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2016 (5) TMI 570 - ALLAHABAD HIGH COURT

2016 (5) TMI 570 - ALLAHABAD HIGH COURT - [2016] 386 ITR 504 - TDS u/s 194A on Interest - interest credited/paid on the fixed deposit receipts purchased by the New Okhla Industrial Development Authority (NOIDA) - Whether NOIDA is a corporation established by U.P. Industrial Area Development Act, 1976 and not a body established under the aforesaid Act. - Held that:- NOIDA has been granted a status of a Municipality under Article 243-Q of the Constitution of India which deals with the constitution .....

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hip" with effect from the date of publication of the notification. This clearly means that instead of Municipal Corporation providing services, NOIDA would provide the said services and if that be so, then as observed by the Supreme Court in S.S. Dhanoa (1981 (5) TMI 124 - SUPREME COURT ), NOIDA will owe its existence to an Act of the State. - The NOIDA has been constituted by the State Act and, therefore, entitled to exemption of payment of tax at source under section 194-A(1) of the Act. - .....

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Okhla Industrial Development Authority) is a corporation established by U.P. Industrial Area Development Act, 1976 and not a body established under the aforesaid Act." It transpires from the records of the appeal that the Assessing Officer noticed that for the Assessment Years 2006-07 and 2007-08, M/s. Canara Bank the bank failed to deduct tax at source under section 194-A(1) of the Act on the interest credited/paid on the fixed deposit receipts purchased by the New Okhla Industrial Develop .....

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003 within the meaning of section 10(20) of the Act and, therefore, entitled to exemption from payment of income-tax. The Bank was held to be an assessee in default and an order under section 201(1)/201(1-A) of the Act was passed on 28 February 2013 . A demand notice under section 156 was issued and penalty proceedings under section 271-C of the Act were directed to be initiated separately. Feeling aggrieved, the Bank filed an appeal before the Commissioner of Income Tax (Appeals). The Commissio .....

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r section 260-A of the Act has, accordingly, been filed by the department. The issue that arises for consideration in this appeal is as to whether NOIDA is a corporation entitled for exemption from deduction of tax at source under the provisions of the notification dated 22 October 1970 issued under section 194-A(3)(iii)(f) of the Act. This notification provides that the provisions of sub-section (1) of section 194-A of the Act shall not apply to any corporation established by a Central, State o .....

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an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. However, sub-section (3) of section 194-A provides that the provisions of sub-section (1) s .....

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as follows : "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 undertakin .....

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Tax, Meerut Camp & Ors., decided on 28.2.2011 and, therefore, it was required to file return of income. It is also their submission that NOIDA is not a 'corporation' established by a State Act and, therefore, is also not entitled for exemption under section 194-A of the Act from deducting tax at source. In this connection learned counsel have drawn a distinction between a corporation that is established by a Central, State or Provincial Act and a corporation that established under a .....

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established by the Industrial Act and, therefore, entitled for exemption from deduction of income tax at source. We have carefully considered the submissions advanced by learned counsel for the parties. In order to appreciate the contentions advanced by learned counsel for the parties, it will be appropriate at this stage to refer to the provisions of Industrial Act so as to determine whether NOIDA is a corporation that has been established by a State Act or it has been established under a State .....

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ub-section (2) of section 3 also provides that the Authority shall be a body corporate, while sub-section (3) provides for the constitution of the Authority. "Authority" has been defined under section 2(b) to mean Authority constituted under section 3 of the Act. The State Government by notification dated 17 April 1976 declared that the area comprising the villages mentioned in the Schedule annexed with the notification shall be an "Industrial Development Area" called "N .....

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Uttar Pradesh, Local Self-Government Department, Ex-officio Member [Under clause (c)] (iv) Secretary to the Government, Uttar Pradesh, Finance Department, Ex-officio Member [Under clause (d)] (v) Managing Director, U.P. State Industrial Development Corporation Ltd., Ex-officio Member [Under clause (e)] (vi) Chairman, U.P. State Electricity Board, Ex-officio Member [Nominated under clause (f)] (vii) Managing Director, U.P. Jal Nigam, Ex-officio Member [Nominated under clause (f)] (viii) Chief Eng .....

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ctions amongst others are : (i) to acquire land in the industrial development area by agreement or through proceedings under the Land Acquisition Act for the purpose of the Act; (ii) to prepare a plan for the development of the industrial area; and (iii) to provide amenities. Section 11 deals with levy of tax. It provides that for the purposes of providing, maintaining or continuing any amenities in the industrial development area, the Authority may with the previous approval of the State Govern .....

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Authority from the State Government by way of grants, loans, advances or otherwise; (b) all moneys borrowed by the Authority from securities other than the State Government by way of loans or debentures; (c) all fees, tolls and charges received by the Authority under the Act, (d) all moneys received by the Authority from the deposit of lands, buildings and other properties movable and immovable; and (e) all moneys received by the Authority by way of rents and profits or in any other manner or f .....

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and other relevant records and prepare annual statement of accounts including the Balance Sheet in such form as the State Government may specify. (2) The accounts of the Authority shall be subject to audit by the examiner Local Fund Accounts. (3) ................. (4) ................. (5) ................." Section 23 provides that the Authority shall prepare for every year a report of its activities during that year and submit the report to the State Government in such form and on or befo .....

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Government unnecessary, the Government may by notification in the Gazette declare that the authority shall be dissolved with effect from such date as may be specified in the notification and the Authority shall be deemed to be dissolved accordingly. The aforesaid provisions of the Industrial Act have to be kept in mind while examining the provisions of section 194-A of the Act in order to determine whether the Bank is exempted from deduction of tax at source. The relevant provisions of section .....

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arlier, deduct income-tax thereon at the rates in force: ...................... ...................... (3) The provisions of sub-section (1) shall not apply- ...................... ...................... (ii) .................. (iii) to such income credited or paid to - (a) any banking company to which the Banking Regulation Act, 1949, applies or any co-operative society engaged in carrying on the business of banking; or (b) any financial corporation established by or under a Central, State or P .....

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azette. .................... ...................." A perusal of section 194(1)(3)(iii) clearly indicates that the provisions of sub-section (1) of section 194-A of the Act shall not apply to such income credited or paid to banking company to which the Banking Regulation Act, 1949 applies, or any co-operative society engaged in the business of banking, financial corporation established by or under a Central or State Act, Life Insurance Corporation of India, Unit Trust of India or those notif .....

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g Pvt. Ltd. (supra). Two Civil Appeals were decided. The first Civil Appeal was filed by Dalco Engineering Pvt. Ltd., a Private Limited Company incorporated under the provisions of Companies Act, 1956 Companies Act. The respondent Satish Prabhakar Padhye claimed the benefit of section 47 of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 Disabilities Act and filed the writ petition in the Bombay High Court for not only quashing the order .....

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er 2005 and directed the employer to reinstate the said respondent and shift him to a suitable post after holding that though Dalco Engineering was a private limited company but it was an "establishment" within the meaning of section 2(k) of the Disabilities Act and consequently section 47 enjoined it not to dispense with the services of its employee who had acquired a disability. Section 47 of the Disabilities Act which deals with non-discrimination in government employment is reprodu .....

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ge of superannuation, whichever is earlier. (2) No promotion shall be denied to a person merely on the ground of his disability: Provided that the appropriate Government may, having regard to the type of work carried on in any establishment, by notification and subject to such conditions, if any, as may be specified in such notification, exempt any establishment from the provisions of this section." The term "establishment" is defined in section 2(k) of the Disabilities Act and is .....

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corporated under the Companies Act other than a government Company, as defined in section 617 of the Companies Act, was an "establishment" as defined in section 2(k) of the Disabilities Act and as to whether the respondent was entitled to claim any relief with reference to section 47 of the Disabilities Act. It is in this context that the Supreme Court observed that the words "a corporation established by or under a Central, Provincial or State Act" is a standard term used in .....

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or State Act; or (v) any company as defined in Section 617 of the Companies Act, 1956; or (vi) any institution, concern or undertaking which the Central Government may, by notification in the Official Gazette, specify in that behalf provided that the Central Government shall not specify any institution, concern or undertaking under that sub-clause unless such institution, concern or undertaking is financed wholly or substantially by funds provided directly or indirectly by the Central Government .....

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Lakshmi Narain (1976) 2 SCC 58, the Supreme Court further observed that a "company" is not "established" under the Companies Act as an incorporated company formed by the act of any seven or more persons (or two or more persons for a private company) associated for any lawful purpose subscribing their names to a memorandum of association and by complying with the requirements of the Companies Act in respect of registration. Therefore, a "company" is incorporated and .....

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established by or under an Act", the emphasis should be on the word "established" in addition to the words "by or under". The word "established" refers to coming into existence by virtue of an enactment. It does not refer to a company, which, when it comes into existence, is governed in accordance with the provisions of the Companies Act. But then, what is the difference between "established by a Central Act" and "established under a Central Act& .....

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as the Central Government may, by notification in the Official Gazette, appoint, there shall be established a Corporation called the Life Insurance Corporation of India." State Bank of India and Life Insurance Corporation of India are two examples of corporations established by "a Central Act". 23. We may next refer to the State Financial Corporation Act, 1951 which provides for establishment of various financial corporations under that Act. Section 3 of that Act relates to establ .....

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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." (emphasis supplied) In S.S. Dhanoa (supra), on which reliance was placed in the aforesaid judgment, the Supreme Court had observed : "9. Corporation, in its widest sense, may mean any association of individuals .....

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ety under the Societies Registration Act owes its existence not to the Act of legislature but to acts of parties though, it may owe its status as a body corporate to an Act of legislature. 10. There is a distinction between a corporation established by or under an Act and a body incorporated under an Act. The distinction was brought out by this Court in Sukhdev Singh and Ors. v. Bhagatram Sardar Singh Raghuvanshi and Ors., (1975) 1 SCC 421. It was observed: "25. A company incorporated under .....

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ution concerned must owe its very existence to a statute which would be the fountainhead of its powers. The question in such case to be asked is, if there is no statute, would the institution have any legal existence. If the answer is in the negative, then undoubtedly it is a statutory body, but if the institution has a separate existence of its own without any reference to the statute concerned but is merely governed by the statutory provisions it cannot be said to be a statutory body. (emphasi .....

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he Act. In this connection, learned counsel pointed out that NOIDA has been constituted by the State Government by a notification after identifying the areas. According to them, this is an example of a corporation having been constituted under the State Act. In order to draw a distinction from a corporation having been established by a State Act, learned counsel referred to the establishment of the State Bank of India under the provisions of State Bank of India Act, 1955 as also the constitution .....

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been determined. Learned counsel for the appellants in fact have submitted that like NOIDA, the State Financial Corporation has also been established under the State Financial Corporation Act, 1951. Their contention is that section 3 of the State Financial Corporation Act relates to establishment of State Financial Corporations and provides that the State Government may, like in the case of an Authority under the provisions of the Industrial Act, by a notification in the Official Gazette, establ .....

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unal committed gross illegality in holding that the NOIDA has been established by the State Act and, accordingly, granting exemption from deduction of tax under section 194-A(1) of the Act. Sri Balbir Singh, learned Senior Counsel appearing for the Bank, however, submitted that there can be no doubt that the NOIDA has been constituted by the Industrial Act. His contention is that except for naming NOIDA or any other Industrial Development Authority all matters have been specified in section 3(1) .....

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ere is no need to meticulously examine the difference in using "by" or "under" when the Legislature itself has not considered it necessary to place such a fine distinction as is sought to be raised by learned counsel for the appellants. His contention is that in view of the exemptions granted under section 194-A(3)(iii)(f) of the Act as also the notification dated 22 October 1970, NOIDA is exempted from deduction of tax at source under section 194-A(1) of the Act. With regard .....

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otification. His submission is that it is for this reason that the Supreme Court in paragraph 23 of the judgment rendered in Dalco Engineering Pvt. Ltd. (supra) observed that the State Financial Corporation had been established under a State Act. What is important to notice is that in Dalco Engineering Pvt. Ltd. (supra), the Supreme Court while dealing with the State Financial Corporation, specifically observed that when the words "by or under an Act" are preceded by the words "es .....

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er words, whether it be NOIDA or any other Authority that is to be constituted under section 3(1) of the Act, the name of the Authority has been indicated. So far as the NOIDA is concerned, the name of the Authority is the New Okhla Industrial Development Authority. Thus, except for naming a particular Industrial Area Development Authority, since more than one Authority could be constituted, the Authority has been constituted by the Act and merely because the area of the Authority has not been d .....

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der the Land Acquisition Act; to prepare a plan for the development of the industrial area and to provide amenities. The Authority has also been empowered to levy tax as is clear from the provisions of section 11. It empowers the Authority with the previous approval of the State Government to levy such taxes, as it may consider necessary, for maintaining or continuing any amenities in the industrial development area. The Authority has to maintain its own fund. The object of the Authority is to p .....

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is, therefore, no doubt that NOIDA owes its existence to a Statute which is the fountainhead of its powers. Even otherwise, the fine distinction sought to be made by learned counsel for the appellants losses significance when the provisions of section 194-A(3)(iii)(c) and (d) are examined. They provide that the income credited or paid to the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1952 or the Unit Trust of India established under the Unit Trust .....

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d out by learned Senior Counsel for the respondent-Bank, the said Central Act authorised the State Government to issue the notification whereas the Industrial Act authorises the State Government to issue the notification. In this connection, we need to remind ourselves by observations made in paragraph 9 in the judgment of S.S. Dhanoa (supra). The Supreme Court pointed out that a Corporation established "by" or "under" an Act of Legislature can only mean a body corporate whic .....

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itional area, that is to say, an area in transition from a rural area to an urban area; (b) a Municipal Council for a smaller urban area; and (c) a Municipal Corporation for a larger urban area. The proviso to Article 243-Q, however, stipulates that a Municipality under this clause may not be constituted in such urban area or part thereof as the Governor may, having regard to the size of the area and the municipal services being provided or proposed to be provided by an industrial establishment .....

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