Canara Bank (SC): NOIDA, a corporation established 'by' the Act; Upholds Sec. 194A TDS-exemption on bank interest

ISSUE

Whether NOIDA is a Corporation established by or under the Uttar Pradesh Industrial Area Development Act, 1976, consequent to which it is eligible for exemption from the requirement of tax deduction at source in respect of payment of interest made to it by Canara Bank?

FACTS:

1.The assessee, New Okhla Industrial Development Authority (NOIDA), was constituted by a notification issued under Uttar Pradesh Industrial Development Act, 1976.

2. Canara Bank made payment of interest on deposits to the assessee (NOIDA) without deducting tax u/s 194A.

3.The Commissioner of Income-tax (TDS) issued notices to Canara Bank, asking for information pertaining to interest paid without deducting tax at source u/s 194A.

PROVISION APPLICABLE

1. Section 194A requires deduction of tax at source while making interest payments.

2.Sec. 194A(3)(iii)(f) provides that sub-section (1) shall not apply to income credited or paid to institutions, associations notified by Central Govt.

3. A notification dated October 22, 1970 is issued by CG u/s 194A(3)(iii)(f) exempting payments made to “any corporation established by a Central, State or Provincial Act” from the requirement of tax deduction at source.

ANALYSIS:

1) Assessee should be ‘corporation’ being a separate legal entity The Supreme Court explained a ‘corporation’ as an artificial being created by law having a legal entity entirely separate and distinct from the individuals. There was no dispute about NOIDA being a corporation and a statutory corporation.

2) Corporation should be ‘established by or under’ Statute SC rejected Revenue’s submission that the assessee-Authority was not established by 1976 Act rather it was established under the 1976 Act. SC held that words “by and under” were interchangeably used in the IT Act, 1961 and there was no difference between them. SC held that the emphasize should be on the word “established” in addition to the words “by or under”. SC held that that the phrase “established by or under” is used to denote a statutory corporation established or brought into existence by or under a statute. SC noted that the establishment of Corporation is by a notification issued by State Government. In the present case, notification has been issued by the State Government in exercise of power under the Act and the Authority has been constituted.

3) Preamble to Act provided for constitution of Authority SC observed that very preamble of that Act read 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 masses connected through with”. Thus, SC analysed that the Act itself provided for constitution of an authority.

4) Thus, SC held that NOIDA has, thus, been established by the 1976 Act and is clearly covered under the Notification issued u/s 194A(3)(iii)(f). Hence, it is

eligible for exemption from tax deduction at source provided under section 194A(3)(iii)(f).

CONCLUSION:

SC holds that NOIDA is constituted 'by' the State Act and is covered by the notification dated October 22, 1970, is, therefore, entitled to TDS exemption u/s. 194A(3)(iii)(f)