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TMI Blog2023 (12) TMI 936X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned circulars were issued under Sections 194A and 194N of the Income Tax Act (hereinafter called as "IT Act"). As far as, the impugned circular issued under Section 194A of the IT Act is concerned, the same was issued by the 3rd respondent to the petitioners/Co-operative Societies directing them to deduct the TDS for the interest income, which exceeds a sum of Rs. 40,000/-. As far as the circular pertaining to Section 194N of the IT Act is concerned, the same was with regard to the deduction of TDS as follows: i) 2% for the cash withdrawal, which exceeds a sum of Rs. 20,00,000/- up to Rs. 1 Crore; and ii) 5% for the cash withdrawal, which exceeds a sum of Rs. 1 Crore. 3. Further, he would contend that as far as the cash withdrawal is concerned, if the provisions of Section 194N of the IT Act discourages the cash withdrawal beyond Rs. 20 Lakhs, the same would apply only with regard to the cash withdrawal in the course of business transaction and not for the withdrawal, which was made by the Co-operative societies from the Co-operative Banks, for the purpose of distribution of cash to its members. On the other hand, in the present case, the cash withdrawn by the petitioners/C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies are not covered by the exemption under Section 194N of the Act. 8. He would contend that the petitioners had also argued that they are exempt from TDS under Section 80P of the IT Act. However, he would contend that Section 80P of the Act only exempts the Co-operative Societies from payment income tax on their income and it does not exempt them from the requirement to deduct TDS on payments made to their members. Further, he would refer to the Bank Regulation Act, 1949, which defines banking as follows: "Section 5(b).- "Banking" means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise;" 9. He would further contend that the petitioners are accepting funds from the Government and providing financial accommodation to non-members, this could potentially raise questions about whether its still maintaining its primary focus on serving its members for agricultural purposes, as defined in the Income Tax Act. The fact that PACs is providing financial services to non-members might raise concerns about whether its activities are more in line with those of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Tamil Nadu 16. He would also submit that the CBDT has directed the respondent to issue communications to the petitioner Cooperative Societies in this connection, calling for information as per questionnaire issued by the CBDT. In compliance to the above, in the above mentioned Writ Petitions, requesting them to furnish the issued letters to the petitioner Cooperative Societies information, on or before 30.10.2023, as per the questionnaire issued by the CBDT. The replies from the Cooperative Societies will be collated on receipt and the same will be forwarded to the CBDT for further action. Thereafter, on 13th October 2023, the CBDT through office memorandum passed order in F.NO.370153/9/2023-TPL in which the CBDT discussed the order of the Hon'ble Madras High Court dated 03.03.2023 in subject "Order of Hon'ble Madras High Court dated 3 March, 2023 in Writ Petition 4499, 4536 and 4592 of 2023 and Representation made by Government of Tamil Nadu vide DO Lr NO. 15350/CC1/2022 dated 27.09.2022 regarding applicability of section 194N of the Income Tax Act 17. Further, he would submit that the CBDT having examined the various orders of Madras and Madurai Bench high courts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 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, being the amount or the aggregate of amounts, as the case may be, in cash exceeding one crore rupees during the previous year, to any person (herein referred to as the recipient) from one or more accounts maintained by the recipient with it shall, at the time of payment of such sum, deduct an amount equal to two per cent of such sum, as income tax;" 21. A perusal of the operative portion of Section 194N of the IT Act makes it clear that the Co-operative Societies engaged in carrying on business of banking is responsible for paying any sum, being the amount or the aggregate of amounts, as the case may be, in cash exceeding one crore during the previous year, to any person from one or more accounts maintained by the recipient with it shall, at the time of payment of such sum, deduct an amount equal to two per cent of such sum, as income tax. In the present case, the amount to be paid by the 2nd respondent/Cooperative bank is liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Income Tax Act, it should come within the purview of the guidelines, which was issued in this regard by the Reserve Bank of India. Further, the petitioners/Co-operative Societies had not established that they had distributed the cash benefits as mandated by the State Government to its members as well as non-members in terms of the guidelines of Reserve Bank of India. 25. The activities of the Co-operative Societies, such as accepting the deposits, paying the interest and thereafter redeeming the same for granting loan to agriculturists, weavers or to it's members, are appears to be partly as a banking activities, however, the active involvement of the petitioners/cooperative societies, to act as a business correspondents of a State Government for the distribution of the cash benefits to its members as well as to the non-members such as Pongal enam, flood relief, Covid reliefs and other reliefs, would appears that it is not a banking transaction but a transaction other than the banking activities in nature. 26. As contended by Dr.B.Ramaswamy, learned Senior Standing counsel, the Central government had also increased the limit of Rs. 1 crore as determined in the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th other incomes earned by the societies, are entitled for deduction in terms of Section 80P of the Act. This would also support their stand that no tax is liable to be deducted at source from the withdrawals. 7. The petitioners additionally submit that, in the budget speech of the Hon'ble Finance Minister, while introducing Section 194N, the proposal for deduction of tax of cash withdrawals was restricted to business payments only. The avowed object was 'to discourage the practice of making business payments in cash' and it was proposed 'to levy TDS of 2% of cash withdrawal exceeding one crore in an year from a bank account'. Thus, Section 194N must be held to be applicable only in respect of business payments and the present payments would not come within the ambit of Section 194N. 8. They also refer in their pleadings, to the judgment of the Hon'ble Supreme Court in the case of Commissioner of Income Tax, New Delhi Vs. Eli Lilly and Co. (India) (P) Ltd., [178 Taxmann 505]. This judgment is to the effect that the purpose of provisions for tax deduction under Chapter XVIIB, is to see that any sum which is chargeable to tax under Section 4 of the Income Tax Act must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This demand relates to the period 01.09.2019 to 31.03.2020, post introduction of Section 194 N as well as the period 2020-21. It is only thereafter, that the banks proceeded to apply the provisions of Section 194 N to insulate themselves from any liability in this regard. The impugned circulars have been issued, and must be seen, in the background of the aforesaid events. 15. The provisions of Section 194 N provide for a mandatory deduction of 2% of cash withdrawals and the object is to discourage, and drive the move toward a cashless or cash-free economy. The scheme of tax deduction also allows, by way of an application under Section 197, for a payee to seek the remedy of deduction at nil/lower rate under various provisions of the Act. However, Section 194N is conspicuous by its absence therein, and does not figure in the list of such provisions. 16. The intention is clear, that compliance with the requirement of Section 194 N is non-negotiable except in line with the specific exceptions stipulated under the proviso extracted below: Provided also that nothing contained in this section shall apply to any payment made to - (i) the Government; (ii) any banking company or c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l questions of fact. The society is always entitled to, in the return of income filed by it, seek credit of the taxes attributable to the income returned by it and any excess deduction, if the stand of the societies is accepted in assessment, would have to be refunded to them. Therefore, it would be a premature petition to challenge the circular issued by the Authority concerned. 28. In the present case, the petitioners/Co-operative Societies have challenged the three circulars dated 16.03.2021, 05.08.2021 and 01.04.2021 issued by the 3rd respondent. The said circulars mandate the compliance of provisions of Sections 194A and 194N of the IT Act and in those circulars, the 3rd respondent had not mentioned anything contrary to the provisions of Sections 194A and 194N of the IT Act. Merely, they had brought into the knowledge of the petitioners/Societies to comply with the said provisions along with the latest amendments thereunder. At any cost, the same cannot be challenged under Article 226 of the Constitution of India, unless and otherwise, the provisions of Sections 194A and 194N of the IT Act are struck down with regard to the Cooperative Societies are concerned. 29. Further, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Government is granting benefits to the poor people through their bank accounts. Hence, if it is possible for the land-less people to open their bank accounts, certainly, the petitioners/Co-operative Societies cannot plead any excuse that its members, who are all having lands, are not in a position to open the bank accounts since it is very easy process to open the bank account for anyone at present. 33. If any distribution of cash for reliefs such as Pongal enam, flood relief, covid relief, etc., the same can be rooted through the respective bank accounts directly, whereby unnecessarily the members need not approach the Co-operative Societies for claiming the said reliefs. On the other hand, it will be automatically credited to their respective bank accounts and message, intimating the said deposit, will also be sent to their phones. In such case, the valuable time of the farmers and other members of the societies will be saved and the work of the cooperative society will also get reduced. 34. Even in the ration shop of my village, I had personally experienced, where my relatives had purchased only the eligible sugar but they had received an intimation through message as if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shops, etc., should not be allowed for withdrawal of the said reliefs by bringing the cheques from its members. If it is allowed, there are chances for malpractices and mishandling of cash hereagain. (iv) In a similar way, if any loan is granted to the members of the societies, the said loan has to be directly credited to the respective bank accounts of the members, in which case, the withdrawal should be permitted only in the presence of respective members of the cooperative society since there is a chance for collecting of cheques by the Societies from its members and withdrawing the loan amount under the guise of helping the poor farmers, which again lead to mishandling of money. Hence, the same should not be allowed. The aforesaid aspects has to be ensured by the respective banks and Co-operative Societies and other Government Agencies, who are involved in the distribution of cash to public. (v) Further, this Court would suggest to consider and make a provision to audit the Co-operative Societies through the Chartered Accountant in addition to the present method of scrutinising the records by the Auditors. (vi) The 1st respondent shall also consider with regard to the is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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