prpri Calcutta HC restrains TDS deduction under Section 194N Calcutta HC restrains TDS deduction under Section 194N

Case Law Details

Case Name : Apeejay Tea Ltd. Anr. Vs Union of India & Ors. (Calcutta High Court)
Appeal Number : WPA No. 10856 of 2021
Date of Judgement/Order : 08/07/2021
Related Assessment Year :

Apeejay Tea Ltd. Anr. Vs Union of India & Ors. (Calcutta High Court)

Calcutta High Court passes landmark interim order in petition challenging constitutional validity of section 194N of the Income Tax Act, 1961 which mandates the deduction of tax at source at the rate of 2% on cash withdrawals from banking company .  Petitioner submits that Section 194N of the said Act is beyond the legislative competence of the Parliament and Entry 82 of List I of Schedule VII to the Constitution allows the Parliament to enact laws for and levy of tax on “income” and the Parliament cannot legislate a provision stipulating the deduction of tax at source from an amount which is admittedly not income and such legislation would be beyond the legislative competence of the Parliament under Entry 82 of List I of Schedule VII of the Constitution imposition, collection . Petitioner has also relied on several unreported decisions of the Hon’ble Kerala High Court involving the same issue and one of which is order dated 13th August, 2020 passed in Kanan Devan Hills Plantations Company Pvt. Ltd Versus Union of India in WP (C ) No. 1658 of 2020 where Hon’ble Court has admitted the writ petition on this issue and has granted interim stay of deduction of tax on source under Section 194N of the Income Tax Act, 1961 . Considering these facts, I am inclined to grant an interim order restraining the respondents authorities concerned from deducting tax on source on the basis of the aforesaid provisions of Section 194N till 30th September, 2021.

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

Heard Mr. J.P. Khaitan, learned senior advocate appearing for the petitioner and learned Additional Solicitor General for the respondents/U.O.I.

In this writ petition, petitioner has challenged the constitutional validity and legality of Section 194N of the Income Tax Act, 1961 which mandates the deduction of tax at source at the rate of 2% on cash withdrawals from, inter alia, a banking company exceeding Rs. 1 crore in a financial year and the said Section was inserted by the Finance Act, 2019 and became effective from 1st September, 2019 and has been substituted by the Finance Act, 2020. Petitioner submits that Section 194N of the said Act is beyond the legislative competence of the Parliament and Entry 82 of List I of Schedule VII to the Constitution allows the Parliament to enact laws for imposition, collection and levy of tax on “income” and the Parliament cannot legislate a provision stipulating the deduction of tax at source from an amount which is admittedly not income and such legislation would be beyond the legislative competence of the Parliament under Entry 82 of List I of Schedule VII of the Constitution. Petitioner has challenged the impugned legislation on several grounds as appears from the grounds of the writ petition which according to me have some substance and requires consideration for final adjudication by this Court. Petitioner has also relied on several unreported decisions of the Hon’ble Kerala High Court involving the same issue and one of which is order dated 13th August, 2020 passed in Kanan Devan Hills Plantations Company Pvt. Ltd Versus Union of India in WP (C ) No. 1658 of 2020 where Hon’ble Court has admitted the writ petition on this issue and has granted interim stay of deduction of tax on source under Section 194N of the Income Tax Act, 1961. On earlier occasion opportunity was given to the respondents to seek instruction as to whether the aforesaid order of the Kerala High Court has been further challenged or not to which learned Additional Solicitor General has submitted on instruction that no further appeal has been filed against the said order and the said interim order is still existing. It has also been submitted that series of orders have been passed by the Hon’ble Kerala High Court on the same issue admitting the writ petition and staying deduction of tax on source under Section 194N of the Income Tax Act, 1961.

Considering these facts, I am inclined to grant an interim order restraining the respondents authorities concerned from deducting tax on source on the basis of the aforesaid provisions of Section 194N till 30th September, 2021.

Respondents are directed to file affidavit-in opposition within four weeks from date. Petitioner to file reply thereto, if any, within two weeks thereafter.

Matter to appear for final hearing after eight weeks.

Download Judgment/Order

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Mr.Kapil Goel B.Com(H) FCA LLB, Advocate Delhi High Court advocatekapilgoel@gmail.com, 9910272804 Mr Goel is a bachelor of commerce from Delhi University (2003) and is a Law Graduate from Merrut University (2006) and Fellow member of ICAI (Nov 2004). At present, he is practicing as an Advocate View Full Profile

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4 Comments

  1. Srikanth S says:

    Dear Sir/Madam, I am not able to find cited case law anywhere. Can some one share the below case law link
    Kanan Devan Hills Plantations Company Pvt. Ltd Versus Union of India in WP (C ) No. 1658 of 2020Kanan Devan Hills Plantations Company Pvt. Ltd Versus Union of India in WP (C ) No. 1658 of 2020

  2. Susanta Kumar Das. says:

    Like wise Bank of Baroda, had also illegally, arbitrarily and whimsically deducted TDS @10℅ for an amount if Rs. 45,470.70 for the financial year,2020-2021,upon my entire amount of gross interest income paid by them upon my FDR A/C with them for an amount of Rs. 5,80,570/ -,( where exemption limits for IT for a Senior Citizens was for Rs. 5,00,000/- ) an ex-officer of the same bank, and where actual Income tax, payable by me for the financial year, 2020-2021, was only for Rs. 8,770/-only,U/S 140A and U/S 288B of I. T. Act. A refundable amount for the assessment year, 2021- 2022 was for Rs. 36,637/-, which was a interest free loan to the Government of India, from us illegally, arbitrarily and whimsically deducted as TDS by Bank of Baroda, without any valid reason or basic at all. Till date IT return could not be filled due to extension of unreasonable time period by the Government to submit Form-16 and Form-16A,to the Banks and God knows, when Refund of Excessively deducted TDS will be done, as the Refund of TDS dues for the Assessment year, 2020-2021, had not yet been received, upon a false and baseless pleas of Income tax department, that Hard copy of Income tax returns for the Assessment year, 2020.2021,not yet received by them for due process of Refund Orders.

  3. Nasim Wazid Ali says:

    It will be an interrsting case and we look forward to see a positive outcome. We are liable to TDS at source u/s 194N in respect of withdrawal of money from our own account exceeding the prescribed limit. After all, withdrawal from our own account is not an income which can be taxed under the Income Tax Act.

  4. GANDHI MOHAN BHARATI says:

    Thnak God someone has taken up a case of taxing what is not an income. Who knows someday the Government may enact a TDS of % on Savings Bank Account however small it may be which the account holder can get a refund by filing an ITR. It is an interest free loan to the Government

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