By TIOL News Service

NEW DELHI, JUNE 26, 2018: THE ISSUE BEFORE THE BENCH IS - Whether interest credited by a bank on the fixed deposit by the NOIDA, is exempted from deduction of tax at source u/s 194A, being a Corporation established under State Industrial Act. VERDICT IS YES.

Facts of the case

The Assessee- bank made payment of interest on FDRs to Gr. Noida Authority during F.Y 2012-13. However, during the verification of return filed by the assessee, the AO noticed that the assessee had not deducted the TDS on such payment, which was obligatory on the part of the bank under the provisions of Section 194A. On being asked, the assessee stated that Gr. Noida Authority had given a declaration to banks that it was exempted from taxation since it is a local authority and therefore, the assessee had not deducted any tax. However, the AO observed that the declaration issued by Gr. Noida Authority had no legal sanctity and banks were not required to take cognizance of such an Act. According to the AO, if the income of Gr. Noida Authority was not taxable, they should have applied to the AO for a certificate u/s 197 for lower deduction of tax and provided it to the banks. However, the assessee had not produced any such certificate to support NIL deduction of TDS on interest. The AO further observed that Greater Noida Authority was not covered under the exemption u/s 194A(3)(iii)(f). Accordingly, the AO held that Gr. Noida Authority did not fall under any exemption clause nor was a local Authority and hence, TDS provisions were applicable in such case. Accordingly, the AO held that tax was deductible @ 10% u/s 194A, in which the assessee had failed and therefore, should be treated as assessee is in default. Accordingly, total short charge u/s 201(1) was computed and on account of short charge and interest worked out at Rs.1,78,945/- by the AO. On assessee's appeal, the CIT(A) dismissed the appeal of the assessee.

the Tribunal held that,

++ the issue is squarely covered by the decision of the Allahabad High Court in case of CIT Vs. Canara Bank, in which it was held that Noida has been constituted by the State Act and, therefore, entitled to exemption of payment of tax at source under section 194A(1) of the Act. From the perusal of the order u/s 201(1)/201(1A), it can be seen that the Assessing Officer has over looked the very fact that the Greater Noida Authority, the payee, is a statutory authority constituted u/s 3 of the Uttar Pradesh (UP) Industrial Area Development Act, 1976 and 100% owned by UP State Government. The CBDT Notification No. 3489 (Entry No. 39) dated 22/10/1970 issued in pursuance to Section 194A (3) (iii) (F) directs that no tax is required to be deducted from interest payment to any corporation established by a Central State or Provincial Act. Thus, it is not coming under the purview of TDS provision. This aspect was totally over looked by the Assessing Officer as well as the CIT(A). The order of the CIT(A) is set aside.

(See 2018-TIOL-928-ITAT-DEL)