Interest on late payment of TDS

[Harshavardhana Datar]

Honble Karnataka High Court in the matter of CIT v. Oriental Insurance Co Ltd [2009] 183 TAXMAN 186 {KAR} has held that

Section 201(1A) is a provision to levy interest for delayed remittance of the TDS. It is the practice of the revenue that for belated

payment of tax for any reasonable cause, the assessee is liable to pay interest at the rate of 12 per cent per annum. Similarly, 

for refunds, the revenue pays interest to the assessee. Therefore, the levy of interest under section 201(1A) cannot, at any rate, 

be construed as penalty.

Hence, it will be of immense use to rely on this case regarding the allowance of the Interest on late payment of TDS.

Thanks

[CA_balakrishnan]

Honble Karnataka High Court in the matter of CIT v. Oriental Insurance Co Ltd [2009] 183 TAXMAN 186 {KAR} has held that

Section 201(1A) is a provision to levy interest for delayed remittance of the TDS. It is the practice of the revenue that for belated

payment of tax for any reasonable cause, the assessee is liable to pay interest at the rate of 12 per cent per annum. Similarly, 

for refunds, the revenue pays interest to the assessee. Therefore, the levy of interest under section 201(1A) cannot, at any rate, 

be construed as penalty.

Hence, it will be of immense use to rely on this case regarding the allowance of the Interest on late payment of TDS.

Thanks

Dear Sir,

Are you suggesting that because interest is not "penalty, it can be claimed as a deduction? However, this cannot be because the liability to pay advance tax and interest thereon is a personal obligation and not a business liability. There is no provision in the Act or under general principles which sanction a deduction of interest on advance tax.

[satyanveshi]

I dont know the intention of the question framer. But when I see the answer given by one of friends, I thought, I should share my view about the opinion expressed. In my opinion, the interest on 201(1A) is also an allowable expenditure and can be claimed in the P & L account. No need to claim the same below the line. Every expenditure incurred is allowable u/s 37(1) of the Act unless otherwise provided in the IT Act and  if it is incurred for the purpose of business. Why interest u/s 201(1A) has arisen. Because, TDS was not deducted or if deducted TDS was not remitted to governments kitty within the time specified. That means the funds were utilised for business purpose without paying to the government. In case the TDS was remitted on the date when it was to be remitted then the assessee should have borrowed funds for the purpose of business. Therefore, the interest on such borrowed funds is to be allowed u/s 36(1)(iii) of the Act. In other wards we can say that the assessee had borrowed funds from the government and utilised the same for business purposes. Can we, now, say that interest is not allowable. No,  certainly not. For disallowance of the expenditure like IT and WT there are specific provisions u/s 40(a)(ii) and 40(a(iia) respectively. BUt I cannot find a provision in IT Act to get disallowance of the interest paid u/s 201(1A) so far as it is proved beyond doubt that the funds held in the company/concern are utilised for business purposes  more so when demand u/s 201(1) is allowable ( this argument is acceptable?).
From the beginning I am thinking in these lines................... But many people working in the department are not accepting this argument. Can anybody throw more light in different directions..............

Thanks to the question framer and subsequent participaters .........................

[Harshavardhana Datar]

I think interest under section 201(1A) is not an interest on advance tax and hence it can not be deemed to be personal expense. It shall be business expense and can be claimed as a regular business expense. I am sure revenue shall challenge this judgement but since it is a compensation for delay in TDS payment I think it should be allowed. Thanks.