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Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
ORDER PER BENCH All these appeals filed by the assessee and are directed against the order of the Commissioner of Income Tax (Appeals)-1, Noida, for the assessment years 2007-08 to assessment year 2012 – 13 on the following grounds -:
Grounds for the assessment year 2006-07 -: -6130/Del/2015 2 Syndicate Bank-Noida “
1. That the impugned order of the learned Addl. CIT(TDS) is patently against law, erroneous and merits to be quashed.
2. That, on the facts and circumstances of the case and in law, the learned Addl. CIT(TDS) has grossly erred in holding that the appellant was liable to deduct tax at source under the Income Tax Act, 1961 (Act) from interest payment to New Okhla Industrial Development Authority (Noida Authority), a Corporation Established under a State Act.
3. That, on the facts and circumstances of the case and in law, the learned Addl. CIT(TDS) grossly erred in levying a penalty of Rs. 40,84,387/- under section 271C of the Act for alleged default in deducting tax at source under section 194A of the Act on the payment of interest to Noida Authority, which needs to be deleted.
4. That, on the facts and circumstances of the case and in law, the learned CIT(A), in his order dated 9.10.2015, has grossly erred in confirming the penalty of Rs. 40,84,387/- levied by the Addl. CIT(TDS) under section 271C of the Act for alleged default in deducting tax at source under section 194A of the Act on the payment of interest to Noida Authority.”
We have heard Sri K.N.Goyal the Ld. Counsel for the assessee and M/s Nirupma Kotra, Ld. C.I.T., DR on behalf of the revenue.
Admittedly the issues arising in these appeals are covered by the following decisions of the coordinate bench of the Tribunal. (a) ITA No. 1359.Del.2014 to the assessment year 2006-07 in the case of Additional CIT (TDS), Ghaziabad vs. Canara Bank order dated 07.08.2015.
ITA No. 6125-6130/Del/2015 3 Syndicate Bank-Noida (b) and 1362/Del/2014 in the case of Additional CIT(TDS) Ghaziabad vs. Canara Bank and Batch of appeals of different vide ITAT ‘F’ bench, New Delhi order dated 07.08.2015. (c) ITA no. 2228/Del/2011 in the case of Sr. Manager Oriental Bank of Commerce vs. ITO (TDS) Ghaziabad order dated 15 July, 2011 vide ITAT Delhi ‘I’Bench.
The Ld. Departmental Representative submitted that the Hon’ble Allahabad High Court, vide this judgment dated 28.02.2011 held that NOIDA is not a local authority and cannot claim the benefit of exemption u/s 10(20) of the Act and hence the issue should be decided against the assessee.
We find that this judgment was considered by the various benches of the tribunal in their orders referred above. The tribunal in the case of Canara Bank (Supra) for the assessment year 2006-07 held as followed -:
“ 8. It is observed that the assessee is a creation of the UP Industrial Area Development Act, 1976, a copy of which has been placed on page 102 of the assessee’s paper book. Preamble of this Act reads as : “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 matters connected therewith.” The term ‘Authority’ has been defined u/s 2(b) to mean: ‘Authority constituted u/s 3 of the Act.’ Section 3(i), in turn, 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 under the UP Industrial Area Development Act, 1976 that the UP -6130/Del/2015 4 Syndicate Bank-Noida Government constituted various industrial development authorities with the name of the area, such as, NOIDA Authority and Ghaziabad Authority, etc. The case of the Revenue is that only a corporation established ‘by’, inter alia, a State Act can be brought within the purview of exemption. The ld. DR argued that if the corporation is established ‘under’ the State Act, then, the exemption to the payer bank from deduction of tax at source on the interest income, is not available. The ld. DR vehemently argued that since NOIDA has been constituted as a corporation established `under’ the State Act and not ‘by’ the State Act, the exemption to the assessee bank from tax withholding stood waived. In order to buttress this contention, the ld. DR relied on the judgment of the Hon’ble Supreme Court in the case of Dalco Engineering Pvt. Ltd. vs. Satish Prabhakar Padhye and Ors., dated 31.3.2010, a copy of which has been placed in the paper book. The ld. AR also drew strength to fortify his point of view by relying on the same judgment for contending that the assessee is a Corporation established ‘by’ the State Act. Since both the sides have heavily relied on the same judgment, it becomes significant to note its facts and ratio.
In that case, the appellant, a private limited company, employed respondent for more than two decades. The Respondent’s service was terminated by the appellant due to some physical disability. The Respondent complained to the Disability Commissioner against such termination. The Disability Commissioner `suggested’ the employer to re-employ the Respondent, which suggestion was turned down by the appellant. The Respondent argued that the Commissioner, instead of making a mere suggestion, ought to have issued a direction to the employer. He filed a writ petition on this aspect. The Hon’ble High Court allowed the said writ petition and directed the employer company to reinstate the Respondent. The Hon’ble High Court held that the appellant, though a private limited company, was an ‘establishment’ under the Act. The appellant took the matter to the Hon’ble Supreme Court urging that it was not covered within the meaning of ‘establishment’ and, hence, the provisions of section 47 were not applicable. The Hon’ble Supreme Court held that the -6130/Del/2015 5 Syndicate Bank-Noida assessee company was not an ‘establishment’ under the Act. In reaching this conclusion, the Hon’ble Supreme Court considered the definition of the term ‘establishment’ under the relevant Act as : ‘a Corporation established by or under a Central, Provincial or State Act,………’ The Hon’ble Supreme Court highlighted the use of the words “by or under” in the definition of the term ‘establishment’ and explained the difference between a corporation established `by’ an Act and a corporation established `under’ an Act. The Hon’ble Apex Court held that a Corporation is established `by’ an Act, where the Act itself establishes the Corporation, such as, State Bank of India Act and Life Insurance Corporation of India Act. On the other hand, a Corporation is established `under’ an Act, when it is notified by the delegated authority, though under the Act. In the light of the above distinction, it was held that a company is incorporated and registered under the Companies Act and not established under the Companies Act.
It is significant to note that the line of distinction drawn by the Hon’ble Supreme Court between the Corporations established `under’ the Act and Corporations established `by’ the Act is to be seen in the background of the facts prevailing in that case in which the Respondent urged that the appellant, a company, be declared as ‘established by or under the Act.’ The Hon’ble Supreme Court further observed that: `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 non-statutory corporation incorporated or registered under the Companies Act.’ From the italicized portion of the above prescription of the judgment, it is manifest that in the context of a statutory corporation, the words `by and under an Act’ can be read as `by an Act or under an Act’. The above observations make it explicit that in contrast to a non-statutory corporation, a statutory corporation is considered as established by ITA No. 6125-6130/Del/2015 6 Syndicate Bank-Noida or under an Act and the use of the words `by’ and `under’ in such a situation, is interchangeable.
Adverting to the facts of the instant case, we find that the assessee is a statutory corporation established by means of the UP Industrial Area Development Act, 1976. It has been noticed above from the preamble of this Act that it has been made for development of certain areas in the State into industrial and urban township. Instead of enacting area-wise Industrial Area Development Acts, the UP Government enacted a common UP Industrial Area Development Act, 1976 to cover Authorities under different areas with its distinct name. But, for the creation of various area-wise authorities such as NOIDA and Ghaziabad Authorities, there is no other purpose of the UP Industrial Area Development Act, 1976. In other words, we can also say that this Act is nothing but a culmination of several area-wise Industrial Area Development Acts. Since NOIDA has been notified under the UP Industrial Area Development Act, we are of the considered opinion that the expression ‘any corporation established by a State Act’ shall include NOIDA (New Okhla Industrial Development Authority) in the given circumstances.
We find that identical issue involving payment of interest by some banks to Ghaziabad Development Authority without tax withholding came up for consideration before the Delhi Bench of the Tribunal in the case of Chief/Senior Manager, Oriental Bank of Commerce vs. ITO. Vide its order dated 15.7.2011 in the Tribunal has held that the payment of interest by Oriental Bank of Commerce to Ghaziabad Development Authority is covered within the provisions of section 194A(3)(iii)(f) and, hence, there is no obligation for deduction of tax at source. Consequently, the order passed u/s 201(1) was set aside. Similar view has been taken by the Amritsar Bench of the Tribunal in the case of ITO (TDS) vs. Branch Manager Jammu & Kashmir Bank Ltd. Vide its order dated 24.4.2012 in ITA No.206 to 210/Asr/2011, the Tribunal has held that payment of interest by the bank to Jammu Development Authority (Jammu) is exempt u/s 194A(3)(iii)(f) and, hence, there can be no liability u/s 201(1) and 201(1A) on the bank and resultantly, the bank -6130/Del/2015 7 Syndicate Bank-Noida cannot be treated as an assessee in default u/s 201(1) and 201(1A). Likewise view has been taken by the Amritsar Bench of the Tribunal in ITO vs. the Branch Manager, Jammu, Jammu & Kashmir Bank Ltd., by its order dated 2.7.2012, a copy of which has also been placed on record. All these precedents support the proposition that the payment of interest by banks to the State Industrial Development Authorities does not require any deduction of tax at source in terms of section 194A(3)(iii)(f) and, hence, the failure to deduct tax at source on such interest cannot lead to the banks being treated as assessee in default. No material has been placed on record to demonstrate that all/any of the above orders have either been reversed or modified in any manner by the Hon’ble High Courts. Further, the ld. DR failed to point out any contrary decision. In view of the legal position discussed supra and these precedents, we are of the considered opinion that the ld. CIT(A) was justified in reversing the order passed by the Addl. CIT (TDS), Ghaziabad declaring the assessee liable u/s 201(1) and 201(1A) of the Act. We, therefore, uphold the impugned order.
In the result, the appeal is dismissed.”
We respectfully follow the propositions laid down in these orders and uphold the contentions of the assessee.
In the result, all the assessee’s appeals are allowed. (Order Pronounced in the Court on 12/01/2016).