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TMI Blog2023 (1) TMI 1124X X X X Extracts X X X X X X X X Extracts X X X X ..... e due date of furnishing the return of income. 2 That the Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.10,10,774 relying on the amendments made in relevant provisions by Finance Act 2021 although the amendments are prospective and does not apply to the Assessment Year 2014-15. 3. That the learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs.4,99,022 made by the Assessing Officer in respect of Interest on delayed deposit of Taxes deducted at source by the assessee Company. 4 That the appellant craves leave to add, alter or withdraw any ground or grounds of appeal 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 Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployer, in the concerned enactments such as EPF/ESI Acts. Importantly, such a condition (i.e., depositing the amount on or before the due date) has not been enacted in relation to the employer's contribution (i.e., Section 36(1)(iv)). * The significance of this is that Parliament treated contributions under Section 36(1)(va) from those under Section 36(1)(iv). The latter (hereinafter, "employers' contribution") is described as "sum paid by the assessee as an employer by way of contribution towards a recognized provident fund". However, the phraseology of Section 36(1)(va) differs from Section 36(1)(iv). It enacts 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, amounts retained by the employer from out of the employee's income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of "income" amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time - by way of contribution of the employees' share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers' contribution (Section 36(1)(iv)) and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of statutory pay out. They are others' income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. 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." 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the failure to deduct or remit the taxdeducted at source. In para 8 and para 14 of the Judgement, the High Court observed as follows- 8. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the salary of the employees and thereafter failed to deposit the tax so deducted within the time prescribed by statute and the rules made thereunder. Because of this infraction of law the assessee was treated as an assessee-in-default and the procedure for recovery contemplated under the Act was invoked. Section 201 enacts a three-fold punishment for a person including a company bound to deduct tax at source and defaulting to deduct tax and defaulting to so deduct tax or after having deducted, defaulting in making payment thereof to the credit of the Central 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2527/Ahd/2010 decided on 09.11.2012 has decided the issue in favour of the revenue and disallowed the interest paid on belated deposit of TDS u/s 201(1A) following the Supreme Court decision in the case of East India Pharmaceutical Works Ltd. v. CIT (1997) 224 ITR 627 (SC). The question before the Supreme Court was whether the payment of interest on money borrowed for payment of income-tax was an expenditure laid out wholly and exclusively for the purpose of business as contemplated by sub- section (1) of Section 37 of the Income-tax Act, 1961. 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 Kol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s paid and the tax required to be paid but not paid in time, which rendered the assessee liable for payment of interest, was in the nature of a direct tax and in settlement of the incometax payable under the Income-tax Act. The interest paid under section 201(1A), therefore, would not assume the character of business expenditure and cannot be regarded as a compensatory payment as contended by the learned counsel for the assessee. 3.2 It is most humbly and respectfully submitted that in a Judgement subsequently delivered 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 Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in so far as the aforesaid issue is concerned. 4.3 Now, I refer to the judgement of Hon'ble Gujarat High Court in the case of Magan bhai Hansraj bhai Patel vs. ACIT [2012] 26 taxmann.com 226 (Gujarat). Thecopy of the Judgement has been placed at pages 54 - 68 of the Paper Book. - Kindly see Para 10 onwards of the Judgement at Pages 63 to 66 of the Paper Book. Please see Para 10 wherein the Hon'ble Gujarat High Court referred to the Judgement of Apex Court in the case of Harshad Shantilal Mehta 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 M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes any sum eligible for relief of tax under section 90A;" 12. The ld. counsel, in this respect, has submitted that section 40 specifically provides as to which of the amounts shall not be deducted in computing the income chargeable under the head "profit and gains of business". He in this respect has submitted that as per the provisions 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer"reported in [2010] 192 Taxman 152 (Bombay) and of the Hon'ble Gujarat High Court in the case of "Magan bhai Hansraj bhai Patel vs. ACIT" reported in [2012] 26 taxmann.com 226 (Gujarat) and of the Hon'ble Delhi High Court in the case of "Sanjay Ghai vs. ACIT" reported in [2012] 26 taxmann.com 203 (Delhi) and and has further referred to the decision of the Kolkata Tribunal in the case of "Welkin Telecom Infra (P) Ltd." reported in [2022] 142 taxmann.com 146 (Kol-Trib.). 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, a person responsible to deduct Tax, if does not deduct tax or if, after so deducting, fails to deposit the same with the Income Tax Department, thensuch person is deemed to be an assessee in defaultin respect of such tax. Further as per the provisions of sub section (1A), such an assessee, who fails to deduct TDS or fails to deposit the same in time, is liable to pay simple 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 recover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escribed in sections 30 to 36 wholly and exclusively incurred for the purpose of business or profession, shall be allowed in computing under the head 'profit and gains of business or profession'. The interest on late payment of TDS, is not covered either under the provision of sections 30 to 36 of the Act, nor it qualifies as expenditure wholly and exclusively incurred for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Offences relating to Transactions in Securities) Act, 1992'. As discussed by the Hon'ble Supreme Court in the case of Canara Bank Vs. Nuclear Power Corporation Of India Ltd. And Ors. [1995] 3 JT 42, the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, was enacted to deal with the situation arising out of the large scale irregularities 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 sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is rather a complete code in itself. Though the Supreme Court under the aforesaid section 11 of "Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992" has held that the interest on tax will not be a charge on the property under attachment to be discharged by the custodian, however, contrary to the said provision, 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erned with an indirect tax payable by the assessee in the course of its business and admissible as business expenditure. Further liability for interest which had been incurred by the assessee therein was regarded as compensatory in nature and allowable as business expenditure. 16. The ratio of those cases is not applicable here. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. The 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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