TaxTMI 
TaxTMI 
2022 (8) TMI 349
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....11 are general in nature not requiring any adjudication. 4. Ground Nos.3 to 7 raised by the assessee relates to disallowance of employees' contribution to provident fund (PF) and employees state insurance (ESI) of Rs.6,19,914 u/s. 2(24)(x) r.w.s. 36(1)(va) r.w.s. 43B of the Income-tax Act, 1961 [the Act] made by the AO and upheld by the CIT(Appeals). 5. The ld. AR submitted that the employees contribution of PF and ESI was paid before the due date of filing of return of income u/s. 139(1) of the Income-tax Act, 1961 [the Act] and was thus allowable u/s 43B of the Act. The Bangalore Tribunal has adjudicated the issue that amendment to provisions of section 43B r.w.s. 36(1)(va) by the Finance Act, 2021 is prospective in nature and applicable from 1.4.2021. 6. The ld. DR supported the orders of the lower authorities. 7. We find that this issue is squarely covered in favour of the assessee by the decision of the coordinate Bench of this Tribunal in the case of M/s.Shakuntala Agarbathi Company v. DCIT, ITA No.385/Bang/2021 (order dated 21.10.2021). The relevant findings of the Tribunal are as follows:- "7. We have heard rival submissions and perused the material on ....
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....that as his income, deserves to be rejected. 22. With respect, we find it difficult to endorse the view taken by the Gujarat High Court. We agree with the view taken by this Court in W.A.No.4077/2013. 23. In the result, the appeal is allowed and the substantial question of law framed by us is answered in favour of the appellant-assessee and against the respondent-revenue. There shall be no order as to costs." 7.2 The further question is whether the amendment to section 36[1][va] and 43B of the Act by Finance Act, 2021 is clarificatory and declaratory in nature. The Hon'ble Supreme Court in the recent judgment in the case of M.M. Aqua Technologies Limited v. CIT reported in (2021) 436 ITR 582 (SC) had held that retrospective provision in a taxing Act which is "for the removal of doubts" cannot be presumed to be retrospective, if it alters or changes the law as it earlier stood (page 597). In this case, in view of the judgment of the Hon'ble jurisdictional High Court in the case of Essae Teraoka (P.) Ltd. v. DCIT (supra) the assessee would have been entitled to deduction of employees' contribution to ESI, if the payment was made prior to due dat....
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....lying on the decision of the ITAT Delhi Bench in the case of New Modern Bazaar v. ITO in ITA No.590/Del/2018 dated 8.4.2021 and the Madras High Court judgment in CIT v. Chennai Properties & Investment Ltd. (1999) 239 ITR 435 (Mad) as well as Bangalore Tribunal decision in the case of Velankani Information Systems Ltd. v. DCIT [2018] 97 taxmann.com 599 held that interest on late payment of TDS is not eligible business expenditure and confirmed the order of the AO. Aggrieved, the assessee is in appeal before us. 11. We have considered the rival submissions and perused the material on record. The coordinate Bench of this Tribunal in Velankani Information Systems Ltd. (supra) dealt with this issue and held that interest on delayed payment of TDS cannot be allowed as deduction. The relevant observations of the Tribunal are as follows:- "21. As far as delay in remittance of tax deducted at source u/s. 201(1A) of the Act is concerned, we find that the Hon'ble Madras High Court has taken a view that interest paid u/s. 201(1A) is also in the nature of tax and notwithstanding the fact that it is not the tax liability of the assessee, the same cannot be allowed as a deduction.....
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....usiness 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 in point of time, judicial discipline demands that the decision of the Hon'ble Madras High Court is to be followed. It is also worthwhile to mention that the Kolkata Bench of Tribunal in the case of Narayani Ispat (P.) Ltd. (supra), which was cited by the ld. counsel for the assessee, did not consider or did not have an occasion to consider the decision of the Hon'ble Madras High Court in the case of Chennai Properties and Investment Ltd. (supra). In these circumstances, we follow the decision of the Hon'ble Madras High Court & uphold the order of the CIT(A) insofar as it relates to disallowance of interest on delayed remittance of tax deducted at source u/s. 201(1A) of the Act." 12. Following the above decision of the Tribunal, we hold that interest on delayed payment of TDS is not an allowable deduction and dismiss the ground raised by the assessee. The ld. AR submitted a detailed written submi....
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....ecting 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 for the purposes of the assessee's business or profession. For the reasons set out earlier, the claim for deduction under section 36(1)(iii) is also misconceived just as the assessee's claim under section 37 is misconceived. In the premises, the question raised has to be answered in favour of the revenue and against the assessee. The appeals are, therefore, dismissed with costs." 16. Therefore it is clear that the basis why tax or interest is not allowed as deduction u/s.37(1) of the Act is on the reasoning that it cannot be regarded as an expense incurred wholly or exclusively for the purpose of Assessee's business. Therefore the allowability of interest on taxes paid should not be looked out from the definition of tax as given in Sec.2(43) of the Act. The submissions made by the learned counsel for the Assessee are based on a misconception that the definition of interest u/s.2(43) of the Act ....
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.... 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 passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand as prescribed. Provisions for imposition of penalty and interest are distinct from the provisions for imposition of tax. Learned Special Court judge, after examining various authorities in paragraphs 61 to 70 of his judgment, has come to the conclusion that neither penalty nor interest can be considered as tax under Section 11(2)(a). We agree with the reasoning and conclusion drawn by the Special Court in this connection." 20. As can be seen from the issue involved in the aforesaid case, it was a case where the Hon'ble Court had to decide whether interest liability is also liability within the meaning of Sec.11(2)(a) of the Special Act. The aforesaid decision rendered in a different context cannot be extended to the provisions of Sec.37(1) of the Act and hence the aforesaid decision is not of any relevance ....
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....or 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 observations of the Supreme Court noted earlier, however, bind this Court as regards the ground on which the reopening of the assessment has been sought in this case." 22. It can thus be seen that the aforesaid observations were in a different context of full and fair disclosure of material facts and the ratio cannot be extended to the allowability of deduction u/s.37(1) of the Act. 23. In the case of CIT vs Oryx Finance & Investment (P) Ltd (2017) 83 taxmann.com 194 (Bombay) it was held that for the purpose of penalty u/s.221 "tax in arrears" would not include interest payable u/s.220(2) and not applicable to allowing interest paid u/s. 201(1A) of the Act as deduction u/s.37(1) of the Act. 24. The case of Maganbhai Hansrajbhai Patel vs ACIT [2012] 26 taxmann.com 226 (Gujarat) is again a case on interpretation of Sec.2(43) of the Act, which we have already distinguished in the earlier part o....
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....herefore 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 agreeing to suffer a detriment in event of assessee not repaying loan guarantee commission was not in nature of a 'levy' on a State Government undertaking by State Government and it was purely a contractual payment and did not fall within purview of section 40(a)(iib). 29. We have in the earlier part of this order already held that the question whether interest paid u/s.201(1A) of the Act is an allowable business expenditure has to be examined within the parameters of Sec.37(1) of the Act and not on the basis of the prohibition contained in Sec.40a(ii) of the Act. Sec.37(1) of the Act provides that expenditure which is not capital or personal in nature laid out or expended wholly and exclusively for the purpose of business shall be allowed in computing the income chargeable under the head "profits and gains of business or profession". Sec.40(ii) provides that any sum paid on account of any rate or tax levied o....
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....r 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 expenditure arose and hence have no nexus to the assessee's case. 33. The ld AR relied on the following decisions to submit that compensatory payment should be allowed as a business expenditure u/s.37(1). (i) P. Venganna Setty (2021) 133 taxmann.com 368 (Bang Trib) (ii) Mandya National Paper Mills Ltd (1985) 20 Taxmann 231 (Karnataka) (iii) Lachmandas Mathuradas (2002) 122 Taxmann 828 (SC) 34. The circumstance in which the interest u/s.201(1A) is held to be compensatory is discussed in the above paras and therefore the submission of allowability of interest u/s.201(1A) on that basis is not tenable. Besides the above, the law laid down by the Hon'ble Supreme Court in the case of Bharat Commerce (supra) in the context of allowability of interest as deduction u/s.37(1) of the Act, will be applicable in the present case. 35. The ld AR submitted that the words used in 40(a)(ii) 'tax levied on the profits' does not ....
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....ored 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 submission of ld AR is a complete misunderstanding of the facts of the case where the TDS is paid by the assessee as part of a contractual obligation over and above the contractual amount and therefore was treated as a business expenditure. This is interpreted out of context by the ld AR to state that TDS is not a tax but an obligation which in our view is illogical. 40. The ld AR submitted the below decisions of Tribunal where interest on delayed payment of TDS is allowed as a deduction. However following the Doctrine of Stare Decisis, we are bound by the decision of Hon'ble High Court and therefore the below decisions cannot be followed in assessee's case (i) Resolve salvage & Fire India (P) Ltd (2022) 139 taxmann.com 196 (Mum.Trib) (ii) STUP Consultants Pvt Ltd (ITA No5827/Mum/2012 dt 11.12.2018 (iii) Narayani Ispat (P) Ltd (ITA 212/Kol/2014 dt 30.08.2017 (iv) Sai Food Products (ITA 1887/Kol/2016 dt 06.04.....