TMI Blog2023 (8) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... for disallowance, the issue is restored to the files of the A.O. The A.O. is directed to examine the correct figure of interest paid u/s 201(1A) of the I.T. Act that is claimed as a deduction. Appeal filed by the assessee is partly allowed for statistical purposes. - SHRI GEORGE GEORGE K, JM SHRI LAXMI PRASAD SAHU, AM For the Appellant Sri. Ravishankar S.V., Advocate For the Respondent : Sri. Gudimella VP Pavan Kumar, JCIT-DR ORDER Per George George K, JM : This appeal at the instance of the assessee is directed against CIT(A) s order dated 15.11.2021 passed u/s 250 of the I.T. Act. The relevant assessment year is 2016-2017. 2. There is a delay of 138 days in filing this appeal before the Tribunal. The assessee has filed a petition for condonation of delay and also an affidavit of the Director of the assessee company, stating therein the reason for belated filing of this appeal. 3. We have perused the reasons stated for late filing of this appeal and we are of the view that there is sufficient cause and no latches can be attributed to the assessee. Hence, we condone the delay in filing this appeal and proceed to dispose of the appeal on m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon ble Madras High Court in the case of CIT v. Chennai Properties Investment Ltd. reported in (1999) 239 ITR 435 (Mad.) and the order of the Delhi Bench of the Tribunal in the case of New Modern Bazaar v. ITO in ITA No. 590/Del/2018 (order dated 08.04.2021) decided the issue against the assessee and dismissed the appeal. 7. Aggrieved, the assessee has filed the present appeal before the Tribunal. The assessee has filed a paper book comprising of 85 pages enclosing therein the audited financials, the copy of the ITR and the computation of income, copy of the submissions filed before the CIT(A), copy of the rectification filed before the A.O. and the case laws relied on. The learned AR reiterated the submissions made before the Income Tax Authorities. 8. The learned Departmental Representative, on the other hand, submitted that the issue in question is squarely covered in favour of the Revenue by the order of the Bangalore Bench of the Tribunal in assessee s own case for assessment year 2017-2018 in ITA No. 503/Bang/2022 (order dated 01.08.2022). 9. We have heard rival submissions and perused the material on record. The Bangalore Bench of the Tribunal in assessee s own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 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 of Bharat 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 . (emphasis supplied) 22. The decision cited by the ld. counsel for the assessee of Kolkata Bench of the Tribunal on the issue is contrary to the decision of the Hon'ble Madras High Court. Though the decision of the Tribunal is later i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the further amounts which a person may be required to pay by a reason of failure to comply with the provisions requiring the payments of the tax are also amounts which cannot be regarded as deductible expenditure under Section 37 of the Act. The exact question considered by the Hon ble Court was:- Whether on the facts and in the circumstances of the case the claim for deduction of interest levied under Section 139 to the extent of Rs. 11,470/- and interest levied under Section 215 to the extent of Rs. 1,04,339/- was rightly rejected as not allowable under Section 37 of the Income-Tax Act, 1961 for the assessment year 1972-73? 15. The Hon ble Court held as follows: It cannot be said, in the present case, that the payment of interest is in any way an expense incurred wholly or exclusively for the purpose of assessee's business. Nor is it a payment made for the purpose of preserving and protecting the assessee's business as in the case of Birla Cotton Mills (supra). Apart from section 37, the assessee has also present into service Section 36(1) (iii) which permits deduction in respect of the amount of interest paid in respect of capital borrowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Does the word due refer merely to the liability to pay such taxes etc., or does it refer to a liability which has crystalised into a legally ascertained sum immediately payable? (2) Do the taxes (in clause (a) of Section 11(2) refer only to taxes relating to a specific period or to all taxes due from the notified person? (3) At what point or time should the taxes have become due? (4) Does the Special Court have any discretion relating to the extent of payments to be made under Section 11(2)(a) from out of the attached funds/property? (5) Whether taxes include penalty or interest? .. 19. While answering Question No. 5, the Court held:- One other connected question remains: whether taxes under Section 11(2)(a) would include interest or penalty as well? We are concerned in the present case with penalty and interest under the Income Tax Act. Tax, penalty and interest are different concepts under the Income Tax Act. The definition of tax under Section 2(43) does not include penalty or interest. Similarly, under Section 157, it is provided that when any tax, interest, penalty, fine or any other sum is payable in consequence of any order pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act, 1961 the definition of tax under Section 2(43) does not include penalty or interest and that the concepts of tax, penalty and interest are different concepts under the Act. Justice Sujata Manohar speaking for a Bench of three Learned Judges of the Supreme Court observed thus : We are concerned in the present case with penalty and interest under the Income-tax Act. Tax, penalty and interest are different concepts under the Income-tax Act. The definition of tax under section 2(43) does not include penalty or interest. Similarly, under section 156, it is 2 (1998) 231 ITR 871. provided that when any tax, interest, penalty, fine or any of other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand as prescribed. The provisions for imposition of penalty and interest are distinct from the provisions for imposition of tax. 10. The decision of the Supreme Court was delivered in an appeal which arose out of the Special Court (Trial of Offences Relating to Transaction in Securities) Act, 1992. The interpretation which has been placed on the provisions of Section 2(43) and the observatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an enabling provision while the latter is a disabling provision. Therefore these decisions do not help the plea raised by the Assessee in this appeal. 26. The ld AR has quoted the following two decisions stating that there exists differentiation between the term Tax used in 40(a)(ii) and Other Contractual obligations parity of the same equally applies to differentiate the term tax and expression interest and to state that all the payments made to Government account would not partake the character of levy of taxes. We will first look at under what context these decisions have been rendered. 27. In Kerala State Beverages Manufacturing Marketing Corporation Ltd. Vs ACIT [2022] 134 taxmann.com 11 (SC), the decision is rendered by the Hon ble supreme Court in the context of allowability of Gallonage fee, licence fee and shop rental (kist) incurred towards retail trading of foreign liquor and therefore in a completely different context that cannot be equated to assessee s case. 28. In Krishna Bhagya Jala Nigam Ltd vs ACIT [2022] 134 taxmann.com 101 (Bangalore - Trib.) it was held that guarantee commission was paid in consideration for State Government agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) is a compensatory measure for withholding the tax which ought to have gone to the exchequer. The decision of Hon ble Karnataka High Court in CIT TDS vs Bharat Hotels Ltd [2015] 64 taxmann.com 325 (Karnataka) was also rendered in the context of period interest calculation u/s. 201(1A) and in that perspective held that Interest, herein, being compensatory in nature, cannot be, thus, charged for the period beyond the date when such tax has already been deposited by the recipient . The decision in the case of CIT vs Oriental Insurance Company Ltd., [2009] 183Taxman186 (Karnataka), the decision of the Tribunal holding that the interest u/s. 201(1A) is penal in nature and cannot be levied was reversed by the Hon ble Karnataka High Court to hold that levy of interest u/s. 201(1A) cannot be construed as penalty and has to be paid for failure on the part of the assessee to deduct tax at source. 32. In all these judgments, the issue under consideration was the mode of computation of interest u/s. 201(1A) and in that context, courts have held that it is compensatory in nature. In none of these decisions the issue of allowability of interest delayed payment of TDS as business expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come tax. On that count also interest on delayed payment of TDS cannot be claimed as a deduction. 37. The ld AR quoted several decisions with regard to the allowability of cess which is not a settled position that cess is not an allowable deduction and hence we are not going into the submissions made in this regard. 38. The next contention of the ld AR is that the tax used in 40(a)(ii) is to be considered as the tax on the total income of the assessee himself. In our considered view this contention of the ld AR is completely out of context as we have already held that Sec.40(a)(ii) is not relevant to the present issue before us at all. Besides the above, the decision of the Madras High Court in the case of Chennai Properties (supra) settles the issue. 39. The ld AR submitted the decision of the Madras High Court in the case of Standard Polygraph Machines (2002) 124 Taxman 669 (Madras) stating that the same judge who authored the decision of Chennai Properties (supra) had in 2002 authored this decision where it was held that the TDS amount on paid on account of contractual obligation will not take colour of tax and hence to be treated as expenditure. This submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this regard are untenable. 10. In view of the above order of the Tribunal in assessee s own case, which has considered various judicial pronouncements on the issue, we hold that interest paid by the assessee u/s 201(1A) of the I.T. Act cannot be allowed as a deduction while computing the profits and gains of the assessee. 11. However, we noticed that the A.O. had made an addition of Rs. 93,54,851 by stating that the said amount is the interest paid u/s 201(1A) of the I.T. Act (claimed as deduction u/s 37 of the I.T. Act). According to the learned AR, the assessee had only claimed deduction u/s 37(1) of the I.T. Act of Rs. 11.32,835, on account of belated monthly remittance of statutory liabilities like professional- tax, VAT, service-tax, TDS, etc. According to the learned AR, the disallowance can be limited to the TDS amounting to Rs. 7,04,571. In this context, the learned AR had submitted that the assessee has filed a rectification application before the A.O. and the same is pending (refer page pages 72 and 73 of the paper book submitted by the assessee). The above contention of the learned AR needs to be examined by the A.O. For the limited purpose of examining the f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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