Court orders petitioner to deposit demanded amount with respondent, continue tax deductions, and comply until tax liability resolved.

The court directed the petitioner to deposit the demanded amount with the respondent within three weeks in an interest-bearing account, continue deducting tax at source, and deposit the same with the Income Tax Department. A similar amount is to be deposited with the respondents, also in an interest-bearing account, until a decision is made on respondents' liability to pay tax. The petitioner must comply with the directions until a decision is reached on tax liability, ensuring a fair resolution of the dispute.

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Issues:
1. Interpretation of Income Tax Act regarding deduction of tax at source on lease rental.
2. Validity of notice issued by respondent regarding interest on unpaid lease rent.
3. Exemption of Noida Authority from payment of Income Tax.
4. Resolution of dispute regarding payment of interest and tax deducted at source.

Analysis:
1. The petitioner, a company engaged in manufacturing IC Engine products, entered into a lease agreement with respondent no.1 for a plot in Greater Noida. The petitioner started deducting tax at source from lease rent after an amendment in the Income Tax Act in 2004. The petitioner challenges a notice demanding interest on unpaid lease rent, arguing it is duty-bound to deduct tax at source and deposit it with the Income Tax Department until Noida Authority's exemption from Income Tax is decided.

2. The petitioner's counsel contends that Noida Authority, not exempted from Income Tax, cannot charge interest on lease rent already deducted at source and deposited. To avoid further disputes, the petitioner offers to pay the demanded interest and suggests depositing an equal amount with the respondent in an interest-bearing account for possible refund to Noida Authority if required.

3. The court notes the pending decision on Noida Authority's exemption from Income Tax and accepts the petitioner's suggestion as not prejudicing Noida Authority's interests. The judgment directs the petitioner to deposit the demanded amount with the respondent within three weeks in an interest-bearing account, continue deducting tax at source, and deposit the same with the Income Tax Department. A similar amount is to be deposited with the respondents, also in an interest-bearing account, until a decision is made on respondents' liability to pay tax.

4. The petitioner must comply with the directions until a decision is reached on tax liability. If respondents are found not liable to pay income tax, the deposited amount will be appropriated by them. Conversely, if they are liable, the amount in the interest-bearing account will be refunded to the petitioner, ensuring fair resolution of the dispute.

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