The Kolkata Bench of Income Tax Appellate Tribunal (ITAT) has held that the interest paid on delayed deposit of income tax or Tax Deducted at source (TDS) would not be allowable as expenditure.
The assessee, Premier Irrigation Adritec (P) Ltd. has agitated the confirmation of disallowance made by the Assessing Officer in respect of interest on delayed deposit of TDS. The AO observed that from the profit and loss account of the assessee that the assessee had claimed a sum as expenses for interest paid on TDS. The Assessing Officer observed that such payment of interest on delayed deposit of TDS was not an allowable deduction. He accordingly disallowed the aforesaid expenditure claimed by the assessee.
A. K. Tibrewal on behalf of the assessee submitted that, the word ‘tax’ would not include the interest thereupon. He further referred to Hon’ble Supreme Court in the case of “Harshad Shantilal Mehta” and submitted that since the interest component had form part of the tax and the same being compensatory in nature, was an allowable deduction as business expenditure in computation of taxable income.
He further submitted that even otherwise, the interest paid by an assessee for late deposit of TDS was not towards the own tax liability of assessee, rather, it was the tax liability of some other person (payee) on whose income, the assessee had to deduct the tax during the course of business.
Ranu Biswas,on behalf of the revenue submitted that, the TDS liability was a statutory liability fastened upon the assessee to be discharged by him. That interest of late payment of TDS was nothing but a derivative of tax and was not an allowable expenditure even under the provisions of section 36 and 37 of the Income Tax Act 1961.
The Division Bench of Girish Agrawal (Accountant Member) and Sanjay Garg (Judicial Member) dismissed the appeal observing that,
“Once, the deductee pays the due taxes, the deductor is absolved from the said tax liability but not of the interest liability on the delayed payment. Allowing of such interest payment on delayed deposit of TDS as deduction would defeat the very purpose of the TDS provisions ensuring the deduction of taxes from the income of the recipient and the payment/deposit thereof with the central Govt. within the due time.”
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