Section 194N of the Income Tax Act mandates TDS on cash withdrawals exceeding Rs. 1 Crore, applicable to cooperative societies, promoting a cashless economy.

ORDER :

C.Saravanan, J.

In this writ petition, petitioner has challenged the order passed by the 2^nd respondent in proceedings bearing Na.Ka.No.01560/95-96/Valarchi 1, Dev.Circular No.12/2020-21 dated 01.04.2021.

2. Operative portion of the impugned order reads as under:

“In the letter of Tamil Nadu State Chief Co-operative Bank found in Reference 2, details of the amendments made in the Finance Act – 2021 regarding the deduction and payment of TDS amount in connection with the income tax account have been given.

In the above circular of Chief Co-operative Bank, details of Income Tax Rate Structures to be deducted from the bank in the financial year 2021-2022, Service Tax Charges and submission of Tax Accounts have been given.

Chief Banking Divisional Manager and all Branch Managers of the Bank are hereby informed to strictly follow the instructions given in the circular of Chief Co-operative Bank attached hereto.

Acknowledgement of receipt of this circular is requested to be sent by return post.”

3. The specific case of the petitioners is that the petitioners are Weavers Cooperative Production and Sale Society engaged in utilizing the services of weavers by supplying yarn to weavers for making dhoties, sarees and bed etc.

4. The learned counsel for the petitioners submitted that the payments are made to the weavers for their labour and similarly, payments are made to the supplies of yarn. The amounts deposited into the 2nd respondent Bank by the Government towards the manufactured products by weavers are marketed through State Government Agencies, for which, the petitioners get 30% subsidy from the State Government. It is submitted that the activity undertaken by the petitioner is on No Profit & No Loss basis and therefore, deduction of TDS by the 2^nd respondent Bank in terms of Tamil Nadu State Head Cooperative Bank Circular dated 17.03.2021 is contrary to Section 194N of the Income Tax Act, 1961 (hereinafter referred to as 'IT Act').

5. On the other hand, learned Senior Standing Counsel appearing for the respondents 1 & 3 submitted that as per Section 194N of the IT Act, 2^nd respondent Bank was duty bounded to deduct 2% TDS for paying any sum, being the amount or the aggregate of amount, as the case may be, in cash Rs.3 Crores during the previous year.

5.1. In this connection, learned Senior Standing Counsel drew the attention of this Court to Paragraph Nos.11 to 16 of the counter affidavit filed by the 1st respondent, wherein, it has been stated as follows:

“11. Further, as per the 2^nd proviso to Sec.198 of the Income Tax Act, 1961 , the sum deducted in accordance with Sec.194N for the purpose of computing the income of an assessee, is not deemed to be income received. Whereas in respect of TDS made under other sections of the Act, the TDS amount is considered as the income of the deductee. Sec.194N of the Act introduced TDS on amount which may not form part of the income of the deductee and this law has been duly approved by the Parliament. Therefore, the provisions of Sec.194N will have to be followed in word and spirit.

12. It is reiterated that Sec.194N has been inserted with an avowed object of phasing out black money through cashless transactions and encourage transactions through banking channels.

13. The provision of law introduce in Section 194N is intended to promote digital economy and curtail cash transactions. In any case of the deduction, if any made u/s. 194N in the case of the petitioner is made available as tax credit to the petitioner and can be claimed as refund by the petitioner while filing Return of Income. Hence, the deduction u/s.194N does not in any way affect the claim of petitioner u/s.80P of Income Tax Act, 1961 .

14. It is submitted that provisions of Section 194N is applicable only if there are cash withdrawals exceeding Rs. One Crore during a financial year. As long as these societies operate through banking channels and cash withdrawals, if any, do not exceed Rs. One Crore, question of TDS under Section 19