ABHYUDAYA CO-OP. BANK LTD. vs. INCOME-TAX OFFICER,,

The assessee has raised the following grounds of appeal:- 1. The learned Commissioner of Income Tax (Appeals) erred on facts and in law in upholding that the interest paid by the assessee bank to its members & other co-operative societies (amounting to Rs.7,42,40,899/-) as liable to TDS u/s 194A and consequently erred in upholding ITO(TDS)’s action of levying tax and interest of Rs.82,40,740/-. The learned CIT(A) failed in appreciating the scheme and logic behind sec.194A and the correct legal position in this behalf.

The issue which arises in the present appeal is against the liability of tax deduction under section 194A of the Act on the assessee Co-operative bank, wherein interest has been paid to its members and other Co-operative societies amounting to ₹ 7,42,40,899/-. The Assessing Officer has held the assessee to be in default for not deducting tax and has raised demand under section 201(1) and 201(1A) of the Act at ₹ 82,40,740/-.

Briefly, in the facts of the case, the assessee was Co-operative Bank and had filed quarterly TDS statement for financial year 2013-14 under Form No.26A; but while verifying the TDS payments, the Assessing Officer noted that deductor Co-operative bank was not deducting TDS on interest paid to members and Co-operative societies. Show cause notice was issued to the assessee as to why TDS was not deducted on interest paid to Co-operative societies, members and shareholders. The assessee explained that under section 194A(3)(v) of the Act, it is provided that provisions of section 194A(1) of the Act will not apply to such income credited or paid by Co-operative society to its members or to any other Co-operative society. The assessee explained that it was Co-operative Society registered under Multiple State Co-operative Societies Act carrying on the business of banking, hence it was not liable to deduct tax on interest paid to members or any other Co-operative society. It was also pointed out that provisions of section 194A(3)(viia)(b) of the Act were applicable in the case of a depositor of Co-operative society engaged in the business of banking, who shall received interest on deposits other than time deposits made on or after 1st July, 1995. It was also pointed out that the said

The CIT(A) upheld the order of Assessing Officer after referring to provisions of section 194A of the Act and relying on different decisions.

The assessee is in appeal against the order of CIT(A).

The learned Authorized Representative for the assessee pointed out that liability to deduct tax has been fastened on Co-operative society vis-à-vis deduction of tax at source on interest paid to members and other Co-operative

The learned Departmental Representative for the Revenue on the other hand, placed reliance on the orders of authorities below.

We have heard the rival contentions and perused the record. The only issue which is raised in the present appeal is the liability of assessee Co- operative bank to deduct tax at source out of interest payments made by the assessee to its members or other Co-operative societies and on time deposits. The assessee had claimed shelter under section 194A(3)(v) of the Act. Section 194A(1) of the Act lays down that any person who is responsible for paying to a resident any income by way of interest, then he shall be liable at the time of

The assessee before us is a Co-operative Bank. Certain exemptions are provided which are enlisted in sub-section (3) of section 194A of the Act, which lays down that provisions of sub-section (1) shall not apply and we are concerned with clause (v) thereunder, which reads as under:- “194A(3) The provisions of sub-section (1) shall not apply – ….. (v) – to such income credited or paid by a co-operative society (other than a co- operative bank) to a member thereof or to such income credited or paid by a co-operative society to any other co-operative society.”

The assessee seeks shelter under the said section for the relevant year to point out that in view of specific provisions of clause (v) to section 194A(3) of the Act, where the assessee is a Co-operative Society being Co-operative Bank, then any payment made to its members or Co-operative society being interest income is outside the purview of section 194A(1) of the Act.

The assessee in this regard has pointed out that this position of law is also clarified by the amendment made by the Finance Ac, 2015 w.e.f. 01.06.2015. In this regard, he has invited our attention to the Memorandum explaining the aforesaid provisions vide paras 42.4 and 42.5. The Memorandum further explains in respect of applicability of specific provisions mandating deduction of tax from the payment of interest on time deposits by the Co-operative banks to its members by claiming that general exemption was also applicable for payment of interest to member depositors by the

The Hon’ble Bombay High Court in Saraswat Co-operative Bank Ltd. Vs. (1) ITO & (2) Union of India (supra) referred to the Explanatory Notes of the provisions of the Finance Act, 2015, dated 27.11.2015, wherein the position was clarified about obligation of Co-operative banks from deduction of tax at source under section 194A of the Act. The Hon’ble High Court referred to the Explanatory Note para 42.5 and stated that position of relevant law is clearly specified in the said para and held that Explanatory Note has made the position of law clear that such Co-operative banks are not liable to deduct any amount of TDS prior to the effective date of 01.06.2015.

In the facts of the present case also, the year under appeal is assessment year 2014-15 i.e. prior to the date of introduction of amendment from 01.06.2015 and under the old provisions of section 194A(3)(v) of the Act, the assessee Co-operative bank was not obliged to deduct tax on the income of members and Co-operative societies. Applying the ratio laid down by the

In the result, the appeal of assessee is partly allowed.