I have paid TDS lately and Interest on TDS has been paid by me.I have following questions
1.Since i have paid interest on Late deposit of TDS,should i be required to revise my TDS returns now including this interest amount.(I have paid interest separately).If i have to revise the returns then should i pass the interest amount to deductee also??
2.If there is revision of returns and interest is passed on to clients,will they be able to claim the interest portion along with the TDS why im asking this since interest of TDS is disallowed under income tax,it will be disallowed for me also,then how can my clients will be taken into account and how the same will be allowable to them
3.Can i just keep quiet without revising the returns and passing on to clients,since in any way it is going to be disallowed for me,let it be in my accounts and get disallowed.
Please guide me on this with detailed procedure of law and jsutify the same with the case law.
First of all, Kindly enlighten the basis on which you have come to the conclusion that interest on TDS will be disallowed in your case. Any expenditure incurred for the purpose of business is allowable as per sec. 37(1). Accordingly, personal incometax is also allowable under the said section. But the intention of legislature is not to allow incometax under the provisions of 37(1). Ergo, one more section i.e. 40(a) has been introduced in the statute so that personal incometax paid by an assessee is not to be allowed even if it is found allowable. Further, in the normal course, when TDS is deducted which section makes the assessee entitle for claiming the same as expenditure. For example, if a professional payment is made to a person who had done services worth Rs. 1,00,000/- then only 90,000/- is paid to that person and the remaining balance of Rs. 10,000/- shall be payable to the government in the form of TDS. Then which section says the TDS of Rs. 10,000/- is also allowable in the hands of deductor. Therefore, a logical conclusion is that TDS , either paid in normal course or paid subsequently when the defect is found, is allowable in the hands of deductor. Since there was no section prescribed for disallowance of the interest on TDS, the same is also allowable as per the provisions of section 37(1) in the hands of deductor. Now coming to interest on TDS I could not find any section in IT Act, which says that the same is not allowable. Further, interest paid by you cannot be passed on to deductees so that they are entitled to claim it. I dont accept this argument. However, as stated above, interest paid by you is allowable in the hands of deductor. This is my opinion as on today. I am ready to correct myself if a reasonable interpretation which is against the above argument is presented.
The Ahmedabad Bench of ITAT in the case of Income Tax Officer v. Royal Packaging has held that interest for late payment of direct taxes is not deductible.The ITAT followed judgment in the case of Bharat Commerce & Industries v. CIT (1998) 230 ITR 733 (SC).
CA MANOJ GUPTA
JODHPUR
09828510543
Thank you Satyavenshi Sir
From your last para discussion i found that interest cannot be passed to deductees as i will be allowed to claim the same.My unanswered questions are
SHOULD I REVISE MY TDS RETURNS SO AS TO INCLUDE THE INTEREST PORTION ALSO.
From your discussion im getting an opinion that since interest itself is not passed to deductees then why i should revise my returns when there will be no use in revising it.
@Manoj Gupta
My question is talking about Interest on TDS and not on Interest on Income Tax.
This judgment is on interest on TDS I reproduce the excerpts from judgment as under
""6. The only other ground of appeal is as under:-
"(2) On the facts and in the circumstances of the case and in law, the learned
CIT(A) has erred in deleting the addition made of Rs.11,676/- on account of
interest paid on late payment of TDS as the interest on TDS is not allowable
deduction as per Income Tax Law."
7. We have heard both the sides. In the assessment order the Assessing Officer
disallowed interest of Rs.11,676/- on the ground that interest on TDS is not allowable
expense. The reasoning giving by Assessing Officer is that when TDS is not
allowable, how interest on same is allowable. However, in the impugned order Ld.
CIT(A) accepted the contention of assessee that when assessee received interest on
tax refund the same is taxable in same manner the interest on late payment of TDS
is allowable expense. It is pertinent to note that it is not the case of assessee that
benefit of netting of interest paid to the Department and received from the
Department be allowed. It appears that assessee deducted TDS and deposited the
same late with the Income-tax Department. As a result of this, it paid interest of
Rs.11,676/-. The Hon'ble Supreme Court income Bharat Commerce & Industries v.
CIT (1998) 230 ITR 733 (SC) held that interest for late payment of direct taxes is not
deductible. Therefore disallowance of interest of Rs.11,676/- is restored. This ground
of appeal is allowed."""
Whats your take on this case law Satyavenshi Sir
Thought Bharat Commerce Industries case law never talks about late payment TDS,but Royal Packaging, Nani Daman vs Department Of Income Tax,Income Tax Appellate Tribunal - Ahmedabad produced a verdict that late payment of interest on TDS is not allowed under tha act. Im reproducing the case law.Please guide me if you have any more justifications sir
6. The only other ground of appeal is as under:- "(2) On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition made of Rs.11,676/- on account of interest paid on late payment of TDS as the interest on TDS is not allowable deduction as per Income Tax Law."
7. We have heard both the sides. In the assessment order the Assessing Officer disallowed interest of Rs.11,676/- on the ground that interest on TDS is not allowable expense. The reasoning giving by Assessing Officer is that when TDS is not allowable, how interest on same is allowable. However, in the impugned order Ld. CIT(A) accepted the contention of assessee that when assessee received interest on ITA 2511/Ahd/2010 A.Y. 2008-09
DCIT Cir-5 A'bd v. M/s. Raajratna Metal Inds. Ltd. Page 3
tax refund the same is taxable in same manner the interest on late payment of TDS is allowable expense. It is pertinent to note that it is not the case of assessee that benefit of netting of interest paid to the Department and received from the Department be allowed. It appears that assessee deducted TDS and deposited the same late with the Income-tax Department. As a result of this, it paid interest of Rs.11,676/-. The Hon'ble Supreme Court income Bharat Commerce & Industries v. CIT (1998) 230 ITR 733 (SC) held that interest for late payment of direct taxes is not deductible. Therefore disallowance of interest of Rs.11,676/- is restored. This ground of appeal is allowed.
8. In the result for the statistical purposes the appeal of Revenue is treated as partly allowed.
7. We have heard both the sides. In the assessment order the Assessing Officer disallowed interest of Rs.11,676/- on the ground that interest on TDS is not allowable expense. The reasoning giving by Assessing Officer is that when TDS is not allowable, how interest on same is allowable. However, in the impugned order Ld. CIT(A) accepted the contention of assessee that when assessee received interest on ITA 2511/Ahd/2010 A.Y. 2008-09
Satyavenshi Sir and Ca Manoj gupta if you note this point at the reason given by the officer,it is If TDS is not allowable then interest is not allowable.
So If TDS is allowed can we take it as Interest also allowed ??
To be frank this case was not argued properly nor it was appealed in the Courts may be due to amount being small in disallowance and with regard to the cost of expenses with courts and Lawyers.
I do accept your argument that the case cited by you is not appealed against before higher appellate fora doesnot mean the law declared is correct. As we see the logic, TDS is always allowable and interest on TDS is also always allowable in my opinion. As correctly pointed out by you, interest on direct taxes are not allowable as cited by CA Manoj Gupta Sir and as pronounced by Hon,ble Supreme Court. However, in the case on hand, TDS cannot be construed as direct tax in the hands of deductor but it is the liability of the deductee discharged by deductor because of the vicarious liability casted upon him by the statute. If it is considered that TDS is also a direct tax, then regular TDS deducted is not at all allowable as pointed out by me in earlier answers.
With regard to your queries, you have to revise the returns otherwise department may think that you have not paid the interest and there is every possibility that they may raise once again the intersest on that because of which you have to go all the way to office and convince them by showing already paid challans. If you want face all thism then the answer is left to you.
Interestingly, I have seen an argument written by somebody in this forum with regard to 40a(ia) disallowance and TDS demand. I found that the same is logical and reasonable. Once the deductee had filed return of income duly reflecting the receipts from the deductor, then not only the demand u/s 201(1) but also the demand u/s 201(1A) cannot be enforced in the hands of deductor. To overcome that an amendment has been brought into statute 201(1A) by way of a proviso in the Finance Act, 2012. When the section says that interest is to be charged till the date of payment of the relevant tax either by the deductor or by the deductee, the newly inserted proviso says interest is payable till the date of finling return of income by the deductee. It appears that the law makers didnot make note of this while proposing the amendment. Think from this angle also.
Interestingly, I have seen an argument written by somebody in this forum with regard to 40a(ia) disallowance and TDS demand. I found that the same is logical and reasonable. Once the deductee had filed return of income duly reflecting the receipts from the deductor, then not only the demand u/s 201(1) but also the demand u/s 201(1A) cannot be enforced in the hands of deductor. To overcome that an amendment has been brought into statute 201(1A) by way of a proviso in the Finance Act, 2012. When the section says that interest is to be charged till the date of payment of the relevant tax either by the deductor or by the deductee, the newly inserted proviso says interest is payable till the date of finling return of income by the deductee. It appears that the law makers didnot make note of this while proposing the amendment. Think from this angle also.
Can you give the link of this article so that i can read it to have some more clarity on these late payments
if you just type 40a(ia) in the search button of this forum, you will find the link for the same.
sorry, just type 40(ia) in the search button of this forum and you will get the answer.
I think i earlier posted a direct judgement of some high court which was against the assessee. Either kerala or Karnataka.
Hi All,
Interest payment on delayed remittance of TDS is not a deductible business expenditure.
The disallowance will fall U/s 37, General.
Please refer the cases cited and also references to cases in the pleadings :
a. Commissioner of Income-tax v. Ashoka Mills Ltd. [1996] 218 ITR 526 (GUJ.) HIGH COURT OF GUJARAT.
Hope this helps.
Rgds
Bala FCA LL.B
this decision is also on interest u/s 220(2) but not on interest u/s 201(1A). The issue in question is about the allowability of interest u/s 201(1A). Therefore, the issue is still open for discussion.
I think the issue of allowability of intt. paid u/s 201(1A) as deduction is no more open. There is a direct judgement on the point from Madras High Court in the case of Commissioner Of Income-Tax vs Chennai Properties 239 ITR 435 .It was held as under-
"The liability for deduction of tax arises by reason of the provisions of the Act. Under Section 201, the consequence of failure to comply with the same renders that person liable to be deemed as an assessee in default with all the consequences attached thereto. The liability to pay interest on the amount not deducted or deducted but not paid is directly related to the failure to deduct or remit the amount. The amount required to be deducted is the amount payable as income-tax. The interest paid for the period of delay takes colour from the nature of the principal amount required to be paid, but not paid within time. The principal amount here would be the income-tax and the interest payable for delayed payment is the consequence of failure to pay the tax and in the circumstances, in the nature of a penalty though not described as such in Sub-section (1A) of Section 201 of the Act. The fact that the income-tax required to be remitted was not income-tax payable by the assessee, but is ultimately for the benefit of and to the credit of the recipient of the income on whose behalf that tax is payable does not in any manner alter the character of the payment, namely, its character as income tax."
I think this concludes the issue beyond doubt.
Whether the question of correctness of the decision and whether the same is to be followed in subsequent years are two different issues and therefore, cannot be clubbed to arrive at a reasonable conclusion. In the decision of Madras High Court reported above, it was held that the interest assumed the character of principle and therefore, it becomes incometax and cannot be allowed. If this proposition is accepted, then regular TDS deducted is also to be characterised as incometax as per Court ruling and therefore, it is not allowable. But it is allowed as business expenditure. For Example if 1,00,000 is to be paid as professional charges, then Rs. 90,000/- will be paid to the deductee and the remaining Rs. 10,000/- will be paid to the government in the form of TDS. Then this amount of Rs. 10,000/-, if it is considered as incometax, as held by the High Court , is not at all allowable. But it is allowed in all the cases and the immediate question that requires answer is under which section. Definitely u/s 37(1). Therefore, it cannot assumes the character of incometax by any stretch of imagination and what answer will we find to the above fallacy if we support the court decision. It is the amount to be paid to the deductee and it was paid to the government on his behalf. Therefore, it becomes the expenditure under the same head. Further, if we go through the court decision also, its argument is also in one way and final conclusion is in other way. Further, the interest u/s 201(1A) is also not a penalty as there is one more section in Incomtax Act which prescribes for penalty i.e. 271C. As per General Clauses Act, there cannot be two penalties for one default. If the interest is characterised as penalty then the second penalty u/s 271C cannot be called as penalty. Therefore, the conclusion is interest u/s 201(1A) is not penalty and the actual penalty is u/s 271C and this penalty cannot be allowed. Further it cannot be characterized as income tax as discussed above. When the answer to the above two propositions is negative, there is no other section prescribed for disallowance. Just because the decision of an High Court is not assailed by a particular assessee, it cannot become law of the land. It is true if revenue has not contested an issue declared by a High Court before Supreme Court, then it has no right to contest the same issue before Supreme Court in other's case as per sec. 268A unless the first decision is not contested because of the monetary limits. But assessees are always free to contest incorrect decisions before Higher Appellate forums. As stated in the beginning itself until and unless supreme Court decision comes, the revenue will follow Madras High Court decision which is in their favour because it is beneficial to them. Can we now also say it is no more open just because that decision is not contested before Supreme Court by a particular assessee. Every body knows that litigation has become very costly and therefore, the assessee in that case might have taken a decision not to contest the same before Apex Court or there might be 101 reasons for not contesting the said decision. I, personally, feel the question is still open as many ITATs in recent times have held that interest u/s 201(1A) is compensatory in nature. Any other view against this is welcome.....................
Dear Satyanveshiji,
In this forum already a judgement from ITAT Ahmedabad was cited holding that intt. u/s 201(1A) cannot be allowed as deduction. I have also cited a direct judgement on the point fm the Madras High Court. But not a single judgement which is in favour could be cited. I have also made diligent searches and could not find any favourable case law. The courts have also held that normally, more so in regard to the Income-tax Act, which is a piece of all India legislation, if any High Court has construed any section or rule, that interpretation should be followed by the other High Court.
Pl. see Peirce Leslie & Co.'s case 216 ITR 176 ; CIT v. Deepak Family Trust No. 1 [1994] 72 Taxman 406 (Guj.); CIT v. Alcock Ashdown & Co. Ltd. [1979] 119 ITR 164 (Bom.); and Sarupchand Hukamchand, In re [1945] 13 ITR 245 (Bom.).
I agree with your view that every body knows that litigation has become very costly and therefore, the assessee in that case might have taken a decision not to contest the same before Apex Court or there might be 101 reasons for not contesting the said decision. Same is likely to be the reason in other cases also since the intt. Amount is normally not a big amount. Further, even assuming somebody files SLP before the apex court, chances of admission are remote when there are no contrary judicial views.
Attention is invited to a speaking order of ITAT, Calcultta (Third Member decision) in the case of A.B.N.Amro Bank N.V. Versus Jt.CIT (97 ITD 1) wherein all the arguments and counter arguments were considered and a well reasoned conclusion was arrived at to the effect that interest under section 201(1A) was not an allowable deduction u/s 37(1) of the I.T.Act, 1961 while computing business income under the provisions of Income-tax Act, 1961.