2016 (5) TMI 570 - HC - Income Tax

NOIDA qualifies for tax exemption under Income Tax Act ruling

Commissioner of Income Tax (Tds) And Another Versus Canara Bank

The High Court held that NOIDA is a corporation established by the Uttar Pradesh Industrial Area Development Act, 1976, and is entitled to exemption from ... TDS u/s 194A on Interest - interest credited/paid on the fixed deposit receipts purchased by the New Okhla Industrial Development Authority (NOIDA) - Whether NOIDA is a corporation established by U.P. Industrial Area Development Act, 1976 and not a body established under the aforesaid Act. - Held that:- NOIDA has been granted a status of a Municipality under Article 243-Q of the Constitution of India which deals with the constitution of a Municipality. The State Government has issued a notification dated 24 December 2001 in exercise of the powers conferred under the proviso to clause (1) of Article 243-Q of the Constitution. The said notification provides that having regard to the size of NOIDA which has been declared to be an Industrial Development Area by a notification dated 17 April 1976 and the municipal services being provided by NOIDA, the Governor is pleased to specify that NOIDA would be an 'Industrial Township' with effect from the date of publication of the notification. This clearly means that instead of Municipal Corporation providing services, NOIDA would provide the said services and if that be so, then as observed by the Supreme Court in S.S. Dhanoa (1981 (5) TMI 124 - SUPREME COURT ), NOIDA will owe its existence to an Act of the State. The NOIDA has been constituted by the State Act and, therefore, entitled to exemption of payment of tax at source under section 194-A(1) of the Act. - Decided against the revenue. Issues Involved:1. Whether NOIDA is a corporation established by the Uttar Pradesh Industrial Area Development Act, 1976 and thus entitled to exemption from deduction of tax at source under the notification dated 22 October 1970 issued under section 194-A(3)(iii)(f) of the Income Tax Act, 1961.Issue-Wise Detailed Analysis:1. Interpretation of NOIDA as a Corporation Established by a State Act:The primary issue is whether the New Okhla Industrial Development Authority (NOIDA) qualifies as a corporation established by a State Act, specifically the Uttar Pradesh Industrial Area Development Act, 1976 (Industrial Act), and therefore is exempt from tax deduction at source under section 194-A(3)(iii)(f) of the Income Tax Act, 1961.The Assessing Officer had noted that for the Assessment Year 2006-07, the bank failed to deduct tax at source on interest credited/paid on fixed deposits purchased by NOIDA. The bank contended that NOIDA is a corporation established by a State Act and is exempt under the notification dated 22 October 1970. However, the Assessing Officer did not accept this, leading to the bank being held as an assessee in default.Upon appeal, the Commissioner of Income Tax (Appeals) examined the provisions of the Industrial Act and concluded that NOIDA was indeed a corporation established by the said Act, thus entitled to the benefit of the notification. This decision was upheld by the Income Tax Appellate Tribunal.2. Legal Provisions and Notifications:Section 194-A(1) of the Income Tax Act mandates tax deduction at source on interest payments by entities other than individuals or Hindu undivided families. However, sub-section (3) of section 194-A exempts certain entities, including corporations established by a Central, State, or Provincial Act, as notified by the Central Government. The notification dated 22 October 1970 specifically exempts such corporations from tax deduction at source.3. Analysis of the Industrial Act:The Industrial Act provides for the constitution of an Authority for developing industrial areas in the state. Section 3 of the Act allows the State Government to constitute an Authority by notification, which shall be a body corporate. The Act outlines the Authority’s functions, including land acquisition, development planning, and provision of amenities, and grants it the power to levy taxes and maintain its own funds.4. Judicial Precedents and Interpretations:The Supreme Court's decision in Dalco Engineering Pvt. Ltd. vs. Satish Prabhakar Padhye was referenced, which clarified the distinction between a corporation established 'by' an Act and one established 'under' an Act. The Court emphasized that a corporation established by an Act owes its existence to the statute itself, whereas a corporation established under an Act is created through a notification or other mechanism provided by the statute.5. Application to NOIDA:NOIDA, constituted under the Industrial Act by a State Government notification, fits the criteria of a corporation established by a State Act. The Act itself provides for the creation of such Authorities, and NOIDA’s functions, powers, and structure are defined by the statute. The Court concluded that NOIDA’s establishment by the Industrial Act entitles it to the tax exemption under the notification dated 22 October 1970.Conclusion:The High Court held that NOIDA is a corporation established by the Uttar Pradesh Industrial Area Development Act, 1976, and is therefore entitled to exemption from deduction of tax at source under section 194-A(3)(iii)(f) of the Income Tax Act, 1961. The appeal filed by the department was dismissed, affirming the decisions of the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal.