The Calcutta High Court, on Thursday, passed an interim order restraining the income tax department from collecting Tax Deduction at Source (TCS) under section 194N of the Income Tax Act, 1961. 

194N states that TDS is required to be deducted @ 2% on cash withdrawals from, inter alia, a banking company exceeding ₹1 crore (@ 2% on amount above ₹20 Lakhs upto ₹1crore and 5% on amount above ₹1 crore in case of non-filers) in a Financial Year. 

A Single-Judge bench of the High Court was considering a writ petition filed by M/s Apeejay Tea Ltd with other petitioners wherein the petitioners challenged the constitutional validity of the levy implemented from 1st September 2019. Before the High Court, the petitioners argued that the levy 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. 

Justice Md. Nizamuddin observed that the Kerala High Court in the case of Kannan Devan Hills Plantations Company Pvt. Ltd Versus Union of India 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,” the Court observed. Listing the matter for hearing after eight weeks, the Court held that “considering these facts, I am inclined to grant an interim order restraining the respondent’s authorities concerned from deducting tax on the 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 the date. Petitioner to file a reply thereto, if any, within two weeks thereafter.”


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