The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) has held that the interest under Section 201(1A) of the Income Tax Act is only compensatory in nature and the Government should be compensated for the delayed remittance of TDS from the date of default by the deductor to the actual date of remittance of taxes by the deductees.
The Assessee- Company is functioning as Third Party Administrator granted with the license from Insurance Regulatory Development Authority. As a licensed TPA, it renders services in connection with health insurance business or health cover to various customers. It makes payment to hospitals for the treatment of policyholders. The Assessing Officer treated the assessee as an Assessee-in-default by finding that no TDS was made on such payments to hospitals and levied interest under section 201(1A) of the Income Tax Act.
The assessee relied on the decision of the Karnataka High Court wherein it was held that the interest under section 201(1A) of the Act could be charged only up to the date of payment of taxes by the deductees and not up to the date of filing of return of income.
While directing the Assessing Officer to re-compute the interest, the Tribunal observed that “We find lot of force in this argument of the ld AR in as much as the interest u/s 201(1A) of the Act is only compensatory in nature and the Government should be compensated for the delayed remittance of TDS from the date of default by the deductor to the actual date of remittance of taxes by the deductees. Accordingly, we direct the ld AO to recomputed the interest u/s 201(1A) of the Act accordingly.”
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