Banks Exempted From Deducting Tax At Source While Paying Interest To Statutory Corporations : Supreme Court Reiterates

The Supreme Court has reiterated that Banks are exempted from the mandate of Section 194A of the Income Tax Act, 1961, to deduct tax at the source, on payment of interest to corporations established by a statute. In the facts of the present case, the Apex Court held that in terms of the notification dated 22.10.2022 issued by the Central Government, the Union Bank of India was exempted from the requirement under Section 194A, Income Tax Act, 1961, to deduct tax at source on payment of interest made to the Agra Development Authority, which is a statutory body constituted under Uttar Pradesh Urban Planning and Development Act, 1973. The issue before the High Court was - whether the Union Bank of India was required under Section 194A, Income Tax Act, 1961, to deduct tax at source on payment of interest made to the Agra Development Authority, which is a statutory body constituted under UP Urban Planning and Development Act, 1973? It held - ".deduction of tax at source on interest income before close of the financial year concerned as provided under Section 194 A of the Act would not absolve the assessee Bank from penalty for not deducting the tax at source from the interest income of the Agra Development Authority at the time of credit of the said income in its account and that there was no reasonable cause on part of the assessee Bank for not deducting tax at source on the interest income of the Agra Development Authority so as to permit any benefit of exemption from penalty as envisaged under Section 273 B of the Act." Chandrachud and Surya Kant Headnotes Section 194A of the Income Tax Act, 1961 - any person who is responsible for paying to a resident any income by way of interest shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash/cheque or draft whichever is earlier deduct income tax thereon at the rates in force - the Union Bank of India did not deduct TDS at source while paying interest to Agra Development Authority, but subsequently deducted and deposited the same within the financial year.