CA. Deepak Narula (B.Com., ACA, DISA) (541 Points)
04 December 2010Hi All,
Please tell whether the interest paid on late deposit of TDS is allowed while calculating business income.
Devendra
(Chartered Accountant)
(4775 Points)
Replied 04 December 2010
Dear Deepak,
The Interest paid towards late deposit of TDS is not allowed as a deduction while calculating the Income from Business or Profession.
Regards,
Devendra P Kulkarni
| Originally posted by : Devendra | ||
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Dear Deepak, The Interest on paid towards late deposit of TDS is not allowed as a deduction while calculating the Income from Business or Profession. Regards, Devendra P Kulkarni |
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ya agreed with devendra
it is disallowed
Devendra
(Chartered Accountant)
(4775 Points)
Replied 04 December 2010
Interest paid on late deposit of TDS is a penalty paid by the assesse, therefore the expense is disallowed.
Regards,
Devendra
Santhosh Poojary
(SIEMPRE AHÍ PARA TI)
(15607 Points)
Replied 04 December 2010
Interest paid coz of late deposit of TDS is not allowed
Manoj BG
(Tax Professional and in Service)
(1795 Points)
Replied 05 December 2010
Not at all. Disallowed under section 37.
Regards,
Manoj
Sunali
(Learner)
(1317 Points)
Replied 05 December 2010
Agree with all the replies. Interest on infraction of law is never allowed u/s 37.
Allowed as Deduction
My view.
Every expenses is allowed as deduction under IT unless or otherwise provided in IT act and if it is business expenditure. Now there are two question
1. Whether it is said that it is disallowed?
2. Whether it is business expenditure?
1. Nowhere in IT act it is said that interest paid on belated payment of TDS is disallowed. For disallowance of the expenditure like IT and WT there are specific provisions u/s 40(a)(ii) and 40(a(iia) respectively. BUt I cannot find a provision in IT Act to get disallowance of the interest paid u/s 201(1A).
2. Why interest u/s 201(1A) has arisen. Because, TDS was not deducted or if deducted TDS was not remitted to governments within the time specified. That means the funds were utilised for business purpose without paying to the government. In case the TDS was remitted on the date when it was to be remitted then the assessee should have borrowed funds for the purpose of business. Therefore, the interest on such borrowed funds is to be allowed u/s 36(1)(iii) of the Act. In other wards we can say that the assessee had borrowed funds from the government and utilised the same for business purposes.
3. Penalty in violatin of law is alone disallowed. Interest is not penalty. Interest is paid to compensate financial loss. Penalty is imposed for discouraging activity. Income Tax act itself allow you to pay after due date. That's why they have provision of interest. So by making payment after due date i am not violating law. I am following law so i pay interest with TDS.
4. Accordint to section 40(a)(ii) any sum paid on account of any rate or tax levied98 on the profits or gains of any business or profession98 or assessed at a proportion of, or otherwise on the basis of, any such profits or gains is disallowed. That why income tax and interest under section 234A, B & C are not allowed. Here interest u/s 201(1A) is not calculated on profit of business.
Saikumar
(Tax Consultant)
(30 Points)
Replied 06 December 2010
Mr. Satyanarayanan.
If we agree to your view, then I raise a question to you, if such interest on TDS exceeds the limit, then can we deduct TDS on such interest.
| Originally posted by : Saikumar | ||
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Mr. Satyanarayanan. If we agree to your view, then I raise a question to you, if such interest on TDS exceeds the limit, then can we deduct TDS on such interest. |
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Dear Saikumar,
You are paying interest to Government of India - Income Tax Department. Are they subject to Taxation?
Are you deducting TDS on interest paid to sales tax department on belated payment?
Are you deducting TDS on interest paid to Service tax department on belated payment?
Does Government of india comes under the definition of person under section 2(31)?
Just my view.
Sunali
(Learner)
(1317 Points)
Replied 06 December 2010
Good Job Mr. Satyanarayanan,
though in my opinion, interest on late payment of TDS partakes the nature of tax i.e. TDS itself and any taxes paid under the Income Tax Act are not allowable against the profits of business.
In this context, i would also like to mention the two SC judgements holding the same view:
Interest on delayed payment on TDS is not a business expenditure. Citation:- 1) Bharat Commerce Industries ltd 98 tax 151 (Sc) delivered in the context of interest paid for delayed payment of advance tax. 2) National Engineering Industries Ltd. 113 ITR 252 9Cal) delivered in the context of delayed payment of tax us 220(2).
CAclubindia
