IMPORTANT POINTS
The provisions of Section 194A(3)(iii)(a) provide for an exemption from a procedural requirement under the Income Tax, the interpretation to be placed on the said provision has necessarily to be a strict one that leans in favour of the revenue and against the assessee. At any rate, the requirement of deduction of tax at source does not prejudice the writ petitioner assessees, since the tax amounts deducted at source from the payments effected to the petitioner societies would be credited to their account with the Income Tax Department, and adjusted towards any tax liability determined against them in their assessment for the respective years.

JUDGMENT :

The issue that arises for consideration in these writ petitions is the entitlement of the petitioners, who are Primary Agricultural Credit Societies registered under the provisions of the Kerala Co-operative Societies Act 1969, to the benefit of an exemption from the provisions of Section 194A of the Income Tax Act (‘the Act’ for short). The said provision mandates a deduction of tax at source, whenever any person, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, effects payment thereof in cash or by issue of cheque or draft or by any other mode. The provisions of Section 194A do not apply in cases specified under Section 194A(3)(iii) of the Act. In these writ petitions, we are concerned with the exemptions provided under Sections 194A(3)(iii)(a) and 194A(3)(iii)(v) of the Act. The said provisions read as under;

194A. Interest other than “Interest on securities”

(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income [by way of interest on securities], shall, at the time of credit of such income to the account of the 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 rates in force:

[provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under this Section]

(3) The provisions of Sub-section (1) shall not apply-

Where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, [does not exceed------

(i) xxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxx

(ii) xxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxx

(iii) to such income credited or paid to-

(a) Any banking company to which the Banking Regulation Act, 1949(10 of 1949), applies, or any Co-operative Society engaged in carrying on the business of banking (including a co-operative land mortgage, bank), or

xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxx

(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;]

2. It is the case of the petitioners herein that as Primary Agricultural Credit Societies, they are co-operative societies inter alia engaged in carrying on the business of banking and they are therefore entitled to receive the interest amounts earned by them from deposits made with the State Treasuries and the District Co-operative Banks respectively without deduction of tax at source. They contend that in respect of the amounts deposited with the State Treasury, they would be exempted from the requirement of suffering tax deduction at source on an account of the provisions of Section 194A(3)(iii)(a), and in respect of the interest earned from deposits with the District Cooperative Banks, they would be entitled to a similar exemption on account of Section 194A(3)(iii)(v).

3. At the very outset, it might be noticed that in respect of the claim for exemption under Section 194A(3)(iii)(v), the revenue has fairly conceded that in as much as the Primary Agricultural Credit Societies are also Co-operative Societies, they would be entitled to the exemption under Section 194A(3)(iii) (v), whenever the income credited to their account is the interest income that arises from the deposits made by them with another Co-ope