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Judgment
Per Raj Kumar Chauhan, Judicial Member:
The appeal of the asse ssee is d irected against the order dated 18.08.2025 of ld . C IT( A)/Addl./JCIT(A)-10, Mumbai passed u/s 250 of the Income -tax Act, 1961 (hereinafter referred to as ‘the Act’)arising out of the order dated 24.03.2025 passed u/s 201(1)/201(1A) of the Act w herein the assessee was treated as an assessee-in-default for non-deduction of tax at source on interest paid to the National Highways Author ity of India ( NHAI).
Brief facts as culled out from the orders of the authorities below are that the assessee is engaged in infrastructure development of Four/Six Laning of Aunta Simaria (Ganga Br idge with approach road) section of NH 31 from KM 197.900 to 206.050 (Design Chainage) and KM 204.741 to KM 209.945 (existing chainage) (total design length 8.150 KM) in State of Bihar. During the year under consideration, the assessee had paid interest o f Rs.67,19 ,486/- to NHAI on mobilization advances. The Assessing Office r/TDS O fficer held that the assessee was liable to deduct tax at sour ce u/s 19 4A of the Act and accordingly r aised a demand of Rs.6,71 ,948/- u/s 201(1) of the Act. Conse quential interest of Rs.5 ,64,437 /- was also charged u/s 201(1A) of the Act, resulting in total demand of Rs.12,36,385/-.
Aggrieved by the assessment order, the assessee preferred an appeal before the ld. CIT(A)who relying o n CBDT Circular No . 18/2017 dated 29.05.2017, upheld the action of the AO and dismissed the appeal.
Aggrieved by the impug ned order, the assesse e is in appeal before us and has raised the following grounds of appeal:
“1 . The Addl./Joi nt CIT(A) failed to appr eciate that the appellant had not co mmitted any de fault u/s 201(1)/201(1A), and he nce, Addl ./Joi nt C IT(A ) erred in upholdi ng the order of the AO hol ding t he appellant as assessee-in-defaul t for an a mount of Rs.12,36,385/-.”
We have heard the ld. AR and the ld. DR. The ld. AR at the very outset submitted that the issue is squarely co vered by the provisions of section 194A(3)(iii)(f) of the Act read with S.O ./Notification No .3489 dated 22.10.1970. It was submitted that the said Notificatio n specifically covers “any corporation established by a Central, State or Provincial Act”. It was further submitted that NHAI is a corporation established under section 3 of the National Highw ays Authority of India Act, 1988 , which is a Central Act. Therefore , the payment of interest to NHAI falls w ithin the statutory exception contained in section 194A(3)(iii)(f), and consequently no tax was deductible at sour ce on such payment. The ld . AR further relied upon the decisio ns of the Hon’ble Allahabad High Court in CIT vs. Canara Bank, [2016] 386 ITR 504 (All.), which w as subsequently upheld by the Hon’ble Supreme Court in CIT vs. Canara Bank, [2018] 406 IT R 161 (SC), and the decisio n of the co-ordinate Bench in Punjab National Bank vs. ACIT (TDS) , [2023] 153 taxmann.co m 28 0 (Mum.-Trib.).
The ld. AR further relied upon the order dated 13.02.2009 of Director General of Income Tax (Exemptions) wherein the Natio nal Highways Authority of India has been approved for the purpose of exemption fro m Inco me-tax under sub-clause (iv) of clause (23C) of section 10 of the Act, extracted below as under:
The ld. AR has also filed wr itten submissio ns in support of his above arguments, extracted below as under:
“4 . The submission of the Appell ant is t hat the Appellant was not req uired t o deduct tax at so urce op the abo ve payment to NHAI. The le gal basis for the same is as foll ows :
1.Payment o f interest to NHA I is cover ed i n the excepti on contai ned i n S ection 194A(3)(iii)(f)
i.Sub-secti on (3 ) o f S ec. 194A pr ovides that the obli ga tion to deduct tax at source u/s 194A(1) shall not apply to i nc ome credited or paid to such o ther instituti on whic h the Ce ntral Gov ernment may notify i n this behalf.
ii.For the purpose of sec. 194A(3)(iii)(f), the Govt. , has issued S .O ./Notification No. 3489 dated 22.10.1970 (pg. 26 o f Ass ess ee Pape rbook). In the said Notificati on, the Government has notified “any corporation establ is hed by a Central, S ta te or Provi ncial Act'.
iii.The CBDT has also issued Notifi cation dated 16.05.2023 (pg. 27 of Assessee Pap er book ) notifying instituti ons under section 194A(3)(iii)(f). The s aid Notification c onsolidates all such Sta ndi ng Orders/ Notifications issued by t he Govt., and als o refers to the abovementioned Notifica tion No. 3489 dated 22.10.1970 @ pg. 28 of Assessee P aperboo k (sec ond-last entry @ Pg- 29 ).
iv.NHAI is a corporatio n established under Secti o n 3 of the Natio nal Highways A ut hority of India Act, 1988 (the “NHAI Act”) which is a C entr al Act vic. an act of the Parliament (Bar e A ct @ pg. 46 of Ass esse e Paperboo k).
II. Even as p er Section 196(10), no tax was required to be ded uct ed at source as NHA I is “a corporatio n
establ is hed by or under a Central Act”
i.Sec. 196(iii ) pr ovi des that a person is not required to deduct tax at s ourc e from payme nts made to a corporati on established by or under a C entral Act.
ii.Since NHAI is a cor poration established under section 3 of t he NHA I Act as stated above, even sec. 196 exempted the Appellant from deducti ng tax o n the pa yment to NHA I.
5.Ther efore, the A ppellant was not require d by law to deduct tax at s ource on interest paid to NHAI.
Judgeme nts relie d o n by the Appella nt
6.The ratio of the followi ng j udgements is squarel y applicabl e to the prese nt cas e:
i.CIT v. Canar a B ank [2016] 386 ITR 504 (All.) (HC) - Pg. 67of Assess ee Paperbook Ne w Okhl a I ndustrial Dev el opment A utho rity (NO IDA ) was a co rporati on established by a State Act and was there fore entitled t o exemption of pay ment of ta x at sourc e under Secti on 194 A. T his judgement also relies on S.O. / Notification N o. 3489 dated 22.10.1970 relied on by t he pr esent Appellant (Pa ra 20, 21, 41 & 42).
ii.The above judge ment has b een upheld by the Supreme C ourt i n CIT v . Ca nara Bank [2018] 406 ITR 161 (SC) - P g. 79 of Assess ee Paperbook -Relevant paragraph #31
iii.Punj ab Nati onal Bank v. ACIT (TDS) [2023] 153 taxmann.com 280 (Mum.) (Trib.) - Pg. 61 of Assessee Paperbo ok Mumbai Metropolita n R egi o n D evel opment Authority (MMRDA), e stablished under the Mumbai Metropolitan R egi on Devel opment Aut hority Act , 1974 falls under the excl usi on pr ovided under Secti on 194A(3) by vir tue of S.O./ N otifica tion No. 3489 dated 22.10.1970, and thus, it was held t hat the ass ess ee coul d not be treat ed as an assess ee-in-default for non-deduc tion of t ax on payment of inte rest to MMR DA (Para 15 & 16).
Reliance o n Circular No. 18/ 2017 by the Ld. DR is
incorrect
7.During the course of the hea ri ng, t he Ld. DR . placed reliance on the findi ngs on the las t page of C IT (A ) order and mor e particularly on Ci rc ular No. 18/2017 dat ed 29.05.2017 (Pg. 23 o f Assessee Paper book) to contend that the exe mption from the requir ement to deduct tax at source i s av ailable only t o entities whos e income is unco nditionally exem pt under S ec tion 10, and NHA I i s not suc h a n entity.
8.The submissi on of t he Ld. DR is incorrect due to the foll owi ng reasons:
i.The statut ory pr ovi sions of secti on 194A(3)(iii)(f) and s ecti on 196 are unambi guo us and Ci rc ul ar No. 18/2017 cannot be int erpreted to impose additi onal conditions which even the st atut ory provisi ons do not impose;
ii.Circular No. 18/ 2017 deals onl y with all “enti tie s whose i ncome is exempted under sec tion 10”. It cannot be inter preted t o mean that unl ess an entity’s i nc ome is unco ndi tionally exempt under Secti on 10, then payments m ade to it have to be mandatorily subj ected to TDS not withstandi ng ot her statutory provi si ons and No tifi cations;
iii.Circular No . 18/ 2 017 only l ays d ow n an additional rela xatio n/ exemption from TDS provisi ons if the pay ee’s i ncome is unconditi onally exempt under Secti on 10. It ought to be read har moniously with the stat utory provi si ons and other No tifications;
iv.If t he int erpre tatio n of t he Ld. DR is accept ed, the n it wo uld render S.O. /Notificatio n No. 3489 dat ed 22.10.1970 completely otiose. He nce, such an i nterpretati on must be avoided;
v.The submission of t he L d. DR amounts to st ati ng tha t a circular can over ride or rest rict the unambiguous la nguage of statut or y pro visio ns (s ec . 196), which is contrary t o t he b asic pri ncipl es of i nt erpretatio n.”
The ld. DR, on the other hand, relying upon the orders of the lower authoritie s and C BDT Circular No.18/2017 dated 29.05.2017, submitted that NHAI was not eligib le for exemption from TDS and, therefore, the assessee was liable to deduct tax u/s 194A and was rightly treated as an assessee-in-default u/s 201(1) of the Act.
We have considered the r ival submissions and perused the material available on record. The undisputed fact is that the assessee has paid interest of Rs.67,19,486/- to NHAI on mobilization advance s. The controversy before us is whether the said pay ment w as liable for deduction of tax at source u/s 194A of the Act and consequently whether the assessee co uld be treated as an assessee-in-default u/s 201(1) of the Act. However, section 194A(3) provides specific exceptions to the applicability of the said provision. Clause ( iii)( f) of section 194A(3) reads as under:
“194A....
(3 ) ....
(iii ) ........ .......... . (f) such ot her institution, association or body 63 [or class of i nstituti ons, associati ons or bodies] which t he Central Governme nt m ay, for r eas ons to be rec orded in writing, notify 64 in this behal f in the Offi cial Gazette;”
In the present case , NHAI has been established under section 3 of the National Highw ays Authority of India Act, 1988 , which is a Centr al Act e nacted by Parliament. Therefore, NHAI falls w ithin the description of a corporation established by a Centr al Act and consequently falls within the ambit of Notification No.3489 dated 22.10.1970. For the sake of brevity and ready reference , the said notification is r eproduced as under:
We also find substantialsub stantial force in the conte ntico ntention ofo f the ld. AR that reliance placed by the authoritiesauthor ities be lowbelowbelo w upon CBDT Circular No .18/2017No.18/2017 dated 29.05.2017 is incorrect. For the sake of brevity and readyre ady reference,reference , the said circular is reproduced as under:
The Hon’ble Allahabad High Court in CIT vs. Canara Bank (supra) had considered the applicability of Notification No .3489(supra) had co nsidered the applicability of Notification No .3489 dated 22.10.1970 in the context of a corporationcorporatio n established under a statutorystatutor y enactmentenactme nt and held that the payment made to such corporation wasw as outsideoutsid e the p urviewpurview of the TDS obligation under section 194A.194 A. The said decisio n was subsequentlysubseque ntly affirmed by the Hon’ble Supreme Court. The co-ordinate Bench o f the Tr ibunal in Punjab National Bank vs. ACITordinate Bench of the Tribunal in Punjab National Bank vs. ACITordinate Be nch of the Tr ibunal in Punjab Natio nal Bank vs. ACIT (TDS) (supra) has also fo llowed the same princip le in respect of(TDS) (supr a) has also follo wed the same princip le in respect of(TDS) (supra) has also followed the same pr inciple in respect of a statutory autho rity established under an Act. Relevant portion of the order as contained in para 15 & 16, extracted below as under:
“15.As re gards t he deduction of t ax at s ourc e under section 194-A of the Act o n the int erest pai d by the assessee on delayed pay ment of additional premi um, we find that s ection 194A(3)(iii)(f) of t he Ac t reads as under:— "(f) such other i ns tituti on, association or body or class of i nstit utions , associations or bodies which t he Central Government may, for reaso ns to be recorded in writi ng, notify i n this behalf in the Official Gazette: Pro vided t hat no notificati on under this sub-claus e shall be iss ued on or after the 1st day of A pril, 2020;" 16. We furt her fi nd t hat i n the exercise o f the p ower conferred by the aforesaid provision, t he C entral Gov ernment vide N oti ficati on No. S.O .3489 dated 22/10/1970, inter -alia, notified any corporat ion establ is hed by a Central, State , or Provi ncial Act for the pur pose of section 194A(3)(iii)(f) of t he Act . Si nc e MMRDA has been establ ished under t he Mumbai Metropolitan R egi on D evelopment Authori ty Act , 1974, theref ore we a re of the considered vi ew t hat the payment made to MMRDA will fall under the excl usion pr ovi ded under s ub-section (3) of section 194-A o f the Act. Thus, the ass ess ee cannot be held t o be 'as sessee in default' for no n-deduction of tax on the payment of interes t on dela yed payment of additi onal premium. Accor dingl y, the demand raised by the AO under se ction 201(1) for non-deduction of ta x unde r s ecti on 1 94-A of the Act and inte rest l evi ed under s ection 201(1A) of t he Act f or t he assessment year 2008-09 is deleted. As a res ult, t he appeal by t he assessee for the assessment year 2008-09 is allo wed.”
With regard to the reliance of ld. DR as well as ld. C IT(A) in his order on Circular No. 18/2017 (supra), the ld. AR has made the fo llow ing written submission stating that the said finding of the ld. C IT(A) and submissions of ld. DR are not correct for the following reaso ns:
i.The statut ory pr ovi sions of secti on 194A(3)(iii)(f) and s ecti on 196 are unambi guo us and Ci rc ul ar No. 18/2017 cannot be int erpreted to impose additi onal conditions which even the st atut ory provisi ons do not impose;
ii.Circular No. 18/ 2017 deals onl y with all “enti tie s whose i ncome is exempted under sec tion 10”. It cannot be inter preted t o mean that unl ess an entity’s i nc ome is unco ndi tionally exempt under Secti on 10, then payments m ade to it have to be mandatorily subj ected to TDS not withstandi ng ot her statutory provi si ons and No tifi cations;
iii.Circular No . 18/ 2 017 only l ays d ow n an additional rela xatio n/ exemption from TDS provisi ons if the pay ee’s i ncome is unconditi onally exempt under Secti on 10. It ought to be read har moniously with the stat utory provi si ons and other No tifications;
iv.If t he int erpre tatio n of t he Ld. DR is accept ed, the n it wo uld render S.O. /Notificatio n No. 3489 dat ed 22.10.1970 completely otiose. He nce, such an i nterpretati on must be avoided;
v.The submission of t he L d. DR amounts to st ati ng tha t a circular can over ride or rest rict the unambiguous la nguage of statut or y pro visio ns (s ec . 196), which is contrary t o t he b asic pri ncipl es of i nt erpretatio n.”
We have considered the above rival sub missions. In the given facts and circumstances while relying upon the co-ordinate bench of Mumbai Tribunal in case of Punjab National Bank Vs. ACIT (supra), we are of the co nsidered opinion that the submissions made by the ld. AR w ith respect to non-application o f Circular No . 18/2017 dated 29.05.2017 (supra) are cogent and forceful. We are in agreement w ith the ld. AR that in case the Circular No . 18/2017 dated 29.05.2017 (supra) is to be made ap plicable in the case of the applicant, then the notification No. 3489 dated 22.10.1970 would become complete ly redundant and such interpretation in our opinion is not legally permissib le about the said no tification and we are convinced that the arguments made on behalf of the Revenue by the ld. DR with respect to applicability of Circular No.18/2017 (supra) are not legally sustainable and accordingly rejected.
In our considered opinion, once NHAI falls within the specific category of corporations covered by Notification No.3489 dated 22.10.1970 issued under sectio n 1 94A(3)(iii)(f), the asse ssee cannot be fastened with liability u/s 201(1) merely on the basis that NHAI may not satisfy the conditio ns referred to in CBDT Cir cular No.18/2017. Accordingly, we hold that the interest payment o f Rs.67,19,486/- made by the assessee to NHAI was not liable for deduction of tax at source u/s 194A of the Act. Consequently, the assessee could not have been treated as an assessee-in-default u/s 201(1) of the Act. In view of the above finding, the demand of Rs.6,71,948/-raised u/s 201(1) is not sustainable and is directed to be deleted. Since the demand u/s 201(1) itse lf does not survive, the co nsequential interest charge d u/s 201(1A) amounting to Rs.5 ,64,437/- also cannot surv ive and the same is accordingly directed to be deleted .
In the result, the appeal of the assessee is allowed.