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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: Whether interest paid by the assessee-bank on fixed deposits to the Jammu Development Authority was subject to deduction of tax at source under Section 194A of the Income-tax Act, 1961, or was exempt under the notification issued under Section 194A(3)(iii)(f).
Analysis: Section 194A generally obliges deduction of tax at source on interest payments other than interest on securities, but the statutory exclusion in Section 194A(3)(iii)(f) permits the Central Government to notify classes of institutions, associations or bodies exempt from the provision. Notification S.O. 3489 dated 22.10.1970 covers any corporation established by a Central, State or Provincial Act. The Jammu Development Authority was constituted under Section 3 of the Jammu and Kashmir Development Act, 1970 as a body corporate with perpetual succession and was therefore a statutory corporation falling within the notified exemption. The Court applied the principle laid down by the Supreme Court in analogous cases involving development authorities and held that the revenue's reliance on a different precedent concerning Article 289 of the Constitution of India was misplaced.
Conclusion: The assessee-bank was not required to deduct tax at source on interest paid to the Jammu Development Authority, and the revenue appeals were dismissed.
Ratio Decidendi: A development authority constituted by a State Act as a body corporate is a corporation established by that Act and, when covered by a notification issued under Section 194A(3)(iii)(f), its interest income is outside the obligation of tax deduction at source under Section 194A(1).
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