SECTION 194A – CIT (TDS) vs. CANARA BANK (2018) 406 ITR 161 (SC)

Payment of interests by the banks to the State Industrial Development Authority is not liable to TDS in terms of section 194A(3)(iii)(f)

The New Okhla Industrial Development Authority (NOIDA) (“Authority”) was constituted by Notification dated 17.04.1976 issued u/s. 3 of the Uttar Pradesh Industrial Area Development Act, 1976 (“1976 Act”). The Canara Bank made a payment towards interest to Authority on FDs/Deposits for the FY 2005-06. No TDS was deducted.  The Tribunal held that payment of interests by the banks to the State Industrial Development Authority did not require any deduction at source in terms of section 194A(3)(iii)(f).  HC dismissed the Revenue appeal. 

Before SC, the Revenue contended that Authority having not been established by a Central, State or Provincial Act was not eligible for exemption.  The SC observed that the Act itself provides for constitution of an authority. Section 2(b) of the 1976 Act defines Authority as authority constituted u/s. 3 of the Act. The SC observed that when one compares the provisions of section 3 of 1976 Act with those of The State Financial Corporations Act, 1951, it becomes clear that the establishment of Corporation in both the enactments is by a notification by State Government. In the present case, notification has been issued in exercise of power of section 3 and the Authority has been constituted.
Referring to Dalco Engineering (4 SCC 378), the SC observed that establishment of various financial corporations under State Financial Corporation Act, 1951 is establishment of a Corporation by an Act or under an Act, and therefore there was no doubt that the Authority have been established by the 1976 Act and it was clearly covered by the Notification dated 22.10.1970.  The Revenue appeal was dismissed.

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