O R D E R

This Writ Petition has been filed by Primary Agricultural Co-operative Credit Society (in short ‘Society’) and turns on the appreciation of a common set of facts as well as legal provisions.

2. The petitioner society challenges Circular issued by the District Central Cooperative Bank, Vellore, in Na.Ka.No.105/2019-20 May (Va) dated 17.07.2020. The society function for the purposes of advancing crop and fertilizer loans to agriculturalists and has accounts with R2 bank.

3. I have had occasion to consider the identical issue as arising in these writ petitions in a batch of matters in the case of S.N.299 Molasi Primary Agricultural Cooperative Credit Society Ltd. V. The Income Tax Officer, Namakkal (W.P.Nos.17136 of 2022 etc. Batch dated 04.11.2022), wherein I have passed the following order:

3. The impugned Circulars refer to the statutory mandate of Section 194 N of the Income Tax Act, 1961 (in short ‘Act’) providing for deduction of tax on cash withdrawal. The provisions of Section 194 N coming under Chapter XVII dealing with ‘collection and recovery – deduction at source’ provides for deduction of an amount equal to 2% of any cash withdrawal made by persons from (i) 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 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 That apart, the funds withdrawn by the petitioners for onward transmission to the farmers, even if construed to be the income of the petitioner societies together with other incomes earned by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 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 be brought within the ambit of tax with the requisite deduction.

9. Thus, it is only in respect of amounts that constitute income in the hands of the payee that tax should be deducted. In the present case, the withdrawals do not constitute income of the petitioner and hence such liability would not arise. 10. They place great reliance upon a CBDT Notification bearing No.70 of 2019 dated 20.09.2019, whereunder commission agents or traders operating under the provisions of the Agricultural Produce Market Committee (APMC) have been permitted to withdraw cash in excess of one crore without deduction of tax at source, upo