2022 (11) TMI 1213 - HC - Income Tax

TDS u/s 194N - deduction of tax on cash withdrawal - Primary Agricultural Co-operative Credit Society - case of the petitioners that there should be no deduction at all, that could be effected from the withdrawals made by them from the banks - HELD THAT - An avenue provided for a recipient falling outside the scope of the exceptions, to seek exemption from the application of Section 194N and hence, if at all the petitioners believe that they qualify for the exemption, they may seek redressal under the in-built statutory mechanism provided as above, if they so choose. To a query from the Court, as to who would constitute the specific authority before whom such prayer was to be made, the respondents have reported written instructions from the Commissioner of Income Tax (TDS), Coimbatore stating thus As per business allocation rule, Central Government for tax purposes is Finance Minister of India. Hence, any request may be in the name of the Finance Minister with copy to CIT ITA CBDT North Block who would process such requests. The petitioners may thus approach the competent authority in the Government seeking relief from the application of Section 194N of the Act. The submissions in relation to the grant of deduction under Section 80P are premature as is reliance upon the judgement in the matter of Eli Lilly 2009 (3) TMI 33 - SUPREME COURT . Eligibility to deduction must be tested by the authorities in the course of assessment as it involves the determination of several 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. Ld. Judge also proceeds to state that it was open to the banks to establish before the assessing officers that the sums withdrawn by the member societies did not represent income in their hands, after considering the evidence available in that regard. In my considered view, 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. 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.

Summary

Issues:
Challenge to Circulars issued by District Central Cooperative Banks regarding deduction of tax on cash withdrawals by Primary Agricultural Cooperative Credit Societies.

Analysis:
The Writ Petitions filed by Primary Agricultural Cooperative Credit Societies challenge Circulars issued by District Central Cooperative Banks regarding deduction of tax on cash withdrawals. The petitioner societies function to advance crop and fertilizer loans to agriculturalists and have accounts with the Banks. The Circulars refer to Section 194N of the Income Tax Act, 1961, mandating a 2% deduction on cash withdrawals. The petitioners argue that no deduction should be made as they are intermediaries between the bank and agriculturists, and the withdrawals are ultimately for the benefit of farmers and small traders. They also rely on Section 80P of the Act for deduction, emphasizing that withdrawals do not constitute their income, hence no tax should be deducted.

The petitioners further argue that Section 194N should only apply to business payments, citing the Finance Minister's budget speech during the introduction of the section. They also reference a judgment of the Supreme Court to support their stance that tax deduction should apply only to income of the payee. Additionally, they highlight a CBDT Notification allowing certain withdrawals without tax deduction for payments to farmers, seeking parity with Agricultural Produce Market Committees (APMCs) to avoid tax liability.

The respondents, including the Income Tax department and the Banks, assert the mandatory nature of Section 194N and the objective to encourage a cashless economy. They point out that the Circulars were issued in response to non-deduction of taxes by the Banks, leading to a subsequent demand for tax. The respondents emphasize that Section 194N provides for exemptions, and if the petitioners believe they qualify, they can seek relief through the statutory mechanism provided.

The Court notes that the petitioners' arguments regarding Section 80P and the Eli Lilly judgment are premature and should be addressed during assessment. They also refer to a previous order allowing certain assessments to be redone, emphasizing that the examination of income status should be done at the society's instance, not the banks'. Ultimately, the Court dismisses the challenge to the Circulars, stating that the Banks were merely informing the petitioners of statutory provisions regarding tax deduction, and no fault could be attributed to the Banks. The Writ Petitions are dismissed on grounds of maintainability and merits, with no costs awarded.