TMI Blog2020 (8) TMI 728X X X X Extracts X X X X X X X X Extracts X X X X ..... Direct Taxes had issued a clarification that the provision having come into effect from 01.09.2019 any cash withdrawal prior to the said date will not be subjected to TDS. Since the threshold of One Crore Rupees is with respect to the previous year, with reference to the assessment year 2020-2021, the cash withdrawal for triggering Section 194N of the Act shall be counted from 01.04.2019. The writ petitioners have not questioned the validity of the provision. The provision employs the expression Previous year . With reference to the assessment year 2020-2021, the previous year would obviously mean the period commencing from 01.04.2019 to 31.03.2020. A taxing provision has to be understood in a plain manner. Such an application of the provision will not amount to retrospective operation. If TDS was levied even on transactions that had taken place prior to 01.09.2019, then, that would definitely be illegal, but that is not the case here. Therefore, Iustain the stand of the learned standing counsel that to calculate the threshold limit of One Crore rupees, the transactions that had taken place with effect from 01.04.2019 will have to be taken into account, but actual levy of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0, 6261 of 2020, 6271 of 2020, 6226 of 2020, 6227 of 2020, 6272 of 2020, 6283 of 2020 7336 of 2020 Mr. K. Vinayagam For Petitioner in W.P.(MD). No.6329 of 2020 Mr. K. Ravi For Respondents in 6102 of 2020, 6168 of 2020, 6225 of 2020, 6228 of 2020, 6140 of 2020, 6269 of 2020, 6304 of 2020, 6262 of 2020, 6263 of 2020, 6265 of 2020, 6267 of 2020, 6270 of 2020, 6259 of 2020, 6261 of 2020, 6271 of 2020, 6226 of 2020, 6227 of 2020, 6283 of 2020, 6272 of 2020, 7336 of 2020 Mrs. S. Srimathy Special Government Pleader For Respondents in W.P.(MD).No.6103 of 2020, 6117 of 2020, 6118 of 2020, 6104 to 6116 of 2020, 6119 to 6125 of 2020, 6147 of 2020, 6175 of 2020, 6157 of 2020, 6158 of 2020, 6188 of 2020, 6181 of 2020, 6180 of 2020, 6148 to 6156 of 2020, 6159 of 2020 to 6161 of 2020, 6164 of 2020, 6165 of 2020, 6167 of 2020, 6169 to 6174 of 2020, 6176 to 6179 of 2020, 6182 to 6187 of 2020, 6235 of 2020, 6241 of 2020, 6242 of 2020, 6236 to 6239 of 2020, 6243 to 6254 of 2020, 6275 of 2020, 6329 of 2020 Mr.N.Dilip Kumar Standing counsel COMMON ORDER The writ petitioners are Societies registered under the Tamil Nadu Co-operative Societies Act, 1983. They have been license ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they should not be deemed to be the assessees in default. Most of the writ petitioners appeared before the jurisdictional authorities and either sought adjournments or pleaded that they were not aware of the requirement of law. They further contended that in view of the nature of their activities, the transactions are out of the purview of Section 194N of the Act. Not satisfied with the response of the writ petitioners, the orders impugned in these writ petitions came to be passed. 4. The impugned orders state that the writ petitioners herein are Co-operative Banks engaged in the business of banking and that they had failed to comply with the terms of Section 194N of the Act and that the explanation given by them was not satisfactory. 5. The jurisdictional authorities noted that various Co-operative Societies are account holders of the writ petitioners herein. The account holders are not carrying on the business of banking. Therefore, the writ petitioner-Banks were obliged to have deducted tax when the cash withdrawals exceeded the prescribed limit of One Crore rupees. The writ petitioners failed to do so. Since the deductor Banks defaulted in complying with the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e argument of the learned standing counsel is that having regard to the object behind the incorporation of Section 194N of the Act, the nature of transaction becomes irrelevant. Even if the sum received by the member-Societies did not constitute income at their hands still the writ petitioner-Banks had an obligation to deduct at the prescribed rates. The writ petitioners would draw my attention to a few other provisions of the Act to emphasize this point. Section 198 of the Act states that the amount deducted as per Section 194N of the Act would not be included as an income at the hands of the assessee. Provisions such as Section 206 C (1F) of the Act were referred to to drive home the point that this Court should apply the principle of deemed income. The writ petitioners had not challenged the constitutional validity of Section 194N of the Act. Therefore, this Court ought to apply the provision as such. There is no scope for reading principles of equity into taxing provision. It has to be interpreted as such. So applied, it can be noted that the writ petitioner-Banks have failed to effect deduction. Therefore, they were rightly treated as assessees in default by the respondents. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rview of Section 194N of the Act. Therefore, they ought to have been given some more time to make good their defence. I have no doubt whatsoever in my mind that the respondents have simply rushed through the process. Surveys were conducted followed by show cause notices. Enquiries were held for formality sake and the impugned orders were passed either on the same day or on the next day. The civil consequences are enormous. The financial implications are humongous. Therefore, the process adopted by the respondents cannot be said to be a fair compliance with the principles of natural justice. Hence, I would not non suit the writ petitioners on the ground of maintainability. 13. Section 194N of the Act which was inserted by the Finance Act, 2019, with effect from 01.09.2019 reads as under: 194N. Every person, being,- (i) a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); (ii) a co-operative society engaged in carrying on the business of banking or (iii) a post office, who is responsible for paying any sum, as the case may be, aggregate of sums, in cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d acted as a conduit between the Government and the end recipients. The Government had placed this welfare fund at the hands of the petitioner-Banks, who in-turn credited the same in the Saving Bank accounts of the member-Societies, who after withdrawing the same, distributed to the end-recipients, namely, rice cardholders. Thus, the Primary Co-operative Societies had acted as business correspondents for the writ petitioner-Banks. This business correspondent model was initiated by the Reserve Bank of India in 2006 to promote financial inclusion in India. Under this framework, the Banks are permitted to use the services of third party agents to provide banking and financial services such as credit and savings on their behalf. In the case on hand, the Primary Cooperative Societies had acted as business correspondents to pass on the cash benefit as mandated by the State Government. I therefore have no hesitation to come to the conclusion that at least this part of the transaction between the petitioners and their member-Societies would qualify for being exempted under the proviso to Section 194N of the Act. Therefore, when the entire volume of transaction is taken into account, this p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed:] 1[Provided further that] no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax.] 2[(1A) Without prejudice to the provisions of subsection (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest,- (i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and (ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge the practice of making business payments in cash. It is seen from the speech of the Hon'ble Finance Minister that to promote less cash economy, TDS at 2% was proposed to be levied on cash withdrawal exceeding Rupees One Crore in an year from the bank account. The core argument of the learned Standing Counsel is that even if the sum withdrawn by the member-Societies does not represent income at their hands still the writ petitioner-Banks were obliged to have deducted an amount equal to 2% on sum exceeding One Crore Rupees. But Section 194N of the Act indicates that this deduction is to be a deduction of income tax at source. The expression to deduct an amount equal to 2% of sum exceeding one Crore Rupees as income tax is clearly figuring in the provision. Section 194N of the Act is very much falling under Chapter XVII that deals with collection and recovery of tax. It is true that Section 198 of the Act states that the sum deducted in accordance with Section 194N of the Act for the purpose of computing the income of an assessee should not be deemed to be the income received. But having regard to the overall scheme of the chapter and particularly, by reading Section 194N alo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Income Tax) in this regard. The Hon'ble Supreme Court in the said decision observed as follows: 9. Be that as it may, the circular No. 275/201/95- IT(B) dated 29.1.1997 issued by the Central Board of Direct Taxes, in our considered opinion, should put an end to the controversy. The circular declares no demand visualized under Section 201(1) of the Income- tax Act should be enforced after the tax deductor has satisfied the officer-in-charge of TDS, that taxes due have been paid by the deducted-assessee. However, this will not alter the liability to charge interest under Section 201(1A) of the Act till the date of payment of taxes by the deducted-assessee or the liability for penalty under Section 271C of the Income-tax Act. 20. I would not fault the respondents for having issued show cause notices to the writ petitioners for not having complied with Section 194N of the Act. But then, the enquiry could have been held only after the commencement of the assessment year and not in the previous year itself. I do not agree with the stand of the writ petitioners' counsel that the volume of transaction that had taken place prior to 01.09.2019 should be ignored. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire scheme of the Act and had proceeded at breakneck speed, I am constrained to interfere with the impugned proceedings and they are accordingly quashed. The matters are remitted to the file of the respective jurisdictional Assessing Officers. The Assessing Officers will issue fresh hearing notices to the writ petitioners. The writ petitioners are at liberty to bring on record the returns filed by the member-Societies who had withdrawn cash beyond the ceiling limit of Rupees One Crore. The Assessing Officers will exclude Pongal cash gift distributed by the petitioner-Banks at the instance of the Government of Tamil Nadu from the entire computation. This is because as already held the member-Societies have merely acted as business correspondents of the writ petitioners herein. As regards the remaining amounts, it is open to the writ petitioners to establish before the Assessing Officers that the sums withdrawn by the member-Societies do not represent income at their hands. As evidence the annual income tax returns filed by the member-Societies can be produced. If the second respondent is satisfied that the amounts withdrawn by the member-Societies did not in fact represent in ..... 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