Summary
The Supreme Court upheld the banks’ exemption from deducting tax at source on interest paid to NOIDA under the 22 October 1970 notification issued under Section 194A(3)(iii)(f). NOIDA was a statutory corporation established by the U.P. Industrial Area Development Act, 1976, notwithstanding its constitution through a government notification. This withholding exemption was distinct from NOIDA’s claim to local-authority income-tax exemption.
Issues
- Whether NOIDA was a corporation established by a State Act within the 1970 notification exempting specified interest payments from TDS.
- Whether constitution through a notification under the 1976 Act excluded it from that description.
Provisions considered
- Section 194A(3)(iii)(f), read with S.O. 3489 dated 22 October 1970, clause (i), Income-tax Act, 1961The notification covered any corporation established by a Central, State or Provincial Act. NOIDA satisfied that description, so banks were not required to deduct tax on the relevant interest payments to it. (¶¶ 10, 11, 15, 31, 32)
- Sections 2(b) and 3, U.P. Industrial Area Development Act, 1976The Act provided the Authority’s constitution, corporate status and composition. The constitutive notification exercised the statutory mechanism; it did not make NOIDA a corporation merely governed by an Act. (¶¶ 28, 29, 30, 31)
Held
- A statutory corporation owes its existence to the enactment, as distinct from a company or society brought into existence by private acts and thereafter governed by legislation. Text must be construed in its statutory context. (¶¶ 14, 15, 17, 19, 20, 21, 22, 23, 24)
- Establishment through a government notification pursuant to an enabling statutory provision does not prevent a corporation from being established by the Act for the notification’s purposes. The Court applied Dalco Engineering’s analysis and compared the State Financial Corporations statutory mechanism. (¶¶ 24, 25, 26, 27, 30, 31)
- The 1976 Act itself provided for NOIDA’s establishment and prescribed its composition. The Authority therefore fell within the 1970 notification, defeating the Revenue’s distinction between establishment “by” and “under” the Act on these facts. (¶¶ 28, 29, 30, 31)
- NOIDA’s local-authority status under Section 10(20) was a distinct issue. The present exemption concerned the banks’ duty to deduct tax from interest under Section 194A and the notification, rather than a general exemption of NOIDA’s income. (¶¶ 4, 5, 6, 10, 31)
Result
All Revenue appeals dismissed; High Court judgment sustaining the banks’ exemption from TDS on the relevant interest payments to NOIDA upheld.