The Income Tax Appellate Tribunal (ITAT), Bangalore bench in its recent ruling in the case of Jindal Aluminium Limited has inter alia held that the payment of interest on late payment of TDS under Section 201(1A) of the Income Tax Act cannot be treated as a deductible expenditure under the Income Tax Act, 1961.
Before proceeding ahead let’s brush up with the provisions in regard to interest on delay in TDS deduction/deposition.
As per section 201(1A) of the Income Tax Act, 1961, if any person who is liable to deduct tax at source does not deduct it or after so deducting fails to pay, the whole or any part of the tax to the credit of the Government, then, such person, shall be liable to pay simple interest as given below:
- Interest shall be levied at 1% for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax was deducted.
- Interest shall be levied at 1.5% for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax was actually remitted to the credit of the Government.
In other words, interest will be levied at 1% for every month or part of a month for delay in deduction and at 1.5% for every month or part of a month for delay in remittance after deduction.
Facts of the Case:
The appellant had paid interest under section 201(1A) of the Income Tax Act amounting to Rs.24,644 and claimed the same as an allowable expenditure.
The Assessing Officer disallowed the expenditure by observing as under:-
“6.1 The submission of the assessee is considered. The same is not acceptable. The requirement to deduct tax at source and to remit such tax to the credit of the Central Government is statutory obligations imposed on the assessee by the statute. The charging of interest under section 201(lA) for the delay in making the payment of the tax deducted at source has no connection with the business carried on by the assessee but is only referable to the default on the part of the assessee in making the payment. Therefore, the payment of interest cannot be treated as interest on money borrowed for the purpose of the business. On the other hand, the revenue, which is due to the Government, was unlawfully withheld and it is for this reason that the interest under section 201(lA) was charged on the belated payment. Reliance is placed on the decision of Hon’ble Delhi ITAT in Iyer and Sons (P.) Ltd. V. Income-Tax Officer (1982) 1 ITD 502. The Hon’ble Supreme Court in the case of Bharat Commerce & Industry v CIT (1998) 230 ITR 733 held that interest for late payment of direct taxes is not deductible. Similar decision was rendered by the Hon’ble Madras High Court in the case of CIT vs Chennai Properties & Investments Ltd 239 ITR 435. Therefore, Rs.24,644 is added back to the total income of the assessee.”
The view taken by the Assessing Officer was confirmed by the CIT(A). Aggrieved, the assessee has raised this issue before the Tribunal.
Order of ITAT on allowability of interest on late payment of TDS:
The ITAT observed that the Hon’ble Apex Court in the case of Bharat Commerce & Industry v. CIT reported in 230 ITR 733 had held that interest for late payment of direct taxes is not a deductible expenditure.
Accordingly, In view of the clear dictum laid down by the Hon’ble Apex Court, it was held by ITAT that the interest expenditure of Rs.24,644 paid under section 201(1A) of the Income Tax Act cannot be allowed as a deduction.
READ / DOWNLOAD ORDER:
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
