TaxTMI 
TaxTMI 
2022 (7) TMI 1376
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....ted 12.03.2015 submitted copy of ledger account of interest on TDS. The assessee itself agreed that interest on TDS amounting to Rs. 9,70,248/- has not been added back in the computation of Income. Interest on TDS is not allowable as per provision of Income Tax Act, 1961. Accordingly, expenses of Rs. 9,70,248/- were disallowed and added back to the income of the assessee. 4. We have considered the order of the AO and facts on records and find that the assessee has submitted copy of ledger account of interest on TDS is not allowable expenses as per IT Act, 1961. The assessee itself also agreed that interest on TDS is not allowable expenses, therefore, the AO disallowed the expenses of interest on TDS of Rs.9,70,248/-. Interest on TDS is not....
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....vice fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized. Hence, Section 36(1)(iii) of the Act allows a deduction for interest paid on capital borrowed while computing the business income of the taxpayer. It provides deduction of the interest paid in respect of capital borrowed for the purpose of the business or profession. 8. In the case of K.M.S. Lakshmanier And Sons vs. CIT 1953 AIR 145:1953 SCR 1057 (SC) it was held that the expression "borrowed money" means real borrowing or real lending. It must be construed in its natural and ordinary meaning and implies a real borrowing and real lending. It requires the existence of a borrower and a lender and accor....
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....r, Courts have time and again held that interest expenses on late payment of taxes which are compensatory in nature should be treated as expended wholly and exclusively for the purposes of the business or profession since responsibility of payment of taxes including deduction and remittance of TDS is part and parcel of the business operations and the assessee has no right to utilize such monies collected from others on behalf of the government. 10. We have also gone through the Apex Court observations in this regard in the case of Lachmandas Mathura Vs. CIT reported in 254 ITR 799 are as follows: "The High Court has proceeded on the basis that the interest on arrears of sales tax is penal in nature and has rejected the contention of the ....
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.... constitute Business Expenditure. In this case the assessee argued before the ld. CIT(A) that interest on late deposit of TDS is compensatory and not penal in nature. The ld. CIT(A) held that interest paid under the provisions of the Act is not a deductible expenditure, not compensatory in nature. Thus, he confirmed the action of the Assessing Officer. The assessee submitted that the interest is compensatory in nature and a part of business operations of the assessee. Had the same amount has been taken as loan from a bank, the interest paid on the same anyway would have been allowed as deduction u/s 36. The Revenue submitted that interest on late deposit of TDS is neither an expenditure wholly and exclusively incurred for the purpose of bus....
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.... regarded as a compensatory payment. 2. Counsel for the assessee in support of his submission that the interest paid by the assessee was merely compensatory in character besides relying on the case of Makalakshmi Sugar Mills Co. also relied on the decision of the apex court in the cases of Prakash Cotton Mills Pvt. Ltd. V. CIT [1993] 201 ITR 684; Malwa Vansapati and Chemical Co. v. CIT [1997] 225 ITR 383 and CIT vs. Ahmedabad Cotton Manufacturing Co. Ltd. [1994] 205 ITR 163. In all these cases, the court was concerned with an indirect tax payable by the assessee in the course of its business and admissible as business expenditure. 3. The ratio of those cases is not applicable here. Income-tax is not allowable as business expenditure. ....