Whether TDS to be deducted under Section 194A on Interest payment by Canara Bank to Noida? - Held No
This Court having already laid down in Dalco Engineering (supra) that establishment of various financial corporations under State Financial Corporation Act, 1951 is establishment of a Corporation by an Act or under an Act.
We are of the view that the above ratio fully covers the present case and we have no doubt that the Authority have been established by the 1976 Act and it is clearly covered by the Notification 22.10.1970. It is further relevant to note that composition of 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.
2. These appeals question the Division Bench judgment dated 04.04.2016 of the Allahabad High Court, by which judgment Income Tax Appeals filed by the Revenue has been dismissed affirming the order of the Income Tax Appellate Tribunal. The common questions of facts and law are involved in these appeals and it is sufficient to refer the facts and pleadings in Civil Appeal No.... 2018 arising out of SLP(C) 3168 of 2017, Commissioner of Income Tax(TDS), Kanpur and Anr. vs. Canara Bank wherein the judgment of the High Court dated 04.04.2016 in ITA No. 64 of 2016 has been questioned.
3. The New Okhla Industrial Development Authority (NOIDA), hereinafter referred to as “Authority” has been constituted by Notification dated 17.04.1976 issued under Section 3 of the Uttar Pradesh Industrial Area Development Act, 1976 hereinafter referred to as “1976 Act”. The Canara Bank, respondent No. 3 is the banker of the Authority. The respondent Bank made a payment of Rupees Twenty Crores Ten Lakhs 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 hereinafter referred to as “IT Act, 1961”.
4. Notices were issued by the appellant to Canara Bank asking for information pertaining to interest paid to the Authority on its deposits. Notices were also issued by the appellant to the Bank for showing cause for not deducting tax at source. A writ petition had been filed by the NOIDA being Writ Petition No.1338/2005 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 in the above writ petition. The writ petition was ultimately dismissed by the High Court on 28.02.2011 holding that the Authority is not a local authority within the meaning of Section 10(20) of IT Act, 1961 and its income is not exempt from tax. The Assessing Officer thereafter proceeded to pass an order under Section 201(1)/201(1A) read with Section 194A of the IT Act, 1961 dated 28.02.2013.
5. Income Tax Authority held that the respondent Bank is assessee in default. The default was computed and demand notice as per Section 156 of the IT Act, 1961 was issued. Penalty proceeding was also separately initiated. The Canara Bank aggrieved by the order of the Assessing Officer dated 28.02.2013 filed an appeal before the Commissioner of Income Tax (Appeals). Before the Commissioner, the bank relied on Notification dated 22.10.1970 issued under Section 194A(3) (iii)(f) of the IT Act, 1961. The Appellate Authority vide its judgment dated 02.12.2013 allowed the appeal setting aside the order of the Assessing Officer. The Revenue aggrieved by the judgment of the Appellate Authority filed an appeal before the Income Tax Appellate Tribunal. The Tribunal also held that payment of interests by the banks to the State Industrial Development Authority does not require any deduction at source in terms of Section 194A(3)(iii)(f).
6. The Revenue aggrieved by the order of the Tribunal filed an appeal under Section 260A of the Act before the High Court.
The Division Bench of the High Court vide its judgment dated 04.04.2016 has dismissed the appeal. The Division Bench came to the following conclusions while dismissing the appeal:
"We have, therefore, no manner of doubt from a reading of the provisions of the Industrial Area Development Act that the 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.
The decision of the Division Bench of this Court in New Okhla Industrial Development Authority (supra), on which reliance has been placed by learned counsel for the appellants, would, therefore, not come to the aid of the appellants as it was restricted to the issue as to whether NOIDA would be a local authority or not and did not deal with the issue involved in this appeal as to whether the NOIDA is a Corporation established by a State Act.
We therefore, answer the question of law framed by us in negative and hold that NOIDA is a Corporation established by Uttar Pradesh Industrial Area Development Act, 1976. ”
7. Shri K. Radhakrishnan, learned senior advocate appearing for the appellants challenging the Division Bench judgment of the High Court contends that Authority is not entitled for the benefit of Notification dated 22.10.1970 issued under Section 194A (3)(iii)(f). It is submitted that under the above notification only a Corporation established by Central, State or Provincial Act is entitled for the benefit. Authority is not a Corporation established by the State Act rather Authority is a Corporation which is established under 1976 Act. He submitted that there is a vast difference between a body established by an Act and a body established under an Act. The provisions of Section 194A have to be strictly construed and benefit can be extended only when a body falls expressly within the benefit of exemption. In the exceptions carved out under Section 194A(3) there is homogeneity in the group. The legislature when used a word with a limitation the same has to be read in the entire phrase and only such corporations are entitled for the exemption which are established by a Central, State or Provincial Act. It is submitted that words have to be construed, in accordance with the intention and use of the word as per the Notification dated 22.10.1970, normally indicate that for purposes of claiming exemption the corporation has to be established by a Central, State or Provincial Act. The corporations established under an Act fall in a different category and are not entitled for exemption. He has submitted that CIT Appeals, Income Tax Tribunal as well as High Court erred in not correctly construing the Notification dated 22.10.1970 and had wrongly extended benefit under Section 194(3)(iii)(f).
8. Learned senior counsel appearing for the different banks have refuted the above submissions of learned senior counsel for the appellants. It is submitted that Section 3 of 1976 Act provides that “the State Government may by notification, constitute for the purpose of this Act, an authority to be called (Name of the area) Industrial Development Authority, for any Industrial Development Area”. It is submitted that Authority is established under the 1976 Act. Referring to provisions of State Bank of India Act, 1955, Life Insurance Corporation of India Act, 1956, it is submitted that statute provides for establishing of the corporation by virtue of a notification by the Central Government. It is submitted that in similar manners Authority has been established by issuing a notification, hence, Authority has to be treated as established by the 1976 Act. Alternatively, it is submitted that the legislature has used the words “by and under” interchangeably which is clear from the provisions of Section 194A(3)(iii)(c) and Section 194A((3)(iii)(d). In the Section 194A(3)(iii), itself differentiation in “by and under” has been done away, with that the Authority established by 1976 Act is clearly covered by the Notification dated 22.10.1970. The Notification dated 17.04.1976 establishing Authority fulfills the mandate of “by” hence it is clearly entitled for the benefit of the Section 194A(3)(iii).
9. Learned counsel for the parties have placed reliance on various judgments of this Court, which shall be referred to while considering the submissions in detail.
10. We have considered the submissions of the learned counsel for the parties and perused the record. Present set of appeals relates to Section 194A of the IT Act, 1961. It is useful to extract provisions of 194A which is to the following effect:
"194A. Interest other than “Interest on securities”.(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income [by way of interest on securities], shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct incometax thereon at the rates in force:
[Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct incometax under this section.]
[Explanation.For the purposes of this section, where any income by way of interest as aforesaid is credited to any account, whether called “Interest payable account” or “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.]
(3) The provisions of subsection (1) shall not apply
(a) any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any cooperative society engaged in carrying on the business of banking (including a cooperative land mortgage bank), or
(b) any financial corporation established by or under a Central, State or Provincial Act, or
(c) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or
(d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or
(e) any company or cooperative society carrying on the business of insurance, or
(f) such other institution, association or body [or class of institutions, associations or bodies] which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette;”
11. In the present case notification on which reliance has been placed by the respondent is Notification dated 22.10.1970 issued under Section 194A(3)(iii)(f), hence, it is necessary to refer to the entire Notification dated 22.10.1970 which is to the following effect:
24. This Court further elaborating the expression 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”. It is useful to refer to what has been said in paragraph Nos. 21 and 22 of the judgment which is to the following effect:
“21. Where the definition of “establishment” uses the term “a corporation established by or under an Act”, the emphasis should be on the word “established” in addition to the words “by or under”. The word “established” refers to coming into existence by virtue of an enactment. It does not refer to a company, which, when it comes into existence, is governed in accordance with the provisions of the Companies Act. But then, what is the difference between “established by a Central Act” and “established under a Central Act”?
22. The difference is best explained by some illustrations. A corporation is established by an Act, where the Act itself establishes the corporation. For example, Section 3 of the State Bank of India Act, 1955 provides that a bank to be called State Bank of India shall be constituted to carry on the business of banking. Section 3 of the Life Insurance Corporation Act, 1956 provides that
3. Establishment and incorporation of Life Insurance Corporation of India.—(1) With effect from such date as the Central Government may, by notification in the Official Gazette, appoint, there shall be established a Corporation called the Life Insurance Corporation of India.
State Bank of India and Life Insurance Corporation of India are two examples of corporations established by “a Central Act”.”
25. This Court has also referred to provisions of The State Financial Corporations Act, 1951 which provides for establishment of various financial corporations under the Act. It is useful to refer to definition of financial corporation as contained in Section 2(b) which is to the following effect:
“2(b) Financial Corporation means a Financial Corporation established under Section 3 and includes a Joint Financial Corporation established under Section 3A;”
26. Section 3 deals with establishment of State Financial Corporation which provides as follows:
“3. Establishment of State Financial Corporations.: (1) The State Government may, by notification in the Official Gazette, establish a Financial Corporation for the State under such name as may be specified in the notification.
(2) The Financial Corporation shall be a body corporate by the name notified under subsection (1), having perpetual succession and a common seal, with power, subject to the provisions of this Act, to [acquire, hold and dispose of] property and shall by the said name sue and be sued. ”
27. This Court clearly in above case, Dalco Engineering (supra) has held that such Financial Corporations are established by an Act or under an Act. In paragraph No. 23 of the judgment following has been held:
“23. We may next refer to The State Financial Corporations Act, 1951 which provides for establishment of various financial corporations under that Act. Section 3 of that Act relates to establishment of State Financial Corporations and provides that “the State Government may, by notification in the Official Gazette, establish a financial corporation for the State under such name as may be specified in the notification” and such financial corporation shall be a body corporate by the name notified. Thus, a State Financial Corporation is established under a Central Act. Therefore, when the words “by and under an Act” are preceded by the words “established”, it is clear that the reference is to a corporation established, that it is brought into existence, by an Act or under an Act. In short, the term refers to a statutory corporation as contrasted from a nonstatutory corporation incorporated or registered under the Companies Act.”
28. 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”.
29. 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 which is very relevant for the present case is as follows:
“3. (1) The State Government may, by notification, constitute for the purposes of this Act, An authority to be called (Name of the area) Industrial Development Authority, for any industrial development area.
(2) The Authority shall be a body corporate.
(3) The Authority shall consist of the following
31. This Court having already laid down in Dalco Engineering (supra) that establishment of various financial corporations under State Financial Corporation Act, 1951 is establishment of a Corporation by an Act or under an Act. We are of the view that the above ratio fully covers the present case and we have no doubt that the Authority have been established by the 1976 Act and it is clearly covered by the Notification dated 22.10.1970. It is further relevant to note that composition of 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.
32. In view of what has been said above, we are of the view that High Court did not commit any error in dismissing the appeal filed by the Revenue. In result, all the appeals are dismissed.
Cases Referred to
1. RaiBahadur Seth Teomal Vs. The Commissioner of Income Tax, 36 ITR 9(SC)
2. Kanji Mal & Sons vs. C.I.T. (1982) 138 ITR 391 (Del)
3. Grindlays Bank vs. Income Tax Officer AIR 1980 656 (SC)
4. Budhia Swain and Ors.Vs. GopinathDev and Ors.(1999) 4 SCC 396
5. MahalliramRamniranjan Das vs. CIT (1985) 156 ITR 885
6. Guduthur Bros. vs. ITO (1960) 40 ITR 298 (SC)
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