Interim restraining order against Sec 194N (TDS provision on cash withdrawal )

Tax Deduction at Source (TDS) under section 194N of the Income Tax Act, 1961 mandated banks, cooperative banks, and post offices to deduct a TDS @ 2% on every withdrawal in excess of one crore rupees during the previous year made by any person (herein referred to as the recipient) from one or more accounts (savings/current ) maintained by the recipient with it.

This Impugned section was challenged in the Calcutta High court by M/s Apeejay Tea Ltd. on the basis that this statute (194N) was ultra vires the legislative competency of the parliament. Entry no.82 of List I of Schedule VII to the Constitution allows the Parliament to enact laws for imposition, collection, and levy of tax on “income”.The Parliament cannot legislate a provision stipulating the deduction of tax at source from an amount which is admittedly not income and such legislation would be beyond the legislative competence of the Parliament under Entry 82 of List I of Schedule VII of the Constitution.

Petitioner relied on the decision of the Hon’ble Kerala High Court involving the same issue. As per the order passed on dated 13th August 2020 in Kanan Devan Hills Plantations Company Pvt. Ltd Versus Union of India in WP (C ) No. 1658 of 2020 where Hon’ble Court not only admitted the writ petition on this issue and even granted interim stay of deduction of tax on source under Section 194N of the Income Tax Act, 1961.

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On this occasion, the opportunity was given to the respondents(income tax department) to seek instruction as to whether the aforesaid order of the Kerala High Court had been further challenged or not to which learned Additional Solicitor General had submitted on instruction that no further appeal has been filed against the said order and the said interim order is still existing. It has also been submitted that series of orders have been passed by the Hon’ble Kerala High Court on the same issue.

Considering the above facts, Justice Md. Nizamuddin granted an interim order restraining the respondent’s authorities concerned from deducting tax on the source on the basis of the aforesaid provisions of Section 194N till 30th September 2021.