TMI Blog2023 (1) TMI 1124X X X X Extracts X X X X X X X X Extracts X X X X ..... submission of return in time or non-payment of tax within the prescribed time or for any other reason and that it cannot be allowed as deduction in computing total income as essentially interest in such a case for non-compliance with the provisions of the Act is inextricably connected with the amount of income-tax. The Hon ble High Court categorically held that where income-tax itself is not a deductible amount, be it compensation or be it penalty, payable in addition to the tax cannot be allowed as a deduction in computing total income. The findings arrived at by the Jurisdictional Calcutta High Court are, otherwise, binding on this Tribunal. In case Checkmate Services Pvt. Ltd. [ 2022 (10) TMI 617 - SUPREME COURT ] held that If, such interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction.This proposition laid down by the Hon ble Supreme Court can be well applied in case of delayed deposit of TDS. TDS by deeming fiction has been made the tax liability of the deductor to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal at or before the hearing of the appeal. 3. The registry has pointed out that there is a delay of 2 days in filing the appeal. The assessee has explained that though the online appeal was filed in time, due to certain reason physical copy of the appeal paper was submitted with the delay of 2 days. Considering the above submissions and shortness of delay, the delay in filing the appeal is hereby condoned. 4. Ground No.1 2 Vide Ground Nos.1 2, the assessee has agitated the confirmation of addition of Rs.10,10,774/- made by the Assessing Officer invoking the provisions to section 43B of the Act for delay in depositing employees contribution to provident fund and employees state insurance. 5. Heard both the sides. At the outset, we note that the grounds of appeal relate to disallowance made 43B read with section u/s. 36(1)(va) of the Act in respect of delay in deposit of Employees Contribution of Provident Fund and Employees State Insurance (PF ESI) totalling to Rs.10,10,774/-. The issue relating to grounds taken by the assessee have come to rest by the recent verdict of the Hon ble Supreme Court in Checkmate Services Pvt. Ltd. Vs. CIT (2022) 143 taxmann.c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts that any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. The essential character of an employees' contribution, i.e., that it is part of the employees' income, held in trust by the employer is underlined by the condition that it has to be deposited on or before the due date. The differentiation is also evident from the fact that each of these contributions is separately dealt with in different clauses of Section 36 (1). All these establish that Parliament, while introducing Section 36(1)(va) along with Section 2(24)(x), was aware of the distinction between the two types of contributions. There was a statutory classification, under the IT Act, between the two. There is no doubt that in Alom Extrusions, this court did consider the impact of deletion of second proviso to Section 43B, which mandated that unless the amount of employers' contribution was deposited with the authorities, the deduction otherwise permissible in law, would not be avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employees' contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees' liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure. The distinction between an employer's contribution which is its primary liability under law in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers' income, and the later retains its character as an income (albeit deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction. 6. Respectfully following the decision of Hon ble Supreme Court (supra) which squarely covers the grounds taken by the assessee are dismissed. Ground Nos.1 2 of the assessee are dismissed. 7. Ground No.3 Vide Ground no.3, the assessee has agitated the confirmation of disallowance of Rs.4,99,022/- made by the Assessing Officer in respect of interest on delayed deposit of taxes deducted at source (TDS). 8. The Assessing Officer observed from the profit and loss account of the assessee that the assessee had claimed a sum of Rs.4,99,022/- 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. 9. In appeal, the ld. CIT(A), while relying upon various decisions of High Courts and Coordinate Benches of the Tribunal, confirmed the addition so made by the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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. 14. As already noticed the payment of interest takes colour from the nature of the levy with reference to which such interest is paid and the tax required to be but not paid in time, which rendered the assessee liable for payment of interest was in the nature of a direct tax and similar to the income-tax payable under the Incometax Act. The interest paid under Section 201(1A) of the Act, therefore, would not assum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntral Government. Firstly, the defaulter is treated as an assessee in default and one of the consequences flowing therefrom is that the assessee-in-default is liable to pay a penalty under section 221 of the Act. Secondly, he is liable to pay interest at the prescribed rate on the amount of such tax from the date on which such tax was deductible to the date when such tax is actually paid. The third consequence is that it creates a statutory charge upon all the assets of the defaulter for the amount of tax deducted and not paid plus the amount of interest leviable under section 201(1A) : Therefore, it is not a part of the salary of the employees which was withheld. It was tax on salary of the employees which was deducted but not paid. Had it not been deducted by the employer, the employees would have paid the tax themselves. The assessee knowing fully well that it had deducted the tax payable on the salary of the employees failed to pay the tax so deducted within the prescribed period. 6. Further, under section 203 of the Act every person deducting tax in accordance with the provisions of the relevant section of the Act is required to furnish a certificate, inter alia, to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Supreme Court had decided the issue in favour of the revenue and against the assessee. 7.9 From the analysis of the above cases it can be seen that there is a consensus among the Courts and it has been consistently held that interest paid u/s 201(1A) for delay in deposit of TDS is not allowed as business expenditure. 10. Contesting the above findings of the CIT(A), the ld. Counsel for the assessee has made the following written submissions: 3. In this Ground of Appeal the Assessee claimed deduction of interest on delayed deposit of Tax Deducted at Source. The Assessee had relied on various judgements rendered by Hon'ble Kolkata Tribunal and Hon'ble Mumbai Tribunal. The Hon'ble Kolkata Tribunal had allowed such claim in the case of NarayaniIspat Alloys Ltd. and the Hon'ble Mumbai Tribunal in the case of Mukund Ltd. The has been placed in the Paper Book of Judgements. 3.1 The Ld. Commissioner Appeals dismissed this ground of appeal mainly relying on the Judgement of Hon'ble Calcutta High Court in the case of Martin and Harris Private Limited -VS- CIT and also the judgement of Hon'ble Madras High Court in the case of CIT vs. Chennai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on 13th May, 1998 by Larger Bench consisting of three Judges of Hon'ble Supreme Court in the case of HarshadShantilal Mehta [1998] 99 Taxman 216 (SC), the Hon'ble Apex Court considered the issue as to whether the Interest for delayed payment of tax is tax within the meaning of section 2(43) of the Act. The Supreme Court held that tax' does not include the Interest for delayed payment of tax. Please see the Judgement at pages 21 to 38 of the Paper Book. Kindly refer to Page No. 31 of the Paper Book. The Hon'ble Apex Court framed 6 Questions of law. I refer to Q. 5 whether taxes include penalty and interest . The answer to this question is at Page No. 37 of the Paper Book. The Hon'ble Supreme Court held that the definition of tax' under section 2(43) of the Act does not include Interest or penalty. 3.2.1 It is most humbly submitted that the Judgement of Hon'ble Supreme Court was delivered subsequent to the Judgements by Hon'ble Calcutta High Court and by Hon'ble Madras High Court and that the Judgement of Hon'ble Supreme Court Was delivered by a larger Bench consisting of three Judges, the decision of Hon ble Calcutta High Court an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and held that tax does not include Interest or penalty. 4.4 Now, I refer to the Judgement of Hon'ble Delhi High Court in the case of Sanjay Ghai vs. ACIT [2012] 26 taxmann.com 203 (Delhi) placed at Pages 69 to 76 of the PB. I refer to Para 5 of the Judgement wherein Hon'ble Delhi High Court referred tothe Judgement of Hon'ble Bombay High Court in the case of Dinesh K. Taitor and the Judgement of Hon'ble Apex Court in the case of Harshad Shantilal Mehta. After detailed discussion of these judgements it was held that tax within the meaning ofsection 2(43) of the Act does not include Interest and Penalty'. 4.5 Now, I refer to the Judgement of Hon ble Mumbai Tribunal in the case of Mukund Ltd. at pages 1 to 20 of the paper book. In this case the relevant issue was in respect of allowability of interest on delayed payment of TDS. This issue has been dealt in paragraph 19 of the judgement. Hon ble Mumbai ITAT, relying on the judgement of Hon'ble Supreme Court in the case of Harshad Shantilal Mehta held that the definition of tax contemplated in sec 2(43) of the Act does not include Interest orPenalty and therefore the Interest on delayed payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 40(a)(ii) only the sum on account of any rate or tax levied has been held to be not deductible and that the interest on delayed payment on tax, has not been mentioned under the said provision. He, therefore, has contended that the word tax does not include the interest thereupon. The ld. Counsel,in this respect, has invited our attention to the provisions of section 2(43) which defines tax as under: 2(43) tax in relation to the assessment year commencing on the 1stday of April, 1965, and any subsequent assessment year means income- tax chargeable under the provisions of this Act, and in relation to any other assessment year income- tax and super- tax chargeable under the provisions of this Act prior to the aforesaid date [and in relation to the assessment year commencing on the 1st day of April 2006 and any subsequent assessment year includes the fringe benefit tax payable under section 115WA;] While referring to the above definition, the ld. counsel has again pressed that the tax does not include interest or penalty thereupon. 13. The ld. counsel has further invited our attention to the decision of the Hon ble Supreme Court in the case of Ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rib.). He has submitted that in the light of the propositions laid down in the said case laws, since the interest component does not form part of the tax and the same being compensatory in nature, is an allowable deduction as business expenditure in computation of taxable income. He has 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 is the tax liability of the some other person (payee) on whose income, the assessee has to deduct the tax during the course of business. That the credit of the TDS deposit goes to the payee and not to the payer/assessee, therefore, the interest component thereupon cannot be said to be part of the tax liability of the assessee. That the same being compensatory in nature is liable to be allowed as business expenditure. 15. The ld. DR, on the other hand, has submitted that the TDS liability is a statutory liability fastened upon the assessee to be discharged by him. That interest of late payment of TDS is nothing but a derivative of tax and is not an allowable expenditure even under the provisions of section 36 and 37 of the Act. 16. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such payee - (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed: Provided further that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax. (1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest,- (i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e interest at the rate as prescribed therein to the Central Government and further as per the sub-section (2) to section 201, such amount of TDS along with simple interest thereon as referred to sub-section (1A) shall be a charge upon the assets of the person responsible. Therefore, by way of such deeming fiction, TDS though deductible from the income of the payee, becomes the tax liability of the deductor and the non-deduction or non-depositing of the same would put such person responsible/deductor in the category of tax defaulter and such tax, though leviable on the income of the payee, along with interest, becomes a charge upon the property of such person responsible/deductor. Further, as per the provisions of section 4 of the Income Tax Act, the deduction of tax at source is one of the modes of recovery of charge of income tax. Thus statute has casted a duty upon the payer to deduct tax on behalf of Government of India on the payment made to a payee on which such tax is liable to be deducted as per the provisions of the Act and further such deductor is required to deposit the said tax with the Central Government, failing to do so declares such a person as a defaulter of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purpose of business or profession u/s 37 of the Act. Even u/s 36(1) (iii) of the Act, the amount of interest paid in respect of capital borrowed for the purpose of business or profession is an allowable expenditure, but the interest paid on delayed deposit of TDS cannot, in any circumstances, be termed as capital borrowed from the Income Tax department for the purpose of business. For claiming anyexpense as deduction, firstly it should qualify and fall within the ambit and scope of deductible expenditure as per the provisions of section 30 to 37 of the Act. If an amount does not qualify as a deductible expenditure under the provisions of sections 30 to 37 of the Act, then, even though, the same has not been specifically excluded u/s 40 or to be more specifically 40(ii) of the Act, even then non-exclusion does not put it into the category of allowable expenditure. 19. At this stage, reliance can be placed on the recent decision of the co-ordinate Delhi bench of the Tribunal in the case of Universal Energies ltd. Vs DCIT ITA No. 2761/Del/2018 decided vide order dated 26.07.2022, wherein the Tribunal has made following observations in this respect: 7. Interest as defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egularities and malpractices which were noticed in the securities transactions of banks, to ensure the speedy trial of the offenders, to recover properties of the offenders with a view to prevent diversion of such properties by the persons responsible for these offences and to provide for the establishment of a special court for the trial of offences relating to transactions in securities and matters connected therewith or incidental thereto. Securities were defined in Section 2(c) of the said Act to include shares, scrips, stocks, bonds, debentures, debenture stock, units and other marketable securities of a like nature, Government securities and rights or interests in securities. Section 3(1) provided for the appointment by the Central Government of a Custodian. By reason of Section 3, the Custodian was empowered, on being satisfied on information received that any person had been involved in any offence relating to transactions in securities after 1st April, 1991, and before 6th June, 1992 (the stated dates), to notify the name of such person in the Official Gazette. On and from the date of such notification, by reason of Section 3(3), property, movable and immovable, belonging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, section 201(2) of the Income Tax Act specifically provides that the TDS either not deducted or not deposited in time along with interest thereon, shall be a charge on the property of such person responsible. Therefore, the aforesaid decision of the Hon ble Supreme Court in the case of Harshad Shantilal Mehta (supra) is, in no way, applicable to the relevant TDS provisions of the Income Tax Act. Even, the Hon ble Supreme Court in para 28 of the said decision has referred to the another decision of the Hon ble Supreme Court in the case of S.V. Kondaskar v. V.M Deshpande reported in [1971] 1 SCC 438, wherein, the Hon ble Supreme Court has held that the Income Tax Act is a complete code with respect to assessment and reassessment of income-tax. 21. At this stage, it is pertinent to mention here, that it is not all type of taxes that are not allowable as deduction under the Income Tax Act, but the question before us is of the allowability of interest on delayed payment income tax itself. Certain taxes such as sales tax, excise or custom duty etc. which go on to increase the purchase cost of the goods or raw material etc. are allowed as deduction under the income tax Act for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re. Income-tax is not allowable as business expenditure. The amount deducted as tax is not an item of expenditure. The amount not deducted and remitted has the character of tax and has to be remitted to the State and cannot be utilised by the assessee for its own business. The Supreme Court in the case ofBharat Commerce and Industries [1998] 230 ITR 733, rejected the argument advanced by the assessee that retention of money payable to the State as tax or income-tax would augment the capital of the assessee and the expenditure incurred, namely, interest paid for the period of such retention would assume character of business expenditure. The court held that an assessee could not possibly claim that it was borrowing from the State, the amounts payable by it as income-tax, and utilising the same as capital in its business, to contend that the interest paid for the period of delay in payment of tax amounted to a business expenditure. 23. The Jurisdictional Calcutta High Court in the case of Martin Harris (P) Ltd. (supra) observed in the case of default by the employer in deposit of tax deducted at the salary of the employee has held that the amount of tax deducted and not pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Supreme Court held that If, such interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction.This proposition laid down by the Hon ble Supreme Court can be well applied in case of delayed deposit of TDS. TDS by deeming fiction has been made the tax liability of the deductor to ensure that the recipient of the payment cannot fade away without paying the due taxes on the income part of such receipts. 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. 25. In view of the above discussion, we hold that the interest payment on delayed deposit of Income Tax, whether TDS or otherwise, is not an allowable expenditure. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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