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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 ..... djudication. 4. Ground Nos.3 to 7 raised by the assessee relates to disallowance of employees' contribution to provident fund (PF) and employees state insurance (ESI) of Rs.6,19,914 u/s. 2(24)(x) r.w.s. 36(1)(va) r.w.s. 43B of the Income-tax Act, 1961 [the Act] made by the AO and upheld by the CIT(Appeals). 5. The ld. AR submitted that the employees contribution of PF and ESI was paid before the due date of filing of return of income u/s. 139(1) of the Income-tax Act, 1961 [the Act] and was thus allowable u/s 43B of the Act. The Bangalore Tribunal has adjudicated the issue that amendment to provisions of section 43B r.w.s. 36(1)(va) by the Finance Act, 2021 is prospective in nature and applicable from 1.4.2021. 6. The ld. DR supported the orders of the lower authorities. 7. We find that this issue is squarely covered in favour of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ult to endorse the view taken by the Gujarat High Court. We agree with the view taken by this Court in W.A.No.4077/2013. 23. In the result, the appeal is allowed and the substantial question of law framed by us is answered in favour of the appellant-assessee and against the respondent-revenue. There shall be no order as to costs." 7.2 The further question is whether the amendment to section 36[1][va] and 43B of the Act by Finance Act, 2021 is clarificatory and declaratory in nature. The Hon'ble Supreme Court in the recent judgment in the case of M.M. Aqua Technologies Limited v. CIT reported in (2021) 436 ITR 582 (SC) had held that retrospective provision in a taxing Act which is "for the removal of doubts" cannot be presumed to be retrospective, if it alters or changes the law as it earlier stood (page 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 abou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as High Court judgment in CIT v. Chennai Properties & Investment Ltd. (1999) 239 ITR 435 (Mad) as well as Bangalore Tribunal decision in the case of Velankani Information Systems Ltd. v. DCIT [2018] 97 taxmann.com 599 held that interest on late payment of TDS is not eligible business expenditure and confirmed the order of the AO. Aggrieved, the assessee is in appeal before us. 11. We have considered the rival submissions and perused the material on record. The coordinate Bench of this Tribunal in Velankani Information Systems Ltd. (supra) dealt with this issue and held that interest on delayed payment of TDS cannot be allowed as deduction. The relevant observations of the Tribunal are as follows:- "21. As far as delay in remittance of tax deducted at source u/s. 201(1A) of the Act is 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 col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to the decision of the Hon'ble Madras High Court. Though the decision of the Tribunal is later in point of time, judicial discipline demands that the decision of the Hon'ble Madras High Court is to be followed. It is also worthwhile to mention that the Kolkata Bench of Tribunal in the case of Narayani Ispat (P.) Ltd. (supra), which was cited by the ld. counsel for the assessee, did not consider or did not have an occasion to consider the decision of the Hon'ble Madras High Court in the case of Chennai Properties and Investment Ltd. (supra). In these circumstances, we follow the decision of the Hon'ble Madras High Court & uphold the order of the CIT(A) insofar as it relates to disallowance of interest on delayed remittance of tax deducted at source u/s. 201(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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of the amount of interest paid in respect of capital borrowed for the purposes of the assessee's business or profession. For the reasons set out earlier, the claim for deduction under section 36(1)(iii) is also misconceived just as the assessee's claim under section 37 is misconceived. In the premises, the question raised has to be answered in favour of the revenue and against the assessee. The appeals are, therefore, dismissed with costs." 16. Therefore it is clear that the basis why tax or interest is not allowed as deduction u/s.37(1) of the Act is on the reasoning that it cannot be regarded as an expense incurred wholly or exclusively for the purpose of Assessee's business. Therefore the 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) of the Act. We shall now deal with the various submissions made by the learned counsel for the Assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand as prescribed. Provisions for imposition of penalty and interest are distinct from the provisions for imposition of tax. Learned Special Court judge, after examining various authorities in paragraphs 61 to 70 of his judgment, has come to the conclusion that neither penalty nor interest can be considered as tax under Section 11(2)(a). We agree with the reasoning and conclusion drawn by the Special Court in this connection." 20. As can be seen from the issue involved in the aforesaid case, it was a case where the Hon'ble Court had to decide whether interest liability is also liability within the meaning of Sec.11(2)(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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court noted earlier, however, bind this Court as regards the ground on which the reopening of the assessment has been sought in this case." 22. It can thus be seen that the aforesaid observations were in a different context of full and fair disclosure of material facts and the ratio cannot be extended to the allowability of deduction u/s.37(1) of the Act. 23. In the case of CIT vs Oryx Finance & Investment (P) Ltd (2017) 83 taxmann.com 194 (Bombay) it was held that for the purpose of penalty u/s.221 "tax in arrears" would not include interest payable u/s.220(2) and not applicable to allowing interest paid u/s. 201(1A) of the Act as deduction u/s.37(1) of the Act. 24. The case of Maganbhai 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 basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repaying loan guarantee commission was not in nature of a 'levy' on a State Government undertaking by State Government and it was purely a contractual payment and did not fall within purview of section 40(a)(iib). 29. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the following decisions to submit that compensatory payment should be allowed as a business expenditure u/s.37(1). (i) P. Venganna Setty (2021) 133 taxmann.com 368 (Bang Trib) (ii) Mandya National Paper Mills Ltd (1985) 20 Taxmann 231 (Karnataka) (iii) Lachmandas Mathuradas (2002) 122 Taxmann 828 (SC) 34. The circumstance in which the interest u/s.201(1A) is held to be compensatory is discussed in the above paras and therefore the submission of allowability of interest u/s.201(1A) on that basis is not tenable. Besides the above, the law laid down by the Hon'ble Supreme Court in the case of Bharat Commerce (supra) in the context of allowability of interest 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligation over and above the contractual amount and therefore was treated as a business expenditure. This is interpreted out of context by the ld AR to state that TDS is not a tax but an obligation which in our view is illogical. 40. The ld AR submitted the below decisions of Tribunal where interest on delayed payment of TDS is allowed as a deduction. However following the Doctrine of Stare Decisis, we are bound by the decision of Hon'ble High Court and therefore the below decisions cannot be followed in assessee's case (i) Resolve salvage & Fire India (P) Ltd (2022) 139 taxmann.com 196 (Mum.Trib) (ii) STUP Consultants Pvt Ltd (ITA No5827/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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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