Opinion Of Eminent Legal Luminaries On Controversial Issues

Can Interest Be Paid By A Co-operative Bank To Other Co-operative Society Without TDS?

QUERY: The Finance Act, 2015 has amended clause (v) of sub section (3) of Sec. 194A w.e.f. June 01, 2015. Accordingly TDS is now required to be deduc-tion by a Co-op Bank from interest payment to its members subject to other provisions.

Now, can payment be made by other Co-operative Bank to other Co-operative Society without TDS?
ANSWER: Section 194A(1) of the Income tax Act, 1961 provides

“Any person, not being an Individual or a Hindu Undivided Family, who is re-sponsible for paying to a resident any income by way of interest other than in-come by way of interest on securities shall at any time of credit of such income to the account of payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rate in force ----------------“

Sub section 3 of section 194A states that “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--------------------“

(viia) to such income credited or paid in respect of –

(a) deposits with a primary agricultural credit society or a primary credit society
or a co-operative land mortgage bank or a cooperative land develop-ment bank
(b) deposits (other than time deposits made on or after the 1st day of July, 1995) with a co-operative society, other than a co-operative society or bank referred to in sub section (a), engaged in carrying on the business of banking:

Thus, sub section (3) of section 194A is an exception to sub section (1) of the section. But it does not override sub section (1). No TDS is required to be deducted in clauses mentioned under sub section (3), subject to sub section (1).

So, when interest is paid by a co-operative bank to other co-operative society it would fall under sub section (1) of section 194A of the Act and therefore when a co-operative bank makes a payment to another co-operative society it would fall under sub section (1) and hence TDS is required to be made. Further, this also gets support from by sub clause (b) of clause (viia) of sub section (3) of section 194A of the Act. Which provides that any deposit with co-operative bank by a co-operative society (other than engaged in carrying on banking business) is liable to TDS. Therefore, the Co-op Bank should make TDS, while paying to other co-operative society.

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