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Income Tax Appellate Tribunal, “A” BENCH KOLKATA
Before: SHRI SANJAY GARG & SHRI RAKESH MISHRA
Present for: Appellant by : Shri Soumitra Choudhury, Advocate & Shri Pronabesh Sarkar, Advocate Respondent by : Shri B. K. Singh, JCIT, Sr. DR Date of Hearing : 22.04.2024 Date of Pronouncement : 29.04.2024 O R D E R PER RAKESH MISHRA, ACCOUNTANT MEMBER: Both these appeals filed by the assessee are against the separate orders of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) (hereinafter referred to as “the Ld. CIT(A)” vide separate orders dated 25.07.2023 which are against the assessment orders by the DCIT Circle-11(1), Kolkata u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) dated 16.12.2019 for AY 2017-18 and by the Assessing Officer, National e-Assessment Centre, Delhi dated u/s. 143(3) read with sections 143(3A) & 143(3B) of the Act dated 29.03.2021 for AY 2018-19. Since the grounds of appeal are common and the facts are identical, we dispose of both these appeal by this consolidated order for the sake of brevity and convenience.
“1. For that on the facts of the case, the order passed by the Ld. C.I.T.(A) on 25.07.2023 is completely arbitrary, unjustified and illegal.
2. For that on the facts of the case, the Ld. C.I.T.(A) was wrong in confirming the disallowance towards employees contribution towards P.F. amounting to Rs.92,12,637/- which is completely arbitrary, unjustified and illegal.
For that on the facts of the case, the Ld. C.I.T.(A) was wrong in not considering the facts that the payment was made towards contribution of P.F. of Rs. 92,12,637/- before filing of the return u/s. 139(1) of the LT. Act on 17.08.2017 allowable u/s 36(1)(va)/43B covered by various Court's judgements, as such his finding is completely arbitrary, unjustified and illegal.
4. For that the amendment brought in by Finance Act, 2021 on this issue has been held to be prospective in nature in the case of Shri Harendra Nath Biswas (supra), therefore, Bench reiterate me sameview that the amendment/ explanation brought in by Finance Act, 2021 with effect from 01.04.2021 on this issue is prospective; and taking note that the relevant assessment year i.e. 2015- 16 the ibid explanation brought in by Finance Act, 2021, cannot be used/applied to unsettle the settled position of law passed by the Hon'ble jurisdictional High Court in the case of Vijayshree Ltd. (supra), since there is no retrospective legislative over-ruling. Therefore, the finding of the Ld. CIT(A) is completely arbitrary, unjustified and illegal.
5. For that on the facts of the case, the Ld. C.I.T.(A) was wrong in confirming the disallowance of interest paid on TDS u/s 201 (1A) amounting to Rs.180,495/- which is completely arbitrary, unjustified and illegal.
For that the appellant reserves the right to adduce any further ground or grounds, if necessary, at or before the hearing of the appeal.” 2.1 Similarly, the grounds of appeal raised by the assessee for the AY 2018-19 are reproduced as under:
“1. For that on the facts of the case, the order passed by the Ld. C.I.T.(A) on 25.07.2023 is completely arbitrary, unjustified and illegal.
For that the A.O. has processed an intimation u/s. 143(1) on 13.11.2019 and then passed the order u/s. 143(3) on 29.03.2021 and holding the return (Loss) Rs.147,20,461/- without any specific defects and reduce the loss at Rs.2,12,14,096/-, therefore, processed u/s. 143(1) of the I.T. Act is infructuous and no valid, and no leg to stand the disallowance, as such his finding is completely arbitrary, unjustified and illegal.
3. For that on the facts of the case, the Ld. C.I.T.(A) was wrong in confirming the disallowance towards employees contribution towards P.F.
3 & 1009/Kol/2023 G. S. Atwal & Co. (Engg.) Pvt. Ltd., AYs. 2017-18 & 2018-19 amounting to Rs.52,00,111/- which is completely arbitrary, unjustified and illegal.
For that on the facts of the case, the Ld. C.I.T.(A) was wrong in not considering the facts that the payment was made towards contribution of P.F. of Rs. 52,00,111/- before filing of the return u/s. 139(1) of the I.T. Act on 19.09.2018 allowable u/s. 36(1)(va)/43B covered by various Court's judgements, as such his finding is completely arbitrary, unjustified and illegal.
For that the amendment brought in by Finance Act, 2021 on this issue has been held to be prospective in nature in the case of Shri Harendra Nath Biswas (supra), therefore, Bench reiterate the same view that the amendment/explanation brought in by Finance Act, 2021 with effect from 01.04.2021 on this issue is prospective; and taking note that the relevant assessment year i.e. 2015-16 the ibid explanation brought in by Finance Act, 2021, cannot be used/applied to unsettle the settled position of law passed by the Hon'ble jurisdictional High Court in the case ofVijayshree Ltd. (supra), since there is no retrospective legislative over-ruling. Therefore, the finding of the Ld. CIT(A) is completely arbitrary, unjustified and illegal.
6. For that on the facts ofthe case, the Ld. C.I.T.(A) was wrong in confirming the disallowance of interest paid on TDS u/s. 201(1A) amounting to Rs.2,25,037/- which is completely arbitrary, unjustified and illegal.
For that the appellant reserves the right to adduce any further ground or grounds, if necessary, at or before the hearing of the appeal.”
3. First, we take up ITA No. 1008/Kol/2023 for AY 2017-18. Brief facts are that the return of income was E-filed on 17.08.2017 by the assessee company declaring Loss (-)(Rs.5,95,95,589.00). The return was processed under section 143(1) on 10.03.2019. Thereafter, the case was selected for scrutiny and notices under section 143(2) and 142(1) were served upon the assessee company. The assessee company is engaged in the business of Mining Engineers and Contractors. During the course of the hearing before the Ld. AO, the Ld. A.R. of the assessee had produced the audited accounts, Bank statement, books of account with supporting evidence as requisitioned and had also submitted written replies against questionnaires before the AO and also filed them online through E-submission. Subsequently, the AO completed the assessment proceedings by passing an order under section 143(3) on 16.12.2019 4 & 1009/Kol/2023 G. S. Atwal & Co. (Engg.) Pvt. Ltd., AYs. 2017-18 & 2018-19 and assessed the total Loss at (-) (Rs.5,01,49,134.00). The A.O. disallowed an amount of Rs.92,12,637.00 u/s 36(1)(va), as the Employees’ PF and ESI contributions were paid after the due date but before the filing the Income Tax Return under section 139(1) of the Act. The assessee had made delayed payment of interest on TDS under section 201(IA) amounting to Rs.1,80,495.00. Another sum was disallowed u/s. 14A of the Act read with rule 8D of the I. T. Rules, 1962. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who dismissed the appeal of the assessee except for allowing the grounds of appeal
in respect of disallowance made u/s. 14A read with rule 8D of the Act. Aggrieved, the assessee is now in appeal before us.
4. We have heard the rival contentions and perused the material available on record. Ground nos. 2, 3 and 4 relate to the addition made by the AO in respect of employees’ contribution towards PF amounting to Rs.92,12,637/-. The Ld. CIT(A) has discussed the issue elaborately and after considering the legal provisions in details has rejected the claim of the assessee. During the course of hearing of the appeal before the Ld. CIT(A), the assessee relied on the case of CIT Vs. M/s. Vijay Shree Ltd. in ITAT No. 245 of 2011. The assessee has also relied upon the following decisions in the course of the appeal before us: i. CIT v Noble & Hewitt (I) (P) Ltd. 305 ITR 324 (Del) ii. Checkmate Services (P) Ltd. V CIT-I 448 ITR 518 (SC) iii. Parv Buildcon v DCIT Raipur ITA No. 357/RPR/2023 We have gone through the decisions relied upon in both the appeals. However, the same are of no assistance to the assessee. This issue is no longer res integra and the issue has been decided by the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT (2022) 143 taxmann.com 178 (SC) dated 12.10.2022 wherein it has been held that “deduction u/s 36(1)(va) in respect of delayed deposit of amount 5 ITA Nos. 1008 & 1009/Kol/2023 G. S. Atwal & Co. (Engg.) Pvt. Ltd., AYs. 2017-18 & 2018-19 collected towards employees’ contribution to PF cannot be claimed when deposited within the due date of filing of return even when read with Section 43B of the Income-tax Act,1961.” Relevant extract of the said judgment is reproduced as under:
The distinction between an employer's contribution which is its primary liability under law – in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers' income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts – the employer's liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees' income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B. • The non-obstante clause in section 43B would not in any manner dilute or override the employer's obligation under section 36(1)(va) to deposit the amounts retained by it or deducted by it from the employee's income, unless the condition that it is deposited on or before the due date, is correct and justified. The non- obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees' contributions- 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.
Respectfully relying on the aforesaid decision, we dismiss the grounds of appeal raised by the assessee in this respect.
6 & 1009/Kol/2023 G. S. Atwal & Co. (Engg.) Pvt. Ltd., AYs. 2017-18 & 2018-19 5. Ground no. 5 relates to disallowance of interest paid on TDS u/s. 201(1A) of the Act amounting to Rs.1,80,495/-. The Ld. CIT(A) relying on the decision of Hon’ble Calcutta High Court in the case of Martin & Harris Private Limited Vs. CIT and also the judgment of Hon’ble Madras High Court in the case of CIT Vs. Chennai Properties & Investment Ltd. (1991) 239 ITR 435 (Madras) has dismissed these grounds of appeal of the assessee.
6. At the time of the hearing before us, the Ld. Counsel for the assessee reiterated the submissions as made before the lower authorities that the assessee had paid interest u/s 201(1A) of the Act amounting to Rs.1,90,495/- for delayed payment of TDS before filing ofthe income tax return. It was urged that the said payment is not in the nature of penalty but it is the amount of interest which is not penal in nature, therefore, it should be allowed u/s. 37(1) of the Act and for this, he placed reliance on the judgment of CIT Vs. Noble and Hewitt (I) Pvt. ltd. reported in 305 ITR 324 (Delhi).
7. On the other hand, the Ld. CIT, DR heavily relied on the order of lower authorities and prayed before the bench to confirm the action of Ld. CIT(A).
8. We have heard rival contentions and perused the material available on record. We note that section 40(a)(ii) of the Act mentions as under: “40(a)(ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains.”
8.1 Further, the coordinate Bench of the Tribunal in the case of Premier Irrigation Adritec (P.) Ltd. v. ACIT [2023] 146 taxmann.com 389 (Kolkata - Trib.) have decided this issue against the assessee and have held as under:
7 & 1009/Kol/2023 G. S. Atwal & Co. (Engg.) Pvt. Ltd., AYs. 2017-18 & 2018-19 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, then such person is deemed to be an assessee-in-default in 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 assets of the person responsible. Therefore, by way of such deeming fiction, TDS though deductible from the income of the payee, becomes the tax liability of the deductor and the non-deduction or non-depositing of the same would put such person responsible/deductor in the category of tax defaulter and such tax, though leviable on the income of the payee, along with interest, becomes a charge upon the property of such person responsible/deductor. Further, as per the provisions of section 4 of the Income-tax Act, the deduction of tax at source is one of the modes of recovery of charge of income tax. Thus statute has casted a duty upon the payer to deduct tax on behalf of Government of India on the payment made to a payee on which such tax is liable to be deducted as per the provisions of the Act and further such deductor is required to deposit the said tax with the Central Government, failing to do so declares such a person as a defaulter of tax as if of his own tax liability by way of the deeming fiction of section 201 of the Act. Therefore, under the circumstances, no such defense is available to the person responsible/deductor it to say that it was the liability of the other person. Even though, as per the relevant provisions, if the payee takes into account the said receipts for the purpose of computation of income and pays tax thereupon and files return of income, then such person responsible/deductor is absolved of the liability of payment of tax which he was liable to deduct and deposit but he is not absolved from the payment of interest for the period of default from the date from which such tax was liable to be deducted and the date on such tax was actually paid by the deductee/payee. This liability has been statutorily fastened upon such deductor/payer and it cannot be said to be a business expenditure of the payer. Further, the carrying on or continuation of business by such deductor/payer is not dependent upon the payment of tax as non- payment of tax does not bar a person from continuation of his business nor the discontinuation of business absolves such a person from payment of tax liability. Such tax liability of the deductor, though, may arise in the course of business but nonetheless, this is not the expenditure for the purpose of business. To explain in a simple way, the payment to the contractor/payee may be a business expenditure but the 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 8 & 1009/Kol/2023 G. S. Atwal & Co. (Engg.) Pvt. Ltd., AYs. 2017-18 & 2018-19 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 paid on delayed deposit of TDS cannot, in any circumstances, be termed as capital borrowed from the Income-tax department for the purpose of business. For claiming any expense as deduction, firstly it should qualify and fall within the ambit and scope of deductible expenditure as per the provisions of sections 30 to 37 of the Act. If an amount does not qualify as a deductible expenditure under the provisions of sections 30 to 37 of the Act, then, even though, the same has not been specifically excluded u/s 40 or to be more specifically 40(ii) of the Act, even then non-exclusion does not put it into the category of allowable expenditure.
At this stage, reliance can be placed on the recent decision of the co- ordinate Delhi bench of the Tribunal in the case of Universal Energies Ltd. v. DCIT [IT Appeal No. 2761 (Delhi) of 2018, dated 26-7-2022], wherein the Tribunal has made following observations in this respect: "7. Interest as defined in section 2(28A) of the Act means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized. Hence, section 36(1)(iii) of the Act allows a deduction for interest paid on capital borrowed while computing the business income of the taxpayer. It provides deduction of the interest paid in respect of capital borrowed for the purpose of the business or profession.
In the case of K.M.S.Lakshmanier and Sons v. CIT 1953 AIR 145: 1953 SCR 1057 (SC) it was held that the expression "borrowed money" means real borrowing or real lending. It must be construed in its natural and ordinary meaning and implies a real borrowing and real lending. It requires the existence of a borrower and a lender and accordingly there must be a real borrowing.
Unlike section 2(28A), clause (iii) of section 36(1) does not use the term 'debt incurred'. Hence, section 2(28A) defines 'interest' in a wider sense whereas section 36(1)(iii) has used it in a restrictive manner. Therefore, it may be concluded that there must be a loan on which interest is paid for 9 & 1009/Kol/2023 G. S. Atwal & Co. (Engg.) Pvt. Ltd., AYs. 2017-18 & 2018-19 claiming allowance u/s 36(1)(iii) of the Act. Existence of lender and borrower are must in case of a loan transaction. 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…"
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 v. Nuclear Power Corpn. of India Ltd. [1995] 4 SCL 42/3 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 the persons responsible for these offences and to provide for the establishment of a special court for the trial of offences relating to transactions in securities and matters connected therewith or incidental thereto. Securities were defined in section 2(c) of the said Act to include shares, scrips, stocks, bonds, debentures, debenture stock, units and other marketable securities of a like nature, Government securities and rights or interests in securities. Section 3(1) provided for the appointment by the Central Government of a Custodian. By reason of section 3, the Custodian was empowered, on being satisfied on information received that any person had been involved in any offence relating to transactions in securities after 1st April, 1991, and before 6th June, 1992 (the stated dates), to notify the name of such person in the Official Gazette. On and from the date of such notification, by reason of section 3(3), property, movable and immovable, belonging to the person notified stood attached and, by reason of section 3(4), could be dealt with by the Custodian in such manner as the Special Court directed. Any person aggrieved by notification under section 3(2) or section 4(1) was entitled to file a petition of objection before the Special Court. By reason of section 11(1), the Special Court could make such order as it deemed fit directing the Custodian in the matter of disposal of property under attachment. Section 11(2) set out the order in which the liabilities of the persons notified had to be discharged. Such liabilities include all revenues, taxes, cesses and rates due from the persons notified by the custodian. The relevant section 11 of the "Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992" is reproduced as under: 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 10 & 1009/Kol/2023 G. S. Atwal & Co. (Engg.) Pvt. Ltd., AYs. 2017-18 & 2018-19 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 by the Custodian under sub-section (2) of section 3 to the Central Government or any State Government or any local authority; (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. Therefore, the aforesaid decision of the Hon'ble Supreme Court in the case of "Harshad Shantilal Mehta" (supra) is, in no way, applicable to the relevant TDS provisions of the Income-tax Act. Even, the Hon'ble Supreme Court in para 28 of the said decision has referred to the another decision of the Hon'ble Supreme Court in the case of S.V. Kondaskar v. V.M. Deshpande [1972] 83 ITR 685/1 SCC 438, wherein, the Hon'ble Supreme Court has held that the Income-tax Act is a complete code with respect to assessment and reassessment of income- tax.
At this stage, it is pertinent to mention here, that it is not all type of taxes that are not allowable as deduction under the Income-tax Act, but the question before us is of the allowability of interest on delayed payment income tax itself. Certain taxes such as sales tax, excise or custom duty etc. which go on to increase the purchase cost of the goods 11 & 1009/Kol/2023 G. S. Atwal & Co. (Engg.) Pvt. Ltd., AYs. 2017-18 & 2018-19 or raw material etc. are allowed as deduction under the Income-tax Act for arriving at the profits earned. Therefore, an interest paid on delayed payment of sales tax etc. being adding to the cost/purchase price or decreasing the profit margin on sales may be taken into account for computation of profit or to say computation of taxable income, but that concession is not available in respect of interest on Income-tax. Hence, any case laws dealing with the levy of indirect taxes and interest thereupon are not applicable for the purpose of interpretation of the relevant provisions of the Income-tax Act.
The Hon'ble Madras High Court in the case of "Chennai Properties and Investment Ltd." (supra) has held that 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. That the amount required to be deducted was the amount payable as income-tax. The Hon'ble High Court, therefore, held that 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. The Hon'ble Madras High Court further held that the fact that the income- tax required to be remitted was not income-tax payable by the assessee, but is ultimately for the benefit of and to the credit of the recipient of the income on whose behalf that tax is payable does not in 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; Malwa Vanaspati and Chemical Co. v. CIT [1997]/225 ITR 383 and CIT v. 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.
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 the State and cannot be utilised by the assessee for its own business. The Supreme Court in the case of Bharat Commerce and Industries [1998] 230 ITR 733, rejected the argument advanced by the assessee that retention of money payable to the State as tax or income-tax would augment the capital of the assessee and the expenditure incurred, namely, interest paid for the period of such retention would assume character of business expenditure. The court 12 & 1009/Kol/2023 G. S. Atwal & Co. (Engg.) Pvt. Ltd., AYs. 2017-18 & 2018-19 held that an 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 capital in its business, to contend that the interest paid for the period of delay in payment of tax amounted to a business expenditure."
The Jurisdictional Calcutta High Court in the case of Martin & Harris (P.) Ltd. v. CIT [1994] 73 Taxman 555 observed in the case of default by the employer in deposit of tax deducted at the salary of the employee has held that the amount of tax deducted and not paid plus the amount of interest leviable under section 201(1A) was not a part of the salary of the employees which was withheld. It was tax on salary of the employees which was deducted but not paid. Therefore what has been deducted is tax and it does not retain the character of salary although such deduction has been made from the salary. The Hon'ble Calcutta High Court, therefore, held that the character and quality of interest payable for non-compliance with the provisions of the Act would be the same, whether it is levied for non-submission of return in time or non-payment of tax within the prescribed time or for any other reason and that 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. The Hon'ble High Court categorically held that where income-tax itself is not a deductible amount, be it compensation or be it penalty, payable in addition to the tax cannot be allowed as a deduction in computing total income. The relevant part of the order of the Hon'ble Calcutta High Court in the case of "Martin & Harris (P.) Ltd." (supra) has already been reproduced above as reproduced in the impugned order of the CIT(A). The findings arrived at by the Jurisdictional Calcutta High Court are, otherwise, binding on this Tribunal.
At this stage, reliance can also be placed on the recent decision of the Hon'ble Supreme Court in Checkmate Services (P.) Ltd. (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 liability to deposit the employee's contribution on or before the due date as a condition for deduction. This proposition laid down by the Hon'ble Supreme Court can be well applied in case of delayed deposit of TDS. TDS by deeming fiction has been made the tax 13 & 1009/Kol/2023 G. S. Atwal & Co. (Engg.) Pvt. Ltd., AYs. 2017-18 & 2018-19 liability of the deductor to ensure that the recipient of the payment cannot fade away without paying the due taxes on the income part of such receipts. Once, the deductee pays the due taxes, the deductor is absolved from the said tax liability but not of the interest liability on the delayed payment. Allowing of such interest payment on delayed deposit of TDS as deduction would defeat the very purpose of the TDS provisions ensuring the deduction of taxes from the income of the recipient and the payment/deposit thereof with the Central Govt. within the due time.
In view of the above discussion, we hold that the interest payment on delayed deposit of Income-tax, whether TDS or otherwise, is not an allowable expenditure.