OVERVIEW OF SECTION 194N & RECENT LANDMARK JUDGMENTS OF MADRAS HC AUTHOR :DR RAMASWAMY income-tax/overview-section-194n-landmark-judgments-madras-hc.html TDS on Cash Withdrawals – Section 194N of Income Tax Act, 1961: Section 194N provides that every banking company, cooperative bank, or post office shall be required to deduct tax at source from any sum paid in cash from one or more accounts maintained by the recipient. The tax shall be deducted at the rate of 2% or 5% as the case may be.

OVERVIEW OF SECTION 194N & RECENT LANDMARK JUDGMENTS OF MADRAS HC
AUTHOR :DR RAMASWAMY income-tax/overview-section-194n-landmark-judgments-madras-hc.html
TDS on Cash Withdrawals – Section 194N of Income Tax Act, 1961: Section 194N provides that every banking company, cooperative bank, or post office shall be required to deduct tax at source from any sum paid in cash from one or more accounts maintained by the recipient. The tax shall be deducted at the rate of 2% or 5% as the case may be.
1. Background of the case.
The case revolves on the petitioners, serving as Presidents of their respective societies, operate under the framework of the Tamil Nadu Cooperative Societies Act. These societies, dedicated to the welfare of impoverished handloom weavers, adhere to guidelines set by the Tamil Nadu Government and the Registrar of Cooperative Societies. All activities undertaken by these societies, including the issuance of loans to members, are in compliance with regulations, with membership contingent on possessing handlooms for weaving.
2. Challenge to Income Tax Order
The first respondent, through an order dated March 12, 2020, invoked Sections 201(1) and 201(1A) of the Income Tax Act. This order mandates a 2% Tax Deducted at Source (TDS) on cash withdrawals during the assessment year from the second respondent bank. The basis for this deduction, as stated in the order, is the misconception that the petitioner society engages in banking activities, erroneously identifying it as a “bank.” Contrary to this claim, the petitioner society does not conduct banking business.
3. Misinterpretation of Cooperative Nature
Despite the cooperative nature of the petitioner societies, the order wrongly assumes them to be banks, subjecting them to TDS. The societies primarily facilitate the purchase of raw materials such as yarn and dyes, compelling occasional cash withdrawals for member distribution. The inclusion of such transactions in the Rs. 1 crore threshold triggers the 2% TDS requirement, a violation of the provisions under Section 80-P of the Income Tax Act, which exempts cooperative weavers societies from income tax.
4. Legal Precedent and Exemption Under Section 80-P
Citing CIT, Chennai Vs Tamilnadu Co-operative Housing Federation Ltd, Chennai (Tax case Appeal No.685 of 2014), dated 23.11.2016, this Hon’ble Madras Court previously affirmed that cooperative societies are exempt under Section 80-P and not restricted by Section 80-P(4) of the Income Tax Act. The present order, therefore, conflicts with established legal precedent and should be set aside.
5. Inequitable Treatment Compared to Other States
The petitioners note disparities in the application of TDS, highlighting that cooperative societies in Andhra Pradesh and Kerala do not face the same 2% deduction. This inconsistency renders the present order arbitrary and illegal, demanding corrective action.
6. Challenge to Cash Management Mandate
Additionally, the order imposes restrictions on the cash balance the Weavers Cooperative Society can maintain, stipulating daily remittances exceeding Rs. 5 lakhs to the second respondent bank. This poses practical challenges for the society in managing deposits and withdrawals, especially when members seek loans, contributing to the unwarranted inclusion of such transactions in the Rs. 1 crore withdrawal threshold.
SECTIONS MENTION ABOVE:
1.SECTION 194N: Every person, being,—
(i) a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including anybank or banking institution referred to in section 51 of that Act);
(ii) a co-operative society engaged in carrying on the business of banking; or
(iii) a post office,
who is responsible for paying any sum, being the amount or the aggregate of amounts, as the case may be, in cash exceeding one crore rupees during the previous year, to any person (herein referred to as the recipient) from one or more accounts maintained by the recipient with it shall, at the time of payment of such sum, deduct an amount equal to two per cent of such sum, as income-tax:
Provided that in case of a recipient who has not filed the returns of income for all of the three assessment years relevant to the three previous years, for which the time limit of* file return of income under subsection (1) of section 139 has expired, immediately preceding the previous year in which the payment of the sum is made to him, the provision of this section shall apply with the modification that—
(i) the sum shall be the amount or the aggregate of amounts, as the case may be, in cash exceeding twentylakh rupees during the previous year; and
(ii) the deduction shall be—
(a) an amount equal to two per cent of the sum where the amount or aggregate of amounts, as the casemay be, being paid in cash exceeds twenty lakh rupees during the previous year but does not exceed one crore rupees; or
(b) an amount equal to five per cent of the sum where the amount or aggregate of amounts, as the casemay be, being paid in cash exceeds one crore rupees during the previous year:
Provided further that the Central Government may specify in consultation with the Reserve Bank of India, by notification in the Official Gazette, the recipient in whose case the first proviso shall not apply or apply at reduced rate, if such recipient satisfies the conditions specified in such notification:
43[Provided also that where the recipient is a co-operative society, the provisions of this section shall have effect, as if for the words “one crore rupees”, the words “three crore rupees” had been substituted:]
Provided also that nothing contained in this section shall apply to any payment made to— (i) the Government;
(ii) any banking company or co-operative society engaged in carrying on the business of banking or a postoffice;
(iii) any business correspondent of a banking company or co-operative society engaged in carrying on thebusiness of banking, in accordance with the guidelines issued in this regard by the Reserve Bank of India under the Reserve Bank of India Act, 1934 (2 of 1934);
(iv) any white label automated teller machine operator of a banking company or co-operative societyengaged in carrying on the business of banking, in accordance with the authorisation issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007 (51 of 2007):
Provided also that the Central Government may specify in consultation with the Reserve Bank of India, by notification in the Official Gazette, the recipient in whose case the provision of this section shall not apply or apply at reduced rate, if such recipient satisfies the conditions specified in such notification.
SECTION 80P:
(1) Where, in the case of an assessee being a co-operative society, the gross total income includes anyincome referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.
(2) The sums referred to in sub-section (1) shall be the following, namely :—
(a) in the case of a co-operative society engaged in—
(i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or
(iii) the marketing of agricultural produce grown by its members, or
(iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture forthe purpose of supplying them to its members, or
(v) the processing, without the aid of power, of the agricultural produce of its members, or
(vi) the collective disposal of the labour of its members, or
(vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing ormarketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities :
Provided that in the case of a co-operative society falling under sub-clause (vi), or sub-clause (vii), the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely:—
(1) the individuals who contribute their labour or, as the case may be, carry on the fishing or alliedactivities;
(2) the co-operative credit societies which provide financial assistance to the society;
(3) the State Government;
(b) in the case of a co-operative society, being a primary society engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members to—
(i) a federal co-operative society, being a society engaged in the business of supplying milk, oilseeds, fruits, or vegetables, as the case may be; or (ii) the Government or a local authority; or
(iii) a Government company11 as defined in section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act (being a company or corporation engaged in supplying milk, oilseeds, fruits or vegetables, as the case may be, to the public), the whole of the amount of profits and gains of such business;
(c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities as does not exceed,—
(i) where such co-operative society is a consumers’ co-operative society, one hundred thousand rupees;and
(ii) in any other case, fifty thousand rupees.
Explanation.—In this clause, “consumers’ co-operative society” means a society for the benefit of the consumers;
(d) in respect of any income by way of interest or dividends derived by the co-operative society from itsinvestments with any other co-operative society, the whole of such income;
(e) in respect of any income derived by the co-operative society from the letting of godowns or warehousesfor storage, processing or facilitating the marketing of commodities, the whole of such income;
(f) in the case of a co-operative society, not being a housing society or an urban consumers’ society or asociety carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does not exceed twenty thousand rupees, the amount of any income by way of interest on securities or any income from house property chargeable under section 22.
Explanation.—For the purposes of this section, an “urban consumers’ co-operative society” means a society for the benefit of the consumers within the limits of a municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment.
(3) In a case where the assessee is entitled also to the deduction under section 80HH or section 80HHA orsection 80HHB or section 80HHC or section 80HHD or section 80-I or section 80-IA or section 80J, the deduction under sub-section (1) of this section, in relation to the sums specified in clause (a) or clause (b) or clause (c) of sub-section (2), shall be allowed with reference to the income, if any, as referred to in those clauses included in the gross total income as reduced by the deductions under section 80HH, section 80HHA, section 80HHB, section 80HHC, section 80HHD, section 80-I, section 80-IA, section 80J and section 80JJ.
(4) The provisions of this section shall not apply in relation to any co-operative bank other than a primaryagricultural credit society or a primary co-operative agricultural and rural development bank.
Explanation.—For the purposes of this sub-section,—
(a) “co-operative bank” and “primary agricultural credit society” shall have the meanings respectivelyassigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949);
(b) “primary co-operative agricultural and rural development bank” means a society having its area ofoperation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities.
194N ORDERS
Hon’ble justice G.R. SWAMINATHAN order Dt. 27.07.2020
1. Coming to the question of natural justice, it is evident from the facts presented that the respondents did issueshow cause notices to the writ petitioners. However, the critical point is the adequacy of the time given to the petitioners to respond. The court observes that the noticees were given hardly a few days to appear and respond, and this may not be considered reasonable. Natural justice requires not only affording an opportunity but also providing a reasonable time for the noticees to prepare their defense. The court finds that the process followed by the respondents lacked fair compliance with the principles of natural justice.
2. In conclusion, the court rules that the writ petitions are maintainable, despite the availability of an alternativestatutory remedy of appeal. The court also finds that the transactions related to the distribution of Pongal gift funds by the petitioners, acting as business correspondents for the government, fall under the exempted category in Section 194N of the Income Tax Act.
3. Additionally, the court notes that the impugned orders were passed hastily and prematurely, violating the principles of natural justice. The court observes that the deductor’s obligation under Section 194N of the Act arises only if the sum withdrawn represents income at the hands of the payee. The court emphasizes that income tax is levied on income, and if income does not result, there can be no levy of tax.
4. The court also acknowledges that the respondents need not wait until the time limit for filing returnsexpires and may initiate action against deductors who failed to comply with Section 194N of the Act. However, the court underscores the importance of providing adequate time to noticees for responding to show cause notices.
5. Consequently, the court sets aside the impugned orders and remits the matter back to the respondentsfor fresh consideration, allowing the petitioners a reasonable opportunity to present their case in accordance with the principles of natural justice.
Hon’ble justice ANITA SUMANTH order Dt. 04/11/2022.
In this order, a batch of writ petitions filed by Primary Agricultural Co-operative Credit Societies challenges circulars issued by District Central Cooperative Banks, which pertain to Section 194N of the Income-tax Act, 1961. Section 194N mandates a 2% tax deduction on cash withdrawals from various banking entities.
The Primary Agricultural Co-operative Credit Societies argue that they are mere intermediaries between the banks and agriculturists, who are the ultimate beneficiaries of the cash withdrawals. They contend that the tax deduction should not be applicable to them, as the funds withdrawn by the societies, even if considered as income, are entitled to a deduction under Section 80P of the Income-tax Act. Furthermore, they claim that the provisions of Section 194N were meant to apply to business payments and should not be applicable to their case.
The court, in its judgment, rejects the challenge to the circulars issued by the District Central Cooperative Banks. It emphasizes the mandatory nature of Section 194N and the objective to discourage cash transactions and promote a cashless economy. The court points out that there are specific exceptions and avenues for seeking exemptions from Section 194N, and the co-operative societies may utilize these mechanisms if they believe they qualify for an exemption.
The court also notes that the grant of deductions under Section 80P and the applicability of the Eli Lilly case are matters for assessment, and the societies can seek credits or refunds accordingly. It suggests that the societies can approach the competent authorities, such as the FinanceMinister, to seek relief from the application of Section 194N.
Ultimately, the Hon’ble judge dismisses the writ petitions, both on the grounds of maintainability and merits, stating that the circulars issued by the District Central Cooperative Banks were meant to inform the petitioner societies about the statutory provisions of tax deduction and compliance with them. The court finds no fault with the banks for issuing these circulars.
Hon’ble justice ANITA SUMANTH order Dt. 10/11/2022.
(W.P.Nos.7878, 7880, 7883, 7951, 10444, 21852, 25431, 25433, 25436 & 25438 of 2021 & W.P.Nos.827, 831, 832, 3055, 3060, 3064, 3069, 3070, 11198 of 2022)
The judge, in this case, considered a batch of writ petitions filed by Primary Agricultural Co-operative Credit Societies challenging circulars issued by District Central Cooperative Banks regarding the deduction of tax on cash withdrawals under Section 194N of the Income Tax Act, 1961. The judge had previously dealt with a similar issue in a related case (S.N.299 Molasi Primary Agricultural Cooperative Credit Society Ltd. v. The Income Tax Officer, Namakkal) and passed an order on November 4, 2022.
The key arguments made by the petitioner societies were:
i. The withdrawals made by them should not be subject to any deduction at source.
ii. The petitioner societies act as intermediaries between the banks and agriculturists, and the deduction oftax would adversely affect the ultimate beneficiaries, who are farmers and small traders.
iii. The funds withdrawn by the petitioners for onward transmission to the farmers, even if considered asincome, are entitled to deduction under Section 80P of the Act.
iv. Section 194N should be applicable only to business payments, as indicated in the budget speech of theFinance Minister.
v. The petitioners claimed parity with commission agents or traders under a CBDT Notification,permitting cash withdrawals in excess of one crore without deduction of tax, subject to certain conditions.
The respondents (Income Tax Department and the Cooperative Banks) argued the mandatory nature of Section 194N, emphasizing its role in discouraging cash transactions and promoting a cashless economy.
The judge observed that Section 194N mandates a 2% deduction on cash withdrawals and is aimed at discouraging cash transactions. The judge also noted that an avenue is provided for recipients falling outside the exceptions to seek exemption from Section 194N through an application under Section 197.
The judge suggested that if the petitioners believe they qualify for exemption, they should approach the competent authority in the government, following specific instructions provided.
The judge considered the argument related to deduction under Section 80P premature and emphasized that eligibility for deduction should be determined during assessment by the tax authorities.
In conclusion, the Hon’ble judge dismissed the writ petitions, stating that the challenge to the circulars could not be entertained as the banks had merely informed the petitioner societies about the statutory provisions regarding tax deduction. The judge found no fault with the banks in this regard and dismissed the petitions on both grounds of maintainability and merits.
Hon’ble justice ANITA SUMANTH order Dt. 26.06.2023.
(W.P.Nos. 14536, 14538, 14539, 14542 14544, 14599, 14604, 14616, 14613, 14620, 14611, 14621, 14617, 14624, 14626, 15430, 15579, 15581, 15585, 15587, 15434,15435, – 15471, 15475, 15479, 15482, 15484, 15472, 15481, 15478, 15486, 15489, 15476, 15483,15488, 15492, 15495, 15526, 15531, 15532, 15537, 15539, 15534, 15538, 15540, 15541, 15544, 15551, – 15606, 15608, 15634, 15646, 15648, 15635, 15641, 15645, 15649, 15652, 15640, 15650, 15656, 15659, 15660, 15653, 15657, 15661, 15664, 15667, 15658, 15662, 15666, 15669, 15672, 15678, 15680, 15682, 15684, 15687, 15690, 16295, 21300, 21305, 21307 of 2022)
1. In this set of Writ Petitions, the primary agricultural credit cooperative societies are challenging Circularsissued by District Central Cooperative Banks (referred to as ‘Banks’) regarding the deduction of tax on cash withdrawals under Section 194N of the Income Tax Act, 1961. The petitioners argue that there should be no deduction from their withdrawals, as they serve as intermediaries between the banks and agriculturists, who are the ultimate beneficiaries.
2. The petitioners contend that the withdrawals, even if considered as income, are entitled to deduction underSection 80P of the Act. They also assert that Section 194N was intended to apply only to business payments and not to the withdrawals made by the cooperative societies. They cite a CBDT Notification and rely on a judgment of the Hon’ble Supreme Court to support their argument that tax deduction should apply only to amounts constituting income in the hands of the payee.
3. The respondents, including the Income Tax department and the Kancheepuram Central Cooperative Bank Ltd,contest the writ petitions, emphasizing the mandatory nature of Section 194N. The banks argue that the Circulars merely draw attention to the statutory provisions of the Income Tax Act.
4. The hon’ble judge, in considering the matter, points out that an identical issue was addressed in aprevious batch of writ petitions, where the judge passed an order on 04.11.2022. In that order, it was noted that Section 194N requires a mandatory deduction of 2% of cash withdrawals to promote a cashless economy. The judge highlights the specific exceptions provided in the statute and suggests that if the petitioners believe they qualify for an exemption, they can seek redressal under the statutory mechanism.
5. The hon’ble judge further mentions that the petitioners had already approached the competentauthority in the CBDT seeking relief from the application of Section 194N. The judge dismisses the writ petitions on the grounds of maintainability as well as on merits, with no costs imposed.
6. Additionally, the hon’ble judge references a communication from the Registrar of Cooperative Societiesto the Chief Secretary, requesting the Cooperation, Food and Consumer Protection Department to pursue the issue of exemption under Section 194N before the CBDT. The judge directs the appropriate authority in the CBDT to issue notice to the petitioner and consider the request for exemption. The judge also allows the petitioner to cite relevant judgments, including one from the Hon’ble Supreme Court, before the authority hearing the request for exemption.
Hon’ble justice R. SURESH KUMAR order Dt. 18.07.2023
The court addressed writ petitions related to the applicability of Section 194N of the Income-tax Act to Primary Agricultural Co-operative Credit Societies. It found that the circulars instructing adherence to Section 194N were valid. The court also directed the Ministry of Finance and CBDT to consider the request for exemption from Section 194N made by the Government of Tamil Nadu but granted additional time for them to do so.
The hon’ble judge acknowledged the existence of Section 194N and instructed the concerned authorities to consider the State Government’s request for exemption on behalf of the co-operative societies. Until a decision was made, no coercive actions were to be taken for tax deductions at source from these societies. The order aimed to provide some relief to the co-operative societies pending the decision on their exemption from Section 194N.
Cbdt view (2023)
Proposed amendments w.r.t. TDS
1. The threshold limit for TDS under Section 194N has been proposed to be raised from INR 1 crore toINR 3 crore for recipients who are cooperative societies.
2. The rate of TCS for foreign remittances, for other purposes under LRS and purchase of overseas tour program,is proposed to increased from 5 % to 20 %
3. TDS on winning from online gaming is proposed without any threshold benefit. The tax will be deductedeither upon withdrawal or at the end of financial year.
4. The exemption from TDS available on interest payments on listed debenture is proposed to be removed.
5. If the recipient of EPF withdrawal does not provide his PAN, TDS on the withdrawal will be 20%, instead ofthe maximum marginal rate.
Hon’ble justice KRISHNAN RAMASAMY order Dt. 18.12.2023
The court order revolves around the interpretation and application of Sections 194N and 194A of the Income Tax Act (IT Act) in the context of Co-operative Societies. Section 194N mandates a deduction of 2% as income tax on cash payments exceeding one crore rupees made by banking companies, co-operative societies engaged in banking, or post offices. The court notes that Co-operative Societies can be exempted from this provision under certain conditions outlined in the provisos.
The court emphasizes the importance of promoting a cashless economy and discouraging malpractices in handling cash by Co-operative Societies. It highlights the potential for mishandling funds and corruption, especially in the distribution of benefits like Pongal enam, flood relief, and COVID relief. The court suggests that such benefits should be transferred directly to the bank accounts of beneficiaries to minimize fraud.
1. Section 194A and 194N Implications:
The writ petitions contest the applicability of Sections 194A and 194N of the IT Act on cooperative societies. Section 194A pertains to TDS on interest income, while Section 194N deals with TDS on cash withdrawals exceeding certain limits.
2. Cash Withdrawal Limits:
The impugned circulars issued by the 3rd respondent mandated TDS on interest income exceeding Rs. 40,000 and cash withdrawals exceeding Rs. 20,00,000 and Rs. 1 Crore under Sections 194A and 194N, respectively.
3. Purpose of Cash Withdrawal:
The petitioner argued that cash withdrawals were intended for distribution to farmers for agricultural purposes, including buying fertilizers and seeds. The contention was that the provisions of Section 194N should not apply to withdrawals made for these specific purposes.
4. Exemption Claims:
The petitioner asserted exemption from TDS under Section 194N, citing their role as business correspondents for the government and compliance with Section 80P of the IT Act. The respondent countered, stating that these exemptions do not apply to the cooperative societies.
5. Government’s Stance:
Dr. B. Ramaswamy, representing the respondent, opposed granting any exemption to the cooperative societies. He argued that Section 194N was not applicable to entities like the petitioners and that their activities did not align with the exemptions provided.
6. Financial Accommodations to Non-Members:
The respondent highlighted concerns about cooperative societies providing financial accommodation to nonmembers for purposes unrelated to agriculture, potentially deviating from their primary objective.
7. TDS as Early Income Tax Collection:
The respondent emphasized that TDS serves as a mechanism for early collection of income tax, ensuring compliance with tax obligations.
8. Government Notifications:
Reference was made to government notifications and circulars, indicating an increase in the cash withdrawal limit and directions to examine representations made by the state government.
9. CBDT’s Response:
The CBDT (Central Board of Direct Taxes) examined various orders and representations and proposed amendments to Section 194N to provide a higher threshold for cooperative societies.
10. Judicial Direction:
The court considered the primary issue of whether cooperative societies are entitled to exemption from TDS under Sections 194A and 194N.
11. Judicial Observations:
The court noted the dual nature of cooperative societies’ activities, involving banking-like functions and acting as business correspondents for the government.
12. Increased Cash Withdrawal Limit:
The court acknowledged the increase in the cash withdrawal limit by the Central Government from Rs. 1 Crore to Rs. 3 Crores, effective from April 1, 2023, as a measure to benefit cooperative society members.
13. Court’s Suggestions and Orders:
Recommended cashless transactions for benefits such as relief funds, emphasizing direct transfers to beneficiaries’ bank accounts.
Advocated for auditing cooperative societies by Chartered Accountants in addition to existing methods.
Encouraged amendments to the IT Act for facilitating cashless transactions by cooperative societies.
14. Precedent Significance:
The case sets a precedent by addressing the balance between cooperative societies’ roles, the government’s objectives, and the need for financial transparency. It emphasizes the move towards a cashless economy and urges cooperative societies to adopt practices that prevent mishandling of funds and corruption.
15. Judge’s View on Cooperative Societies’ Operations:
The judge expressed concerns about malpractices in cooperative societies, highlighting the need for more stringent oversight and transparency in financial transactions.
16. Judge’s Position on Cashless Transactions: The judge strongly advocates for cashless transactions, believing it can curb corruption, malpractices, and mishandling of funds in cooperative societies.
17. Response to Increased Cash Withdrawal Limit:
The court acknowledges and supports the government’s decision to increase the cash withdrawal limit for cooperative societies to Rs. 3 Crores.
18. Conclusion:
The court, while disposing of the writ petitions, provides specific suggestions for the future conduct of cooperative societies, aiming to enhance financial integrity and prevent potential misuse of funds.
Additionally, the court recommends auditing Co-operative Societies by Chartered Accountants and urges the government to issue circulars encouraging cashless transactions by amending the IT Act. The order emphasizes the need to prevent mishandling of cash, fictitious transactions, and corruption within Cooperative Societies.
Hon’ble justice KRISHNAN RAMASAMY on DBT
1. Direct Benefit Transfer (DBT) and Cashless Economy:
The court emphasizes the significance of Direct Benefit Transfer (DBT) as a crucial tool in promoting a cashless economy. DBT is highlighted as a means to ensure the safe and efficient transfer of benefits directly to the beneficiaries’ bank accounts, reducing the risk of mishandling, corruption, and malpractices associated with cash transactions.
2. Eliminating Corruption and Malpractices:
The court underscores that utilizing DBT for the distribution of government benefits such as Pongal enam, flood reliefs, etc., helps in eradicating corruption and malpractices. The shift from cash payments to direct bank transfers is seen as a preventive measure against misappropriation of funds and corruption, ensuring that beneficiaries receive their entitlements seamlessly.
3. Efficient Use of Technology:
In endorsing DBT, the court acknowledges the efficiency brought about by technology in streamlining the distribution process. The direct crediting of funds to bank accounts ensures a hassle-free experience for beneficiaries, saving time and resources compared to the traditional method of handling cash transactions.
4. Prevention of Fictitious Transactions:
The court expresses concern over fictitious transactions and the potential for misuse in cooperative societies. By advocating for DBT, the court aims to prevent the creation of fictitious accounts and fraudulent activities, particularly within cooperative societies, thus safeguarding the integrity of the distribution process.
5. Transparency and Accountability:
DBT is seen as a means to enhance transparency and accountability in the distribution of benefits. Direct transfers to bank accounts provide a clear audit trail, making it easier to track financial transactions and ensuring that the intended recipients receive their benefits without intermediaries exploiting the system.
6. Safeguarding Public Funds:
The court underscores the role of DBT in safeguarding public funds. By directly crediting benefits to bank accounts, the chances of mishandling and mismanagement of funds are significantly reduced. This approach aligns with the court’s objective to protect the interests of the public and ensure the proper utilization of government resources.
7. Need for Auditing and Regulatory Measures:
The court suggests a need for auditing cooperative societies through chartered accountants, in addition to existing scrutiny methods. This recommendation aims to enhance regulatory measures and accountability within cooperative societies, further reinforcing the importance of responsible financial management.
8. Encouraging Responsible Banking Practices:
By endorsing DBT, the court encourages responsible banking practices. The direct crediting of benefits to bank accounts ensures that withdrawals are permitted only in the presence of beneficiaries, mitigating the risk of unauthorized transactions and promoting responsible financial practices within cooperative societies.
Hon’ble justice KRISHNAN RAMASAMY on CORRUPTION
1. Prevalence of Corruption:
The court acknowledges the pervasive issue of corruption within cooperative societies and expresses concern over its detrimental impact on the proper functioning of these entities. It recognizes the need to address corruption as a critical step toward ensuring the fair and transparent management of financial affairs within cooperative societies.
2. Erosion of Public Trust:
Corruption is identified as a key factor contributing to the erosion of public trust in cooperative societies. The court emphasizes that instances of corruption not only undermine the credibility of these institutions but also diminish public confidence in the effective and ethical management of financial resources.
3. Misappropriation of Funds:
The court highlights the risk of misappropriation of funds through corrupt practices within cooperative societies. Instances of embezzlement, bribery, and other forms of financial misconduct are recognized as direct threats to the financial stability and integrity of these organizations, necessitating urgent measures to curb such activities.
4. Impact on Socio-Economic Development:
Corruption is framed as a hindrance to socio-economic development within the community served by cooperative societies. The diversion of funds for personal gain, instead of being utilized for the intended developmental purposes, is identified as a significant barrier to achieving sustainable growth and equitable distribution of resources.
5. Need for Stringent Anti-Corruption Measures:
The court stresses the importance of implementing stringent anti-corruption measures within cooperative societies. This includes the establishment of robust internal controls, regular audits, and the enforcement of ethical standards to curb corrupt practices and ensure that financial resources are utilized for the benefit of the society and its members.
6. Legal Consequences for Corrupt Practices:
A call for legal consequences for individuals engaged in corrupt practices is made by the court. It emphasizes the importance of holding accountable those found guilty of corruption within cooperative societies, suggesting that legal action is a crucial deterrent to prevent future instances of financial misconduct.
7. Transparency and Accountability as Remedies:
Transparency and accountability are highlighted as key remedies to combat corruption. The court advocates for transparent financial reporting and decision-making processes within cooperative societies, emphasizing that increased accountability can act as a deterrent and promote a culture of integrity and ethical conduct.
8. Role of Education and Awareness:
The court recognizes the role of education and awareness in addressing corruption. It suggests that promoting financial literacy and ethical values among members and stakeholders can contribute to building a culture that rejects corruption, fostering a sense of responsibility and integrity within cooperative societies.
Hon’ble justiceKRISHNAN RAMASAMY onTransparency
1. Transparency in Fund Allocation and Utilization:
The court underscores the critical importance of transparency in the allocation and utilization of funds. It emphasizes the need for government agencies and institutions to adopt transparent practices when allocating funds for various programs and projects. This transparency ensures that funds are allocated based on predetermined criteria and are used efficiently for their intended purposes.
2. Openness in Decision-Making Processes:
The court advocates for openness in decision-making processes, emphasizing the significance of transparent governance. Transparent decision-making involves making information accessible to the public, ensuring that citizens are informed about the reasons behind specific policy choices, thereby fostering trust and accountability in government actions.
3. Public Access to Information:
The court highlights the right of citizens to access information held by public authorities. It emphasizes that transparency is achieved through providing easy access to information related to government decisions, policies, and expenditures. Public access to information is considered a cornerstone of transparency, enabling citizens to make informed judgments about the functioning of government institutions.
4. Accountability through Disclosure:
The court stresses the role of transparency in holding public officials and institutions accountable. By disclosing information related to financial transactions, budgetary allocations, and project implementations, accountability is enhanced. Transparent disclosure mechanisms enable citizens to scrutinize the actions of public authorities, discouraging corruption and promoting responsible governance.
5. Preventing Corruption and Nepotism:
Transparency is viewed as a potent tool in preventing corruption and nepotism. The court emphasizes that open and transparent systems reduce the opportunities for corrupt practices by exposing any irregularities. Transparency acts as a deterrent, discouraging individuals from engaging in corrupt activities due to the fear of public scrutiny.
6. Ensuring Fair Competition:
In matters related to public procurement and contracts, the court emphasizes the importance of transparency in ensuring fair competition. Transparent procurement processes, bid evaluations, and contract awards contribute to a level playing field, preventing favoritism and promoting fair business practices. This transparency safeguards public resources and promotes a competitive and efficient marketplace.
7. Building Public Trust:
The court recognizes that transparency is fundamental to building and maintaining public trust. When citizens have confidence in the transparency of government actions, they are more likely to participate in civic processes and engage with authorities. Trust is a vital component of a healthy democracy, and transparency is key to establishing and nurturing that trust.
8. Compliance with Regulatory Standards:
The court stresses the need for compliance with regulatory standards to ensure transparency. Adhering to established regulations and standards in financial reporting, disclosure, and governance practices contributes to transparency. The court encourages public and private entities to align with these standards to enhance overall transparency in their operations.
In conclusion, the court disposes of the writ petitions, providing several recommendations and directions to ensure transparency and efficiency in the financial operations of Co-operative Societies, particularly in the distribution of benefits and handling of cash transactions.
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Author: Dr B. Ramaswamy Senior Standing Counsel, Income Tax Ministry of Finance, Government of India
(Additional Government Pleader) (Puducherry Madras High Court)