The revenue contended that the exemption was only for primary agricultural credit societies.
Held
The Tribunal held that a cooperative bank is not required to deduct TDS on interest paid to other cooperative societies. This decision was based on High Court rulings, previous acceptance by revenue in similar cases for the appellant, and the insertion of specific provisions related to rationalization of tax deduction on interest.
Key Issues
Whether a cooperative bank is obligated to deduct TDS on interest paid to other cooperative societies, considering the provisions of Section 194A(3)(v) and the exemption under Section 80P of the Income Tax Act.
Sections Cited
194A, 80P, 197A, 201, 201(1A), 234E, 200(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Mumbai “B” Bench, Mumbai.
Before: Shri Narender Kumar Choudhry (JM) & Shri Omkareshwar Chidara (AM)
Since the issue is same in both appeals, the same are clubbed and single order is passed.
The appellant bank has raised the following grounds of appeal and argued that the cooperative bank is not required to make tax deducted at source (TDS) on interest paid to other cooperative societies :-
1) The Order of the Appellate Additional/Joint Commissioner is contrary to law, facts and circumstances of the case. 2) The Appellate Additional/Joint Commissioner erred in dismissing our Appeal without considering the fact that, the Appellant Bank had submitted the reply along with annexure (Supporting Documents) on 18/10/2024 and again on 17/12/2024. 3) The Appellate Additional/Joint Commissioner fails to consider the issue on merit that, it is clearly mentioned under Para Number 42.7 of the Explanatory Notes of the Provision of the Finance Act, 2015 that, the Co- Operative Bank shall not be required to deduct Tax (TDS) from the payment of interest to the Other Co-Operative Society.
2 Bombay Mercantile Cooperative Bank Limited 4) The Learned ITO(TDS) has erred on facts and in law in holding the Appellant as an "Assessee in Default" for non-deduction of tax at source on the interest paid to cooperative societies on Deposit. 5) On the facts and circumstances of the case and in law, the order passed by the Learned ITO(TDS) erred in not accepting the contention of the Appellant that, the society is entitled for deduction u/s 80P(2)(d) of the Act and being income is exempt. Hence deduction of TDS does not require. 6) The Learned ITO(TDS) has erred in facts and in law, by failing to appreciate that the obligation to deduct tax at source did not arise, where the deductee has submitted form 15G as per section 197A(1) or 197A(1A) of the Act. 7) Without prejudice that, the Learned ITO(TDS) erred in not appreciating that once tax on receipt was paid by the recipient the same could not be recovered from the Appellant and the Appellant should not be treated as "Assessee in Default". 8) The Learned ITO(TDS) erred in levying interest under section 201(1A) of the Act. In any case quantification of interest u/s 201(1A) of Rs. 1,75,634/- is erroneous and excessive without proper application of laws and contrary to various judicial pronouncement is to be deleted. 9) Non deduction of tax will not attract penal interest u/s 201 of the Act, if primary liability is discharged by the recipient and income tax return are filed. 10)The Learned ITO(TDS) has erred in facts and in law in charging the Late Fees of Rs. 1,88,853/- u/s 234E of the Act and failed to appreciate that, the Appellant has already filed the TDS statement as required u/s 200(3) of the Act. 11)The reason assigned by the Learned ITO(TDS) for making the above addition are wrong, against the facts, contrary to the provision of law, evidence on record, without observing natural justice and without following decision of various Court 1) The Order of the Appellate Additional/Joint Commissioner is contrary to law, facts and circumstances of the case. 2) The Appellate Additional/Joint Commissioner erred in dismissing our Appeal without considering the fact that, the Appellant Bank had submitted the reply along with annexure (Supporting Documents) on 18/10/2024 and again on 17/12/2024. 3) The Appellate Additional/Joint Commissioner fails to consider the issue on merit that, it is clearly mentioned under Para Number 42.7 of the Explanatory Notes of the Provision of the Finance Act, 2015 that, the Co- Operative Bank shall not be required to deduct Tax (TDS) from the payment of interest to the Other Co-Operative Society. 4) The Learned ITO(TDS) has erred on facts and in law in holding the Appellant as an "Assessee in Default" for non-deduction of tax at source on the interest paid to cooperative societies on Deposit. 5) On the facts and circumstances of the case and in law, the order passed by the Learned ITO(TDS) erred in not accepting the contention of the Appellant that, the society is entitled for deduction u/s 80P(2)(d) of the Act and being income is exempt. Hence deduction of TDS does not require.
3 Bombay Mercantile Cooperative Bank Limited 6) The Learned ITO(TDS) has erred in facts and in law, by failing to appreciate that the obligation to deduct tax at source did not arise, where the deductee has submitted form 15G as per section 197A(1) or 197A(1A) of the Act. 7) Without prejudice that, the Learned ITO(TDS) erred in not appreciating that once tax on receipt was paid by the recipient the same could not be recovered from the Appellant and the Appellant should not be treated as "Assessee in Default". 8) The Learned ITO(TDS) erred in levying interest under section 201(1A) of the Act. In any case quantification of interest u/s 201(1A) of Rs. 1,75,634/- is erroneous and excessive without proper application of laws and contrary to various judicial pronouncement is to be deleted. 9) Non deduction of tax will not attract penal interest u/s 201 of the Act. If primary liability is discharged by the recipient and income tax return are filed. 10)The Learned ITO(TDS) has erred in facts and in law in charging the Late Fees of Rs. 1,88,853/- u/s 234E of the Act and failed to appreciate that, the Appellant has already filed the IDS statement as required u/s 200(3) of the Act. 11)The reason assigned by the Learned ITO(TDS) for making the above addition are wrong, against the facts, contrary to the provision of law, evidence on record, without observing natural justice and without following decision of various Court.
The Ld. AR of the appellant bank argued that section 194A(3)(v) of the I.T. Act exempts cooperative bank from deducting tax while paying interest to other cooperative societies. The Ld. AR’s arguments are summarized as follows :-
a) The recipients society’s interest income is exempt under section 80P of the Act. b) The appellant filed Fork 15G/H to claim exemption. c) The recipients societies are admitting the interest as income. d) When the recipient society offers it as income, again appellant cannot be asked to make TDS in view of Hindustan Coca Cola decision of Hon'ble Supreme Court. e) The Ld. AO/Ld. CIT(A) for A.Ys. 2017-18 and 2018-19, in appellant’s own case, have held that while paying interest to cooperative societies, there is no need of deducting TDS. f) Hon'ble Bombay High Court has held in the case of Saraswat Cooperative Bank Vs. ITO that TDS need not be deducted.
The Ld. DR filed written submission where he summarised the orders of Ld. AO and Ld. CIT(A) and argued that TDS had to be deducted. The 4 Bombay Mercantile Cooperative Bank Limited Revenue contends that the exemption is available to only primary agricultural credit societies and not others.
Heard both sides. The Bench decides that there is no need to deduct TDS on the interest paid by Cooperative Bank to cooperative societies in view of the following :- a) Hon'ble Bombay High Court in the case of Saraswat Cooperative Bank has held that TDS provisions are not applicable where interest was paid to cooperative societies. b) The Revenue, in appellant’s own case, has accepted the contention of appellant for A.Ys. 2017-18 and 2018-19 that, TDS need not be deducted. c) The Coordinate Bench of ITAT in the case of Punjab State Cooperative Bank Ltd. Vs. ITO (ITA No. 97/Chd/2016 has held that TDS need not be deducted on the interest payment to cooperative societies. d) There is sufficient force in the submission of Ld.AR, where he relied on the amendment which was brought into Statute from1.6.2015 relating to “Rationalisation of provisions relating to deduction of tax on interest and the related paragraph is produced below for clarity :-
“42.7 Further, the existing exemption provided under section 194A(3)(v) of the Income-tax Act from deduction of tax from interest paid by a co-operative society to another co-operative society shall continue to apply to the co-operative bank and, therefore, a co-operative bank shall not be required to deduct tax from the payment of interest on time deposit to a depositor, being a co-operative society.”
In view of the above, there is no need to deduct tax by this Cooperative Bank while paying interest to a cooperative society.
7. The next ground taken by appellant is that the Ld. AO levied late fees under section 234E. The appellant claims that the TDS return was filed in time and hence interest was filed in time and hence interest under section 234E of the Act is not leviable. The Ld. AO is directed to verify the same and if appellant filed return of income, the levy of interest should be deleted.
5 Bombay Mercantile Cooperative Bank Limited
Both the appeals of appellant are allowed.
Order pronounced in the open Court on 26/08/2025.