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Interest on Delayed TDS amount can allowable?

Mohan (Accounts Mgr) (209 Points)

23 March 2010

Whether Interest paid on Delayed payment of TDS can be claimed as Busines Expenditure? If not on which basis or Section the Assesing Officer will add back such interest amount?? please clarify?

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12 Replies

praveen (Chartered Accountant) (6971 Points)
Replied 23 March 2010

there will not be any disallowance at all... only penalty may be disallowed.

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Amir (Learner) (4016 Points)
Replied 23 March 2010

Dear Mohan,

ANY PAYMENT MADE UNDER INCOME TAX ACT /WEALTH TAX ACT IS NOT ALLOWED AS DEDUCTION IN COMPUTING THE TOTAL INCOME.

Interest for failure to pay advance tax - Interest paid under section 215 for failure to pay advance tax up to statutory percentage would not be allowable as business expenditure - Bharat Commerce & Industries Ltd. v. CIT [1998] 230 ITR 733/98 Taxman 151 (SC).

Interest for late payment of income-tax - Interest paid under section 220(2) for late payment of income-tax is not deductible as revenue expenditure - CIT v. Ashoka Mills Ltd. [1996] 88 Taxman 184/218 ITR 526 (Guj.)/CIT v. Raipur Manufacturing Co. Ltd. [1996] 135 CTR (Guj.) 248.

Interest for delayed filing of return is not deductible - It cannot be said that interest paid for delay in filing the return has any connection with the business of the assessee. If income-tax is not a permissible deduction under section 37, any interest payable for default committed by the assessee in discharging its statutory obligation under the Income-tax Act which is calculated with reference to the tax or income, cannot be allowed as a deduction - Orient General Industries Ltd. v. CIT [1994] 209 ITR 490 (Cal.).

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Aditya Maheshwari (CA in Practice) (35867 Points)
Replied 23 March 2010

In continuation with what Amir Said:

COMMISSIONER OF INCOME TAX vs. CHENNAI PROPERTIES & INVESTMENT LTD.

HIGH COURT OF MADRAS

R. Jayasimha Babu & N.V. Balasubramanian, JJ.

Tax Case No. 468 of 1986

20th April, 1998

(1999) 239 ITR 435 (MAD) : (1999) 105 TAXMAN 346 (MAD)

Legislation referred to

Sections 201(1A), 37,

Case pertains to

Asst. Year 1981-82

Decision in favour of

Revenue

Business expenditure—Interest paid on agricultural loans—Interest under s. 201(1A)— Interest paid for period of delay takes colour from the nature of principal amount required to be paid but not paid within time—Principal amount here would be income-tax and interest is payable for failure to pay the tax deducted at source—The fact that income-tax required to be remitted was not income-tax payable by assessee but on behalf of another does not in any manner after the character of payment—Income-tax is not allowable as business expenditure—Amount not deducted and remitted has the character of tax—Therefore, interest paid under s. 201(1A) cannot assume the character of business expenditure and is not allowable as deduction.

Conclusion

Interest paid under s. 201(1A) cannot assume the character of business expenditure and is not allowable as deduction as the liability to pay interest is directly related to the failure to deduct or remit the tax deducted at source.

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Sanket Damodar Karve (Business) (179 Points)
Replied 23 March 2010

I agree with Pravin

There will be no disallowance subject to Penalty amount.

Regards

SHUVRO ( (WANT TO LEARN) ) (175 Points)
Replied 23 March 2010

Dera mohan

interest payment of tds is a personal liability of the owner of the business.Anuy fault in that cannot be claimed against the business income

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CA Priya (CS Final) (1049 Points)
Replied 24 March 2010

Agree with Aditya...............

Mohan (Accounts Mgr) (209 Points)
Replied 24 March 2010

hi thnx to all.. and i will go through the case laws mentioned by Mr.Amir and Mr.Aditya.... And my contention is, If default of my Advance Tax or Self Asst Tax or Late filing of Returns such interest may be disallow... Here TDS is not my obligation, i only acting as an agent to the dept. to deduct and pay. Due to non-sufficient funds i remitted belatedly with interest U/s 201(1A) and this interest is unlike 234A / 234B / 234C, I still not convince it is an offence, hence Dept may be allow. Even it is income "interest on tax refund" U/s 244A , why should not allow "interest on taxes" to the assessee? Anyway once the said case laws refered above may be admit. thanks for info for all

Jayesh (Internal Auditor) (214 Points)
Replied 24 March 2010

Totally agreed with Amir..

Max Payne (employed) (2574 Points)
Replied 24 March 2010

Mohan Sir,

In my opinion ur contention will not hold good.. Aditya sir has quoted the apt case...

Because it is the obligation cast by section 191, that u have to deduct TDS,

and u r not an agent for collecting and remitting to the govt...

And while interest under 234A is compensatory (CIT Vs Prannoy Roy, SC, 2010), interest under 201 is imposed to protect revenue. Interest u/s 244A is also taxable income, its purpose is different from what we pay to govt...

Mohan (Accounts Mgr) (209 Points)
Replied 26 March 2010

hi.. i refered the cases which r mentioned in our discussion. i too agree with Amir, Aditya and GK and thanks to all.

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CA. Shshank Saurav (Analyst) (34 Points)
Replied 19 June 2010

Dear Amir,

You have quoted all the cases from Master Guide Of Income Tax and i am facing this case in my practical life. When i told the client to disallow 53 lakhs of interest paid u/s 234B and 234C and referred the same cases then he said these cases are not decided in respect of interest under these sections. I tried to convince him on the basis that the matter is related to the fact that interest on delayed payment of tax is disallowed irrespective of it's charegibility under any section but was invain. If u find any case law then please mail me at shshanksaurav @ yahoo.com.

Thanx

Amir (Learner) (4016 Points)
Replied 20 June 2010

HI shashank,

Once these points were decided in earlier provisions the same will also apply to the amended section. No two opinions about about it.

Just tell your client about sec 271(1)(c) , I am sure after that he will not argue to claaim the interest paid u/s 234A, B & C.....

Here you are -

Interest levied on assessee for delay in filing return would not be allowable as business expenditure - Bharat Commerce & Industries Ltd. v. CIT [1998] 230 ITR 733/98 Taxman 151 (SC)