Statutory welfare board exemption under TDS rules supported non-deduction and protected the payer from default treatment.

A statutory welfare board constituted as a body corporate under a Central enactment was treated as falling within the class of institutions covered by the notification under section 194A(3)(iii)(f) of the Income-tax Act, 1961. Applying a contextual reading and the principle of noscitur a sociis, the interest paid to the Board was regarded as exempt from tax deduction at source. The payer's reliance on the Board's statutory status, exemption claim, and supporting declarations was held to provide a bona fide basis for non-deduction, so the assessee was not treated as an assessee in default under sections 201(1) and 201(1A).

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Issues: Whether interest paid to the Karnataka Building and Construction Workers' Welfare Board was exempt from tax deduction at source under section 194A(3)(iii)(f) of the Income-tax Act, 1961, and whether the assessee could be treated as an assessee in default under sections 201(1) and 201(1A) for non-deduction of tax.

Analysis: The Board was constituted under section 18 of the Building and Other Construction Workers (Regulation and Employment and Conditions of Service) Act, 1996 and was declared to be a body corporate. The notification issued under section 194A(3)(iii)(f) of the Income-tax Act, 1961 exempted interest paid to certain institutions, associations or bodies, including corporations established by Central, State or Provincial enactments. Reading the notification contextually, the expression was construed broadly by applying the principle of noscitur a sociis. The Board's statutory origin, corporate character, and the source of its funds supported the view that it fell within the notified class. The assessee's reliance on the Board's constitution, exemption claim and declarations furnished by the Board was held to constitute a bona fide basis for not deducting tax.

Conclusion: The assessee was not liable to deduct tax at source on the interest paid to the Board and could not be treated as an assessee in default under sections 201(1) and 201(1A).

Ratio Decidendi: A statutory welfare board constituted as a body corporate under a Central enactment can fall within a notified class of institutions or bodies under section 194A(3)(iii)(f) of the Income-tax Act, 1961, and a payer acting on a bona fide, legally supportable belief that no tax was deductible cannot be treated as an assessee in default.

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