The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) has held that income tax deduction cannot be available for the interest paid on the delayed payment of TDS under section 201(1A) of the Income Tax Act, 1961.
The appellants, M/s Expat Engineering India Ltd contended that any sum paid referred in section 40(a)(ii) must be viewed from the perspective of only assessee whose payer and not from the payee perspective. The tax payment made on the profits earned by the assessee must not be enlarged to include even assessees vendor perspective. When TDS itself is not disallowed in the payees hands interest so paid u/s. 201(1A) cannot be disallowed u/s.40(a)(ia).
Relying on a bunch of judicial decisions, a bench of Shri N.V. Vasudevan, Vice President and Shri Padmavathy S, Accountant Member observed that the said payment is compensatory in nature.
The division bench observed that the levy of 201(1A) is a levy for delay in the remittance of tax that is deducted and not paid into the government account and is levied towards the use of funds belonging to the exchequer.
“The interest u/s.201(1A) can be equated to the levy of interest u/s.234. Interest u/s.234 is a levy on delay in the payment of income tax and the TDS is nothing but the income tax paid on behalf of the payee and therefore the interest on the same u/s.201(1A) is also in the nature of interest levied on the income tax. On that count also interest on delayed payment of TDS cannot be claimed as a deduction,” the Tribunal said.
“At the outset it has to be mentioned that the question whether interest paid u/s.201(1A) of the Act, is an allowable business expenditure has to be examined within the parameters of Sec.37(1) of the Act and not on the basis of the prohibition contained in Sec.40a(ii) of the Act. Sec.37(1) of the Act provides that expenditure which is not capital or personal in nature laid out or expended wholly and exclusively for the purpose of business shall be allowed in computing the income chargeable under the head “profits and gains of business or profession”. Sec.40(ii) provides that any sum paid on account of any rate or tax levied on the profits and gains of any business or profession or assessed at a proportion of, or otherwise on the basis of any such profits or gains, shall not be deducted in computing the income chargeable under the head “profits and gains of business or profession”. Both these sections operate in different fields, the former is an enabling provision while the latter is a disabling provision,” the Tribunal said.
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