SC interprets the term established by or under in Section 194A of Income Tax Act

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The Supreme Court of India comprising a bench of Justice A.K. Sikri and Justice Ashok Bhushan interpreted the term “corporation established by or under a Central, State or Provincial Act” in the case of Commissioner of Income Tax (TDS) Kanpur and Anr v. Canara bank (Civil Appeal No. 6020 of 2018) and held that the NOIDA (New Okhla Industrial Development Authority) has been constituted by the Act.

The instant case was filed by the Revenue Department against the order of the Division bench of the Delhi High Court. According to Section 194A of the Income Tax Act, any interest other than an interest on securities should be paid at the time of credit of such income to the account of the payee/time of payment in cash or by cheque. There is a proviso to the above provision under Sub-section (3) clause (f), under which the Central Government may notify any institution/association or body which is exempt from the said section under which the Central Government had issued a notification dated 22.10.1970 by which “any corporation established by a Central, State or Provincial Act” was also exempted.

Now, the NOIDA (hereinafter referred to as the authority) has been instituted under Section 3 of the Uttar Pradesh Industrial Area Development Act, 1976. The Canara Bank made a payment of Rs. 20.10 Crores as interest to the authority, however did not deduct TDS as mandated under Section 194A of the Income Tax Act.

Thus, in the instant case, the Bank was being proceeded against for which it filed an appeal before Commissioner of Income Tax (Appeals) and pleaded that vide the notification dated 22.10.1970 the NOIDA authority is exempted for TDS and the CIT (appeals) set aside the order of the Assessing Officer. The Revenue Department appealed to the Income Tax Appellate Tribunal (ITAT) which also decided in favor of the Bank. Then the Revenue Department appealed to the High Court under Section 260A of the Income Tax Act whereby a Division Bench of the High Court held that the “NOIDA is a corporation established by Uttar Pradesh Industrial Area Development Act, 1976” and held again ruled in favor of the Bank.

Then the Revenue Department filed an SLP in the Hon’ble Supreme Court where the department submitted that the notification dated 22.10.1970 included a Corporation that was established by Central, State or Provincial Act and the Authority is not entitled to the benefit of the said notification as the Authority is not a Corporation established by the State Act rather the Authority is a Corporation which is established under the Act and there is a vast difference between a body established by an Act and a body established under an Act. The Department further submitted that the corporations that are established under an Act fall in a different category and are not entitled for exemption. The Canara Bank on the other hand said that the legislature has used the words “by and under” interchangeably which is clear from the provisions of Section 194A(3)(iii)(c) and Section 194A(3)(iii)(d).

The question before the Supreme Court was whether the NOIDA would be considered a corporation which is established by a Central, State or Provincial Act and is covered by the said notification or whether it is not covered by the notification.

In a Constitution Bench of the Supreme Court, in the case of Sukhdev Singh and Ors. v. Bhagatram Sardar Singh Raghuvanshi and Anr., (1975) 1 SCC 421, the Supreme court oberserved that there are two categories of corporations – Statutory Corporations i.e. those which owe their existence from “by or under” a statute and Non-statutory Corporations i.e. those which are not created by or under statute rather are governed by a statute.

In the case of Sukhdev Singh (supra), the court while interpreting the term “by or under” observed regarding the status of a company incorporated under the Companies,

“25……A   company   incorporated   under the Companies Act is not created by the Companies Act but comes into existence in accordance with the provisions of the Act. It is not a statutory body because it is not created by the Statute. It is a body created in accordance with the provisions of the statue.”

The Court held that the Company incorporated is not a company created by the Companies Act. Justice Mathews who gave a concurring opinion in the above case, while discussing the public corporation held that such corporations are created by the State.

In S.S. Dhanoa v. Municipal Corporation, Delhi and Others, (1981) 3 SCC 431, the Supreme Court observed noticing the distinction between corporation established by or under Act or body created by or under Act that,

“10. There is a distinction between a corporation established by or under an Act and a body incorporated under an Act. The distinction was brought out by this court in Sukhdev Singh v. Bhagartram Sardar Singh Raghuvanshi. It was observed: [SCC p. 435: SCC (L&S) p. 115, para 25]

“A   company   incorporated   under the Companies Act is not created by the Companies Act but comes into existence in accordance with the provisions of the Act.”

There is thus a well-marked distinction between a body created by a statute and a body which are coming into existence, is governed in accordance with the provisions of a statute……….”

The Supreme Court in the case of Dalco Engineering Private Limited v. Satish Prabhakar Padhye and Others, (2010) 4 SCC 378 observed regarding Financial Corporations established by and under an Act,

“23. …Therefore, when the words “by and under an Act” are preceded by the words “established”, it is clear that the reference is to a corporation established, that it is brought into existence, by an Act or under an Act. In short, the term refers to a statutory corporation as contrasted from a non-statutory corporation incorporated or registered under the Companies Act.”

Deciding the case, the Supreme Court observed that the preamble of the 1976 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.

The Supreme Court finally observed,

“31. This Court having already laid down in Dalco Engineering (supra) that establishment of various financial corporations under State Financial Corporation Act, 1951 is establishment of a Corporation by an Act or under an Act. We are of the view that the above ratio fully covers the present case and we have no doubt that the Authority have been established by the 1976 Act and it is clearly covered by the Notification dated 22.10.1970. it is further relevant to note that composition of the authority is statutorily provided by Section 3 of the 1976 Act itself, hence, there is no denying that Authority has been constituted by Act itself.

32. In view of what has been said above, we are of the view that High Court did not commit any error in dismissing the appeal filed by the Revenue. In result, all the appeals are dismissed.”

 
The above judgment of the Supreme Court is reproduced below:
 

About Alabhya Dhamija

Alabhya is an Advocate practicing at Delhi High Court and other courts in Delhi. Contact: alabhya@dhamija.com

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