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2022 (11) TMI 1546 - HC - Income TaxTDS u/s 194N on Primary Agricultural Co-operative Credit Societies - deduction of tax on cash withdrawal - Societies function for the purposes of advancing crop and fertilizer loans to agriculturalists and have accounts with R2 banks - HELD THAT - Identical issue arose in a batch of matters in the case of S.N. 299 Molasi Primary Agricultural Cooperative Credit Society 2022 (11) TMI 1213 - MADRAS HIGH COURT it was open to the banks to establish before the assessing officers that the sums withdrawn by the member societies did not represent income in their hands after considering the evidence available in that regard. The aforesaid examination can be carried out only in the instance of the societies and not at the instance of the banks who are payers with statutory responsibility to deduct. That apart the matter is stated to be pending in appeal in batch and interim stay granted on 17.12.2020. For the above reasons the challenge to the impugned Circulars cannot be entertained as the District Central Cooperative Banks have therein merely sought to bring to the notice of the petitioner societies the statutory provisions in regard to deduction of tax enjoining that they adhere to and comply with the same scrupulously. There could be no fault attributed to R2 Banks in this regard. The challenge to the Circulars fail and these Writ Petitions are dismissed both on the ground of maintainability as well as merits.
The judgment addresses a series of writ petitions filed by Primary Agricultural Co-operative Credit Societies challenging circulars issued by District Central Cooperative Banks regarding the deduction of tax on cash withdrawals under Section 194N of the Income Tax Act, 1961. The core legal questions considered revolve around the applicability of Section 194N to these societies, the interpretation of the statutory mandate, and the potential exemptions available under the Act.
Issues Presented and Considered The primary issues considered are:
Issue-Wise Detailed Analysis 1. Applicability of Section 194N Section 194N mandates a 2% tax deduction at source on cash withdrawals exceeding one crore rupees in a financial year from banks, cooperative societies, or post offices. The petitioners argue that this deduction should not apply to them as they act as intermediaries facilitating loans to farmers, and the withdrawals do not constitute income in their hands. They contend that the deduction would prejudice the ultimate beneficiaries, namely the farmers. The Court interprets Section 194N as a mandatory provision aimed at discouraging cash transactions and promoting a cashless economy. The statutory framework does not provide for a nil or lower deduction rate under Section 194N, unlike other provisions where such applications can be made. The Court emphasizes the non-negotiable nature of compliance with Section 194N, except for specific exemptions outlined in the proviso. 2. Exemptions and Relief Mechanisms The petitioners claim parity with commission agents or traders under the Agricultural Produce Market Committee (APMC), who are exempt from tax deductions on cash withdrawals for agricultural payments. They cite a CBDT Notification allowing such exemptions and argue for similar treatment. The Court notes that the petitioners may seek exemption through the statutory mechanism provided, which involves approaching the competent authority, potentially the Finance Minister, for relief from the application of Section 194N. The Court clarifies that eligibility for deductions under Section 80P or reliance on the judgment in the Eli Lilly case is premature, as these involve factual determinations during the assessment process. 3. Maintainability of Writ Petitions The respondents challenge the maintainability of the writ petitions, citing the decision in K. Marappan v. Deputy Registrar of Co-operative Society, which mandates the use of alternative statutory appeal mechanisms under the Tamil Nadu Cooperative Societies Act. The Court agrees, stating that the writ petitions are not maintainable due to the availability of alternative remedies. Significant Holdings The Court holds that the circulars issued by the District Central Cooperative Banks merely highlight the statutory provisions under the Income Tax Act, and there is no fault in their issuance. The challenge to the circulars is dismissed on both maintainability and merits. The Court reiterates the mandatory nature of Section 194N and the limited scope for exemptions, urging the petitioner societies to seek redress through the appropriate statutory channels if they believe they qualify for exemptions. In conclusion, the writ petitions are dismissed, affirming the applicability of Section 194N to the petitioner societies and emphasizing the statutory framework's intention to promote a cashless economy. The Court underscores the need for compliance with tax deduction provisions and directs the petitioners to pursue any potential exemptions through the established statutory procedures.
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