2018 (9) TMI 2110 - AT - Income Tax

Disallowing interest on late deposit of TDS - CIT(A) disallowing interest on late deposit of TDS - Appellants submit that interest on late deposit of TDS is not akin to interest on tax levied on the profits and gains of any business or profession and therefore is not covered u/s 40(a)(ia) - HELD THAT - In the case of Martin Harris (P.) Ltd. 1989 (7) TMI 342 - CALCUTTA HIGH COURT has held that whenever interest is charged under the Act whether for delayed payment of tax or filing underestimate of tax or for non-submission of the estimate or return or for default in filing return within the time or delay in making payment of tax it cannot be allowed as deduction in computing total income as essentially interest in such a case for non-compliance with the provisions of the Act is inextricably connected with the amount of income tax. Where Income Tax itself is not a deductable amount be it compensation or be it penalty payable in addition to the tax cannot be allowed as a deduction in computing total income. In Ferro Alloys Corpn. Ltd. 1991 (12) TMI 39 - BOMBAY HIGH COURT has held that the claim for deduction of interest levied u/s 220(2) u/s 215 and u/s 201(1A) was rightly rejected as not allowable u/s 37. In Chennai Properties Investment Ltd 1998 (4) TMI 89 - MADRAS HIGH COURT 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 capitalisation in its business to contend that the interest paid for the period of delay in payment of tax amounted to a business expenditure. Therefore the interest paid under section 201(1A) could not be allowed as business deduction - Assessee dismiss the appeal.

Summary

Issues:
1. Disallowance of interest on late deposit of TDS under section 40(a)(ia) of the Income Tax Act, 1961.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai involved the disallowance of interest on late deposit of TDS under section 40(a)(ia) of the Income Tax Act, 1961 for the assessment year 2013-14. The assessee contested the disallowance made by the AO, which was confirmed by the CIT(A). The primary contention was that interest on late deposit of TDS should not be treated akin to interest on tax levied on profits and gains of business or profession. The AO noted that the assessee had claimed an additional sum as interest on late deduction and deposit of TDS, leading to the disallowance in question.

During the proceedings, the Ld. counsel of the assessee referred to judgments by various High Courts, including the Calcutta High Court, Bombay High Court, and Madras High Court, to support the argument against the disallowance. The Calcutta High Court held that interest charged under the Act for non-compliance with tax provisions cannot be allowed as a deduction in computing total income. Similarly, the Bombay High Court rejected a claim for deduction of interest levied under specific sections of the Act as not allowable under section 37. The Madras High Court emphasized that income tax is not a business expenditure and the interest paid for delay in payment of tax cannot be considered a business deduction.

Ultimately, the Appellate Tribunal upheld the order of the CIT(A) and dismissed the appeal, citing that the facts were identical to the cases referenced during the proceedings. The judgment was pronounced on 12/09/2018, with the conclusion that the interest on late deposit of TDS was not deductible under the provisions of the Income Tax Act, 1961.