2025 (7) TMI 1161 - AT - Income Tax

TDS u/s 194A - tax liability raised for non deduction tax at source (TDS) on interest payments - Determination of gross turnover of the assessee HELD THAT - Upon a plain and harmonious reading of the provisions contained in Section 194A(3)(v) of the Act it is evident that the said clause is bifurcated into two distinct limbs. The first limb carves out an exemption from the obligation of tax deduction at source in respect of interest income credited or paid by a co-operative society other than a co-operative bank to its members. This provision in categorical terms excludes co-operative banks from the purview of such exemption. Second limb of the provision deals with exemption from TDS in cases where interest income is credited or paid by a co-operative society to any other co-operative society. Notably this part of the provision does not contain any exclusion for co-operative banks. Accordingly where a co-operative society makes payment or credits interest to another co-operative society such transaction is exempt from the requirement of tax deduction at source subject however to the condition stipulated in the proviso to sub-section (3) of Section 194A namely that the aggregate gross receipts or turnover of the payer co-operative society during the previous financial year does not exceed Rs. 50 crores. In the present case it emerges that the assessee is a co-operative society which has effected payment of interest to other co-operative housing societies who also qualify as co-operative societies under the Act. Having regard to the statutory framework delineated above it is clear that the assessee in the event its gross turnover during the relevant financial year does not exceed Rs. 50 crores is not liable to deduct tax at source on such interest payments u/s 194A(3)(v). We deem it appropriate to restore the matter to the file of AO for a fresh determination confined to the limited purpose of verifying whether the gross turnover of the assessee during the relevant financial year was within the statutory threshold of Rs. 50 crores. AO may also examine the nature of deposits as excluded u/s 194A(3)(viia) of the Act. Subject to such verification appropriate relief be granted in accordance with law. Ground No. 1 raised in the appeal by the assessee stands allowed for statistical purposes.

Summary

ISSUES:

Whether the assessee is liable to deduct tax at source (TDS) under section 194A of the Income Tax Act, 1961 on interest payments made to co-operative societies.Whether interest income credited or paid by a co-operative society to another co-operative society is exempt from TDS under section 194A(3)(v) of the Income Tax Act, 1961.Whether the exemption under section 80P of the Income Tax Act applies to the interest income received by co-operative societies, thereby rendering TDS under section 194A redundant.Whether the status of the payer as a co-operative bank or co-operative society affects the applicability of TDS provisions under section 194A(3)(v).Whether the gross turnover threshold of Rs. 50 crores prescribed in the proviso to section 194A(3) affects the liability to deduct TDS on interest payments by co-operative societies.

RULINGS / HOLDINGS:

Section 194A(3)(v) expressly excludes co-operative banks from exemption on TDS deduction for interest paid to members, but exempts interest paid by a co-operative society to another co-operative society from TDS, subject to the turnover threshold.The assessee, being a co-operative society (not a co-operative bank), paying interest to other co-operative societies, is exempt from deducting TDS under section 194A(3)(v) if its gross turnover does not exceed Rs. 50 crores during the relevant financial year.The exemption under section 80P does not negate the requirement of TDS deduction under section 194A; hence, the applicability of TDS provisions is independent of section 80P benefits.The status of the payer as an "urban multi-state co-operative bank" regulated under the Banking Regulation Act disqualifies it from exemption under section 194A(3)(v), but this does not apply to co-operative societies which are not banks.The matter is remanded to the Assessing Officer to verify the gross turnover of the assessee for the relevant year and the nature of deposits as per section 194A(3)(viia), and to grant relief accordingly.

RATIONALE:

The court applied a plain and harmonious reading of section 194A(3)(v) of the Income Tax Act, 1961, which bifurcates exemptions between co-operative societies and co-operative banks, explicitly excluding co-operative banks from exemption on interest paid to members.The proviso to subsection (3) of section 194A introduces a turnover-based threshold (Rs. 50 crores) limiting exemption applicability, which must be verified by the Assessing Officer.The court relied on statutory provisions including the Banking Regulation Act, 1949, and the Income Tax Act, 1961, as well as relevant circulars clarifying amendments effective from 1st June 2015 and 1st April 2020, which mandate TDS deduction by co-operative banks but not necessarily by co-operative societies.The decision reflects a doctrinal clarity distinguishing between co-operative banks and co-operative societies for the purpose of TDS exemption under section 194A(3)(v), emphasizing the statutory language and legislative amendments.No dissenting or concurring opinions were noted; the court remanded the matter for factual verification consistent with the statutory framework.