2021 (12) TMI 391 - AT - Income Tax

Disallowance of deduction claimed towards interest on delayed payment of tax deducted at source (TDS) - As per assessee interest paid on delayed payment of TDS is eligible for deduction as business expenditure u/s 37(1) - as per DR assessee has not remitted the TDS amount within the stipulated time AND interest paid for delayed payment of TDS is not eligible as deduction under section 37 - HELD THAT - As the decision of the Hon ble jurisdictional High Court in case of Ferro Alloys Corporation Ltd. 1991 (12) TMI 39 - BOMBAY HIGH COURT and the decision case of CIT vs. Chennai Properties Investment Ltd. 1998 (4) TMI 89 - MADRAS HIGH COURT are not only directly on the issue but are in favour of the revenue. Therefore, respectfully following the aforesaid two decisions of the Hon ble jurisdictional and Hon ble Madras High Court, we hold that assessee s claim of deduction under section 37(1) of the Act in respect of interest charged on delayed payment of TDS is not allowable. The issue can also be looked into from another angle. Admittedly, the assessee is collecting TDS on behalf of the Government. The TDS collected does not belong to the assessee and has to be remitted to the Government account within the prescribed time. By not depositing the TDS in time, the assessee is not only depriving the Government from utilizing the money for public purpose but also creating problem for the payee in getting timely credit of TDS. On the other hand, the assessee is utilizing the TDS amount for his own benefit. Thus, for the default in depositing the TDS amount in time, interest is levied. Therefore, allowing deduction of such interest under section 37 of the Act would amount to rewarding the assessee for a default committed. This, in our view, is unconscionable. Decided in favour of assessee.

Summary

Issues:
Dispute over disallowance of deduction claimed towards interest on delayed payment of tax deducted at source (TDS).

Analysis:
1. The assessee filed its return of income for the assessment year 2015-16, declaring total income. The Assessing Officer (AO) disallowed the deduction claimed towards interest on TDS, despite the assessee's reliance on judicial precedents.

2. The Authorised Representative argued that interest paid on delayed TDS payment is eligible for deduction under section 37(1) of the Act, citing relevant decisions. The Departmental Representative contended that such interest is not deductible as it is a penalty for delayed payment.

3. The Tribunal considered various judicial precedents, including the decision in Bharat Commerce & Industries Ltd. vs. CIT, which held that interest paid for default in statutory liabilities is not deductible under section 37(1) of the Act. The Madras High Court also ruled similarly in CIT vs. Chennai Properties & Investment Ltd.

4. The Tribunal noted conflicting decisions by different benches, where some favored allowing deduction for interest on delayed TDS remittance while others disagreed. The decision of the jurisdictional High Court in Ferro Alloys Corporation Ltd. vs. CIT was upheld, stating such deductions are not allowable.

5. The Tribunal emphasized that TDS amounts collected belong to the government and must be remitted promptly. Allowing deductions for interest on delayed TDS payments would reward defaulters and go against the purpose of TDS regulations.

6. Ultimately, the Tribunal dismissed the appeal, following the decisions of the jurisdictional High Court and the Madras High Court, holding that the claim for deduction under section 37(1) of the Act for interest on delayed TDS payment is not allowable.

This comprehensive analysis of the judgment highlights the key arguments, legal interpretations, and the final decision reached by the Tribunal on the issue of disallowance of deduction claimed towards interest on delayed payment of TDS.