No TDS Under Section 194A on Mobilisation Advance Interest Paid to Statutory Authority

1. Core Facts & Background

• The assessee was engaged in the infrastructure development of four and six lane roads.
• During the relevant period, the assessee paid interest on mobilisation advances to a statutory authority established under a Central Act.
• The primary controversy pertained to whether tax was required to be deducted at source on such interest payments under Section 194A of the Act.
• The assessee did not deduct tax at source, asserting that the recipient statutory body fell within statutory exemptions from TDS.

2. Revenue / Department’s Action

• The Assessing Officer held that the assessee was statutorily mandated to deduct tax at source under Section 194A on the interest payments.
• Revenue treated the assessee as an assessee-in-default under Section 201(1) of the Act for failure to deduct tax.
• Consequential interest was charged against the assessee under Section 201(1A) of the Act, resulting in a raised tax demand.
• The first appellate authority upheld the demand by relying upon an administrative circular concerning entities with exempt income.

3. Assessee’s Defense & Arguments

• The assessee contended that the payment is excluded from TDS under Section 194A(3)(iii)(f) read with the governing statutory notification.
• It was submitted that the recipient entity is a corporation established under a Central enactment and squarely falls within the statutory exemption.
• The assessee submitted that the recipient had been specifically approved for tax exemption under Section 10(23C)(iv) of the Act.
• It was argued that applying the department’s circular to override the statutory notification would render the notification legally redundant.

4. Final Ruling & Outcome

• The appellate authority held that interest paid to the statutory corporation is exempt from TDS under Section 194A(3)(iii)(f) read with the relevant notification.
• It was ruled that administrative circulars cannot supersede statutory notifications or impose default liabilities contrary to the Act.
• The demand raised under Section 201(1) and Section 201(1A) was vacated, ruling entirely in favor of the assessee.