Read Order: Apeejay Tea Ltd & Anr. versus Union of India & Ors.

Pankaj Bajpai

Kolkata, July 12, 2021: Dealing with the challenge to the constitutional validity of Sec 194N of Income Tax Act on the ground that it is beyond the legislative competence of Parliament, the Calcutta High Court has given an interim order restraining tax authorities from deducting TDS on the basis of the said section till September 30, 2021.

The High Court was hearing a plea challenging 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 a banking company exceeding Rs. 1 crore in a financial year.

The petition said that said Sec 194-I was inserted by the Finance Act, 2019 and became effective from September 1, 2019 and has been substituted by the Finance Act, 2020.

The main contention challenging the legality of Sec 194-I, was that Entry 82 of List I of Schedule VII to the Constitution allows Parliament to enact laws for imposition, collection and levy of tax on “income” and that Parliament cannot legislate a provision stipulating the deduction of tax at source from an amount which is admittedly not income. 

Quoting the judgment in Kanan Devan Hills Plantations Company Pvt. Ltd Versus Union of India involving the same issue, it was contended that the Kerala High Court had granted interim stay on the deduction.

Hence, the Court granted stay till September 30, 2021 on deduction of tax at source under section 194N of the Income Tax Act.

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