Interest Expenses incurred on Account of Late Deposit of Service Tax & TDS are Eligible for IT Deduction: ITAT Kolkata [Read Order]

Interest

In DCIT v. M/s Narayani Ispat Pvt. Ltd, the Kolkata ITAT held that the interest expenses claimed by the assessee on account of delayed deposit of service tax as well as TDS liability are allowable expenses u/s 37(1) of the Income Tax Act.

Assessee, M/s Narayani Ispat Pvt. Ltd, claimed deduction in respect of interest expenses incurred by them on account of late deposit of service tax and TDS.

The department, however, rejected the claim by relying on the Apex Court ruling in the case of Bharat Commerce Industries Ltd. Vs. CIT.

In the above judgment the Hon’ble Apex Court held that as Income Tax paid by the assessee is not allowable deduction and therefore interest emanating from the delayed payment of income tax (advance tax) is also not allowable deduction.

The bench noted that the facts of the present case are distinguishable from the facts of the above case as in the case before us the interest was paid for delayed payment of service tax & TDS.

“The interest for the delay in making the payment of service tax & TDS is compensatory in nature. As such the interest on delayed payment is not in the nature of penalty in the instant case on hand. The issue of delay in the payment of service tax is directly covered by the judgment of Hon’ble Apex Court in the case of Lachmandas Mathura Vs. CIT wherein the Apex Court has ruled that the interest expense on the delayed payment of service tax is allowable deduction.”

Applying the above principles to the facts of the instant case, the bench observed that the interest expenses levied on account of delayed payment of TDS as it relates to the expenses claimed by the assessee which are subject to the TDS provisions.

“The assessee claims the specified expenses of certain amount in its profit & loss account and thereafter the assessee from the payment to the party deducts certain percentage as specified under the Act as TDS and pays to the Government Exchequer. The amount of TDS represents the amount of income tax of the party on whose behalf the payment was deducted & paid to the Government Exchequer. Thus the TDS amount does not represent the tax of the assessee but it is the tax of the party which has been paid by the assessee. Thus any delay in the payment of TDS by the assessee cannot be linked to the income tax of the assessee and consequently the principles laid down by the Hon’ble Apex Court in the case of Bharat Commerce Industries Ltd. Vs. CIT cannot be applied to the case on hand.”

Read the full text of the Order below.

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