Calcutta HC stays provisions of TDS as per Section 194N till 30th September 2021

A Writ Petition was filed with Calcutta High Court, challenging the constitutional validity and legality of Section 194N of the Income Tax Act, 1961. This Section mandates the deduction of tax at source at the rate of 2% on cash withdrawals from, inter alia, a banking company exceeding Rs. 1 crore in a financial year and the said Section was inserted by the Finance Act, 2019 and became effective from 1st Sep 2019 and has been substituted by the Finance Act, 2020.

Petitioner has challenged that Section 194N of the said Act 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.

Considering these facts, the court has granted an interim order restraining the respondent’s authorities concerned from deducting tax on source on the basis of the aforesaid provisions of Section 194N till 30th September 2021.

The Judgement is enclosed for reference: