Bank not liable to deduct TDS from Interest paid to Noida Authority: ITAT [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) in ‘Branch Manager, Axis Bank v.Addl. CIT held that Axis bank is not liable to deduct TDS from the interest paid or credited to Noida Authority. The Greater Noida authority, the payee, is a statutory authority constituted u/s 3 of the Uttar Pradesh (UP) Industrial Area Development Act, 1976 and 100% owned by UP State Government. The CBDT Notification No. 3489 (Entry No. 39) dated 22/10/1970 issued in pursuance to Section 194A (3) (iii) (F) directs that no tax is required to be deducted from interest payment to any corporation established by a Central State or Provincial Act. Thus, it is not coming under the purview of TDS provision.

The Assessee in this case Axis Bank is a public sector bank. The Assessee had made payment of interest on FDRs to Gr.Noida Authority during F.Y 2012-13, relevant to A.Y 2013-14.During the verification AO observed that no TDS was deducted on the interest paid to Gr.Noida Authority on the FDRs, as was obligatory on the part of the bank under the provisions of Section 194A of the Income Tax Act, 1961. A notice was issued to the Assessee to furnish details of payment of interest paid on FDRs to Gr.Noida Authority. According to the details furnished by the Assessee, the Assessee had paid an amount of 13,76,509  as interest during the A.Y.2012 13 &2013-14 , the TDS being nil. The Assessee during the course of proceedings stated that Gr. Noida Authority had given a declaration to banks that it was exempted from taxation since it is a local authority. Hence the Assessee bank has not deducted any tax. The AO observed that the Gr.Noida Authorities do not have a certificate under section 197 for lower deduction of tax which was ought to be provided to the banks,if their income was not taxable. Unless a certificate u/s 197 from the department is produced by the authority, banks are liable to deduct tax at source on payment of interest to the authority. As per Section 194A of the I.T. Act, 1961 and board notification bank was liable to deduct the tax at source on interest payment credited to Greater Noida Authority. However, bank has failed to deduct the same and pay to the Central Government.

The AO further observed that Gr.Noida Authority is not covered under the exemption u/s 194A(3)(iii)(f) of the Income Tax Act, 1961 which  is allowable to only such corporation established by a State, Central or provincial Act and not under any other acts. Hence the exemption vide, CBDT notification No. S.O. 3489 dated 22.10,1970 is not applicable to the Gr.Noida Authority.Therefore the Assessee bank has to deduct TDS on payment of interest on FDRs to Gr.Noida Authority and pay to the Central Govt. Account. However, the Assessee has not followed the provisions of Income Tax Act, 1961. The Assessee did not deduct TDS on payment of interest on FDRs on the basis of the letter provided by the Gr. Noida Authority, while TDS should be deducted on this payment and deposited in the government account without any delay as per tire provisions of Income Tax Act, 1961. The AO held that tax is deductible @ 10% under section 194A of the Income Tax Act, 1961 which assessee failed to do so and the assessee is in default. Total short charge u/s 201(1) is computed at Rs.1,37,650/- Noida Authority and interest thereon u/s 201(1A) is Rs. 41,295/-. Thus the total demand on account of short charge and interest worked out at Rs.1,78,945/- by the AO.

Aggrieved the Assessee filed appeal before the CIT(A) which was dismissed. Therefore, the appellants filed appeal before the ITAT.

The ITAT Held that the Noida is a corporation established by the Uttar Pradesh Industrial Area Development Act 1976.Therefore it is a corporation constituted under a State Act and is entitled to exemption payment of tax at source under section 194A(1) Of the Income Tax Act 1961.The ITAT relied upon the judgment the Allahabad High Court in case of CIT Vs. Canara Bank.