I-T - When 'Authority' is established by or under an Act, its banker not liable to TDS on payments made to it u/s 194A: Supreme Court
By TIOL News Service
NEW DELHI, JULY 09, 2018: THE issue is - Whether when an 'Authority' is established by or under an Act for a particular purpose, it cannot be denied the benefits of TDS exemption u/s 194A. YES is the verdict.
Facts of the case
The New Okhla Industrial Development Authority (NOIDA) was constituted by Notification dated 17.04.1976 issued under Section 3 of the Uttar Pradesh Industrial Area Development Act, 1976. The Canara Bank is the banker of the 'Authority'. The Canara Bank made a payment of Rs 20.1 Crores as interest to Authority in form of FDs/Deposits for the financial year 200506. The Canara Bank, however, did not deduct tax at source under Section 194A of the Income Tax Act, 1961.
Notices were issued for showing cause for not deducting tax at source. A writ petition was filed by the NOIDA challenging the notices issued to the Authority as well as its bankers. Assessment proceeding could not proceed due to certain interim directions passed by the High Court. The writ petition was ultimately dismissed by the High Court on 28.02.2011 holding that the Authority was not a local authority within the meaning of Section 10(20) of IT Act, 1961 and its income was not exempt from tax. The Assessing Officer thereafter proceeded to pass an order under Section 201(1)/201(1A) read with Section 194A.
On appeal, the CIT(A) allowed the appeal setting aside the order of the Assessing Officer. The Tribunal also held that payment of interests by the banks to the State Industrial Development Authority did not require any deduction at source in terms of Section 194A(3)(iii)(f). The HC did the same by rejecting the Revenue's appeal.
On appeal, the Apex Court held that,
++ it is necessary to ascertain the concept of a Corporation. A Corporation is an artificial being which is a legal person. It is a body/corporate established by an Act of Parliament or a Royal Charter. It possesses properties and rights which are conferred by the Charter constituting it expressly or incidentally. There is no issue that the Authority is not a Corporation. It is also not contended before us that Authority is not a statutory corporation. What is contended before us is that Authority having not been established by a Central, State or Provincial Act is not covered by Notification dated 22.10.1970 hence, not eligible for the benefit. The provision of Section 194A and the notification issued by Central Government under 194A(3)(iii)(f) falls for consideration. We may beneficially notice a principle of statutory interpretation which needs to be applied while interpreting the above provisions of IT Act, 1961;
++ Section 194A(3)(iii) clauses (b), (c) and (d) refer to expression “established”. In sub clause (b) expression used is “established by or under a Central, State or Provincial Act”, in sub clause (c) the expression used is “established under the Life Insurance Corporation Act” and in sub clause (d) expression used is “established under the Unit Trust of India Act”. The Section thus uses both the expressions “by or under”. The expression established by or under an Act have come for consideration before this Court on several occasions;
++ in several decisions this Court has held that when the expression used is “established by or under the Act”, the emphasize should be on the word “established” in addition to the words “by or under”.
++ now, we revert back to the provisions of 1976, Act. The very preamble of that Act reads “an Act to provide for the Constitution of an Authority for the development of certain areas in the State into industrial and urban township and for masses connected through with”. Thus, the Act itself provides for constitution of an authority. Section 2(b) of the 1976 Act defines Authority as authority constituted under Section 3 of the Act. Section 3 is very relevant for the present case;
++ when we compare the provisions of Section 3 of 1976 Act with those of The State Financial Corporations Act, 1951, it is clear that the establishment of Corporation in both the enactments is by a notification by State Government. The Authority is statutorily provided by Section 3 of 1976 Act itself, hence, there is no denying that Authority has been constituted by Act itself.
(See 2018-TIOL-249-SC-IT)
