2023 (1) TMI 1281 - HC - Income Tax

Court Ruling on Tax Deduction, Order Validity, and Repayment Considerations: Implications for Public Funds

The court addressed various issues including the deduction of tax at source for payments to local authorities, the validity of an order under the Income ... TDS on payments made to local authorities, including New Okhla Industrial Development Authority [“NOIDA ”] - order passed u/s 201(1)/201(1A) - HELD THAT:- Although the petitioner-bank has slept over its rights, we are prima facie of the view that since public money is involved, and because both the petitioner-bank and the NOIDA fall in the category of entities which deal with public funds, the respondents/revenue could consider repaying the money to the petitioner-bank for onward transmission to NOIDA. We may note that the NOIDA has been following up the matter, despite which, the petitioner-bank did not act with alacrity. Given this position, NOIDA may have a case for recovering the interest from petitioner-bank if we were to grant the relief, as sought in the writ petition. Insofar as this writ action is concerned, our remit is limited to the relief sought by the petitioner-bank, which as noted above, is for issuance of a direction to quash the order dated 28.02.2013. Revenue, says that he will return with instructions. List the matter on 27.01.2023. Issues Involved: 1. Deduction of tax at source for payments to local authorities, including New Okhla Industrial Development Authority (NOIDA) 2. Validity of the order dated 28.02.2013 under Section 201(1)/201(1A) of the Income Tax Act, 1961 3. Reduction of the original demand raised against the petitioner-bank for Assessment Year (AY) 2005-06 4. Consideration of repayment of money to the petitioner-bank for onward transmission to NOIDA 5. Recovery of interest by NOIDA from the petitioner-bank Issue 1: Deduction of tax at source for payments to local authorities, including NOIDA Mr. Salil Kapoor argued that the law concerning tax deduction at source for payments to local authorities, such as NOIDA, is settled. He referred to a Supreme Court judgment dated 02.07.2018 in Commissioner of Income Tax (TDS) Kanpur and Anr. vs Canara Bank, (2018) 9 SCC 322. The petitioner-bank's appeal in CA No.6065/2018 was also mentioned, which pertained to Assessment Year (AY) 2011-12. However, the current writ petition concerns AY 2005-06.Issue 2: Validity of the order dated 28.02.2013 under Section 201(1)/201(1A) of the Income Tax Act, 1961 The petitioner-bank sought to challenge the order dated 28.02.2013 passed under Section 201(1)/201(1A) of the Income Tax Act, 1961. Despite a subsequent order reducing the original demand from Rs.1,36,04,250 to Rs.50,89,894 for AY 2005-06, the petitioner-bank did not pursue enforcement for several years. The court noted the involvement of public funds and suggested that the revenue authorities could consider repaying the money to the petitioner-bank for transmission to NOIDA.Issue 3: Reduction of the original demand raised against the petitioner-bank for AY 2005-06 An order dated 30.03.2013 had reduced the original demand against the petitioner-bank for AY 2005-06. Despite the reduction from Rs.1,36,04,250 to Rs.50,89,894, the petitioner-bank did not act promptly to enforce this order. The court highlighted the importance of public funds and the responsibilities of entities dealing with such funds, including the petitioner-bank and NOIDA.Issue 4: Consideration of repayment of money to the petitioner-bank for onward transmission to NOIDA The court expressed a prima facie view that due to the involvement of public funds and the nature of the entities involved, the revenue authorities could consider repaying the money to the petitioner-bank, which could then be transmitted to NOIDA. The court also mentioned that NOIDA might have a case for recovering interest from the petitioner-bank if relief is granted as sought in the writ petition.Issue 5: Recovery of interest by NOIDA from the petitioner-bank The court noted that NOIDA had been actively pursuing the matter, while the petitioner-bank had not acted promptly. In case the relief sought in the writ petition is granted, NOIDA might have grounds to claim interest from the petitioner-bank. However, the court clarified that the scope of the writ action was limited to the relief requested by the petitioner-bank, which was the quashing of the order dated 28.02.2013.The matter was adjourned to 27.01.2023 for further proceedings.