By TIOL News Service

NEW DELHI, OCT 14, 2015: THE issue is - Whether the payment of interest by banks to the State Industrial Development Authorities requires any deduction of tax at source in terms of section 194A(3)(iii)(f). NO is the answer.

Facts of the case

The assessee, a Branch of Canara Bank, made interest payment of Rs.20,10,00,000/- to 'NOIDA' without deduction of tax at source. NOIDA claimed before the assessee bank that it was a local authority and, hence, its income was exempt from tax and, as such, no deduction of tax at source was required. The matter was carried before the Allahabad High Court by way of writ petition as various banks including the assessee and NOIDA authorities were not in agreement with the claim of its eligibility for exemption as local authority u/s 10(20). The Allahabad High Court, decided the issue against NOIDA, thereby denying the benefit of exemption u/s 10(20). Pursuant to this order by the Allahabad HC, the Addl. CIT (TDS), took up proceedings u/s 201(1) and 201(1A) and issued a show cause notice to the assessee as to why it may not be declared as 'assessee in default' for non-deduction of tax at source on the amount of interest paid by it to NOIDA. The assessee claimed that no deduction of tax at source on interest payment made to NOIDA was warranted in view of the applicability of the provisions of section 194A(3)(iii)(f). The Addl. CIT(TDS) passed order u/s 201(1) and 201(1A) r/w section 194A treating the assessee in default for a total sum of Rs.5,06,29,869/-. The CIT(A) allowed the Appeal.

On Appeal before the Tribunal the DR submitted that the CIT(A), Noida, did not have any territorial jurisdiction over the order passed by the Addl. CIT (TDS), Ghaziabad. It was submitted that the correct jurisdiction lied with CIT(A), Ghaziabad. Since the order was wrongly passed by CIT(A), Noida, the DR pleaded that the same be declared as null and void. The AR submitted that the CIT(A), Noida, had rightful jurisdiction over the matter. On merit the DR submitted that since NOIDA has been constituted as a corporation established 'under' the State Act and not 'by' the State Act, the exemption to the assessee bank from tax withholding stood waived.

Having heard the parties, the Tribunal held that,

++ between 5.6.2014 and 15.11.2014, the jurisdiction of the first appellate authority to pass the orders against the orders passed by the Addl.CIT, Ghaziabad rested with the CIT(A), Ghaziabad and for the periods prior to 5.6.2014 and after 15.11.2014, it vested in CIT(A), Noida. Since the impugned order was passed on 2.12.2013, it becomes palpable that it was only the CIT(A), Noida who had rightful jurisdiction over the appeal emanating from the order passed by the Addl. CIT(TDS), Ghaziabad;

++ the NOIDA is a statutory corporation established by means of the UP Industrial Area Development Act, 1976. This Act is nothing but a culmination of several area-wise Industrial Area Development Acts. Since NOIDA has been notified under the UP Industrial Area Development Act, we are of the considered opinion that the expression 'any corporation established by a State Act' shall include NOIDA;

++ the payment of interest by banks to the State Industrial Development Authorities does not require any deduction of tax at source in terms of section 194A(3)(iii)(f) and, hence, the failure to deduct tax at source on such interest cannot lead to the banks being treated as assessee in default. The CIT(A) was justified in reversing the order passed by the Addl. CIT (TDS), Ghaziabad declaring the assessee liable u/s 201(1) and 201(1A).

(See 2015-TIOL-1641-ITAT-DEL)