Calcutta High Court Restrains Income Tax Authorities From Deducting Tax On Source

Calcutta High Court Restrains Income Tax Authorities From Deducting Tax On Source

The unreported judgment of the Kerala High Court in a case wherein the Court admitted the writ petition and granted interim stay of deduction of tax on source was found to be still in existing without any appeal

The High Court of Calcutta granted an interim order restraining the income tax authorities from deducting tax on source on the basis of the provisions of Section 194N of the Income Tax Act, 1961.

A single-judge Court of Justice Md. Nizamuddin in the High Court of Calcutta dealt with this petition titled Apeejay Tea Ltd Anr. v Union of India & Ors.

The judge did not go into the factual scenario and purely dealt with the legal issue. The Petitioners had 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 per cent on cash withdrawals from a banking company exceeding ₹1 crore in a financial year.

The Petitioners contended that the Parliament could not legislate a provision stipulating the deduction of tax at source from an amount, which is admittedly not income. It was further contended that such legislation would be beyond the legislative competence of the Parliament under Entry 82 of List I of Schedule VII of the Constitution of India.

The Court observed that the grounds raised by the Petitioners have some substance, which requires consideration for final adjudication by this Court.

The judge further considered the unreported judgment of the Kerala High Court of Kanan Devan Hills Plantations Company Pvt Ltd v Union of India, relied upon the Petitioners, wherein the Kerala High Court admitted the writ petition on this issue and granted interim stay of deduction of tax on source under Section 194N of the Income Tax Act, 1961. The interim order of this case was found to be still existing to date without any appeal.

Similar judgments were submitted wherein a series of orders were passed by the 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.

The judge took these orders into account and granted an interim order restraining the Respondents authorities concerned from deducting tax on source on the basis of the aforesaid provisions of Section 194N till 30 September 2021.