The main legal point established in the judgment is that interest income accrued on Term Deposit Accounts of the JKSRRDA was exempt from TDS under Section 196 of the Income Tax Act and that JKSRRDA, being a society wholly financed by the Central Government, was exempt from TDS under Notification No. 3489 dated 22.10.1970.

JUDGMENT :

Sanjeev Kumar, J.

ITA No. 11/2016

1. This appeal under Section 260A of the Income Tax Act, 1961 [‘the Act’] is directed against the order dated 03.12.2015 passed by the Income Tax Appellate Tribunal, Amritsar Bench [‘ITAT’] in ITA No. 145 (Asr)/2015.

2. Briefly put the facts, leading to the filing of instant appeal, are that somewhere in the year 2013, it came to the notice of the Assessing Officer i.e. Income Tax Officer, TDS Circle, Aayakar Bhawan, Rail Head Complex, Jammu that during the Assessment year 2009-10, the respondent-Bank [‘the assessee’] was not deducting tax at source under Section 194A of the Act on interest paid/accrued on Term Deposit Accounts under Saving Bank Account No.0110040100015854 of the J&K State Rural Roads Development Agency [‘JKSRRDA’]. After putting the assessee to a show cause notice and according consideration to the submissions put forwarded by it, an order under Section 201(1) and under Section 201(1A) of the Act was passed by the Assessing Authority for the Assessment year 2009-10 creating a demand of Rs.2,11,19,843/-.

3. On appeal by the assessee, the Commissioner of Income Tax (Appeals) [‘CIT(A)’] deleted the addition made by the Assessing Officer by holding that no tax was required to be deducted by the assessee in respect of JKSRRDA being a Society covered by Notification No.3489 dated 22.10.1970. Feeling aggrieved by the order of CIT (A) dated 24.12.2012, the Assessing Authority filed an appeal before ITAT, Amritsar Bench. The ITAT, Amritsar Bench vide its order dated 03.12.2015 confirmed the order of CIT (A) which order of ITAT is called in question by the Commissioner of Income Tax (TDS-I), Chandigarh [‘the appellant’] in this appeal.

4. The substantial question of law, which is a sine quo non for maintaining an appeal under Section 260A of the Act, as proposed by the appellant, reads thus :

“Whether for the purpose of obtaining exemption under Section 194A(3)(iii)(f) of the Act, the assessee is required to apply for the exemption and the same could only be granted to the assessee after the Central Government issues a Notification in this behalf in the Government Gazette as has been amply clarified by the CBDT vide its clarification letter issued under F.No. 275/22/2009-IT(B) dated 23.06.2009”.

5. Having heard learned counsel for the parties and perused the material on record, we are of the considered opinion that the substantial question of law, as proposed by the appellant, is not only misconceived, but does not arise out of the pleadings and the controversy that is raised for determination in this appeal. We are, however, in agreement with the learned counsel appearing for the respondent that the Assessing Authority has proceeded on a wrong premise and has, thus, illegally and contrary to law, raised a demand of more than Rs.2.00 crores on account of failure of the assessee to deduct tax at source under Section 194A of the Act on the interest paid/accrued on the Term Deposit Accounts of the JKSRRD, a society registered under J&K Societies Registration Act, Svt. 1998 [‘the Act of 1998’].

6. Indisputably, JKSRRDA is a Society registered under the Act of 1998 and has been appointed as a nodal agency of the Government of Jammu and Kashmir for implementation of Pradhan Mantri Gram Sadak Yojana [‘PMGSY’]. The Ministry of Rural Development, Government of India funds this society for implementation of PMGSY. As per the Memorandum of Understanding [‘MoU’] of Banking arrangements of the funds released by the Government of India under PMGSY, entered on 05.04.2005 between the National Rural Road Development Authority [‘NRRDA’], JKSRRDA and the J&K Bank Ltd., the entire funds received from the Government of India through NRRDA are deposited in an account called as “Programme Fund/Account” maintained with Moving Secretariat Branch of Jammu and Kashmir Bank Ltd. As per the stipulation in the MOU, the assessee/Bank is under an obligation to convert the balance in excess of Rs.20.00 lac in this a