Assessee Bank Not Obligated To Deduct TDS From Interest Payments Made To Jammu Development Authority On Amount Kept In FDR- High Court

A Jammu & Kashmir & Ladakh High Court Bench of Justice Sanjeev Kumar and Justice Javed Iqbal Wani has observed that, bank responsible for making interest payments to the Jammu Development Authority (JDA), based on funds held in Fixed Deposit Receipts (FDRs), is not required to deduct Tax Deducted at Source (TDS).

The reasoning behind this decision drew a parallel between the JDA and entities like the Agra Development Authority and NOIDA. These entities, akin to the JDA, were established under corresponding Development Acts passed by the Uttar Pradesh State government.

Counsel Aruna Thakur and Counsel Pariksha Parmar appeared for the appellant, while Counsel Subash C Dutta appeared for the respondents.

In this case, the subject matter for the dispute was a ruling of the Income Tax Joint Commissioner, which had ruled against the Jammu Development Authority (JDA), stating it needed to pay taxes as it wasn't considered a tax-exempt Local Authority. Consequently, the bank handling JDA's deposits was told to deduct TDS.

The bank appealed to the Income Tax Appellate Tribunal (ITAT), which agreed with the bank. ITAT said the bank didn't have to deduct taxes from the interest it paid to JDA. The decision was based on a previous ITAT judgment related to the same bank's branches in Shalamar and Gandhi Nagar, Jammu.

The Court observed that there was a clear exposition of the law made by the Supreme Court in the cases of Dalco Engineering Private Limited vs. Satish Prabhakar Padhye and Others and Union bank of India vs. Additional Commissioner of Income Tax.

In light of the same, observing that there was no merit in the appeals, the Court observed that "we hold 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. We further hold 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."

Cause Title: Pr. Commissioner of Income Tax vs M/S The J&K Bank Ltd.

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