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Commissioner of Income Tax (TDS), Kanpur & Anr. v. Canara Bank (with connected appeals)

Civil Appeal · 2018 INSC 563Decided 2 Jul 2018
Civil Appeal No. 6020 of 2018
Justice A.K. Sikri · Justice Ashok Bhushan

Background

The New Okhla Industrial Development Authority (NOIDA) was set up by a 1976 Uttar Pradesh government notification under a State Act. Canara Bank, acting as NOIDA's banker, paid NOIDA around Rs. 20.1 crore in interest on fixed deposits but did not deduct tax at source, relying on a notification exempting certain statutory bodies. The Income Tax Department treated the Bank as "in default" for not deducting TDS, but the Income Tax Appellate Tribunal and then the Allahabad High Court ruled in the Bank's favour, holding NOIDA was the kind of body covered by the TDS exemption; the Revenue (tax department) then appealed to the Supreme Court along with dozens of similar connected appeals.

Decision Breakdown

The core legal question was whether NOIDA qualifies as a "corporation established by or under a Central, State or Provincial Act," which would exempt interest paid to it from TDS under Section 194A. The Supreme Court compared NOIDA's constituting Act with the State Financial Corporations Act and relied on its earlier ruling in a case called Dalco Engineering, concluding that because NOIDA's composition and establishment are directly and specifically provided for by the 1976 Act itself, it counts as a body "established by or under" an Act. On that basis, the Court held the High Court was right, and dismissed the Revenue's appeal along with all the connected tagged appeals raising the identical point.

Lesson Learnt

Whether a government-created body qualifies for a tax exemption as a statutory "corporation" depends on whether its very existence and structure are laid down directly in the Act that created it, not merely on whether it performs public functions; this distinction can make the difference between a bank being liable for tax-deduction defaults or not.

Official source (sci.gov.in)View Judgment (PDF)

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