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Facts
The assessee bank challenged orders that held it liable for non-deduction of TDS on interest payments made to SRA/MMRDA/MHADA. The assessee contended that these entities are corporations established under State Acts, exempting them from TDS as per a 1970 notification. The AO disagreed, stating the assessee failed to provide necessary proof.
Held
The Tribunal held that SRA/MMRDA/MHADA, being established under State Acts, fall under the exclusion provided in Section 194A(3)(iii)(f) of the Income Tax Act, 1961. Consequently, the assessee was not liable for non-deduction of TDS on interest payments made to these authorities.
Key Issues
Whether the assessee bank was liable for non-deduction of TDS on interest paid to SRA/MMRDA/MHADA, considering their establishment under State Acts and the relevant notification under Section 194A(3)(iii)(f) of the Income Tax Act, 1961.
Sections Cited
201, 201(1A), 144, 250, 133(B), 131, 194A, 194, 12A, 271C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY & MS. RENU JAUHRI
O R D E R Per : Per Bench This appeal has been preferred by the Assessee against the orders even dated 15.04.2025, impugned herein, passed by the National Faceless Appeal Centre (NFAC)/Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short „the Act‟) for the A.Y. 2016-17.
2. Both the cases under consideration, are having involved identical facts and issues, therefore, the same were heard together and disposed of by this composite order by taking into consideration for the AY 2014-15, as a lead case.
3. At the outset, it is observed that there is a delay of 96 days in filing the instant appeal, on which the assessee has claimed as under: - “The appellant petitioner wishes to submit the following in support of its application for condonation of delay: An order u/s 201(1)/201(1A) r.w.s. 144 of the Income Tax Act, 1961 was passed on 30-03-2021. Further, an order u/s 250 was passed by the learned Commissioner of Income Tax (Appeals) on 15-04-2025, dismissing the appeal of the appellant bank. The CIT(A) issued multiple notices on 20/02/2025, 06/03/2025 & 08/04/2025 to fix the appeal hearings. Because of the non-availability of the files and other documents, the notices remained un-responded to. Further, the branch was not equipped with personnel knowing the provisions of the Income Tax Act, 1961 and as such they were not aware of the procedure. Also, when the CIT(A) order was passed on 15-04-2025, it was the time of statutory audit for the bank and also, the branch staff were subject to transfers at that point of time. In the process, the order was misplaced and no further action was taken by the branch and the branch head was not aware of the order. In the first week of August, the Department telephoned the Mumbai Circle Office of the appellant bank and informed them to pay the pending demand. The Circle Office, unaware of the details, requested the Department to give the copy of the order. The Department, vide their mail dated, 18- 08-2025, provided the copies of the orders to the Circle Office. It was then forwarded to the Head Office for further action. The Head Office then took up the matter with the tax consultants of the bank. The tax consultants required various details for preparing the appeal papers. The Head Office had to get all the details from the branch through the circle office. Since, both the branch and the circle office do not have the staff with requisite tax knowledge and the requirements in connection with the filing of the appeal, there was a delay in getting the full details. In this process, the appeal could not be filed within the due date. The appeal should have been filed on or before 30-06-2025. There has been a delay of about 96 days. The delay in filing the appeal is on account of bonafide reasons and based on reasonable cause. The bank has a good case on merits, as this issue has been decided in favour of the appellant bank by the Hon'ble Supreme Court in the bank's own case. It is therefore submitted that the delay may be condoned and the appeal may be adjudicated on merits in the interest of justice.
4. The Ld. D.R. though refuted the prayer of the Assessee but not the factual aspects, demonstrated above.
5. Considering the reasons stated by the assessee for condonation of delay, which are duly supported with duly sworn affidavit dated 26.11.2025 of Ms. Supriya Desai, Chief Manager of Canara Bank, Bandra West Mumbai, as genuine, bonafide and unintentional, the delay is condoned.
6. Coming to the merits of the case, we observe that the AO on receiving the information from the Exemption Wing, of the Income Tax Department, Mumbai, to the effect that no TDS was deducted by the banks on the interest payments made on fixed deposits to Slum Rehabilitation Authority (SRA), verified the traces system and other departmental sources and noticed that the issue of non- deduction of TDS, on interest payment was found correct.
6. Thus, accordingly, the spot verification under Section 133 (B) of the Act was carried out on 26.03.2019 at the Syndicate Bank, 16 Road, Bandra West Branch, Mumbai, to verify the reason for non- deduction of TDS during the period of FY 2011-12 to FY 2018-19 and statement of Shri Janardan N. Bhoga, Senior Manager, Syndicate Bank was recorded under Section 131 of the Act and it was found that various authorities viz. Slum Rehabilitation Authority (SRA), Maharashtra Housing and Area Development Authority (MHADA) and Mumbai Metropolitan Region Development Authority (MMRDA) have fixed deposits with the bank, however, while crediting payment of interest on such deposits, no TDS was deducted by the Bank, during the financial year under consideration.
7. The assessee during the spot verification submitted that as per the provisions of Section 194 (A) of the ACT, TDS is not required to be deducted in the cases of interest payment made to such institutions, which Central Government may notify in official Gazette and as SRA/MMRDA/MHADA are established under State Acts, so no TDS is deductible in view of the notification dated 22.10.1970. The bank also provided copy of said notification, during the course of spot verification.
8. The AO though considered the aforesaid claim of the assessee however, not being impressed with the same ultimately, found the submission/claim as not tenable and therefore, rejected the same by holding as under: - 7. The submission/claim of the bank is duly considered, however is it not found tenable and therefore hereby rejected as under: a) The assessee has failed to produce copy of Official Gazette of the Central Govt. and/or state government notifying SRA/ MMRDA as Corporation' in view of section 194A of the IT Act or Notification dated 22.10.1970, b) Assessee bank has failed to establish or produce the evidence that SRA /MMRDA is 'Corporation' established by Central/State Act. c) Assessee bank has taken the shelter for non-deduction of TDS on interest payment made to SRA stating that SRA has been issued Registration certification u/s 12A by the DIT(Exemption), Mumbai. In this regard, it is hereby clarified that this certificate testifies to the fact of registration u/s 12A of the IT Act only. It does not confer any right or entitlement regarding operation of section 11,12 & 13 or any other provisions of the IT Act. In fact, an Information was received from the Exemption wing of the Income Tax Department, Mumbai that no TDS was deducted by the banks on the interest payment on fixed deposits made to Slum Rehabilitation Authority (SRA).
In view of above facts, the assessee bank is hereby treated as assessee in default within the meaning of section 201(1) and 201(1A) of the I.T. Act as the assessee failed to deduct the tax on interest payment made to SRA/MMRDA u/s 194A of the IT Act. The TDS liability u/s 201(1) and interest u/s 201(1A) is calculated from June 2013 to march 2021 i.e. 94 months @ 1% as under: FD Number Date of credit/ Amount of Interest TDS Delay Interest for non- Total liability payment of credited paid to deductible in deduction u/s undue section 201 interest SRA/MMRDA @ 10% u/s. months 201(!A) @ 1% (1) and u/s. 201 194 A of for delay in 1(A) of the Act. the I.T. Act months u/s 201 (1) 507345800001 29.06.2013 842189 84218.9 94 79165.77 163384.7 14/1 (SRA) 507345800001 30.10.2013 3402187.50 340218.8 90 306196.9 646415.6 14/2 (SRA) 3483414.73 348341.5 87 303057.1 651398.6 507345800001 30.01.2014 14/2 (SRA) 507345800001 12.02.2014 10465000 1046500 86 899990 1946490 14/3 (SRA) 507345800001 31.01.2014 14682726 1468273 87 1277397 2745670 59/1 (MMRDA 507345800001 7.11.2013 18412500 1841250 89 1638713 3479963 59/2 (MMRDA) 507345800001 7.2.2014 18864527 1886453 86 1622349 3508802 59/2 (MMRDA) 84492544.23 8449254 7460489 15909743
In view of the above, the Assessee Company is directed to pay the above default amount of Rs. 84,49,254/- under section 201(1) of the IT Act and Rs. 74,60,489/- under section 201(1A) of the IT Act as per above table. Therefore, the total demand of Rs. 1,59,09,743/- is determined as payable u/s 201(1)/201(1A) of the IT Act. In case of further delay of payment, the Assesse Company is directed to recalculate the interest under section 201(1A) and pay accordingly. If the assessee fails to pay the amount within the period specified, proceedings for recovery thereof can be taken in accordance with section 222 to 227, 229 to 232 of the Act without any further notice.
Consequently, the AO raised the demand of Rs. 1,59,09,743/- payable under Section 201(1), 201(1A) of the Act.
The assessee being aggrieved challenged the said demand/addition by filing first appeal before the Ld. Commissioner, however, despite issuing three notices, the assessee failed to respond the same and therefore, in the absence of relevant submissions and documents, the Ld. Commissioner dismissed the appeal of the assessee for non- prosecution and/or in limine.
Thus, the assessee being aggrieved has preferred instant appeal.
Heard the parties and perused the material available on record. Admittedly, the assessee remained absent before the Ld. Commissioner and therefore, the Ld. Commissioner was constrained to decide the appeal of the assessee, as ex-parte and for non- prosecution, however, without adjudicating the merits of the case, which is not permissible in view of the judgment of the jurisdictional High Court in CIT v. Premkumar Arjunda(2107) 297 CTR 614 (Bombay), wherein it has been held as under :-
1. “Section 251(1)(a) and (b), along with the explanation in Section 251(2) of the Act, mandates that the CIT(A) must apply their mind to all issues arising from the order being appealed, regardless of whether the appellant specifically raised them [1]. …………………………………………...The law does not empower the CIT(Appeal) to dismiss the appeal for non-prosecution as is evident from the provisions of the Act”.
13. Thus, considering the aforesaid peculiar facts and circumstances, we are inclined to remand the instant case to the file of the Ld. Commissioner for decision on merit. However, considering the peculiar facts and circumstances in totality again, as demonstrated by the parties that the issue involved is squarely covered by the judgment of the Hon‟ble Apex Court, we deem it proper to decide this appeal on merit.
Coming to the merit of the case, we observe that admittedly, the assessee with regard to the fixed deposits made by SRA/MMRDA/MHADA and other Government Authorities, has not deducted the TDS on interest payments made to them and therefore, the AO more or less by observing that the assessee has failed to produce copy of official Gazette of the Central Government and/or State Government notifying SRA/MMRDA as „Corporation‟ in view of Section 194 (A) of the IT Act or notification dated 22.10.1970. Further, the assessee bank has also failed to establish or produce the evidence that SRA/MMRDA/MHADA is a „Corporation‟ established by Central or State Act. The Assessee bank has taken the shelter for non-deduction of TDS on interest payment made to SRA stating that SRA has been issued Registration certification u/s 12A by the DIT(Exemption), Mumbai. In this regard, it is hereby clarified that this certificate testifies to the fact of registration u/s 12A of the IT Act only. It does not confer any right or entitlement regarding operation of section 11,12 & 13 or any other provisions of the IT Act. In fact, an Information was received from the Exemption wing of the Income Tax Department, Mumbai that no TDS was deducted by the banks on the interest payment on fixed deposits made to Slum Rehabilitation Authority (SRA).
15. Perusing the relevant provisions of the SRA and MHADA, we observe that the said Acts have been introduced by the State Government of Maharashtra under the State Acts and therefore, as per the provisions of Notification dated 22.10.1970, no TDS is required to be deducted on the payments made to the authorities, such as SRA/MMRDA/MHADA. For brevity, the notification dated 22.10.1970 is reproduced as under: -
"Notification No. S.O. 3489 [No. 170 (F.No.12/164/68ITCC/ITJ).], Dated 22.10.1970
In pursuance of sub-clause (f) of clause (iii) of subsection (3) of section 194A of the Income Tax Act, 1961 (43 of 1961), the Central Government hereby notify the following for the purposes of the said sub clause: (i) any corporation established by a Central, State or Provincial Act; (ii) any company in which all the shares are held (whether singly or taken together) by the Government or the Reserve Bank of India or a Corporation owned by that Bank; and (iii) any undertaking or body, including a society registered under the Societies Registration Act, 1860 (21 of 1860), financed wholly by the Government. "
16. We further observe that identical issue and the said notification, has also been considered by the Hon‟ble Apex Court in the case of Commissioner of Income Tax (TDS), Kanpur and Anr. Vs. Canara Bank (2018) 406 ITR 161 (SC) and held that New Okhla Industrial Development Authority (NOIDA) is a "corporation established by or under an Act of the State Legislature i.e. the UP Industrial Area Development Act, 1976 and thus it fulfills the condition as enumerated under Notification dated 22.10. 1970 and met the criteria for the TDS exemption and does not come under the para meters of Section 194 (A) for deducting of TDS on the interest paid to said authority and therefore interest paid by Canara Bank on deposits from the „NOIDA‟ was exempt from Tax Deducted at Source (TDS) under Section 194A(3)(iii)(f) of the Income-Tax Act, as „NOIDA‟ .
The identical issue as involved in the instant case, has also been cropped up and thus considered by the Hon‟ble Apex Court in the case of Union of India Vs. Addl. Commissioner of Income Tax (TDS), Kanpur (2022) 442 ITR 194 (SC), wherein the Hon‟ble Apex Court reiterated the judgment of the Hon‟ble Apex Court in the case of Canara Bank (Supra), by observing and holding as under: -
1. Leave granted.
2. These appeals arise from a judgment of a Division Bench of the High Court of Judicature at Allahabad dated 20 November 2018.
3. The appeals pertain to assessment years 2012-2013 and 2013- 2014. The issue which was raised in the appeals before the High Court is whether the appellant was required by the provisions of Section 194A of the Income Tax Act 1961 to deduct tax at source 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. The appellant placed reliance on the provisions of a notification dated 22 October 1970 issued by the Central government in the following terms: "In pursuance of sub-clause (f) of clause (iii) of sub-section (3) of section 194A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notify the following for the purposes of the said sub-clause:- (i) any corporation established by a Central, State or Provincial Act; (ii) any company in which all the shares are held (whether singly or taken together) by the Government or the Reserve Bank of India or a Corporation owned by that Bank; and (iii) any undertaking or body, including a society registered under the Societies Registration Act, 1860 (21 of 1860), financed wholly by the Government."
The Division Bench of the High Court by its impugned judgment, dismissed the appeals. 5. We have heard Mr. O P Gaggar, counsel for the appellants and Mr. Balbir Singh, learned Additional Solicitor General for the respondents.
6. The issue which is raised in the present appeals is covered by the judgment of a two-Judge Bench of this Court in Commissioner of Income Tax (TDS) Kanpur and Another vs Canara Bank (2018) 9 SCC 322. In that case, 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 Tax Appeal Nos 225 of 2017 and 230 of 2017. The orders imposing penalty under Section 271C of the Income Tax Act 1961, shall in the circumstances be set aside.
We further observe that the Hon‟ble Coordinate Bench of the Tribunal in the case of Punjab National Bank Vs. Assistant Commissioner of Income Tax (TDS), and ors. Of 2014 decided on 28.06.2023 (2023) 153 taxmann.com 280 (Mum) Tribunal, has also dealt with the identical issue, wherein the TDS was not deducted on the additional premium paid by the assessee to the MMRDA. The Hon‟ble Coordinate Bench of the Tribunal not only considered the aforesaid notification No. SO 3489 dated 22.101970, as also involved in the instant case but also the MMRDA, which is also the subject matter in the instant case and ultimately held that assessee‟s bank was not required to deduct any TDS on the payment made to MMRDA qua payment of interest on delayed payment of additional premium by observing that the MMRDA have been established under the Mumbai Metropolitan Region Development Authority Act, 1974 and as per state Act, therefore, would fall under the exclusion provided under Sub- section (3) of Section 194 (A) of the Act. For brevity and ready reference, the conclusion drawn by the Hon‟ble Co-ordinate Bench of the Tribunal, is reproduced as under: - “12. We have considered the submissions of both sides and perused the material available on record. In the present case, there is no dispute among the parties regarding the basic facts as noted above. The only dispute is whether the additional premium paid by the assessee to MMRDA is in the nature of rent within the meaning of section 194-1 of the Act. Further, whether the interest paid by the assessee on delayed payment of additional premium is liable to TDS under section 194-A of the Act. On the first issue, the Revenue is in appeal before us. While, on the second issue, the assessee has filed the appeal for the assessment year 2000-09.
At the outset, we find that CBDT vide Circular No. 35/2016 dated 13/10/2016, observed as under: - "CIRCULAR NO.35/2016 [F.NO.275/29/2015-IT (B)), DATED 13-10-2016 Section 194-1 of the Income-tax Act, 1961 (the Act) requires that tax be deducted at source at the prescribed rates from payment of any income by way of rent. For the purposes of this section, "rent" has been defined as any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or machinery or plant or equipment or furniture or fittings.
The issue of whether or not TDS under section 194-1 of the Act is applicable on "lump sum lease premium' or "one-time upfront lease charges" paid by an assessee for acquiring long-term leasehold rights for land or any other property has been examined by CBDT in view of representations received in this regard.
The Board has taken note of the fact that in the case of The Indian Newspaper Society (ITA Nos. 918 & 920/2015), the Hon'ble Delhi High Court has ruled that lease premium paid by the assessee for acquiring a plot of land on an 80 years lease was in the nature of capital expense not falling within the ambit of section 194-1 of the Act. In this case, the court reasoned that since all the rights easements and appurtenances in respect of the said land were in effect transferred to the lessee for 80 years and since there was no provision in lease agreement for adjustment of premium amount paid against annual rent payable, the payment of lease premium was a capital expense not requiring deduction of tax at source under section 194-1 of the Act.
4. Further, in the case Foxconn India Developer Limited (Tax Case Appeal No. 801/2013), the Hon'ble Chennai High Court held that the one-time non-refundable upfront charges paid by the assessee for the acquisition of leasehold rights over an immovable property for 99 years could not be taken to constitute rental income in the hands of the lessor, obliging the lessee to deduct tax at source under section 194-1 of the Act and that in such a situation the lease assumes the character of "deemed sale". The Hon'ble Chennai High Court has also in the cases of Tril Infopark Limited (Tax Case Appeal No. 882/2015) ruled that TDS was not deductible on payments of lump sum lease premium by the company for acquiring a long-term lease of 99 years.
In all the aforesaid cases, the Department has accepted the decisions of the High Courts and has not filed an SLP. Therefore, the issue of whether or not TDS under section 194-1 of the Act is to be made on lump sum lease premium or one-time upfront lease charges paid for allotment of land or any other property on long- term lease basis is now settled in favour of the assessee.
In view of the above, it is clarified that lump sum lease premium or one- time upfront lease charges, which are not adjustable against periodic rent, paid or payable for acquisition of long-term leasehold rights over land or any other property-are-not-payments in the nature of rent within the meaning of section 194-1 of the Act. Therefore, such payments are not liable for TDS under section 194- 1 of the Act."
14. Thus, in terms of the aforesaid circular, the lump sum lease premium or one-time upfront lease charges, which are not adjustable against periodic rent, paid or payable for acquisition of long-term leasehold rights over land or any of the property were considered to be not in the nature of rent within the meaning of section 194-1 of the Act. We find that in the present case, it is undisputed that the assessee agreed to pay a lease premium of Rs. 45,62,20,060 for the 80 years lease as per the agreement to lease dated 04/07/2000 entered into with MMRDA. Further, for the grant of extension of time for construction of the building, the assessee was liable to pay an additional premium. Since the aforesaid Circular has been issued by CBDT after the orders passed under section 201(1) and 201(1A) of the Act in the present appeals and the conditions laid down in the Circular have not been examined in any of the cases before us, therefore we deem it appropriate to remand this issue of deduction of tax under section 194-1 of the Act on the additional premium paid by the assessee to the file of AO for de novo adjudication in light of the CBDT Circular No. 35/2016 dated 13/10/2016. Accordingly, the order passed by the learned CIT(A) for the assessment years 2008-09, 2010-11, and 2011- 12 to this extent is set aside. As a result, the appeals by the Revenue for the assessment years 2008-09, 2010-11, and 2011-12 are allowed for statistical purposes.
As regards the deduction of tax at source under section 194-A of the Act on the interest paid by the assessee on delayed payment of additional premium, we find that section 194A(3)()() of the Act reads as under:- "(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: Provided that no notification under this sub-clause shall be issued on or after the 1st day of April, 2020;"
We further find that in the exercise of the power conferred by the aforesaid provision, the Central Government vide Notification No. S.0.3489 dated 22/10/1970, inter-alia, notified any corporation established by a Central, State, or Provincial Act for the purpose of section 194A(3)(iii)(f) of the Act. Since MMRDA has been established under the Mumbai Metropolitan Region Development Authority Act, 1974, therefore we are of the considered view that the payment made to MMRDA will fall under the exclusion provided under sub-section (3) of section 194-A of the Act. Thus, the assessee cannot be held to be 'assessee in default' for non-deduction of tax on the payment of interest on delayed payment of additional premium. Accordingly, the demand raised by the AO under section 201(1) for non-deduction of tax under section 194-A of the Act and interest levied under section 201(1A) of the Act for the assessment year 2008-09 is deleted. As a result, the appeal by the assessee for the assessment year 2008-09 is allowed.
17. To sum up, the appeal by the assessee for the assessment year 2008-09 is allowed, while the appeals by the Revenue for the assessment years 2008-09, 2010-11, and 2011-12 are allowed for statistical purposes.”
Thus, on the aforesaid analyzations, we reiterate that Section 194A imposes an obligation on persons, such as the Assessee to deduct tax at source, while making interest payment, however as per section 194A(3)(iii)(f) of the Act, the Central Government is empowered to notify payments made to a specified class institution(s) for exemption from this requirement. A notification dated 22nd October, 1970 issued by Central Government, exempting payments made to “any corporation established by a Central, State or Provincial Act” from the requirement of tax deduction at source. And the Corporation established by State Act is eligible for exemption from TDS provided u/s 194A(3)(iii)(f), as per judgement in CIT (TDS) and Anr V. Canara Bank (2018) 406 ITR 161 (SC) by the Hon'ble Apex Court. Since SRA/MMRDA/MHADA have been established under the Maharashtra State Acts, thus we are in agreement with the claim of the assessee that the assessee was not supposed to deduct any TDS on the payment of interest on the fixed deposits made with the assessee‟s bank, by SRA and MHADA and MMRDA and consequently, no liability was/is existing and/or payable under Section 201 (1) /201 (1a) of the Act. Consequently, the liability determined by the Assessment Order dated 30.03.2021, as affirmed by the Ld. Commissioner vide order dated 15.04.2025, stands deleted and the appeal under consideration is allowed. as observed above, this case is also having identical facts and issues, as involved in which is decided as lead case and therefore, in view of the judgment in the said case, this appeal is also liable to be allowed, on the same terms.
In the result, both the appeal under consideration are allowed.
Order pronounced in the open court on 03.12.2025.