Statutory corporation status under the Income-tax TDS exemption notification protected interest paid to the authority from deduction at source.

An industrial development authority constituted under a State enactment was treated as a corporation established by a State Act for purposes of the exemption notification under section 194A(3)(iii)(f) of the Income-tax Act. Because the statute itself authorised constitution by notification, conferred body corporate status, and prescribed the authority's composition and functioning, it was held to owe its existence to the enactment rather than merely being regulated by it. Interest paid to the authority by a bank therefore fell within the TDS exemption and no tax was deductible at source.

---

---

Issues: (i) Whether the industrial development authority constituted under the State enactment was a corporation established by a State Act within the meaning of the exemption notification issued under section 194A(3)(iii)(f) of the Income-tax Act, 1961, and whether interest paid to it by the bank was exempt from tax deduction at source.

Analysis: The exemption under section 194A must be read with the notification issued under clause (f), which covers, among others, any corporation established by a Central, State or Provincial Act. The governing statute itself provided for constitution of the authority by notification, made it a body corporate, and statutorily prescribed its composition and functioning. The distinction between a corporation created by or under a statute and a body merely governed by statute was decisive. Applying the settled test that a body owes its very existence to the enactment when the statute itself brings it into existence or provides for its constitution, the authority answered that description.

Conclusion: The authority was a corporation established by the State Act and fell within the notification. No tax was deductible at source on the interest paid to it under section 194A.

Final Conclusion: The Revenue's challenge failed because the authority was held to be a statutory corporation covered by the exemption notification, and the dismissal of the tax appeal was sustained.

Ratio Decidendi: Where the statute itself authorises constitution of a body by notification and gives it statutory corporate character and composition, that body is a corporation established by the Act for the purposes of a TDS exemption notification covering corporations established by or under a State Act.

---