The writ petitioners are Societies registered under the Tamil Nadu Co-operative Societies Act, 1983. They have been licensed by the Reserve Bank of India to carry on banking business. The main account holders with the writ petitioners are the various Primary Co-operative Societies, who provide loans and advances to the end recipients. In the affidavits filed in support of the Writ Petitions, the nature of activities carried on by the writ petitioners has been spelled out. The writ petitioners grant loans to the member-Societies by crediting the same in the loan accounts standing in their names. The member-Societies in-turn transfer the funds to the farmers through banking channels, if they also having accounts. But financial inclusion is still a far cry. Most of the farmers do not have bank accounts. Therefore, the member-Societies withdraw cash from their accounts for making cash disbursements.
Income Tax Officers conducted survey proceedings at the business premises of the writ petitioners under Section 133A [2A] of the Income Tax Act, 1961. and found that the writ petitioners were not deducting tax as required under Section 194N of the Act. Based on the data gathered during the survey proceedings, show cause notices were issued in the first week of March 2020. He called the assessee to explain why an order should not be passed under sections 201(1) and 201(1A) to recover the default amount with interest from them. The assessee contended that by reading section 194N along with section 201, one can safely conclude that if the sum received by the assessee will not be an income in his hands, the question of deduction under section 194N will not arise.
The Hon’ble Supreme Court in a recent decision reported in (2019) 13 SCC 747 (Commissioner of Income Tax Vs. M/s. Vasisth Chay Vyapar Limited ) observed that income tax is levied on income. If income does not result at all, there cannot be levy of tax. Even if an entry of hypothetical income is made in the books of account, but, if the income does not result at all, then there is neither accrual nor receipt of income and no tax can be levied.
Madras high court led by G.R. Swaminathan, J. said that the Bombay HC in the case of Rashmikant Shah v. Union of India has held that the provision of TDS is not a charging provision. It only makes deduction of tax at source on payment which is income in hands of the payee. If the payee has no liability to pay tax on such income. Liability to deduct TDS in the hands of the payer cannot be fastened. Madras HC then on this petition held that AO failed to take into account the entire scheme of the Act and proceeded at breakneck speed. Thus, the matter was remitted back to AO for issuing fresh notice to the assessee. The assessee was, at liberty, to bring on record the returns filed by member societies who had withdrawn cash beyond the ceiling limit of Rs. 1 crore. It was open to the assessee to establish before AO that the sums withdrawn by the member societies do not represent income at their hands. If AO was satisfied that the amount withdrawn did not represent income at their hands, he will drop further action. If he is not so satisfied, it was open to him to pass further orders in accordance with the law.
TIRUNELVELI DISTRICT CENTRAL COOPERATIVE BANK LIMITED (Rep. by its General Manager) vs. JOINT COMMISSIONER OF INCOME TAX (TDS) AND ANR.
Decision in favour of: AssesseeHIGH COURT OF MADRAS