The legislature has the authority to regulate and amend tax exemption thresholds for cooperative entities. Such policy decisions are constitutional unless inherently perverse. Furthermore, parties who strictly comply with interim court orders are protected from retroactive penal consequences upon the final resolution of the legal dispute.

JUDGMENT :

Devan Ramachandran, J.

The Income Tax Act, 1961 (the ‘Act’ for short), through Section 194A thereof, enjoins that “(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 issuing of cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rates in force.”

2. After mandating thus, Section 194A (3) of the “Act” exempts certain categories from the afore obligation.

3. One of the categories so mentioned, are Co operative Societies registered under the Kerala Co operative Societies Act, (“KCS Act” for short); and the exemptions they enjoy are available in Sections 194A (3)(v) and 194A(3)(viia) of the ‘Act’.

4. Since the afore provisions will have to be read in its full, we extract them as under:

Section 194A (3)(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;

[Explanation:- For the purposes of this clause, “co-operative bank” shall have the same meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949);]

Section 194A (3)(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 co-operative land development 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-clause (a), engaged in carrying on the business of banking;]”

5. The genesis of the controversy in these cases is in the fact that, the Finance Act, 2020, added a proviso to Section 194A (3) to the following effect:

[Provided that a co-operative society referred to in clause (v) or clause (viia) shall be liable to deduct income-tax in accordance with the provisions of sub-section (1), if-

(a) the total sales, gross receipts or turnover of the co-operative society exceeds fifty crore rupees during the financial year immediately preceding the financial year in which the interest referred to in sub-section (1) is credited or paid; and

(b) the amount of interest, or the aggregate of the amounts of such interest, credited or paid, or is likely to be credited or paid, during the financial year is more than [one lakh] rupees in case of payee being a senior citizen and [fifty thousand] rupees in any other case.]

[Explanation 1.- For the purposes of clauses (i), (vii) and (viia), "time deposits" means deposits ([including] recurring deposits) repayable on the expiry of fixed periods.

[Explanation 2.- For the purposes of this sub-section, "senior citizen" means an individual resident in India who is of the age of sixty years or more at any time during the relevant previous year.]]

6.