Calcutta High Court : Restrain TDS Collection Under Section 194N Income Tax Act Till Sep 30

Petitioner Apeejay Tea Ltd challenged the constitutional validity and legality of Section 194N of the Income Tax Act, 1961, which mandates deduction of tax at source at the rate of two percent on cash withdrawals from a banking company exceeding Rs one crore in a financial year.

The Calcutta High Court has restrained the Income Tax Department from collecting TDS under Section 194N of the Income Tax Act, 1961, till September 30.

The petitioner further submitted that Section 194N of the said Act is beyond the legislative competence of Parliament under Entry 82 of List I of Schedule VII to the Constitution, as Entry 82 allows the Parliament to enact laws for imposition, collection and levy of tax on ‘income’ and that the Parliament cannot legislate a provision stipulating the deduction of tax at source from an amount, which is admittedly not income.

The Single-Judge Bench of Justice Md Nizamuddin on July 8 observed that the petitioner has challenged the legislation on several grounds, which have some substance and require consideration for final adjudication by the High Court.

The State was directed to file a counter affidavit within four weeks subsequent to which the petitioner was ordered to file a reply within two weeks.

The matter has been listed for final hearing after eight weeks.

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