Raitha Seva Sahakara Sangha Niyamita Vs Union of India (Karnataka High Court)
Summary: The Karnataka High Court considered a petition filed by a Primary Agriculture Credit Co-operative Society challenging the action of respondent No.5-Bank of Baroda in creating a lien of Rs.31,51,475/- over its current account, purportedly towards Tax Deduction at Source (TDS) under Section 194A of the Income Tax Act, 1961, as amended by the Finance Act, 2020. The petitioner maintained that it was merely a customer operating its bank account and was not the person responsible for making the relevant cash payment, and therefore the obligation to deduct tax under Section 194N rested on the bank. The petitioner also relied on Section 271C, contending that failure to deduct TDS would attract the statutory consequences against the person responsible for deduction. The Court noted that Section 194N, though shown as Section 194A by the bank, casts the relevant obligation on the banking company responsible for paying the prescribed cash amount. The Court further noted that Section 271C contemplates penalty for failure by the person responsible to deduct tax. On the facts, the Court held that the statutory provisions did not remotely suggest liability for deduction at source on the petitioner-Society or imposition of penalty upon it. The bank had also not shown any statutory authority for creating the lien and the Income Tax authorities had neither taken action nor issued directions to the bank. The Court accordingly found that the bank had no statutory authority to create a lien over the amount lying in the petitioner-Society’s current account. The petition was disposed of with a direction to the Society to furnish Income Tax returns for three consecutive years of the relevant period to the bank within 30 days from receipt of the certified copy of the order. The bank was directed to release the lien and permit operation of the account, including withdrawal of the amount lying therein. The Court clarified that the direction was not to be construed as recognising any authority of the bank to create the lien and reserved liberty to the petitioner to pursue remedies available under law against the bank. The order was confined to the rights and obligations between the petitioner and respondent No.5-Bank and was not to prevent the Income Tax authorities from taking action under the Income Tax Act if the situation so demanded.
