No TDS on Interest paid by Cooperative Society to Member: ITAT upholds Disallowance u/s 40(a)(ia) made by CIT(A) [Read Order]

The Chennai bench of the Income Tax Appellate Tribunal (ITAT) held that no TDS on interest paid by cooperative society to members and upheld the disallowance u/s 40(a)(ia) of the Income Tax Act,1961 made by the CIT(A).

The appellant revenue challenged the order of Commissioner of Income Tax (Appeals), Salem-7 [CIT(A)] dated 12.02.2016 where the sole subject matter of the appeal was disallowance u/s 40(a)(ia) of the Income Tax Act,1961 for want of Tax deduction at source (TDS) on interest payment. 

The assessee, Dharmapuri District Central Co-operative Bank Ltd relied on the provisions of Sec.194A(3)(v) to submit that deduction of tax not required for interest paid by a cooperative society to a member and stated that such requirement arose only by an amendment made by Finance Act, 2015 which was applicable only from 01.06.2015.

The AO contended that the assessee was registered under TamilNadu Cooperative Societies Act, 1983 and it had obtained a license from RBI to carry out banking activities u/s 22(1) read with Section 56(6) of Banking Regulation Act, 1949 and held that obliged to the statutory provisions provide for a different effect to co-operative society and central district co-operative society engaged in the business of banking.

 The AO observed that the amendment brought in by Finance Act, 2015 was only to clear the doubt regarding the applicability of provisions of Sec.194A(3)(v) to cooperative banks and disallowed of Rs.3712.66 Lacs was made u/s 40(a)(ia).

It was viewed that none of the State or Central enactments makes any distinction between a co-operative society engaged in carrying on banking business and a co-operative bank and the amendment brought by Finance Act, 2015 was prospective which is applicable only from 01.06.2015.

While dismissing the appeal, the Tribunal consists of Shri V Durga Rao, judicial member and Shri Manoj Kumar Aggarwal, AM concluded that the cooperative banks have been taken out of the purview of beneficial exception only from 01.06.2015 and upheld the impugned order.

The assessee was represented by Shri T. Vasudevan and the revenue was represented by Shri ARV Sreenivasan.

To Read the full text of the Order CLICK HERE

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