2024 (1) TMI 410 - AT - Income Tax

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 ... TDS liability u/s 194N - Payment of amount in Cash to co-operative societies - Amounts paid to PACCS towards Pongal Inam/gift and agrarian loans given by the State Government. - demand raised u/s 201(1) / 201(1A) for default in deduction of tax at source - The funds have been transferred by the assessee to various Co-operative societies who apparently do not fall under the exception clause - HELD THAT:- The assessee and similar other assessees have already approached Hon’ble High Court of Madras in Writ jurisdiction wherein the recovery of demand has been stayed by Hon’ble Court but the final adjudication is pending. As rightly pointed out by Ld. Sr. DR, the latest decision has been rendered by Hon’ble Court in the case of Primary Agricultural Co-operative Credit Societies titled as Erode Mavatta Valaman Thodakka [2023 (8) TMI 42 - MADRAS HIGH COURT] As seen that Hon’ble Court has granted six weeks time to Ministry of Finance, Government of India and the CBDT, New Delhi to decide the request made by the Government of Tamil Nadu through the letter of the Chief Secretary to Government of Tamil Nadu dated 27-9- 2022, seeking exemption for all those Primary Co-operative Credit Societies functioning in the State of Tamil Nadu from the purview of Section 194N of the Income-tax Act and accordingly pass orders thereon and communicate the same to the State of Tamil Nadu. The issue of applicability of Sec. 194N to the PACCS has thus been directed to be considered by the appropriate organs of the Government of India. The bench has been made aware that the same is still pending for disposal. Thus bench is of the considered opinion that the aforesaid disposal by appropriate authorities would have direct bearing on the demand raised against the assessee and the issue of applicability of Sec. 194N to co-operative societies, itself, is under consideration by appropriate authorities. On this fact, the bench deem it fit to set aside the impugned orders passed by learned first appellate authority, in all the appeals, and restore all the appeals back to the file of Ld. CIT(A) keeping all the issues open. CIT(A) shall adjudicate the appeals de-novo in the light of outcome of aforesaid disposal of representation made by Government of Tamil Nadu before appropriate authorities. All these appeals stand disposed-off accordingly. 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 194NThe 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 194NThe 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 AdjudicationThe 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 AuthoritiesThe 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 AdjudicationThe 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.ConclusionThe 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.