Citizen Credit Co-operative Bank Ltd. Vs ITO (Bombay High Court)
The Bombay High Court allowed appeals filed by Citizen Credit Co-operative Bank Ltd. concerning TDS on interest paid to non-member co-operative societies. The Court quashed the Tribunal’s order and held that Section 194A(3)(v) exempts such interest payments from TDS. Consequently, the assessee could not be treated as an assessee-in-default under Section 201(1) read with Section 201(1A).
The assessee was a multi-State co-operative society holding a banking licence and operating as a co-operative bank. For AY 2016-17, the Department initiated proceedings under Section 201 in respect of interest paid on fixed deposits maintained by other co-operative societies that were not members of the assessee. The Assessing Officer treated the assessee as an assessee-in-default for failure to deduct TDS under Section 194A.
The Bombay High Court examined Section 194A(3)(v), which contains two parts. It held that while the first part excludes co-operative banks from the exemption concerning interest paid to members, the second part covers income paid by a co-operative society to another co-operative society and does not exclude co-operative banks.
The Court relied particularly on CBDT Circular No.19 of 2015, paragraph 42.7, which expressly states that the existing exemption for interest paid by one co-operative society to another continues to apply to co-operative banks. The Court held that the Tribunal had incorrectly relied upon paragraph 42.5, which concerned interest paid by co-operative banks to their members.
