ITAT sets aside TDS liability orders under Section 194N for cash payments to agricultural societies pending exemption decision

ITAT Chennai set aside CIT(A) orders regarding TDS liability under Section 194N on cash payments to Primary Agricultural Co-operative Credit Societies (PACCS) for Pongal gifts and agrarian loans. The tribunal noted that Madras HC had granted six weeks to Ministry of Finance and CBDT to decide Tamil Nadu Government's request for exempting PACCS from Section 194N purview. Since the exemption issue remains pending with appropriate authorities and would directly impact the demand, ITAT restored appeals to CIT(A) for fresh adjudication based on the final government decision on PACCS exemption.

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Issues Involved:
1. Demand raised under Section 201(1) / 201(1A) for default in deduction of tax at source (TDS) under Section 194N of the Income Tax Act.

Summary:

Issue 1: Demand Raised Under Section 201(1) / 201(1A) for Default in TDS Deduction under Section 194N
The primary grievance of the assessee pertains to the demand raised under Section 201(1) / 201(1A) for default in TDS deduction under Section 194N of the Income Tax Act. The assessee, a district central co-operative bank, was found to have failed in deducting TDS on cash withdrawals exceeding the threshold limit of Rs. 1 Crore, as mandated by Section 194N introduced by Finance Act 2019. The Assessing Officer (AO) noted that the assessee made payments in cash beyond the prescribed limit and therefore was obligated to deduct TDS. Consequently, the AO held the assessee as an assessee-in-default under Section 201(1) and raised an aggregate demand of Rs. 4.70 Lacs, including interest.

Issue 2: Assessee's Argument on Non-Applicability of Section 194N
The assessee argued that it merely acted as a conduit for distributing welfare schemes (Pongal Inam and Agricultural loans) of the Tamil Nadu State Government through various co-operative societies (PACCS). The assessee contended that these cash withdrawals did not constitute income in the hands of the societies, and thus, the provisions of Section 194N would not apply. The assessee also referenced the decision of the Madras High Court in the case of Tirunelveli DCCB Ltd., which excluded Pongal gifts from the purview of Section 194N.

Issue 3: CIT(A)'s Adjudication
The CIT(A) rejected the assessee's arguments, stating that the provisions of Section 194N were introduced for TDS on cash withdrawals and were not related to taxable income. The CIT(A) noted that the assessee's case did not fall under any exceptions provided in Section 194N. The CIT(A) also observed that the decision in Tirunelveli DCCB Ltd. was stayed by the Madurai Division Bench, and thus, could not be relied upon. Consequently, the demand raised by the AO was confirmed.

Issue 4: Pending Writ Petitions and Directions from Higher Authorities
The bench noted that the assessee and similar entities had approached the Madras High Court, which had stayed the recovery of the demand, with final adjudication pending. The latest decision by the Madras High Court directed the Ministry of Finance and the CBDT to examine the representation by the Tamil Nadu Government seeking exemption for Primary Co-operative Credit Societies from Section 194N. The bench found that the outcome of this examination would have a direct bearing on the demand raised against the assessee.

Final Adjudication
The bench set aside the impugned orders passed by the CIT(A) and restored all the appeals back to the file of the CIT(A) for de-novo adjudication in light of the outcome of the representation made by the Tamil Nadu Government. All appeals were allowed for statistical purposes.

Conclusion
The judgment revolves around the applicability of Section 194N for TDS on cash withdrawals by co-operative societies and the subsequent demand raised under Section 201(1) / 201(1A) for default in TDS deduction. The case has been remanded back to the CIT(A) for fresh adjudication pending the decision by the Ministry of Finance and the CBDT on the exemption sought by the Tamil Nadu Government.

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