The Bangalore bench of the Income Tax Appellate Tribunal ( ITAT ) has held that TDS is not applicable in respect of payment of interest to its member by Co-operative Bank.
M/s. Nagalambika Pattina Souharda Sahakari Niyamita, the assessee filed its ITR for AY. 2017-18 on 29.03.2018 showing a total income of Rs.NIL after claiming deduction under section 80P of the Income-tax Act,1961 of Rs.35,41,970/-. Assessee is a Cooperative Society registered under Karnataka Souharda Sahakari Act, 1997. It is involved in the business of providing credit facilities to its members in form of loans for business, housing etc. It also collects funds from its members.
The AO noted that as per the Certificate filed by the assessee, it is registered under Karnataka Souharda Sahakari Act, 1997 on 01.10.2014 as a “Cooperative” and is not registered under Karnataka Cooperative Societies Act, 1959 as a “Cooperative Society”.
The AO held that the assessee is a ‘Cooperative’ and not a “Cooperative Society”. disallowance on account of non-deduction of TDS u/s 194A of the Income Tax Act for invoking provisions of section 40(a)(ia) of the Act.
It was clarified that a member of a cooperative bank shall receive interest on both times deposits and deposits other than time deposits with such cooperative bank without TDS under section 194A by the exemption granted vide clause (v) of sub-section (3) of said section.
The provisions of clause (viia) of the said sub-section are applicable only in case of a non-member depositor of the co-operative bank, who shall receive interest only on deposits other than time deposits made on or after 1/7/1995 without TDS under section 194A.”
Therefore, as per the provisions of section 194A(1) read with provisions of sections 194A(3)(i)9b) and 194A(3)(viia)(b), a cooperative bank is required to deduct tax from interest payment on time deposits if the amount of such payment exceeds the specified threshold of Rs.10,000.
As per the provisions of section 194A(3)(v) of the Act provide a general exemption from making tax deductions from payment of interest by all co-operative societies to its members, the co-operative banks tried to avail this exemption by making their depositor’s members of different categories.
It was viewed that the provisions of section 194A(3)(viia)(b) of the Act make no distinction between members and non-members of co-operative banks for deduction of tax, hence, the co-operative banks are required to deduct tax on payment of interest on time deposit and cannot avoid the same by taking the plea of the general exemption provided under section 194A(3)(v) of the Act.
Further viewed that the specific provision of tax deduction provided under section 194A(3)(i)(b) and 194A(3)(viia)(b) of the Act for co-operative banks override the general exemption provided to all co-operative societies for non-deduction of tax from interest paid to members under section 194A(3)(v) of the Act.
A Coram comprising of Shri Chandra Poojari, Accountant Member and Smt. Beena Pillai, Judicial Member while allowing the appeal has held that in respect of payment of interest to its members regarding which section 194A of the Act is not applicable in respect of payment of interest to its members.
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