Madras HC recommended Direct Transfer of Relief Funds to Bank Accounts to Prevent Misappropriation

LI Network

Published on: December 22, 2023 at 18:25 IST

The Madras High Court has recommended the direct transfer of relief funds, such as flood relief and Pongal gifts, to the bank accounts of beneficiaries rather than making cash payments.

The Court emphasized that channeling payments through bank accounts would significantly reduce the risk of funds being swindled by those responsible for their distribution.

Justice Krishnan Ramasamy underscored that such a measure would not only prevent mishandling of funds but also save the valuable time of Cooperative Societies’ members. By eliminating the need to register and collect money through the society or ration shop, beneficiaries would experience less unnecessary hardship.

The Court asserted that when an effective method exists to minimize financial mishandling, both the government and societies should adopt it.

The court further expressed concern that cash payments for government benefits could lead to corruption and misappropriation, emphasizing the importance of eradicating such issues.

The Court stated, “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’s recommendations came during a hearing on petitions filed by Cooperative societies challenging notices issued by the Managing Director of the Tamil Nadu State Apex Cooperative Bank Ltd. These notices directed Cooperative Societies to deduct TDS for interest income exceeding Rs. 40,000 under Section 194A and 194N of the Income Tax Act.

Cooperative societies argued that these provisions applied only to cash withdrawals in business transactions, not withdrawals made by societies from Cooperative banks for distributing cash to members. They contended that the societies were exempted from deductions under the Act as they acted solely as business correspondents, passing on cash benefits as mandated by the State Government.

In response, authorities opposed this exemption, arguing that the societies were involved in loan issuance and purchasing raw materials for members, activities not covered by the exemption under the provisions.

The Court noted that the involvement of cooperative societies in distributing cash benefits was a transaction outside the scope of traditional banking activities.

The court suggested auditing cooperative societies through Chartered Accountants, in addition to scrutinizing records by Auditors. It also directed authorities to issue circulars enabling cashless transactions by Cooperative societies through amendments to the IT Act.

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

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