Bombay High Court: Citizen Credit Co-Operative Bank Ltd. and Ors. v. ITO [ITA(L) Nos. 2533 and 2558 of 2026]
Hon’ble Court interpreted Section 194A(3)(v) of the Act, which exempts certain categories of interest payments from TDS. The dispute was whether the exemption available when one co-operative society pays interest to another continues to apply even where the payer is a cooperative bank.
Referring to CBDT Circular No. 19 of 2015, which explains the 2015 amendments, the bench observed that Parliament had amended only the provision dealing with interest paid to members of a co-operative bank, while leaving untouched the exemption for interest paid by one co-operative society to another. This means that where a co-operative housing society keeps a fixed deposit with a co-operative bank, the bank need not deduct TDS before paying interest. The Appellant challenged the ITAT Order, which had upheld the Dept. decision treating the bank as an “assessee in default” for not deducting TDS on interest paid to co-operative societies on fixed deposits. Accepting the contention, the high court ruled that Parliament had consciously excluded co-operative banks only from the 1st limb of Section 194A(3)(v), which deals with payments to members. It did not amend the 2nd limb, which exempts interest paid by one co-operative society to another. The bench also observed that a co-operative bank does not cease to be a co-operative society merely because it carries on banking business. The Hon’ble Court ruled that co-operative banks are not required to deduct TDS on interest paid on fixed deposits held by another co-operative society, holding that the exemption for such payments continues to apply and set aside the Tribunal contrary view.
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