Distribution Of Relief Funds Should Be Directly Routed To Beneficiaries' Bank Accounts To Avoid Swindling Of Money: Madras High Court

Justice Krishnan Ramasamy also observed that such acts would save valuable time of members of the Co-Operative Societies as they would not have to go through the process of approaching the society or ration shop to register and collect the money which would have caused them unnecessary hardship. The court added that when a way was available to minimize the mishandling of money, the Government and societies must follow the same.

“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,” the court observed.

The court was hearing a batch of pleas filed by some Co-Operative societies challenging notices issued by the Managing Director of the Tamil Nadu State Apex Cooperative Bank Ltd issued under Section 194A and 194N of the Income Tax Act directing the Cooperative Societies to deduct the TDS for the interest income exceeding a sum of Rs. 40,000.

The Cooperative societies contended that the provisions were applicable only with regard to cash withdrawals made in the course of business transactions and not for withdrawals made by Cooperative societies from Cooperative banks for distribution of cash to its members. It was submitted that the societies were exempted from deductions under the Act as they were merely acting as business correspondence to pass on cash benefits as mandated by the State Government.

On the other hand, the authorities opposed such exemption and submitted that the societies were engaged in the business of issuing loans to their members and purchasing raw materials for them, and such activities were not covered by the exemption under the provisions. It was also submitted that though the societies claimed that they were exempted under Section 80P of the IT Act, the said provision only exempted Co-operative societies from payment of income tax on their income and it did not exempt them from deducting TDS on payment made to their members.

The court noted that the involvement of the cooperative societies, to act as business correspondents of a State Government for distribution of cash benefits to its members was not a banking transaction but a transaction other than the banking activities in nature.

The court also observed that the petition challenging the circular was premature as the eligibility for deduction must have been tested by the Authorities in the course of assessment and if there was any excess deduction, the same would be refunded if the society was entitled to it.

Regarding the activities of the Co-operative Society to deal with cash and distribute the same to the members under different reliefs, the court suggested direct payment to bank accounts considering the probabilities of manhandling. The court added that when amounts were deposited into the bank accounts, their withdrawal should be allowed only in the presence of beneficiaries.

The court also suggested that a provision could be brought in to audit the cooperative societies through Chartered Accountants in addition to the scrutinizing of records by the Auditors. The court also directed the authorities to issue appropriate circulars for entertaining cashless transactions by Cooperative societies by amending the IT Act.

Counsel for the Petitioner: Mr.C.Prakasam, Senior counsel for Mr.P.J.Rishikesh

Counsel for the Respondent: Dr.B.Ramaswamy, Senior Standing counsel

Citation: 2023 LiveLaw (Mad) 406

Case Title: The Chennimalai Siragiri Murugan Primary Handloom Weaver's Cooperative Society Ltd v Income Tax Officer

Case No: W.P.Nos.3919 of 2022