LI Network
Published on: 2 August 2023 at 11:05 IST
The Madras High Court has directed the Ministry of Finance and the Central Board of Direct Taxes (CBDT) to take action on the Tamil Nadu Government’s request within six weeks, concerning the exemption of Primary Agricultural Cooperative Credit Societies (PACS) from Tax Deducted at Source (TDS) under Section 194N of the Income Tax Act.
The request pertains to cash withdrawals received from the Central Cooperative Bank for further distribution to beneficiaries.
Justice R. Suresh Kumar, presiding as a Single Judge, emphasized that since the enactment of Section 194N in September 2019, the Societies seeking relief must seek exemption from the provision if they wish to be exempted from TDS.
Advocates C. Prakasam and Kalaiselvam V.O.S represented the Petitioners, while Senior Central Government Standing Counsel Dr. B. Ramaswamy and Additional Government Pleader P. Gurunathan appeared for the Respondents.
The case involved Primary Agricultural Cooperative Credit Societies engaged in lending money to members for agricultural and allied activities. Under the Pongal welfare scheme, the State Government allotted funds to a Central Cooperative Bank, which the Petitioners would withdraw in bulk and distribute to the beneficiaries.
These cash withdrawals were considered the income of the Petitioners, subjecting the Central Cooperative Bank to deduct tax at 2% under Section 194N when the cash payment exceeded Rs. 1 crore during the previous year. A circular issued by the Central Cooperative Bank instructed the Societies to comply strictly with the provisions of Section 194N.
Challenging the Circular, the Petitioners contended that they merely acted as facilitators for the welfare scheme’s implementation.
The Bench observed that a co-ordinate bench in the Molasi Primary Agricultural Cooperative case had held that since Section 194N is a statutory provision, the Central Cooperative Banks must comply with the Circular and deduct taxes. Subsequently, in the cases of Kuppammalpatti, Thirumohur, and Podaturpet Venkateswara Primary Agricultural Cooperatives, the petitions were dismissed, and the Societies were directed to await the decision on the request sent by the Tamil Nadu Government to the finance minister and CBDT for exemption of Cooperative Credit Societies from Section 194N.
The High Court noted that although an earlier Mandamus had directed the Ministry of Finance and the CBDT to promptly examine the representation of the Tamil Nadu
Government for exemption of Societies from Section 194N and provide an opportunity for hearing to the Government and stakeholders through public notice, no such exercise had been conducted to date.
In response to the assurance from the Revenue Department that a decision would be made within a reasonable period, the High Court granted an additional six weeks for the Ministry of Finance and the CBDT to decide on the Tamil Nadu Government’s request for exemption of cooperative societies from Section 194N and pass appropriate orders accordingly.