TaxTMI 
TaxTMI 
2026 (9) TMI 583
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....to its depositors. Since the issues contended are common across all these appeals they are disposed off to this common order for brevity. 2. The assessee is a State Public Sector undertaking registered as non banking financial company with the Reserve Bank of India. The assessee mobilises funds through public deposits and various government schemes and pace substantial amount of interest to its depositors including universities, temples, government companies, boards and other statutory entities. There was a survey u/s. 133A(2A) of the Act conducted on 30.10.2023 in the office of the assessee which concluded on 31.10.2023 in order to verify the compliance with TDS provisions. During the survey, it was noticed that the assessee has not deducted TDS on interest payments to certain depositors. The A.O after considering the submissions of the assessee held the assessee to be the assessee in default and passed an order u/s. 201(1) and 201(1A) of the Act for failure to deduct Tax at source u/s. 194A of the Act. On further appeal, the CIT(A) confirmed the order of the A.O. The assessee is in appeal before the Tribunal against the order of the CIT(A). For the purpose of adjudication, we ....
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....d by a Central, State or Provincial Act" refers to a statutory corporation which owes its very existence to the parent enactment and that the decisive test is whether the statute itself provides for the constitution of the authority as a body corporate and prescribes its composition, powers and functions. The ld AR further submitted that where the authority is brought into existence by the statute itself, it is a corporation established by the Act, notwithstanding that its actual constitution is effected through a notification issued under the Act. It was, therefore, submitted that the universities constituted as body corporates under their respective enactments are covered by Notification No. S.O.3489 dated 22.10.1970 issued under section 194A(3)(iii)(f) and are consequently entitled to receive interest without deduction of tax at source. The Ld. AR placed on record written submission containing the relevant clauses under the various Acts under which the universities are established to submit that the Universities to which the assessee has made payments are corporations that are exempt as per the notification of the Central Government. 6. The Ld. Departmental Representative (DR....
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....ferent statutory body." 7. We heard the parties and perused the material on record. The assessee while making payments/credits towards interest to various Universities has not deducted tax at source. The contention of the assessee is that the Universities would fall within the purview of exemption u/s.194A(3)(iii)(f) r.w. notification dated 22.10.1970 which read as under - Section 194A - Interest other than "Interest on securities" (1) & (2) ******* (3) The provisions of sub-section (1) shall not apply- (iii) to such income credited or paid to- (a) any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank), or (b) any financial corporation established by or under a Central, State or Provincial Act, or (c) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or (d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or (e) any company or co-operative society c....
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.... had occasion to consider the nature and character of Corporation including its early history. Justice Mathew, delivering his concurrent opinion noted that Corporations in 17th, 18th and 19th Centuries were far more like the bodies corporate we call "public authorities" today. In paragraph Nos. 83, 86 and 87 following has been laid down: "83. The chartered corporations of the 17th, 18th and 19th centuries were expected, perhaps required, to perform stated duties to the community like running a ferry, founding a colony or establishing East Indian trade. Performance of these functions and securing whatever revenue the enterprise made to the Crown were the primary reasons why a charter was granted. Corporations in early English law were in fact, and in legal cognizance, a device by which the political State got something done. They were far more like the bodies corporate we call "public authorities" today. Few in the 17th or 18th century would have disputed that such a corporation was an agency of the State." 86. The public corporation, therefore, became a third arm of the Government. In Great Britain, the conduct of basic industries through giant corporations is now....
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.... been established by the 1976 Act hence, it fulfills the condition as enumerated under Notification dated 2.10.1970. Alternatively, it is submitted that words "by and under" have been interchangeably used in the IT Act, 1961 and there is no difference, even if, the Authority is established under the 1976 Act. 19. Section 194A(3)(iii) clauses (b), (c) and (d) refer to expression "established". In sub clause (b) expression used is "established by or under a Central, State or Provincial Act", in sub clause (c) the expression used is "established under the Life Insurance Corporation Act" and in sub clause (d) expression used is "established under the Unit Trust of India Act". The Section thus uses both the expressions "by or under". The expression established by or under an Act have come for consideration before this Court on several occasions. In this context, it shall be useful to refer to few judgments of this Court. In Sukhdev Singh case (supra), the Court had occasion to consider the status of company incorporated under the Companies Act. The Court held that Company incorporated is not a Company created by the Companies Act. In paragraph No. 25 following was held: ....
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.... No. 7 following was held: "7.........In our opinion, the expression 'corporation' must, in the context, mean a corporation created by the legislature and not a body or society brought into existence by an act of a group of individuals. A cooperative society is, therefore, not a corporation established by or under an Act of the Central or State Legislature." 22. Further noticing the distinction between Corporation established by or under Act or body created by or under Act, following was held in paragraph No. 10: "10. There is a distinction between a corporation established by or under an Act and a body incorporated under an Act. The distinction was brought out by this Court in Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi. It was observed: [SCC p. 435: SCC (L&S) p. 115, para 25] "A company incorporated under the Companies Act is not created by the Companies Act but comes into existence in accordance with the provisions of the Act." There is thus a well-marked distinction between a body created by a statute and a body which, after coming into existence, is governed in accordance with the provisions of a statute .................. "....
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....governed in accordance with the provisions of the Companies Act. But then, what is the difference between "established by a Central Act" and "established under a Central Act"? 22. The difference is best explained by some illustrations. A corporation is established by an Act, where the Act itself establishes the corporation. For example, Section 3 of the State Bank of India Act, 1955 provides that a bank to be called State Bank of India shall be constituted to carry on the business of banking. Section 3 of the Life Insurance Corporation Act, 1956 provides that 3. Establishment and incorporation of Life Insurance Corporation of India.-(1) With effect from such date as the Central Government may, by notification in the Official Gazette, appoint, there shall be established a Corporation called the Life Insurance Corporation of India. State Bank of India and Life Insurance Corporation of India are two examples of corporations established by "a Central Act".' 25. This Court has also referred to provisions of The State Financial Corporations Act, 1951 which provides for establishment of various financial corporations under the Act. It is useful to refer....
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....self provides for constitution of an authority. Section 2(b) of the 1976 Act defines Authority as authority constituted under Section 3 of the Act. Section 3 which is very relevant for the present case is as follows: "3. (1) The State Government may, by notification, constitute for the purposes of this Act, An authority to be called (Name of the area) Industrial Development Authority, for any industrial development area. (2) The Authority shall be a body corporate. (3) The Authority shall consist of the following :- (a) The Secretary to the Government, Uttar Pradesh, Industries Department or his Nominee not below the rank of Joint Secretary-exofficial. - Member Chairman (b) The Secretary to the Government, Uttar Pradesh, Public works Department or his nominee not below the rank of Joint Secretary exofficial. - Member (c) The Secretary to the Government, Uttar Pradesh, Local Self Government or his nominee not below the rank of joint Secretary-ex official. - Member (d) The Secretary to the Government, Uttar Pradesh, Finance Member Department or his nominee not below the rank of Joint Secretary-ex official. - Member ....
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....ber (Nominated under Clause(f)) (x) District Magistrate, Bulandshahr, Ex-officio - Member (Nominated under Clause(f)) (xi) Chief Executive Officer - Member Secretary (Under Clause (g))" 31. This Court having already laid down in Dalco Engg. (P.) Ltd. case (supra) that establishment of various financial corporations under State Financial Corporation Act, 1951 is establishment of a Corporation by an Act or under an Act. We are of the view that the above ratio fully covers the present case and we have no doubt that the Authority have been established by the 1976 Act and it is clearly covered by the Notification dated 22.10.1970. It is further relevant to note that composition of the Authority is statutorily provided by Section 3 of 1976 Act itself, hence, there is no denying that Authority has been constituted by Act itself." 10. The Hon'ble Supreme Court in the above case held that the expression "corporation established by or under a Central, State or Provincial Act" applies only to statutory corporations which owe their very existence to the statute. It is further held that the true test is whether, in the absence of the statute, the entity would h....
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....tory status of the recipient or the ownership conditions prescribed under the Notification stand established from the material on record, the benefit cannot be denied by adopting an unduly restrictive interpretation. Accordingly in our considered view, the Universities which are declared as body corporate, that owe its very existence to the State Act is to be considered as a statutory corporation and therefore the Universities in our view are covered under the exception provided under section 194(3)(iii)(f) r.w. the notification dated 22.10.1970. We thus direct the AO to delete the levy under section 201(1)/(1A) towards payments/credits by the assessee towards interest to Universities. (ii) Interest payment/credit to Government companies: 13. The Ld. AR submitted that the assessee has paid interest to Government companies which fall squarely within the second limb of the Notification dated 22.10.1970 as per which any company in which all shares are held (whether singly or taken together) by the Government or RBI or a Corporation owned by RBI is exempted. The Ld. AR drew our attention to details of the shareholding in the Government companies to which the assessee has made int....
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....bligation can be dispensed with only where the case falls squarely within a statutory exemption and the requisite conditions are demonstrably satisfied. In the absence of clear evidence establishing eligibility under Notification S.O. 3489, the Assessee could not have assumed non-deductibility of tax merely on the basis of its own understanding of the status of the recipients. B.3.6. Reliance is placed on the judgment of the Hon'ble Supreme Court in Transmission Corporation of A.P. Ltd. v. CIT [(1999) 239 ITR 587 (SC)], wherein it was held that the provisions relating to deduction of tax at source are mandatory in nature and that the obligation to deduct tax cannot be diluted except in accordance with the express provisions of the Act. The decision underscores the principle that a deductor cannot unilaterally dispense with statutory withholding obligations unless the case clearly falls within a recognised exemption. B.3.7. In these circumstances, the Assessing Officer was fully justified in holding that the Assessee had failed to substantiate its claim of exemption in respect of the impugned payments and, consequently, in invoking the provisions of Section 201....
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.... of the above facts it is clear that the shares in the Government companies to whom the assessee has made payments/credits towards interest are wholly held by the Government and therefore there is merit in the submissions that the impugned payments/credits are covered by the exception provided u/s.194A(3)(iii)(f) r.w. clause (ii) of notification dated 22.10.1970. The reliance placed by the ld DR on the decision in Transmission Corporation of A.P. Ltd (supra) is not correct since in the said case the decision proceeds on the premise that the payment in question contains income chargeable to tax where as in the present case, we are deciding the foundational issue of whether the interest payments/credits to the impugned parties attract section 194A or would fall within the purview of any exceptions as contained therein. In view of these discussions we direct the AO to levy made under section 201(1) & 201(1A) of the Act. (iii) Payments/credits to Government Companies toward interest on Government Funds deposited 17. The ld AR submitted that the amounts representing Government funds were held by the assessee only in a nodal and fiduciary capacity for implementation of various Gove....
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....201(1) and 201(1A). 19. We have heard the rival submissions and perused the material available on record. Section 194A(1) casts an obligation to deduct tax at source only in respect of "any income by way of interest" and that, the foundational requirement for invoking the provision is that the amount paid or credited should partake the character of income in the hands of the recipient. Unless the interest constitutes income accruing to the payee, the machinery provision relating to deduction of tax at source cannot be set in motion. Therefore, before examining the applicability of the exemptions contained in section 194A(3) or the Notification issued there under, it is necessary to determine whether the impugned interest represents income of the depositor Government companies at all. From the perusal of the GO constituting the respective funds (Page 1850 to 1871 of Vol-III paper book), and the other contemporaneous records placed before us, we find that the amounts deposited under the category "Government Funds" were entrusted to the respective Government companies only for implementation of specified Government schemes and that the recipient companies acted merely as nodal or i....
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....e absence of such material, we are unable to hold that the interest paid on these deposits constituted "income by way of interest" in the hands of the recipient Government companies so as to attract the provisions of section 194A(1). Once the charging requirement under section 194A itself is not satisfied, the question of treating the assessee as an assessee in default under sections 201(1) and 201(1A) does not arise. Having held so we leave open the contention of the ld AR that even otherwise, several of the recipient entities are wholly Government-owned companies falling within clause (ii) of Notification No. S.O.3489 dated 22.10.1970 issued under section 194A(3)(iii)(f). Accordingly, the orders passed under sections 201(1) and 201(1A) on this issue are directed to be deleted. (iv) Payments/credit of interest to Tamil Nadu Water Supply and Drainage Board (TWAD Board) 20. The ld AR submitted that the TWAD Board is a statutory body corporate constituted under the Tamil Nadu Water Supply and Drainage Board Act, 1970 with effect from 14.04.1971 and, therefore, squarely falls within the expression "corporation established by a State Act" occurring in section 194A(3)(iii)(f) read....
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...., the contention that TWAD, squarely falls within the expression "corporation established by a State Act" occurring in the Notification has merits. Accordingly in our view the assessee has satisfactorily discharged the burden of establishing the eligibility of the recipient under the Notification and the contention of the ld DR in this regard are not tenable. Accordingly, we hold that the interest paid to the TWAD Board is covered by clause (i) of Notification No. S.O.3489 dated 22.10.1970 issued under section 194A(3)(iii)(f), and consequently, the assessee was under no obligation to deduct tax at source under section 194A. Even otherwise we notice that the assessee has placed on record the return of income filed by the recipient and the Chartered Accountant's certificate certifying that the interest received from the assessee has been duly included in its return of income. In view of these discussions we hold that the impugned demand raised under sections 201(1) and 201(1A) be deleted. (v) Interest payment/Credit to Temples: 23. In this regard, the Ld. AR submitted that the obligation to deduct tax does not arise for the reason that the recipient temples have either offe....
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....ese payments been inherently outside the scope of TDS, no such certificate would have been required. C.3.6. The Hon'ble Madras High Court in Sri Vaithiyanathaswamy Devasthanam and Sri Amirthakadeswarasamy Devasthanam v. PCIT [2021 (4) TMI 513 (Mad.)] recognized that temples administered under the HR&CE framework continue to be separate assessable entities. Statutory supervision by the HR&CE Department does not obliterate a temple's distinct legal identity or automatically extend to it the exemptions available to the administrative authority. C.3.7. The learned CIT(A) correctly observed that the exemption contemplated under Section 10(23BBA) is restricted solely to the administrative authority referred to therein and does not automatically apply to the independent income of every temple functioning under such an authority. C.3.8. Without prejudice to the primary liability, while the benefit of the first proviso to Section 201(1) may be examined recipient-wise based on duly verified Forms No. 26A or other statutory evidence, such secondary verification cannot dilute or dispense with the Assessee's primary statutory obligation to deduct tax under Sec....
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.... [3] Omitted [4] Omitted [5] No institution affiliated to or associated with or maintained by any other University in the State shall be recognised by the University for any purpose except with the prior approval of the Government and the concerned University. (c) The Annamalai University Act, 2013 (Volume VII - Refer Page No. 20) CHAPTER IL. THE UNIVERSITY. Establishment of University. 3. (1) On and from the date of commencement of this Act, the Annamalal University established under the Annamalal University Act, 1928 shall be deemed to have been established and incorporated under this Act and is hereby declared to be the University by the aforesaid name. Tamil Nadu Act I of 1929 (2) The University shall be a body corporate, shall have perpetual succession and a common seal and shall sue and be sued by the said name. (3) The headquarters of the University shall be located within the limits of the Annamalai Nagar or in any place within a radius of sixteen kilometres around those limits. (d) The Bharathiar University Act, 1981 (Volume VII - Refer Page No. 23) Chapter II The University 3. The University. (a)There shall be a University by the ....
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....he said name. The University (i) The Tamil Nadu Agricultural University Act, 1971 (Volume VII - Refer Page No. 88) CHAPTER II THE UNIVERSITY 3. (1) For the development of agriculture and for furthering the advancement of learning and prosecution of research in agriculture and allied sciences, on and from the appointed day. there shall be established a University by the name Tamil Nadu Agricultural University. Establishment of University. (2) The University shall be a body corporate, shall have perpetual succession and a common seal and shall sue and be sued by the said name. (k) The Tamil Nadu Dr. Ambedkar Law University, 1996 (Volume VII - Refer Page No. 102) CHAPTER II THE UNIVERSITY 3. (1) For the advancement and Establishment of University promotion of learning and knowledge of law, there shall be established a University by the name "The Tamil Nadu Dr. Ambedkar Law University". (2) The University shall be a body corporate having perpetual succession and a common seal and shall sue and be sued by the said name. (I) The Tamil Nadu Fisheries University Act, 2012 (Volume VII - Refer Page No. 106) CHAPTER-II. THE UNIVERSITY. 3. (1) For the develo....
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....a body corporate having perpetual succession and a common seal and shall sue and be sued by the said name. of University Document 5 (r) The Tamil Nadu Teachers Education University Act, 2008 (Volume VII - Refer Page No. 144) CHAPTER -II THE UNIVERSITY 3. Establishment of University (1) There shall be established a University by the name "The Tamil Nadu Teachers Education University". (2) The University shall be a body corporate having perpetual succession and a common seal and shall sue and be sued by the said name. (s) The Tamil Nadu Veterinary and Animal Sciences University Act, 1989 (Volume VII - Refer Page No. 148) CHAPTER - 1I THE UNIVERSITY 3 (1) For the development of veterinary and animal sciences and for furthering the advancement of learning and prosecution of research in veterinary and animal sciences. on and from the appointed day, there shall be established a University by the name the Tamil Nadu Veterinary and Animal Sciences University. (2) The University shall be a body corporate, shall have perpetual succession and a common seal and shall sue and be sued by the said name. Establishment of University (t) The Tamil University A....
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.... Tutal 717360.00 100.00 717360.00 .... Change in Promoters' Shareholding (Please specify, If there is no change) : Particulars Shares ............. Shares of the 1 At the beginning of the year 717360.00 2 Date wise Increase / Decrease in Share holding during the year specifying the ....... f increase / decrease (. alen transfer f Finns f sweat equity ete NIL. * At the eml of the year 717360.00 ......... ... Shareholding Pattern of top ten Shareholders (other than Directors, Promoters and Holders or GDR: 884 ADR:) : There are no Shareholders other than Promoters of the Company : Shareholding Pattern of Directors and Key Managerial Personnel : NEL Document 8 Tamil Nadu Rural Housing and Infrastructure Development Corporation (Volume III - Refer Page No. 1090) c. Details of Shareholders holding more than 5% shares in the Company: SI. No. Name of Shareholder As at 31.03.2017 As at 31.03.2016 No. of Shares held % of Holding No. of Shares held % of Holding 1 Government of Tamil Nadu 300002 99.998% 300002 99.998% 2) Tamil Nadu Industrial Development Corporation Limited (Volume III - Refer Page No. 1127 - 1129) Milnadu Industrial Development Corporat....