⚖️ Landmark Case Laws on TDS for Cash Withdrawal – Section 194N in Action
- Bhagya Lakshmi
- May 30
- 3 min read
The Indian government’s thrust toward a digital economy took a sharp turn in 2019 with the introduction of Section 194N of the Income Tax Act. This section imposes TDS on cash withdrawals exceeding specific limits. While the intention is clear — discouraging large-scale cash transactions — the move has stirred quite a bit of litigation.
Here’s a curated look at key case laws that have tested the waters of Section 194N in courts across India.
📘 Quick Recap: What is Section 194N?
Section 194N mandates:
2% TDS on cash withdrawals above ₹1 crore (if ITRs filed in last 3 years).
2% on ₹20L–₹1 crore and 5% above ₹1 crore (if ITRs not filed in last 3 years).
Applicable to all withdrawals from banks, cooperative banks, and post offices. But what if this creates hardship or is challenged constitutionally?
Let’s see what the courts had to say.
🧑⚖️ 1. Bangalore Club v. ITO (2021)
Citation: W.P. No. 14688/2020 (Karnataka High Court)
🏷️ Issue:
Constitutionality of Section 194N — Is it a violation of Article 14 and 300A?
📄 Facts:
Bangalore Club withdrew large amounts of cash and was subject to TDS.
It challenged the provision, stating it infringed on their right to use their own funds.
⚖️ Held:
The High Court upheld the constitutionality of the provision.
It ruled that Section 194N is not arbitrary, and the intent — promoting digital economy and tracking high-value cash movement — is legitimate.
The provision was held to be a valid fiscal tool under legislative competence.
✅ Takeaway: Section 194N has constitutional backing. Filing a writ petition won’t help unless a clear violation is shown.
🧑⚖️ 2. Tirupati Cooperative Bank Ltd. v. UOI (2020)
Citation: [2020] TaxPub(DT) 2872 (Guj-HC)
🏷️ Issue:
Does Section 194N apply to cooperative banks withdrawing cash?
📄 Facts:
Tirupati Cooperative Bank claimed that it was unfairly burdened with TDS on its own operational withdrawals.
Sought exemption like government entities or RBI.
⚖️ Held:
Court rejected the argument and held that cooperative banks are not exempt unless specifically notified.
Section 194N applies to them when they withdraw cash for their own use.
✅ Takeaway: Being a financial institution doesn’t automatically grant immunity. Exemption must be notified.
🧑⚖️ 3. Tirumala Milk Products Pvt. Ltd. v. UOI (2021)
Citation: [2021] Taxmann.com 354 (Andhra Pradesh HC)
🏷️ Issue:
Can business hardship (e.g., paying farmers in cash) be a valid ground to waive Section 194N?
📄 Facts:
Tirumala Milk Products argued that farmers insisted on cash and TDS on withdrawal would cause working capital issues.
⚖️ Held:
The court did not strike down the section but advised the assessee to approach the CBDT for appropriate exemption/relief.
Upheld the legislative intent and refrained from judicial override.
✅ Takeaway: Hardship ≠ automatic relief. Representation to CBDT is the correct route.
🧑⚖️ 4. Gajanan Traders v. UOI (2020)
Citation: [2020] Taxmann.com 478 (Bombay HC)
🏷️ Issue:
Is TDS on one’s own cash a violation of fundamental rights?
📄 Facts:
Gajanan Traders claimed that TDS on cash withdrawal is like taxing their own money — violating Article 300A (right to property).
⚖️ Held:
The court observed that TDS is not a tax on cash, but a mechanism for tracking and enforcing tax compliance.
Dismissed the plea and upheld the provision.
✅ Takeaway: TDS isn’t confiscation; it's a compliance tool. Refund/credit is available on valid return filing.
🧑⚖️ 5. M/s. Shree Mahalaxmi Infraprojects Ltd. v. UOI (2023)
Citation: Not publicly reported; available via legal reporting services
🏷️ Issue:
Whether cash withdrawal for labour wages (site payments) qualifies for exemption
📄 Facts:
The company withdrew large sums for paying labourers, arguing that digital payment wasn’t possible for all workers.
Requested exemption from TDS under operational hardship.
⚖️ Held:
The court acknowledged the practical hardship, but didn’t grant exemption directly.
Directed the petitioner to apply to CBDT under hardship clauses.
✅ Takeaway: For specific business models (construction, agriculture, etc.), CBDT can provide administrative relief — courts may not intervene directly.
📝 Conclusion: What These Judgements Teach Us
Section 194N is constitutionally valid – don’t expect a writ to bypass it.
Hardships must be dealt with through CBDT representations, not court bypasses.
Even institutions like banks and cooperatives must comply unless notified.
TDS here is not permanent loss – it’s adjustable/refundable via ITR.
The objective is not revenue, but digital traceability.
🎯 Final Word
If your business or personal activity still involves large cash withdrawals, now is the time to assess compliance. Courts have made it clear — digital is the direction, and Section 194N is here to stay.
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