THE DISTRICT CENTRAL CO-OP. BANK LTD.,TIRUNELVELI vs. ITO, TDS WARD,, TIRUNELVELI
आयकर अपीलीय अिधकरण ‘सी’ ायपीठ, चेई।
IN THE INCOME TAX APPELLATE TRIBUNAL
‘C’ BENCH: CHENNAI
माननीयीमनुकुमार िग र, ाियकसद एवं
माननीय अिमताभ शु'ा, लेखा सद के सम)
BEFORE HON’BLE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND SHRI HON’BLE AMITABH SHUKLA, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No.1113/Chny/2025
िनधा:रण वष: /Assessment Year: 2020-21
The District Central Cooperative
Bank Ltd.,
Vannarpet,
Tirunelveli – 627 003. PAN: AAAAT 7955J
Vs.
The Income Tax Officer,
TDS Ward,
Tirunelveli.
(अपीलाथ/Appellant)
( यथ/Respondent)
अपीलाथF की ओर से/ Appellant by :
Shri Y.Sridhar, FCA
HIथF की ओर से /Respondent by :
Ms. R. Anitha, Addl. CIT
सुनवाई की तारीख/Date of Hearing
:
16.06.2025
घोषणा की तारीख /Date of Pronouncement
:
11.09.2025
आदेश / O R D E R
PER MANU KUMAR GIRI (Judicial Member): This appeal filed by the assessee is directed against the order passed under section 201(1)/201(1A) of the Income Tax Act, 1961 (‘the Act’) dated 11.03.2020 and revised on 19.03.2024, for the assessment year 2020-21, wherein a demand of Rs.2,81,08,896/- (later revised to Rs.4,08,85,687/-) was raised on account of non-deduction of TDS under section 194N. The District Central Co-op. Bank Ltd.
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The assessee has raised the following legal grounds of appeal:
“1. That the Order of the Ld. Addl. CIT (Appeals-10), Mumbai is erroneous on the facts and the merits of the case and provisions of Law as well and hence requires to be quashed.
That the Addl. CIT(A) erred in failing to appreciate that the directions of the Madurai Bench of the Hon'ble Madras High Court while disposing the writ appeal of the appellant has not been complied by the Ld. AO (TDS) and thus the order passed by the Addl. CIT(A) stands vitiated.
That the Ld. Addl. CIT(A) erred in failing to appreciate that the order of the Ld. AO (TDS) which failed to comply with the directions of the High Court is contemptuous and therefore requires to be quashed.
That the benefit of retrospective application of third proviso to S. 194N needs to be extended to the appellant and the computation of quantum of amounts covered u/S 194N needs to be recomputed by providing additional deduction of Rs. 2,00,00,000/-.
That the Id. Addl. CIT (A) erred in not adhering to the directions of the Hon'ble Bench of Madras High Court that, if the recipients were proven to have filed Returns of Income for AY 2020-21, then the liability cannot be cast u/s 194N on the appellant.
For those and other reasons that may be adduced at the time of hearing, it is prayed by the Appellant that the Hon'ble Tribunal may be pleased to delete the unjust and inexplicable demand and thus render justice.”
Background and Facts of the Case: The assessee is a District Central Co-operative Bank functioning in the districts of Tirunelveli and Tenkasi, catering to the needs of the Primary Agricultural Cooperative Banks (PACBs) who maintain accounts with the appellant. Due to various constraints beyond the The District Central Co-op. Bank Ltd.
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control of the assessee, TDS under section 194N was not deducted on certain cash withdrawals made by the PACBs, particularly during the initial phase post introduction of the said section, which came into effect from 01.09.2019. One of the key components of the withdrawn amount relates to Pongal Cash Gift of Rs.1,000/- per rice card holder distributed by the Government of Tamil Nadu through the PACBs, totaling Rs.
47,67,35,000/-.
The appellant contended that the sum withdrawn for distribution of Pongal Gift does not constitute income in the hands of the PACBs and therefore does not attract TDS under section 194N, relying on the Hon’ble Supreme Court’s judgment in CIT v. Vasisht Chay Vyapar Ltd. [2019] 13 SCC 747 (SC). He further submitted that the PACBs function as Business Correspondents of the appellant Bank and are thus covered under the exemption in section 194N(iii). If the PACBs had filed their Returns of Income (ROI), the benefit of the first proviso to section 201(1) and second proviso to section 40(a)(ia) becomes applicable, preventing the appellant from being treated as an assessee-in-default. The Hon’ble Madurai Bench of the Madras High Court had already granted relief in similar matters and directed the AO The District Central Co-op. Bank Ltd.
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to reconsider the levy in light of the above. He furthermore submitted that the third proviso to section 194N, inserted with effect from 01.04.2023, though prospective, is a beneficial provision and must be applied retrospectively as per the principles laid down by the Supreme
Court in Allied Motors (P) Ltd. v. CIT [1997] 224 ITR 677
(SC) and Vatika Township (P.) Ltd. [2014] 49 taxmann.com 249 (SC).
He stated that the order passed by the NFAC and the CIT(A) failed to appreciate the binding directions of the juri ictional High Court and dismissed the appeal summarily.
Per contra, the Ld. DR relied upon the impugned order and pleaded for the dismissal of the appeal of the assessee.
We have heard the Ld. Counsel of the assessee and the Ld. DR, and carefully perused the material on record. The issue of whether TDS u/s.194N of the Act is to be applied on amounts withdrawn for distribution of Pongal Cash Gift, which is not income in the hands of the PACBs but merely a conduit for State Government welfare schemes. As per the newly inserted provisions of section 194N read with its objects, the Hon’ble Supreme Court in the case of Vasisht Chay Vyapar Ltd. (supra) is not applicable in the present case as the The District Central Co-op. Bank Ltd.
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withdrawal of cash is neither an expenditure in the hands of the PACBs nor the income in the hands of the assessee.
However, we find merit in the assessee’s submission that the PACBs operate as Business Correspondents and qualify for exemption under clause (iii) of section 194N, especially as affirmed by the Madurai Bench of the Madras High Court. On the issue of non- deduction of tax due to failure to comply with section 194N of the Act, we note that if Form No.26A is submitted by the PACBs on the TRACES portal and the respective ROI has been filed, then by virtue of the first proviso to section 201(1) and the second proviso to section 40(a)(ia), the assessee cannot be deemed to be ‘assessee-in-default’.
As regards the third proviso to section 194N, though introduced w.e.f.
01.04.2023, the same is beneficial in nature and must be considered for granting relief in light of judicial precedents.
In view of the foregoing discussion, we hold as under:
• The component of cash withdrawal made by the PACBs from the assessee bank which pertains to the Pongal Cash Gift distributed by the Government of Tamil Nadu shall not suffer
TDS u/s.194N of the Act, as the same does not constitute income in the hands of the PACBs.
The District Central Co-op. Bank Ltd.
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• The assessee bank is not liable to deduct TDS u/s.194N on cash withdrawals made by PACBs acting as Business
Correspondents under clause (iii) of section 194N of the Act.
• The AO is directed to verify whether the PACBs have filed their returns of income and uploaded Form No.26A on the TRACES portal. If so, the benefit under the first proviso to section 201(1) r.w.s.40(a)(ia) shall be granted, and the assessee shall not be treated as an ‘assessee-in-default’.
• The AO is further directed to apply the third proviso to section 194N of the Act in a purposive manner, granting the enhanced threshold limit from Rs.1.00 crore to Rs.3.00 crore, considering the beneficial nature of the provision.
In the result, the appeal of the assessee is partly allowed with the above directions.
Order pronounced on 11th day of September, 2025 at Chennai. (अिमताभ शु'ा)
(Amitabh Shukla)
लेखा
लेखा
लेखा
लेखा सदय
सदय
सदय
सदय /Accountant Member
(मनु कुमार िग र)
(Manu Kumar Giri)
ाियक सद / Judicial Member
चेनई/Chennai, दनांक/Dated: 11th September, 2025. EDN/-
The District Central Co-op. Bank Ltd.
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आदेश क ितिल प अ े षत/Copy to:
1. अपीलाथ/Appellant
2. थ/Respondent
3. आयकर आयु/CIT, Chennai
4. िवभागीय ितिनिध/DR
5. गाड फाईल/GF