TDS Exemption Not Applicable On Cash Withdrawal By Primary Agricultural Credit Co-Operative Societies: Madras High Court

The Madras High Court has held that the TDS exemption under Section 194N of the Income Tax Act is not applicable to cash withdrawal by primary agricultural credit co-operative societies.

The bench of Justice Anitha Sumanth has noted that the provisions of Section 194 N provide for a mandatory deduction of 2% of cash withdrawals and the object is to discourage and drive the move toward a cashless or cash-free economy.

The petitioners were the agricultural credit cooperative societies that function for the purposes of advancing crop and fertilizer loans to agriculturalists and have accounts with respondent banks.

The petitioner has challenged the Circulars issued by the District Central Cooperative Banks, Salem, Kancheepuram, and Kumbakonam which refers to the statutory mandate of Section 194 N of the Income Tax Act, 1961. It provides for the deduction of tax on cash withdrawals. 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 a banking company, a co-operative society engaged in carrying on the business of banking; or a post office.

The petitioners contended that there should be no deduction at all that could be affected by the withdrawals they made from the banks. The petitioner societies are intermediaries between the bank and agriculturists, who are beneficiaries of the withdrawals made by the petitioners.

The petitioners contended that the cash withdrawn was not the income in the hands of society, thus, there should not be any deduction of tax at source.

The court held that the requirement of Section 194 N is non-negotiable except in line with the specific exceptions stipulated under the proviso.

"The scheme of tax deduction also allows, by way of an application under Section 197, for a payee to seek the remedy of deduction at nil/lower rate under various provisions of the Act. However, Section 194N is conspicuous by its absence therein, and does not figure in the list of such Provisions," the court said.

The court observed that the challenge to the circulars cannot be entertained as the district cooperative banks have merely sought to bring to the notice of the petitioner societies the statutory provisions in regard to the deduction of tax, enjoining that they adhere to and comply with the same scrupulously.

Case Title: Molasi Primary Agricultural Versus ITO

Citation: 2022 LiveLaw (Mad) 502

Case No: W.P.Nos.17136, 17927, 18787, 21856, 24245, 24249, 24251, 24253, 24792, 25143, 25481, 25486, 25719, 25813 & 26343 of 2022

Date: 04.11.2022

Counsel For Petitioner: Advocates C.Prakasam, K.Selvaraj, M.Govindan

Counsel For Respondent: Advocates ANR.Jayaprathap, Hema Muralikrishnan, G.Thilagavathy, ANR.Jayaprathap, R.U.Dinesh Rajkumar

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