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2017 (4) TMI 43 - AT - Income TaxApplicability of withholding tax on interest payment by the appellant to NOIDA - rectification of mistake - Held that - The Hon ble Allahabad High Court has considered decision of Hon ble high Court in 2011 (2) TMI 1251 - Allahabad High Court based on which the ld CIT(A) has reversed the order, while deciding the issue of applicability of withholding tax on interest payment by the appellant to NOIDA. Hon ble high Court has conclusively held that the decision in that particular case does not come to aid of the revenue 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 of whether NOIDA is a corporation established by State Act. Hon High court has conclusively held that NOIDA is corporation established Uttar Pradesh Industrial Area Development Act, 1976 and therefore it is entitled to exemption from deduction of tax at source u/s 194A of the Income Tax Act. Therefore, respectfully following the decision of Honourable high court in 2016 (5) TMI 570 - ALLAHABAD HIGH COURT , we hold that the order of the ld CIT(A) in challenge before us is not sustainable. Further as the matter has reached before Hon ble Supreme Court for adjudication whether tax is required to be deducted on interest payments made by the banks to NOIDA, itself suggests that the issue was debatable and do not fall in the purview of provisions of section 154 of the Act under which the impugned order was passed by the ld CIT (A). On this count also the ld CIT(A) erred in reversing his order based on application of the Addl. CIT, TDS. Hence, we quash the order of the ld CIT (A).
Issues Involved:
1. Whether appellant banks are required to withhold tax at source on interest payments made to NOIDA. 2. Jurisdiction of the Ld. CIT (A), Noida to pass the order and deletion of the demand created by the Addl. CIT (TDS), Ghaziabad under Sections 201(1) and 201(1A) of the Income Tax Act, 1961. 3. Applicability of the decision of the Hon'ble Allahabad High Court in WP No. 1338 of 2005. 4. Principles of Natural Justice and procedural fairness. Issue-Wise Detailed Analysis: 1. Withholding Tax on Interest Payments to NOIDA: The primary issue was whether the appellant banks were required to deduct tax at source on interest payments made to New Okhla Industrial Development Authority (NOIDA). Initially, the CIT (A) ruled in favor of the appellant banks, stating that tax was not required to be deducted. This decision was upheld by the coordinate bench. However, upon an application by the Addl. CIT (TDS), the CIT (A) revised his order, holding that tax should have been deducted based on a decision by the Allahabad High Court in WP No. 1338 of 2005. The Tribunal noted that the Allahabad High Court had conclusively held that NOIDA is a 'corporation' established by the Uttar Pradesh Industrial Area Development Act, 1976, and thus entitled to exemption from deduction of tax at source under section 194A of the Income Tax Act. Therefore, the Tribunal quashed the revised order of the CIT (A). 2. Jurisdiction of the CIT (A), Noida: The appellant banks contested the jurisdiction of the CIT (A), Noida, to pass the order. They argued that the CIT (A) had erred in reversing his decision based on an application under section 154 of the Act, which pertains to rectification of mistakes. The Tribunal agreed with the appellant banks, stating that the issue of whether tax is required to be deducted on interest payments to NOIDA was debatable and did not fall within the purview of section 154. Thus, the CIT (A) exceeded his jurisdiction in passing the revised order. 3. Applicability of the Allahabad High Court Decision: The Tribunal examined the applicability of the Allahabad High Court's decision in WP No. 1338 of 2005. This decision addressed whether NOIDA was a local authority within the meaning of section 10(20) of the Income Tax Act. The Tribunal noted that the Allahabad High Court's decision in the writ petition did not deal with the issue of whether NOIDA is a corporation established by a State Act. Therefore, the Tribunal held that the CIT (A) had incorrectly relied on this decision to reverse his earlier order. 4. Principles of Natural Justice: The appellant banks argued that the impugned order was against the principles of natural justice, as it was passed without giving them an opportunity to be heard. The Tribunal found merit in this argument, noting that the CIT (A) had mechanically and arbitrarily reversed his earlier decision without properly considering the legal scenario and the actual facts of the case. The Tribunal emphasized the importance of following judicial discipline and ensuring procedural fairness. Conclusion: The Tribunal concluded that the CIT (A) had erred in reversing his earlier decision and that the appellant banks were not required to deduct tax at source on interest payments made to NOIDA. The Tribunal quashed the revised order of the CIT (A) and allowed the appeals filed by the appellant banks. The decision emphasized the need for procedural fairness and adherence to judicial discipline, highlighting that the issue was debatable and did not warrant rectification under section 154 of the Act.
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