TaxTMI 
TaxTMI 
2024 (1) TMI 410
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.... order of the Commissioner of Income Tax (Appeals) confirming the levy u/s. 201 of Rs. 452660 and the interest u/s. 201(1A) of Rs. 17672 is contrary to law, erroneous and unsustainable to the facts of the case. 2. The CIT(A) erred in holding the assessee as in default under Sec. 194N of the Act for not effecting tax deduction at source on the amounts paid to PACCS towards Pongal Inam/gift and agrarian loans given by the State Government. 3. The CIT(A) further failed to appreciate that the amounts per se does not fall for consideration as income in the hands of assessee under Sec. 4, i.e., charging section and hence there is no liability to effect TDS on the amounts transferred to PACCS. 4. The CIT(A) further failed to appreciate that the amounts does not partake the character of income in the hands of assessee-bank as it is only a conduit in the process of disbursement of moneys to the ration card holders, who are the beneficiaries of the State Govt. welfare schemes and hence there is no basis to hold the assessee as in default for not effecting TDS u/s. 194N on the transfers made to PACCS. 5. The CIT(A) also failed to appreciate that Sec. 194N would apply only for cash wit....
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....come in the hands of these societies and therefore, the impugned provisions of Sec. 194N would not apply. The Ld. Sr. DR, on the other hand, referred to various decisions rendered by Hon'ble High Court of Madras, the latest being the decision in Erode Mavatta Valaman Thodakka (153 Taxmann.com 71). A copy of the same has been placed on record. Having heard rival submissions and considering the directions of Hon'ble High Court of Madras, our adjudication would be as under. Proceedings before Ld. AO 3.1 The assessee is a co-operative society carrying on the business of banking. Its branches are located at various locations / places across the districts of Dharampuri and Krishnagiri of Tamilnadu. A survey was conducted at head office of the assessee u/s 133A(2A) on 26.02.2020 wherein the TDS default u/s 194N was noted. This section was introduced by Finance Act 2019 which obligate the assessee society carrying on the business of banking to deduct TDS on cash withdrawals by recipients at prescribed rate of 2% for cash withdrawal beyond threshold limit of Rs. 1 Crore. Certain exceptions has been provided which include payment made to government or payment to any business correspondent....
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....istribute Pongal Inam to ration card holders, the provisions of Sec. 194N would not apply. The process of distribution was said to be in accordance with GO in DD (No.66) dated 26.11.2019. The assessee further submitted that this business correspondent model was promoted by RBI in 2006 to promote financial inclusion in India. The PACCS acted as business correspondents to pass on cash benefit as mandated by State Government. If the assessee had deducted applicable TDS of 2%, the same would amount to violation of mandate of the State Government. Therefore, the provisions of Sec. 194N were to be harmoniously read to bring the real intention of the legislature. The assessee had distributed crop loans in the similar manner. Another argument was that the control and management of these entities was always with the State Government and the payment made to them would fall under first exclusionary clause which exempt payment made to government. The term government would also include quasi-government bodies. The assessee also referred to the decision of Hon'ble Madurai Bench of Madras High Court in the case of Tirunelveli District Co-operative Bank Ltd. rendered in WP(MD) No.6102 of 2020 on 2....
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.... that the basic factual matrix is not under dispute. The assessee has distributed welfare schemes (Pongal Inam and Agricultural loans) as per policy of State Government. The funds have been transferred by the assessee to various Co-operative societies who apparently do not fall under the exception clause. These societies have withdrawn cash and distributed the same to various beneficiaries as per the Scheme of State Government. Accordingly, the provisions of Sec. 194N have been held to be applicable to the assessee and impugned demand has been raised against the assessee. It has also been held that the case do not fall under any of the prescribed exceptions. 6. It also transpires to the bench 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 (153 Taxmann.com 71). The Hon'ble Court, considering the directions given ....