Jammu Development Authority Is Creation Of Statute, Exempt From TDS Deduction On Interest U/S 194A(1) Income Tax Act: High Court

The Jammu & Kashmir High Court has ruled that the Jammu Development Authority (JDA) is to be considered a corporation established under the State Act and thus is exempt from the operation of Section 194A(1) of the Income Tax Act, 1961.

The provision pertains to deduction of TDS on interest other than interest on securities like Interest on Fixed Deposits, Interest on Loans and Advances other than banks.

“...The JDA is not incorporated like the company which is incorporated under the Companies Act or the Cooperative Society which is registered under the Cooperative Societies Act. The JDA is a statutory body….There can hardly be any dispute that JDA is a corporation constituted under the State Act i.e the Development Act 1970. S.O 3489 of 1970 clearly notifies a corporation established by a Central, State or Provincial Act exempt from the operation of sub-section (1) of Section 194A of the Act’, Justices Sanjeev Kumar & Javed Iqbal Wani observed.

The court's ruling came in response to two appeals filed by the Revenue under Section 260A of the Income Tax Act, challenging a common order passed by the Income Tax Appellate Tribunal (ITAT) on two separate assessments for the years 2010-11 and 2011-12.

The case revolved around the interpretation of Section 194A of the Act, which stipulates that any person other than an individual or a Hindu undivided family, responsible for paying interest income to a resident, must deduct income tax at the time of credit or payment. However, certain entities, including corporations established under State Acts, are exempted from this provision.

The Assessing Authority had initially ruled in favour of the Revenue, contending that JDA is a Local Authority and not exempt from tax. However, the Commissioner of Income Tax (Appeals) later accepted the plea of the assessee-Bank and held that no TDS was required on the interest payments made to JDA. The ITAT also upheld the decision of the CIT (A) based on its earlier judgments in favour of the assessee-Bank.

The moot question of law before the court was whether the ITAT committed an error in confirming the Commissioner of Income Tax (Appeals)'s decision to delete the non-deduction of Tax Deducted at Source (TDS) on the interest paid to JDA. The Appellant/Revenue had argued that since JDA was a taxable entity, the assessee-Bank was obligated to deduct TDS under Section 194A of the Income Tax Act.

Per Contra, the assessee-Bank cited a notification issued by the Central Board of Direct Taxes, dated 27.10.1970, which provides an exemption from TDS on interest on deposits paid to a corporation incorporated under a State Act.

Adjudicating upon the matter the Court observed that JDA stood incorporated under the J&K Development Act, 1970, and thus, it fell within the purview of the exemption provided in the notification.

The High Court relied on two judgments of the Supreme Court in similar cases, namely Commissioner of Income Tax (TDS) Kanpur vs. Canara Bank (2018) and Union Bank of India vs. Additional Commissioner of Income Tax (TDS) (2022) wherein the Supreme Court had ruled in favour of the authorities concerned, stating that NOIDA and Agra Development Authority, which were constituted under State Acts, were exempt from TDS under Section 194A.

Drawing parallels between JDA and the authorities in the Supreme Court cases, the High Court found that JDA was a statutory body constituted under the J&K Development Act, 1970, and, therefore, was entitled to the exemption from TDS under Section 194A.

Based on these considerations, the bench dismissed the appeals, upholding the decision of the ITAT, and declared that JDA, being a corporation established under the State Act, was not obligated to deduct TDS on interest payments made to it.

Case Title: Pr. Commissioner of Income Tax Vs M/S The J&K Bank Ltd.

Citation: 2023 LiveLaw (JKL) 193

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