Commissioner of Income Tax (TDS), Kanpur Vs. Canara Bank [(2018) 9 Supreme Court Cases 322]
FACTS OF THE CASE
- The New Okhla Industrial Development Authority (NOIDA) (“the Authority”) has been constituted by Notification* dated 17-4-1976 issued under section 3 of the Uttar Pradesh Industrial Area Development Act, 1976 (the 1976 Act).
- The Canara Bank made a payment of Rupees Twenty Crores Ten Lakhs as interest to Authority in the form of FDs/Deposits for the financial year 2005-06. The Canara Bank, however, did not deduct tax at source under section 194A of the Income Tax Act, 1961(ITA).
- Notices were issued by the appellant revenue to Canara Bank asking for information pertaining to interest paid to the Noida on its deposits and to show cause for not deducting tax at source.
- A writ petition had been filed by the Authority challenging the notices issued to the Authority as well as its bankers. Assessment proceeding could not proceed due to certain interim directions passed by the High Court in the above writ petition. The writ petition was ultimately dismissed by the High Court on 28-2-2011 holding that the Authority is not a local authority within the meaning of section 10(20) of ITA and its income is not exempt from tax.
- The respondent Bank was held to be an assessee in default and an order under section 201(1)/201(1-A) r.w.s. 194A of ITA was passed by Assessing Officer(AO). The default was computed and demand notice as per section 156 of ITA was issued. Penalty proceedings were also separately initiated.
- Aggrieved to the AO’s Order, Canara Bank filed an appeal before the Commissioner (Appeals), the CIT(A) after examination of the provisions of Uttar Pradesh Industrial Area Development Act, 1976 held that the Noida was a corporation established by the said Act and, therefore, entitled to the benefit of the Notification* dated 22-10-1970. The appeal was, accordingly, allowed.
- On second appeal by Revenue, the Tribunal also held that payment of interests by the banks to the State Industrial Development Authority does not require any deduction at source in terms of section 194A(3)(iii)(f).
- On further appeal by revenue, High Court dismissed the appeal of the revenue.
- Aggrieved, Revenue appealed to the Supreme Court.
- Appellant’s representative contends that the Authority is not entitled for the benefit of the notification* dated 22-10-1970 issued under section 194-A(3)(iii)(f). it is submitted that under the above notification* only a corporation established by the Central, State or Provincial Act is entitled for the benefit and the Authority is not a corporation established by the State Act rather the Authority is a corporation which is established under the 1976 Act.
- Assessee’s representative submitted that Section 3 of the 1976 Act provides that “the State Government may by notification*, constitute for the purpose of this Act, an authority to be called (name of the area) Industrial Development Authority, for any industrial development area”. It is submitted that the Authority is established under the 1976 Act. Referring to the provisions of the State Bank of India Act, 1955 and the Life Insurance Corporation of India Act, 1956, it is submitted that statute provides for establishing of the corporation by virtue of a notification* by the Central Government. In similar manner, the Authority has been established by issuing a notification*, hence, the Authority has to be treated as established by the 1976 Act. Alternatively, submitted that the legislature has used the words “by and under” interchangeably and in section 194-A(3)(iii), itself the differentiation in “by and under” has been done away, with that the Authority established by the 1976 Act is clearly covered by the notification* dated 22-10-1970. The notification* dated 17-4-1976 establishing the Authority fulfils the mandate of “by”, hence, it is clearly entitled for the benefit of Section 194-A(3)(iii).
‘Established by a Central, State or Provincial Act’
- A Corporation is an artificial being which is a legal person. It is a body/corporate established by an Act of Parliament or a Royal Charter. It possesses properties and rights which are conferred by the Charter constituting it expressly or incidentally.
- In the instant case there is no issue that the Authority is not a Corporation. It is also not contended that Authority is not a statutory corporation. What is contended is that Authority having not been established by a Central, State or Provincial Act is not covered by notification* dated 22-10-1970 hence, not eligible for the benefit. The provision of section 194A and the Notification* issued by Central Government under section 194A(3)(iii)(f) falls for consideration.
- A Constitution Bench of this Court in Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi,  1 SCC 421 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 which are called ‘public authorities’ today.
- One more principle which was reiterated by in the above Constitution Bench judgment is that Corporations which are instrumentalities of the Government are subject to the limitation as contained in the Constitution. The Corporations which were under consideration in the above case, namely, Life Insurance Corporation of India, Oil and Natural Gas Commission, Industrial Finance Corporation were held to be constituted within the meaning of Article 12 of the Constitution. Two categories of Corporations have been noticed i.e. statutory corporations and non-statutory corporations. Whereas, the statutory corporations owe their existence from ‘by or under’ statute, non-statutory bodies and corporations are not created by or under statute rather are governed by a statute.
*Notification* No. S.O. 3489 [No. 170 (F.No.12/164/68-ITCC/ITJ)], Dated 22.10.1970
- The appellant on the one hand submits that the Authority has not been established by 1976 Act rather it has been established under the 1976 Act; hence it is not covered by notification* dated 22-10-1970 whereas the respondent submits that Authority has been established by the 1976 Act hence, it fulfils the condition as enumerated under Notification* dated 22-10-1970. 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.
- 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 Sukhdev Singh’s case (supra), there was an occasion for the Court to consider the status of company incorporated under the Companies Act. It was held that Company incorporated is not a Company created by the Companies Act.
- Mathew J., writing concurrent opinion while discussing the public corporation held that such corporations are created by State. In Executive Committee of Vaish Degree College, Shamli v. Lakshmi Narain,  2 SCC 58, the question for consideration fell as to whether the Executive Committee of a degree college is a statutory body. Contention before the Court was that the Executive Committee was the statutory body since it was affiliated to the Agra University which was established by the statute. The Executive Committee was further covered by the statute framed by the Agra University. In the above context, it was held that there is a clear distinction between a body which is created by the Statute and a body which having been come into existence is governed in accordance with the provisions of the statute.
- Further elaborating the expression, it was held that when the expression used is ‘established by or under the Act’, the emphasizes should be on the word ‘established’ in addition to the words ‘by or under’.
- Now, reverting to the provisions of 1976 Act, the very preamble of that Act reads ‘an Act to provide for the Constitution of an Authority for the development of certain areas in the State into industrial and urban township and for masses connected through with’.
- Thus, the Act itself provides for constitution of an authority. Section 2(b) of the 1976 Act defines Authority as authority constituted under section 3.
- 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.
- In view of what has been said above, it is viewed that High Court did not commit any error in dismissing the appeal filed by the revenue. In result, all the appeals are dismissed.
In pursuance of sub-clause(f) of clause (iii) of sub-section (3) of section 194A of the Income Tax Act,
1961 (43 of 1961), the Central Government hereby notify the following for the purposes of the said sub-clause: –
(i) any corporation established by a Central, State or Provincial Act;
(ii) any company in which all the shares are held (whether singly or taken together) by the Government or the Reserve Bank of India or a Corporation owned by that Bank; and
(iii) any undertaking or body, including a society registered under the Societies Registration Act, 1860 (21 of 1860), financed wholly by the Government. “