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Calcutta High Court has stayed TDS collection under section 194N of Income Tax Act until September

The High Court of Calcutta passed an interim order prohibiting the Income Tax Department from collecting the TDS under section 194N of the Income Tax Act, 1961. The plea was challenging the constitutionality of the provision which was inserted by the Finance Act, 2019 and became effective from 1 September 2019. According to the provision, the deduction of tax at source at the rate of 2% on cash withdrawal from inter alia, a banking company exceeding Rs.1 crore in a financial year is mandatory. In the present case, the challenge against the provision was on the ground that the levy is beyond the legislative competence of the parliament. Entry 82 of List I of Schedule VII of the Constitution allows the Parliament to enact laws for imposition, collection, and levy of income tax. Consequently, the parliament cannot legislate a provision that mandates the deduction of TDS from an amount that is not an “income”. The case of Kanan Hills Plantations Company Pvt. Ltd. v Union of India was referred to wherein a writ was filed on the same issue and an interim stay on deduction of TDS under section 194N of the Income Tax Act was imposed. An interim stay was imposed on the respondent authorities restraining them from TDS on the basis of the above-mentioned provisions tills 30th September 2021. The state was asked to file a counter affidavit within a month to which the petitioner was asked to file the reply within the next two weeks. The matter is listed for final hearing post 8 weeks.


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