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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 ..... 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. As far as the application of Section 194A of the IT Act is concerned, the petitioners are liable to deduct the TDS as provided thereunder. Whenever the deposits or investments are made with the societies, the societies are liable to deduct the tax on the interest payment. The eligibility for 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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. This Court is inclined to suggest and pass the following orders: (i) Any benefit, such as pongal enam, flood reliefs, etc., shall be made only through the bank accounts of the respective members or non-members of the Co-operative Societies. The said act will save the valuable time of the members of the said Societies since if they are called for the payment of cash, initially they have to approach the Society or ration shop, etc., to register their name along with the address and thereafter, again they have to approach the Society or ration shop, etc., to collect the money, which would unnecessarily cause hardship for the members as well as the ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed the above suggestions, there is no need for them to handle any cash transaction any more. The above order would also avoid the distribution of reliefs in the fictitious name, since the same will happen very often at the cooperative societies, due to which, a large number of cases were also filed against the officials of the cooperative society and pending before the Courts. WP disposed of. - And W.M.P.Nos.4069, 4072, 5098, 5101, 6662, 7503, 10620, 10622, 10624 10626 of 2022 Hon'ble Mr. Justice Krishnan Ramasamy For the Petitioner in W.P.Nos.3919 4966 of 2022 : Mr.C.Prakasam, Senior counsel for Mr.P.J.Rishikesh For the WP.Nos.11028, 11033, 11034, 6556, 7499 11032 of 2022 : No appearance For the Respondents in all Petitions : Dr.B.Ramaswamy, Senior Standing counsel for R1, No appearance for R2 to R4 COMMON ORDER These writ petitions have been filed challenging the impugned notices issued by the 3rd respondent dated 16.03.2021, 05.08.2021 and 01.04.2021. 2. The learned counsel for the petitioner would submit that the aforesaid impugned circulars were issued under Sections 194A and 194N of the Income Tax Act (hereinafter called as IT Act ). As far as, the impugned circular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being Co-operative Societies, are entitled for exemption from any deduction under the said Section of the Act. Therefore, they are not liable for deduction of any amount in terms of the provisions of Section 194N of the IT Act and the said circulars issued by the 3rd respondent are liable to be quashed. 7. On the other hand, Dr.B.Ramaswamy, learned Senior Standing counsel appearing for the respondent had vehemently opposed for granting any exemption for the petitioner/Co-operative Society. He would contend that the petitioners are not exempt from TDS under Section 194N of the IT Act, since the said Section is only applicable for Agricultural Producers Market Committees (APMCs) from the requirement to deduct TDS on certain payments made to its members. However, the petitioners are not APMCs and they are not engaged in same type of activities as APMCs. The petitioners are Co-operative Weavers Societies and they are engaged in the business of issuing loans to their members and purchasing raw materials for them. This type of activities 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He would further submit that on 24.03.2020 the letter of the state government sent by then Hon'ble Chief Minister addressed to the Minister of Finance, Govt. of India to increase the cash withdrawal limitation from 1 Crores to 3 crores. Based on which the CBDT has issued the following notification. 14. He had also referred to a combined order dated 03.03.2023, and submitted that the Hon'ble Madras High Court in Writ Petition (MD) Nos. 499, 4536 4592 of 2023, had directed the Department to examine the representation in D.o. Ir No. 15350/CC1/2022 dated 27.09.2022 ent by the Chief Seceretary, Government of Tamil Nadu and pass a reasoned order dealing with each of the contentions raised on merits and in accordance with law. 15. Further, he would submit that on the above connection, as directed by the Hon'ble High Court, communications were issued by the CBDT to the Government of Tamil Nadu, requesting 10 certain details. However, as communicated by the CBDT, no reply has been received from the Government 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, callin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... April, 2023. At this juncture, on 24.03.2020 the letter of the state government by then Hon'ble Chief Minister addressed to the Minister of Finance, Govt. of India to increase the cash withdrawal from 1 Crores to 3 crores. Based on which the CBDT has issued the above notification providing such an immunity. Hence, he prays for the dismissal of these writ petitions. 19. I have given due consideration with regard to the submissions made by the learned counsel for the petitioners and the learned Senior Standing counsel for the 1st respondent and also perused the materials available on record. 20. The crux of the issue involved and has to be decided in these writ petitions is as to whether the petitioners/Co-operative Societies are entitled for exemption from deduction of Tax under Sections 194N and 194A of the IT Act. At this juncture, it would be appropriate to extract Section 194N of the IT Act, which reads as follows: 194N . Every person, being- (1) 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Reserve Bank of India under the Reserve Bank of India under the Reserve Bank of India Act, 1934 4) Any white label automated teller machine operator of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the authorisation issued by the Reserve Bank of India under the payment and Settlement Systems Act, 2007; 23. In the present case, the petitioner had taken a stand that they are business correspondents to pass on the cash benefits as mandated by the State Government and hence, they are qualified for being exempted under Section 194N of the IT Act. 24. No doubt that the petitioners/cooperative societies have been receiving deposits and thereafter redeeming the same. That apart, the cooperative societies are also granting loans to its members. However, they have taken a stand that they are acting as a business correspondents to pass on cash benefits as mandated by the State Government. However, though it is mandated 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gulation 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. 4. It is the 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. The petitioner societies are intermediaries between the bank and agriculturists, who are beneficiaries of the withdrawals made by the petitioners. 5. In most instances, the amounts have been sanctioned by the State and the petitioner societies are mere conduits or facilitators. Thus, deduction of tax, in such a situation, would greatly prejudice the ultimate beneficiaries of the loans who are farmers and small traders. 6. That apart, the funds withdrawn by the petitioners for onward transmission to the farmers, even if construed to be the income of the petitioner societies together with 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 addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme of the Tamil Nadu Cooperative Societies Act, 1983, it is only the alternative and statutory appeal mechanism, particularly appeal provision under Section 153 that must be invoked by the Cooperative Societies. The Banks also point out that the Circulars merely draw attention to the statutory provisions of the Income tax Act in regard to tax deduction. 13. Heard learned counsel. The counter filed by the Kancheepuram Central Cooperative Bank Limited, R2 in W.P.No.21856 of 2022 states that there are 264 Primary Agricultural Societies (PACCS) functioning under it. Pursuant to the introduction of Section 194 N w.e.f. 01.07.2020, there was a wide ranging survey by the Income-tax Department where it was noticed that the bank had not deducted taxes for the cash payments exceeding, in aggregate, a sum of rupees one crore. 14. The bank was thus taken to task and its liability for non-deduction was determined at a sum of Rs. 9,58,77,590/-. 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 lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 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 above order passed by this Court had already attained its finality. 27. As far as the application of Section 194A of the IT Act is concerned, the petitioners are liable to deduct the TDS as provided thereunder. Whenever the deposits or investments are made with the societies, the societies are liable to deduct the tax on the interest payment. The eligibility for 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cooperative societies viz., Secretary or other Officials, in collusion with other officers, had opened hundreds of fictitious accounts and granted loans to those fictitious accounts. Thereafter, if there is any loan waiver or interest waiver granted by the Government, the same benefits will goes to the persons, who are all involved in the creation of those fictitious accounts. Hence, this is where the Societies are functioning in an unregulated manner. It is also due to the reason that the qualified Auditors had not been mandated to audit the accounts of the Societies and only the departmental audits have been conducted, which would pave the way for all sort of malpractices in those cooperative societies. Under these circumstances, Section 194N of the IT Act would be one of the ways to curb the malpractices in distribution of cash and encourage the cashless economy. 32. Now-a-days, the Central 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be hassle-free for the public and there will be no question of mishandling of any cash; (ii) If there is payment of cash for all the benefits provided by Government, such as pongal enam, flood reliefs, etc., it would only encourage and pave way for the mishandling of money and the same will also lead to the misappropriation of money and corruption at a large extent. When a way is available to completely eradicate the corruption and mishandling of money, etc., necessarily the Government/Societies, etc., should follow the same and distribute all sorts of reliefs through their bank accounts, in which case, the question of TDS would not arise. (iii) When the reliefs are credited to the respective bank accounts of the beneficiaries, the withdrawal of the same should be allowed only in the presence of the beneficiaries in person. At any cost, the officials of the cooperative societies/ration 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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