Interest Income On J&K State Rural Roads Development Agency's Term Deposit Account Belongs To Govt, Hence Exempt From TDS U/s 194A: HC
While granting relief to the Jammu and Kashmir Bank Ltd. (respondent bank), the High Court of Jammu and Kashmir and Ladakh has ruled that the interest income accrued on the Term Deposit Accounts under the Saving Bank Account of the J&K State Rural Roads Development Agency (JKSRRDA) was the income of the Government of India and, therefore, exempt from TDS under Section 194A of the Income Tax Act, 1961.
The Division Bench of Justice Sanjeev Kumar and Justice Puneet Gupta observed that “The JKSRRDA being a body wholly financed by the Government was covered by S.O 3489 dated 27.10.1970 and, therefore, no separate notification in the official Gazette was required to be issued by the Central Government to include JKSRRDA specifically within the ambit of the exemption provided under Section 194A (3)(iii)(f) of the Act”.
That apart, the Bench clarified that once the two Forums have returned concurrent findings of fact that the funds released for implementation of PMGSY by JKSRRDA and deposited in the account known as “Programme Fund/Account” were the funds/money belonging to the Central Government, there should be no dispute that, in terms of Section 196 of the Act, no deduction of tax is to be made by any person from any sum payable to the Government.
Advocate Pariksha Parmar appeared for the Appellant, whereas Advocate Subash Dutt appeared for the Respondent.
The factual background of the issue involved was that in the year 2013, the Assessing Officer discovered that the respondent bank had not deducted tax at source under Section 194A of the Income Tax Act for the Assessment Year 2009-10. This non-deduction of tax was related to the interest paid or accrued on Term Deposit Accounts under the Saving Bank Account of the JKSRRDA. After issuing a show cause notice, the Assessing Authority passed an order under Section 201(1) and Section 201(1A) of the Act, demanding a sum of Rs.2,11,19,843. On appeal, the CIT(A) ruled in favour of the bank, stating that no tax was required to be deducted for the JKSRRDA as it was a Society covered by Notification No.3489 dated Oct 22, 1970. On further appeal, the ITAT, Amritsar bench upheld the order of the CIT(A), confirming that the bank was not liable to deduct tax in respect of the JKSRRDA.
After considering the submission, the Bench observed that as per S.O. 3489 dated Oct 22, 1970, all societies registered under the Societies Registration Act, 1960 that are fully financed by the government had already been notified and were entitled to exemption under Section 194A (3)(iii)(H) of the Income Tax Act.
However, since the JKSRRDA was registered under State Act, it would not automatically qualify for exemption unless there was a specific notification issued by the Central Government, clarified the Bench.
Nevertheless, the Bench upheld the order of the CIT(A) and the ITAT, Amritsar Bench because the funds converted into fixed deposit receipts belonged to the Government of India and were exempt from the provisions of Section 194A (1) of the Act.
The High Court also emphasized that even though the JKSRRDA was not registered under the Central Act of 1860, it still fell within the scope of the exemption notification (S.O. 3489 dated 22.10.1970) as a body wholly financed by the government.
The High Court observed that the funds released for the implementation of the Pradhan Mantri Gram Sadak Yojana (PMGSY) by the JKSRRDA, deposited in the ‘Programme Fund/Account’, belonged to the Central Government, and according to Section 196 of the Act, no deduction of tax should be made from any sum payable to the Government.
Therefore, the High Court stated that the interest paid or accrued on the Term Deposit Accounts of the JKSRRDA belonged to the Central Government and was exempt from TDS under Section 194A of the Act.
Accordingly, the Bench concluded that the order passed by the Assessing Authority, which raised a demand of Rs.2,11,19,843 on the Jammu and Kashmir Bank for failure to deduct tax at source on the interest income accrued on the Term Deposit Accounts of the JKSRRDA, was legally and factually flawed.
Cause Title: The Commissioner of Income Tax v. The Jammu and Kashmir Bank Ltd.
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