AI Drafter 
TaxTMI 
TaxTMI 
2023 (1) TMI 1124
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.... Provident Fund and Employees State Insurance under the relevant Act but deposited before the 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 - Vid....
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....ast expression "due date" was dealt with in the explanation as the date by which such amounts had to be credited by the employer, 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 conditio....
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....e or by way of deduction authorized by the statute) as income - it is the character of the amount that is important, i.e., not income earned. Thus, 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 p....
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....ntributions- which are deducted from their income. They are not part of the assessee employer's income, nor are they heads of deduction per se in the form 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. ....
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....paid under section 201(1A) of the Act. It was held that it cannot assume the character ofbusiness expenditure and is not allowable as a deduction as the liability topay interest is directly related 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 suc....
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....rest at the prescribed rate on the amount of the tax from the date on which such tax was deductible to the date on which such tax is actually paid to the credit of the Central Government. 5. Admittedly, the assessee deducted tax 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 th....
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....Services Pvt. Ltd. vs. DCIT in ITA No. 2068/Mum/2017 decided on 12.09.2018 held that the Assessing Officer was right in disallowing interest on late deposit of TDS. 7.8 Again ITAT Ahmedabad in the case of Shree Saras Spices & Food P. Ltd. vs. DCIT in ITA No. 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(....
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....ent of Hon'ble Madras High Court in Chennai Properties case (Supra) was delivered on 20th April, 1998 by Division Bench of the Court. In this case the Hon'ble High Court, in para 14, held that the payment of interest takes colour from the nature of the levy with reference to which such interest is 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....
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.... India -vs- Manik Dattatreya Lotikar [1988] 172 ITR 1 a division Bench of this court held that expression "tax" for the purposes of section 179 would includea penalty. The judgement of the Division Bench cannot now be reflective of the correct position in law in view of the judgment of the Supreme Court in Harshad Shantilal Mehta case 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'bl....
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....ch profits or gains. Explanation 1.-For 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 and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91. Explanation 2.-For 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....
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....her referred to written submission as reproduced above and has submitted that in the light of the decision of the Hon'ble Supreme Court in the case of "Harshad Shantilal Mehta" (supra) which has been further followed by various High Courts including the Bombay High Court in the cases of "CIT vs. Oryx Finance & Investment (P) Ltd." reported in [2017] 83 taxmann.com 194(Bombay) and "Dinesh T. Tailor vs. Tax Recovery Officer"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 th....
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....he Act. At this stage, it will be relevant to refer to the provisions to section 201of the Act, which read as under: "Consequences of failure to deduct or pay. 201. (1) Where any person, including the principal officer of a company,- (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting 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....
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.... shall be without prejudice to any other mode of recovery. Further, as per the provisions of Section 229, any sum imposed by way of interest, fine, penalty etc. shall he recoverable in the manner as provided for recovery of arrears of tax: "Recovery of penalties, fine, interest and other sums 229. Any sum imposed by way of interest, fine, penalty, or any other sum payable under the provisions of this Act, shall be recoverable in the manner provided in this Chapter for the recovery of arrears of tax." 18. As per the provisions of section 201(1) of the 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 ....
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.... income tax upon such payment is not the business expenditure, either of the deductor or of the deductee. Therefore, the payment of tax cannot be said to be an expenditure incurred solely and exclusively for the purpose of business or profession of the assessee nor can be the interest thereupon. The expenditure allowable as deduction has been specifically mentioned as per the provisions of sections 30 to 36 of the Act and further section 37 of the Act is a residuary section which allows business expenditure which stipulates that any expenditure incurred apart from expenditure described 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 ....
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....tion . Hence, it can be safely concluded that non-payment of taxes does not amount to the borrowing of capital from the Government and hence interest paid for delayed deposit of taxes is not covered under section 36(1)(iii) of the Act..." 20. So far as the reliance by the ld. counsel for the assessee on the decision of the Hon'ble Supreme Court in the case of "Harshad Shantilal Mehta" (supra) is concerned, we find that the issue for determination before the Hon'ble Supreme Court was entirely a different issue relevant to the interpretation of provisions of section 11 of the 'Special Court (Trial of 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 ....
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....(b) all amounts due from the person so notified by the Custodian to any bank or financial institution or mutual fund; (c) any other liability as may be specified by the Special Court from time to time. It is, in this context, that the Hon'ble Supreme Court held that the discharge of liabilities in respect of taxes, cess and rates by the custodian from the property of the person notified does not include interest on taxes. However, the said interpretation by the Supreme Court defining liability upon the property of the notified person under the said Act cannot be considered to interpret the provisions of the Income Tax Act, which 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....
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.... any manner alter the character of the payment, namely, its character as income tax. The relevant part of the order of the hon'ble madras High Court is reproduced as under: "15. 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 ; MalwaVanaspati and Chemical Co. v. CIT [19971 225 ITR 383 and CITv. 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. 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....
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.... stage, reliance can also be placed on the recent decision of the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd. Vs. CIT (2022) 143 taxmann.com 178 (SC) (supra) wherein, it has been held that deduction u/s 36(1)(va) in respect of delayed deposit of amount collected towards employees' contribution to PF cannot be allowed as deduction as these amounts were not receipts that belonged to the assessee, but were held by it, as trustees. That these 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. These 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. 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 liabi....