Calcutta High Court’s Landmark Interim Order in Petition Challenging Constitutional Validity of Section 194N of the Income Tax Act

Calcutta High Court passes landmark interim order in petition challenging constitutional validity of Section 194N of the Income Tax Act, 1961 which mandates the deduction of tax at source at the rate of 2% on cash withdrawals from banking company. Petitioner submitted that Section 194N of the said Act is beyond the legislative competence of the Parliament

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and Entry 82 of List I of Schedule VII to the Constitution allows the Parliament to enact laws for and levy of tax on “income” and the Parliament cannot legislate a provision stipulating the deduction of tax at source from an amount which is admittedly not income and such legislation would be beyond the legislative competence of the Parliament under Entry 82 of List I of Schedule VII of the Constitution.

Petitioner has also relied on several unreported decisions of the Hon’ble Kerala High Court involving the same issue and one of which is order dated 13th August, 2020 passed in Kanan Devan Hills Plantations Company Pvt. Ltd. Versus Union of India in WP (C ) No. 1658 of 2020 where Hon’ble Court has admitted the writ petition on this issue and has granted interim stay of deduction of tax on source under Section 194N of the Income Tax Act, 1961. Hon’ble High Court has also noted that the interim order passed by Hon’ble High of Kerala has not been challenged by the respondents.

Considering the above, Hon’ble Calcutta High Court has passed an interim order restraining the respondent authorities concerned from deducting tax on source under Section 194N till 30th September, 2021.

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