TCS credit and compensatory royalty interest: statutory credit cannot be denied on technical grounds, and business expenditure was allowed.
Tax collected at source credited in the assessee's name under Form No. 27D could not be denied on a technical objection where the corresponding income had been assessed in its hands; the credit was treated as a statutory right and the disallowance was unsustainable. Interest paid to the Government for delayed remittance of royalty instalments was held compensatory, not penal, because it arose from the business arrangement and was supported by the records; the outgo was therefore allowable as revenue expenditure. On both issues, the additions and disallowances were deleted.
Issues: (i) Whether the assessee was entitled to credit of Tax Collected at Source deducted under section 206C(1C) of the Income-tax Act, 1961 and evidenced by Form No. 27D. (ii) Whether interest paid to the Government for delayed payment of royalty instalments was compensatory in nature and allowable as revenue expenditure.
Issue (i): Whether the assessee was entitled to credit of Tax Collected at Source deducted under section 206C(1C) of the Income-tax Act, 1961 and evidenced by Form No. 27D.
Analysis: The assessee was engaged under the statutory mining framework and the amount collected by the State was admittedly deposited in the Government treasury with Form No. 27D issued in the assessee's name. Once the corresponding income from the contracted activity was assessed in the assessee's hands, denial of TCS credit on a technical objection was not justified. The credit belonged to the assessee as a matter of right and its denial would result in taxing the same amount without granting the corresponding statutory credit.
Conclusion: The TCS credit was allowable to the assessee and the disallowance was / unsustainable.
Issue (ii): Whether interest paid to the Government for delayed payment of royalty instalments was compensatory in nature and allowable as revenue expenditure.
Analysis: The levy was paid to the State Government for delayed remittance of royalty instalments under the contractual arrangement and was not shown to be a penal levy. The payment was supported by the challans and accounts, and the nature of the outgo was compensatory. The expenditure was incurred in the course of business and was an allowable outgoing under the relevant income-tax provision.
Conclusion: The interest payment was compensatory and allowable as business expenditure.
Final Conclusion: The assessee succeeded on both issues and the additions/disallowances were deleted.
Ratio Decidendi: Where tax collected at source is duly deducted, deposited and certified in the assessee's name, credit cannot be denied on a hyper-technical objection; similarly, interest paid for delayed statutory royalty remittance is allowable when it is compensatory and not penal in character.
TaxTMI 
AI Drafter ✕
TaxTMI 
