Interest payment on mobilisation advance to NHAI not liable to TDS u/s 194A

Interest payment on mobilisation advance to NHAI not liable for deduction of tax at source u/s 194A – ITAT

Interest payment on mobilisation advance made by the assessee to NHAI not liable for deduction of tax at source u/s 194A of the Income Tax Act, 1961 (the Act).

ABCAUS Case Law Citation:
5239 (2026) (10) abacus.in ITAT

In the instant appeal, the assessee had challenged the order of CIT(A) in confirming order u/s 201(1)/201(1A) of the Income Tax Act, 1961 (the Act) wherein the assessee was treated as an assessee-in-default for non-deduction of tax at source on interest paid to the National Highways Authority of India (NHAI) on payment of mobilisation advance.

The assessee is engaged in infrastructure development of Four/Six Lane Road. During the year under consideration, the assessee had paid interest to NHAI on mobilization advances. The Assessing Officer/TDS Officer held that the assessee was liable to deduct tax at source u/s 194A of the Act and accordingly raised a demand u/s 201(1) of the Act. Consequential interest was also charged u/s 201(1A) of the Act, resulting in total demand.

The assessee preferred an appeal before the CIT(A)who relying on CBDT Circular No. 18/2017 dated 29.05.2017, upheld the action of the AO and dismissed the appeal.

Before the Tribunal the assessee submitted the issue is squarely covered by the provisions of section 194A(3)(iii)(f) of the Act read with S.O./Notification No.3489 dated 22.10.1970. It was submitted that the said Notification specifically covers “any corporation established by a Central, State or Provincial Act”.

It was further submitted that NHAI is a corporation established under section 3 of the National Highways Authority of India Act, 1988, which is a Central Act. Therefore, the payment of interest to NHAI falls within the statutory exception contained in section 194A(3)(iii)(f), and consequently no tax was deductible at source on such payment.

The assessee also relied upon the decisions of the Hon’ble Allahabad High Court which was subsequently upheld by the Hon’ble Supreme Court and the decision of the co-ordinate Bench of Mumbai ITAT.

The assessee further relied upon the order of Director General of Income Tax (Exemptions) wherein the National Highways Authority of India had been approved for the purpose of exemption from Income-tax under sub-clause (iv) of clause (23C) of section 10 of the Act.

The Tribunal noted that the controversy was whether the said payment was liable for deduction of tax at source u/s 194A of the Act and consequently whether the assessee could be treated as an assessee-in-default u/s 201(1) of the Act. However, section 194A(3) provides specific exceptions to the applicability of the said provision. Clause (iii)(f) of section 194A(3).

The Tribunal opined that reliance placed by the authorities below upon CBDT Circular No.18/2017 dated 29.05.2017 was incorrect

The Tribunal further noted that the Hon’ble Allahabad High Court had considered the applicability of said Notification No. 3489 in the context of a corporation established under a statutory enactment and held that the payment made under a statutory enactment and held that the payment made to such corporation was outside the purview of the TDS obligation under section 194A. The said decision was subsequently affirmed by the Hon’ble Supreme Court. Also, the coordinate Bench of the Tribunal had also followed the same principle in respect of a statutory authority established under an Act.

The Tribunal opined that in case the Circular No. 18/2017 dated 29.05.2017 was to be made applicable in the case of the applicant, then the notification No. 3489 dated 22.10.1970 would become completely redundant and such interpretation is not legally permissible.

The Tribunal opined that once NHAI falls within the specific category of corporations covered by Notification No. 3489 dated 22.10.1970 issued under section 194A(3)(iii)(f), the assessee cannot be fastened with liability u/s 201(1) merely on the basis that NHAI may not satisfy the conditions referred to in CBDT Circular No.18/2017.

Accordingly, the Tribunal held that the interest payment made by the assessee to NHAI was not liable for deduction of tax at source u/s 194A of the Act.

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