Special Court Act overrides TDS obligation where payment directions barred deduction, and non-deduction was not default.

The Special Court Act, as a special statute with overriding effect, governed payments made to the Custodian, and the assessee could not be treated as in default for not deducting tax at source where the Special Court had directed payment without TDS and that position was affirmed in substance by the Supreme Court. The Tribunal erred in holding that the Special Court order operated only from the later Supreme Court order; the protective scheme applied from the date the Special Court Act came into force. The contention that tax deducted at source constituted department income, and reliance on sections 198 and 199, did not alter the result because the assessee was restrained by the Special Court's directions. The contrary findings were unsustainable.

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Issues: Whether, in view of the Special Court Act and the orders passed thereunder, the assessee was liable to deduct tax at source under section 194A of the Income-tax Act, 1961 on payments made to the Custodian.

Analysis: The Special Court Act was a special statute with overriding effect, and its protective scheme operated from the date it came into force. The Court held that where the Special Court had directed that payments were to be made without deduction of tax at source, and the Supreme Court had affirmed the position in substance, the assessee could not be treated as being in default for non-deduction. The Tribunal's view that the Special Court order would operate only from the later date of the Supreme Court's order was rejected as an error of law. The Court also held that the reasoning that tax deducted at source was income of the department was misconceived, and that the statutory scheme under sections 198 and 199 did not alter the conclusion that the assessee was restrained from making the deduction in the face of the Special Court's directions.

Conclusion: The assessee was not liable to deduct tax at source under section 194A in spite of the Special Court proceedings and orders, and the contrary findings of the Tribunal and the lower authorities were unsustainable.

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