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TMI Blog2022 (8) TMI 349X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is relevant and that the disallowance in question has to be judged in the parameters of Sec.40(a)(iib) In our considered view this contention of the ld AR is completely out of context as we have already held that Sec.40(a)(ii) is not relevant to the present issue before us at all. Moreover, the levy of interest on delayed payment of TDS u/s.201(1A) though held to compensatory in nature, the allowability of the same cannot be decided simply based on that. The levy of 201(1A) is a levy for delay in the remittance of tax that is deducted and not paid into the government account and is levied towards the use of funds belonging to the exchequer. The interest u/s.201(1A) can be equated to the levy of interest u/s.234. Interest u/s.234 is a levy on delay in the payment of income tax and the TDS is nothing but the income tax paid on behalf of the payee and therefore the interest on the same u/s.201(1A) is also in the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 record. Admittedly, the assessee has remitted the employees' contribution to ESI before the due date for filing of return u/s 139(1) of the I.T. Act. The Hon'ble jurisdictional High Court in the case of Essae Teraoka (P.) Ltd. v. DCIT reported in 366 ITR 408 (Kar.) has categorically held that the assessee would be entitled to deduction of employees' contribution to ESI provided the payment was made prior to the due date of filing of return of income u/s 139(1) of the I.T. Act. The Hon'ble jurisdictional High Court differed with the judgment of the Hon'ble Gujarat High Court in the case of CIT v. Gujarat State Road Transport Corporation reported in 366 ITR 170 (Guj.). The Hon'ble High Court was considering following substantial question of law:- Whether in law, the Tribunal was justified in affirming the finding of Assessing Officer in denying the appellant' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 date of filing of the return of income u/s 139(1) of the I.T. Act. Therefore, the amendment brought about by the Finance Act, 2021 to section 36[1][va] and 43B of the I.T. Act, alters the position of law adversely to the assessee. Therefore, such amendment cannot be held to be retrospective in nature. Even otherwise, the amendment has been mentioned to be effective from 01.04.2021 and will apply for and from assessment year 2021-2022 onwards. The following orders of the Tribunal had categorically held that the amendment to section 36[1][va] and 43B of the Act by Finance Act, 2021 is only prospective in nature and not retrospective. (i) Dhabriya Polywood Limited v. ACIT reported in (2021) 63 CCH 0030 Jaipur Trib. (ii) NCC Limited v. ACIT reported in (2021) 63 CCH 0060 Hyd Tribunal. (iii) Indian Geotechnical Services v. ACIT in ITA No.622/Del/ 2018 (order dated 27.08.2021). (iv) M/s.Jana Urban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The following were the relevant observations of the Hon'ble Madras High Court:- 14. As already noticed 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 but not paid in time, which rendered the assessee liable for payment of interest was in the nature of a direct tax and similar to the income-tax payable under the Income-tax Act. The interest paid under Section 201(1A) of the Act, therefore, would not assume the character of business expenditure and cannot be regarded as a compensatory payment as contended by learned counsel for the assessee. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1(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 submission on various case laws which we will discuss in the ensuing paras. 13. At the outset it has to be mentioned 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 on the profits and gains of any business or profession or assessed at a proportion of, or otherwise on the basis of any such profits or gains, shall not be deducted in computing the income chargeable under the head profits and gains of business o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id 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 is relevant and that the disallowance in question has to be judged in the parameters of Sec.40(a)(iib) of the Act. We shall now deal with the various submissions made by the learned counsel for the Assessee. 17. In the case of HarshadShantilalMehta vs Custodian, (1998) 231 ITR 871 (SC) the Supreme Court was concerned with the interpretation of Sec.11 of The Special Court (Trail of Offenders Relating Transactions in Securities) Act, 1992, (hereinafter referred to as the Special Act) which reads thus:- 11. Discharge of liabilities - (1) Notwithstanding anything contained in the Code and any other law for the time being in force, the Special Court may make such order as it may deem fit directing the Custodian for the disposal of the property under attachment. (2) The following liabilities shall be paid or discharged in full, as far as may be, in the order as under :- (a) all revenues, taxes, cesses and rates due from the persons notified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 to the issue in this appeal. In assessee s case the issue under consideration is the allowability of interest u/s.201(1A) as deduction u/s.37(1) of the Act and therefore the decision of the Hon ble Supreme Court can be applied. 21. The next case referred is Arthur Anderson Co vs ACIT (2010) 324 ITR 240 (Bombay). The issue considered in that case was with regard validity of initiation of reassessment proceedings u/s.147 of the Act. The Court found that material on the record before the Court showed that in the statement of total income the assessee had disclosed an interest income of Rs.50.14 lacs as income from other sources. In the note appended to the statement of computation, under the heading 'interest income' the assessee stated that this represented interest received under Section 244-A of the Income Tax Act, 1961 net of interest paid under Section 220, based on the ratio of certain judgments. The Court held that it cannot be stated that there was a failure on the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anbhai 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 of this order. 25. The learned counsel for the Assessee has also placed reliance on the following decisions, viz., Director of Income Tax vs Italian Thai Development Co. Ltd (2012) 17 taxmann.com 172 (Delhi Trib) (2014) 45 taxmann.com 61 (Delhi HC), wherein the disallowance u/s.40(a)(ii) was deleted on the basis that the gross amount including the tax is to be allowed. The next case quoted in DCIT vs Karan Johar (2011) 11 taxmann.com 268 (Mumbai) was also a case of allowability u/s.40(ii) of the Act. 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 charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 on the profits and gains of any business or profession or assessed at a proportion of, or otherwise on the basis of any such profits or gains, shall not be deducted in computing the income chargeable under the head profits and gains of business or profession . Both these sections operate in different fields, the former is an enabling provision while the latter is a disabling provision. Therefore these decisions do not help the plea raised by the Assessee in this appeal. 30. The ld AR also submitted that any sum paid referred in section 40(a)(ii) must be viewed from the perspective of only assessee whose payer and not from the payee perspective. The tax payment made on the profits earned by the assessee must not be enlarged to include even assessees vendor perspective. When TDS itself is not disallowed in the payees hands interest so paid u/s. 201(1A) cannot be disallowed u/s.40(a)(ia). In our considered view, this contention of the ld AR is completely out of context, as we have already held that S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est 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 refer to interest paid on the TDS and that the when the language is clear and unambiguous literal interpretation of the words must be made. In this regard the ld AR relied on the decision Exide Industries Ltd., (2020) 116 Taxmann.com 378 (SC). Further it was submitted that legislative casus omissus cannot be supplied by judicial interpretative process and relied on the following decisions in this context :- (i) Ajmera Housing Corpn (2010) 193 Taxman 193 (SC) (ii) Velliappa Textiles Ltd (2003) 132 taxman 165 (SC) (iii) Babita Lila (2016) 73 taxmann.com 32 (SC) 36. In our considered view this contention of the ld AR is completely out of context as we have already held that Sec.40(a)(ii) is not relevant to the present issue before us at all. Moreover, the levy of interest on delayed payment of TDS u/s.201(1A) though held to compensatory in nature, the allowability of the same cannot be decided simply based on that. The levy of 201(1A) is a levy for delay in the remittance of tax that is dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o5827/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 06.04.2018 (v) IDS Next Business Solutions (P) Ltd (ITA 510/Bang/2018 dt 15.06.2018 (vi) Rungta Mines Ltd (ITA 1531/Kol/217 dt 05.10.2018 41. Though there is a decision of the coordinate bench of the Tribunal, we have followed the decision of the Hon ble High Court following the rule of judicial discipline as has been held in the case of CIT v. Godavari Devi Saraf (113 ITR 589) where the Hon ble Bombay High Court has held that - Until contrary decision is given by any other competent High Court, which is binding on a Tribunal in the State of Bombay, it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of the land. 42. The ld AR also made a submission drawing the comparison of the provisions of section 40(a)(ii) and section 179 to state that when terms are clearly defined by the Parliament, enlarging the scope of the section by importing the provisions from other parts of the Act is incorrect. In this regard the ld AR relied on the decision in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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