2022 (3) TMI 623 - SCH - Income Tax

TDS u/s 194A - tds on payments of interest made to the Agra Development Authority. Agra Development Authority is a statutory body constituted under the provisions of the UP Urban Planning and Development Act 1973 - HELD THAT - The issue which is raised in the present appeals is covered in Commissioner of Income Tax (TDS) Kanpur and Another vs Canara Bank 2018 (7) TMI 664 - SUPREME COURT wherein the issue pertained to the applicability of the notification dated 22 October 1970 in relation to payments made by Canara Bank to the New Okhla Industrial Development Authority ( NOIDA ), an authority constituted under Section 3 of the Uttar Pradesh Industrial Area Development Act 1976. The Bank had not deducted tax at source under Section 194-A which led to notices being issued, resulting in consequential action. This Court, after considering the terms of the notification held that NOIDA which has been established under the Act of 1976 is covered by the notification dated 22 October 1970. Though the statute under which the Agra Development Authority has been constituted is the UP Urban Planning and Development Act 1973, the same principle which has been laid down in the judgment of this Court in Canara Bank (supra), would govern the present case. We accordingly allow the appeals and set aside the impugned judgment and order of the Division Bench of the High Court of Judicature at Allahabad in Income. The orders imposing penalty under Section 271C of the Income Tax Act 1961, shall in the circumstances be set aside.

Summary

Issues:
- Interpretation of Section 194A of the Income Tax Act 1961 regarding tax deduction on interest payments made to statutory bodies.
- Applicability of a notification dated 22 October 1970 issued by the Central government.
- Comparison with a previous judgment regarding a similar issue involving a different statutory body.

Analysis:

The Supreme Court of India addressed the issue arising from a judgment of the High Court of Judicature at Allahabad concerning the interpretation of Section 194A of the Income Tax Act 1961. The question at hand was whether the appellant was obligated to deduct tax at source on interest payments made to the Agra Development Authority, a statutory body established under the UP Urban Planning and Development Act 1973. The appellant relied on a notification issued by the Central government in 1970, listing entities exempt from tax deduction, including corporations established by government acts and bodies wholly financed by the government.

In a detailed analysis, the Supreme Court referred to a previous judgment involving a similar issue with the Canara Bank and the New Okhla Industrial Development Authority (NOIDA). The Court in that case had interpreted the same notification from 1970 and concluded that NOIDA was covered under the exemption. Drawing parallels, the Court found that the principle established in the Canara Bank case applied to the present scenario involving the Agra Development Authority. Consequently, the Court allowed the appeals, overturning the High Court's decision and setting aside the penalties imposed under Section 271C of the Income Tax Act 1961.

The judgment provided clarity on the interpretation of the notification and its application to statutory bodies like the Agra Development Authority. By aligning with the precedent set in the Canara Bank case, the Court ensured consistency in the treatment of similar entities under tax deduction regulations. The ruling not only resolved the specific dispute but also set a precedent for future cases involving tax deductions on payments to statutory bodies governed by specific acts.