Case: COMMISSIONER OF INCOME TAX (TDS), KANPUR Vs. CANARA BANK

3. The New Okhla Industrial Development Authority (NOIDA), hereinafter referred to as "Authority" has been constituted by Notification dated 17.04.1976 issued Under Section 3 of the Uttar Pradesh Industrial Area Development Act, 1976 hereinafter referred to as "1976 Act". The Canara Bank, Respondent No. 3 is the banker of the Authority. The Respondent Bank made a payment of Rupees Twenty Crores Ten Lakhs as interest to Authority in form of FDs/Deposits for the financial yearThe Canara Bank, however, did not deduct tax at source Under Section 194A of the Income Tax Act, 1961 hereinafter referred to as "IT Act, 1961".Notices were issued by the Appellant to Canara Bank asking for information pertaining to interest paid to the Authority on its deposits. Notices were also issued by the Appellant to the Bank for showing cause for not deducting tax at source. A writ petition had been filed by the NOIDA being Writ Petition No. 1338/2005 challenging the notices issued to the Authority as well as its bankers. Assessment proceeding could not proceed due to certain interim directions passed by the High Court in the above writ petition. The writ petition was ultimately dismissed by the High Court on 28.02.2011 holding that the Authority is not a local authority within the meaning of Section 10(20) of IT Act, 1961 and its income is not exempt from tax. The Assessing Officer thereafter proceeded to pass an order Under Section 201(1)/201(1A) read with Section 194A of the IT Act, 1961 dated 28.02.2013.Income Tax Authority held that the Respondent Bank is Assessee in default. The default was computed and demand notice as per Section 156 of the IT Act, 1961 was issued. Penalty proceeding was also separately initiated. The Canara Bank aggrieved by the order of the Assessing Officer dated 28.02.2013 filed an appeal before the Commissioner of Income Tax (Appeals). Before the Commissioner, the bank relied on Notification dated 22.10.1970 issued Under Section 194A(3) (iii)(f) of the IT Act, 1961. The Appellate Authority vide its judgment dated 02.12.2013 allowed the appeal setting aside the order of the Assessing Officer. The Revenue aggrieved by the judgment of the Appellate Authority filed an appeal before the Income Tax Appellate Tribunal. The Tribunal also held that payment of interests by the banks to the State Industrial Development Authority does not require any deduction at source in terms of Section 194A(3)(iii)(f).The Revenue aggrieved by the order of the Tribunal filed an appeal Under Section 260A of the Act before the High Court. The Division Bench of the High Court vide its judgment dated 04.04.2016 has dismissed the appeal. The Division Bench came to the following conclusions while dismissing thehave, therefore, no manner of doubt from a reading of the provisions of the Industrial Area Development Act that the NOIDA has been constituted by the State Act and, therefore, entitled to exemption of payment of tax at source Under SectionThe decision of the Division Bench of this Court in New Okhla Industrial Development Authority (supra), on which reliance has been placed by learned Counsel for the Appellants, would, therefore, not come to the aid of the Appellants as it was restricted to the issue as to whether NOIDA would be a local authority or not and did not deal with the issue involved in this appeal as to whether the NOIDA is a Corporation established by a Statetherefore, answer the question of law framed by us in negative and hold that NOIDA is a Corporation established by Uttar Pradesh Industrial Area Development Act, 1976."

Reasoning:
It is also not contended before us that Authority is not a statutory corporation. What is contended before us is that Authority having not been established by a Central, State or Provincial Act is not covered by Notification dated 22.10.1970 hence, not eligible for the benefit. The provision of Section 194A and the notification issued by Central Government under 194A(3)(iii)(f) falls for consideration. We may beneficially notice a principle of statutory interpretation which needs to be applied while interpreting the above provisions of IT Act,One more principle which was reiterated by this Court in above Constitution Bench judgment is that Corporations which are instrumentalities of the Government are subject to the limitation as contained in the Constitution. The Corporations which were under consideration in the above case, namely, Life Insurance Corporation of India, Oil and Natural Gas Commission, Industrial Finance Corporation were held to be constituted within the meaning of Article 12 of the Constitution. Two categories of Corporations have been noticed i.e. statutory corporations andcorporations. Whereas, the statutory corporations owe their existence from "by or under" statute,bodies and corporations are not created by or under statute rather are governed by a statute.Again in S.S. Dhanoa (supra), this Court had occasion to consider a Registered Society which was a body/corporate. The question was as to whether the State Body/corporate is a Corporation within the meaning of Clause Twelfth of Section 21 of the Indian Penal Code (Indian Penal Code). This Court again held that expression Corporation means a Corporation created by the legislature. In paragraph No. 7 following was.........In our opinion, the expression corporation must, in the context, mean a corporation created by the legislature and not a body or society brought into existence by an act of a group of individuals. A cooperative society is, therefore, not a corporation established by or under an Act of the Central or State Legislature.Further noticing the distinction between Corporation established by or under Act or body created by or under Act, following was held in paragraph No.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. Bhagatram Sardar Singh Raghuvanshi. It was observed: [SCC p. 435: SCC (L&S) p. 115, paracompany incorporated under the Companies Act is not created by the Companies Act but comes into existence in accordance with the provisions of theis thus adistinction between a body created by a statute and a body which, after coming into existence, is governed in accordance with the provisions of a statute..........Another judgment which had occasion to consider the expression established by or under the Act is a judgment of this Court in Dalco Engineering Private Limited v. Satish Prabhakar Padhye and Ors. (2010) 4 SCC 378 . The Court had occasion to examine the provision of Section 2k, of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995, specifically expression "establishment" means a Corporation established by or under Central, Provincial or State Act. This Court held that the phrase established by or under the Act is a standard term used in several enactments to denote a statutory corporation established or brought into existence by or under the statute. On Company it was held that the company is not established under the Companies Act and an incorporated company does not "owe" its existence to the Companies Act. In paragraph No. 20 following has been laidA "company" is not "established" under the Companies Act. An incorporated company does not "owe" its existence to the Companies Act. An incorporated company is formed by the act of any seven or more persons (or two or more persons for a private company) associated for any lawful purpose subscribing their names to a memorandum of association and by complying with the requirements of the Companies Act in respect of registration. Therefore, a "company" is incorporated and registered under the Companies Act and not established under the Companies Act. Per contra, the Companies Act itself establishes the National Company Law Tribunal and the National Company Law Appellate Tribunal, and these two statutory authorities owe their existence to the Companies Act.This Court further elaborating the expression held that when the expression used is "established by or under the Act", the emphasize should be on the word "established" in addition to the words "by or under". It is useful to refer to what has been said in paragraph Nos. 21 and 22 of the judgment which is to the followingWhere the definition of "establishment" uses the term "a corporation established by or under an Act", the emphasis should be on the word "established" in addition to the words "by or under". The word "established" refers to coming into existence by virtue of an enactment. It does not refer to a company, which, when it comes into existence, is governed in accordance with the provisions of the Companies Act. But then, what is the difference between "established by a Central Act" and "established under a CentralThe difference is best explained by some illustrations. A corporation is established by an Act, where the Act itself establishes the corporation. For example, Section 3 of the State Bank of India Act, 1955 provides that a bank to be called State Bank of India shall be constituted to carry on the business of banking. Section 3 of the Life Insurance Corporation Act, 1956 provides that.Establishment and incorporation of Life Insurance Corporation ofWith effect from such date as the Central Government may, by notification in the Official Gazette, appoint, there shall be established a Corporation called the Life Insurance Corporation of India. State Bank of India and Life Insurance Corporation of India are two examples of corporations established by "a Central Act".This Court has also referred to provisions of The State Financial Corporations Act, 1951 which provides for establishment of various financial corporations under the Act. It is useful to refer to definition of financial corporation as contained in Section 2(b) which is to the followingFinancial Corporation means a Financial Corporation established Under Section 3 and includes a Joint Financial Corporation established Under SectionSection 3 deals with establishment of State Financial Corporation which provides asEstablishment of State Financial Corporations.: (1) The State Government may, by notification in the Official Gazette, establish a Financial Corporation for the State under such name as may be specified in theThe Financial Corporation shall be a body corporate by the name notified Under(1), having perpetual succession and a common seal, with power, subject to the provisions of this Act, to [acquire, hold and dispose of] property and shall by the said name sue and be sued.This Court clearly in above case, Dalco Engineering (supra) has held that such Financial Corporations are established by an Act or under an Act. In paragraph No. 23 of the judgment following has beenWe may next refer to The State Financial Corporations Act, 1951 which provides for establishment of various financial corporations under that Act. Section 3 of that Act relates to establishment of State Financial Corporations and provides that "the State Government may, by notification in the Official Gazette, establish a financial corporation for the State under such name as may be specified in the notification" and such financial corporation shall be a body corporate by the name notified. Thus, a State Financial Corporation is established under a Central Act. 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 acorporation incorporated or registered under the Companies Act.Now, we revert back to the provisions of 1976, Act. The very preamble of that 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. Section 2(b) of the 1976 Act defines Authority as authority constituted Under Section 3 of the Act. Section 3 which is very relevant for the present case is as(1) The State Government may, by notification, constitute for the purposes of this Act, An authority to be called (Name of the area) Industrial Development Authority, for any industrial developmentThe Authority shall be a bodyThe Authority shall consist of theThe headquarters of the Authority shall be at such place as may be notified by the StateThe procedure for the conduct of the meetings for the Authority shall be such as may beNo act or proceedings of the Authority shall be invalid by reason of the existence of any vacancy in or defect in the constitution of the Authority.When we compare the provisions of Section 3 of 1976 Act with those of The State Financial Corporations Act, 1951, it is clear that the establishment of Corporation in both the enactments is by a notification by State Government. In the present case, notification has been issued in exercise of power of Section 3, the Authority has been constituted. It is useful to extract paragraph No. 2 of the Notification dated 12.04.The Governor is hereby further pleased, in exercise of the powers Under Section 3 of the said Act, to constitute, in respect of theThis 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 1976 Act itself, hence, there is no denying that Authority has been constituted by Act itself.