“interest under section 201(1A)”
The decision most relied on for interest under section 201(1A) is Hindustan Coca Cola Beverage Pvt. Ltd. v. CIT (293 ITR 226), cited in 576 judgments on BharatTax.
Leading authorities on interest under section 201(1A)
The deductor cannot be treated as an assessee-in-default under Section 201(1) if the deductee has already paid the tax or offered the impugned receipts in their return of income. However, interest under Section 201(1A) for delayed deposit of tax can still be levied up to the date of filing of the return of income by the deductee.
Compensatory interest or damages paid for a breach of contract, arising in the normal course of business, are allowable as a deduction under section 37(1) as wholly and exclusively incurred for business purposes. This principle extends to indirect taxes paid in the course of business, which are admissible as business expenditure.
The Supreme Court holds that interest paid under Section 201(1A) of the Income-tax Act, for failure to deduct tax at source, is not an allowable business expenditure under Section 37(1) of the Act.
Interest paid on delayed payment of statutory dues, such as sales tax, service tax, TDS, and GST, is compensatory in nature rather than penal. Consequently, such interest is an allowable deduction in computing business profits.
Interest paid by banks is allowable as a deduction in computing total income. The decision distinguished the Supreme Court's ruling in Vijaya Bank regarding the deductibility of such interest.
Interest paid under section 201(1A) for delay in remitting tax deducted at source is not an allowable business expenditure and cannot be regarded as a compensatory payment. This interest takes its character from the nature of the tax levy, being a direct tax itself.
Interest levied under Section 201(1A) for delayed remittance of Tax Deducted at Source (TDS) is compensatory in nature, not penal. It is a distinct provision for delayed remittance, similar to interest paid by Revenue on refunds.
A multi-state cooperative bank is obligated to deduct tax at source on interest paid on fixed deposits placed by cooperative societies, as Section 194A(3)(viia) of the Income Tax Act, 1961, rather than Section 194A(3)(v), applies to cooperative banks in this context.
