The Jammu & Kashmir and Ladakh High Court Ruled that the Jammu Development Authority was not obliged to deduct TDS on interest payments.
Facts
The two appeals filed by the Revenue under Section 260A of the Income Tax Act, 1961 are directed against a common order dated 28.02.2017 passed by the Income Tax Appellate Tribunal, Circuit Bench at Jalandhar for the assessment year 2010-11 and for the assessment year 2011-12. Both the appeals have been admitted by this Court on the following substantial question of law:
“Whether the ITAT committed an error of law in confirming the order passed by the Commissioner of Income Tax (Appeals) deleting the non deduction of TDS on account of interest paid to the Jammu Development Authority even when the same is taxable entity and as such the assessee-Bank was under an obligation to deduct the TDS on interest payment to Jammu Development Authority under Section 194A of the Income Tax Act, 1961”
Decision
The division bench of Justice Javed Iqbal Wani and Justice Sanjeev Kumar said that from a plain reading of sub-section (1) of Section 194A of the Act, it clearly transpires that any person except when he is an individual or Hindu undivided family who is responsible for paying to a resident any income by way of interest, other than the income by way of interest on securities is under an obligation to deduct income tax at source at the time of credit of such income to the account of payee.
The bench observed that a corporation established by a Central, State or Provincial Act is exempt from the operation of sub section (1) of Section 194A of the Act and such corporation is, thus, not obliged to deduct TDS on the interest payment made by it to the payee.
“If we could conclude that JDA is a corporation established by the State Act, then inescapable conclusion would be that the assessee-bank shall not be obliged to deduct TDS from the interest payments made to the JDA on its amount kept in FDRs. We could have ventured into a detailed discussion as to whether the JDA is a corporation established by or under the State Act, but we would refrain from doing so, for the simple reason that the issue raised before us is no longer res integra” the court said.
The court held that 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 which owes its origin to the Development Act 1970 and is regulated in its functions by the provisions of Development Act 1970 and the rules framed thereunder.
It was held by the court that ITAT committed no error of law in confirming the order of CIT(A) deleting the non deduction of TDS on account of interest on fixed deposits paid to the Jammu Development Authority even when JDA is a taxable entity.
It was further held that the assessee was under no obligation to deduct TDS on interest payments made to the JDA on its fixed deposits in terms of Section 194A of the Act. The JDA being a corporation established by the State Act. i.e the Development Act 1970 was, thus, outside the purview of sub-section (1) of Section 194A.
Case title: Pr. Commissioner of Income Tax v/s M/S The J&K Bank Ltd.
Citation: ITA No. 6/2017 c/w ITA No. 4/2017
