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TDS whether covered in Section 43B

RAJU (LEARNER) (1089 Points)

11 June 2010

Dear Members,

As per Section 43B, any sum payable by way of TAX, duty....... is allowed as deduction on payment basis..... My query in this regard is whether Tax deducted at source by the deductor will also be covered under Section 43B. If covered, whether tax deductions which are either not remitted during the previous year or before the due date for filing the returns are to be disallowed U/s.43B.

Please clarify this with reference to payments which are already subjected to disallowance vide Section 40(a)(i) and 40(a)(ia).

Regards

Dharmaraju

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22 Replies

Siddarth R Sunder Ram (Finance Professional) (230 Points)
Replied 15 June 2010

Sec 43B allows deduction for taxes, cess, duty etc on payment basis. However this tax does NOT cover income tax as income tax is specifically disallowed by sec 40(a)(ii). Therefore TDS will also be automatically disallowed irrespective of the date of deduction or remittance

Amir (Learner) (4016 Points)
Replied 16 June 2010

Dear Dharmaraju,

TDS is not covered by Sec 43B, since 43B deals with the allowability/dosallowability of "Expense" & TDS is not an expense in itself for the deductor. It is just a mode of discharging the consideration.

TDS is not something, which is debited to Profit & Loss Account and opening words of Sec 43B says -

"Notwithstanding anything contained in any other provision of this Act a deduction otherwise allowable under this Act in respect of.........."

2 Like

RAJU (LEARNER) (1089 Points)
Replied 16 June 2010

Dear Amir,

The expense would have been accounted at full value and the tax deducted therefrom will be credited separately. As expense debited will be Gross, TDS element is also included in it. So the deduction is claimed though not separately.

1 Like

Amir (Learner) (4016 Points)
Replied 16 June 2010

Hi bro.,

I was waiting for it......

Ok let me try to convince you from a different angle -

Sec 40(a) is a specific section that talks about the allowability of Expenses on which TDS is required to be deducted.

Sec 43B is general when it comes to allowability of Expenses involving Govt. levy.

Now when specific section has disallowed any expenditure, how can a general section disallow it again?

1 Like

DT Fundas - Tarun rustagi ( Author) (1150 Points)
Replied 16 June 2010

dear friend the above replies are correct.since income tax is not a deductible expenditure then how can u treat allowability of tds.tds itself is a part of income tax.

Amir (Learner) (4016 Points)
Replied 16 June 2010

Hi Tarun,

U r mixing the two things, Income Tax & TDS.

TDS is not an income tax for the deductor.

RAJU (LEARNER) (1089 Points)
Replied 16 June 2010

I agree with you Amir and that is the reason why I had specifically mentioned in my query itself. But in case of TDS on Salary, Section 40(a) do not provide for disallowance. In that case, if TDS is not remitted within due date, can it be disallowed U/s.43B?

Amir (Learner) (4016 Points)
Replied 16 June 2010

Bro for me TDS is not covered by Sec 43B.

The very reason for the above is TDS is not an expenditure in itself and as such something which can not be claimed can never be allowed/disallowed.

Further I feel, to say that TDS on Salary is not covered by Sec 40 makes its way to Sec 43B is not a good interpretation since if law had to control TDS payments on salary then it would have done that in Sec 40 itself, like in other cases. Infact try to see the flip side of it, the very absence of TDS on salary from Sec 40 makes it clear that it is no way regulated by means of disallowances due to non payment or delayed payment......isnt???

1 Like

RAJU (LEARNER) (1089 Points)
Replied 18 June 2010

Sorry for the delay....

1. TDS is claimed as deduction as expenditure debited to P & L will be gross inclusive of TDS and hence if it is not paid it is bound to have claimed without making payment.

2. Section 40 speaks of disallowance of entire expenditure if the Tax is not paid, whereas 43B will be applicable to the extent of tax only.

3. The intention of Sec 43B is to seek early and prompt payment of all statutory dues whether it is in the form of TDS or any other taxes.

Section 43B states that

43B. Notwithstanding anything contained in any other provision of this Acta deduction otherwise allowable under this Act in respect of—

any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or]

Reading of the above provision makes it clear that all forms of taxes payable where such sums are allowed as deduction are to be allowed only payment basis. Since TDS is claimed as deduction, I believe the same falls within the purview of 43B.

Amir Bhai, ab tho man javo.

Amir (Learner) (4016 Points)
Replied 18 June 2010

HI Bhai,

I am not being fussy at all, I am more eager to learn new things but somehow I fail to understand this -

Suppose - a person incurrs printing expenses from ABC company.

Journal Entry would be -

Printing Expenses A/c.................Dr

To ABC co.

Can we say that in the above case the person is claiming "ABC Co" as expenditure?

Then how can you say that - "TDS" is claimed as an expense in the following entry -

Parinting expenses A/c.........Dr

To ABC Co.

To TDS payable

Printing expenses will remain the expenditure incurred..isnt??

First question, when I have not incurred nor I have claimed TDS as an expense than how can it be allowed/disallowed? {Opening words of Sec 43B makes it clear yaar..}

Secondly, once Sec 40 has disallowd the entire expenditure then it does not make any sense to say that a part of it is also disallowed u/s 43B.

Thirdly, Income Tax Act provides separately for interest & penalties in case of default in the payment/deduction of TDS. No need for any further section to list out the consequences for the same default.

RAJU (LEARNER) (1089 Points)
Replied 19 June 2010

Hi Bhayya,

I have never felt that you are fussy. You are not only a learner but even make people learn....

Let me try to make my point clear taking your ABC for illustration;

Dr. Printing Expenses 100

Cr. TDS 2

Cr ABC 98

Here, the deductor is claiming expense of Rs.100 and the actual outflow for the deductor is Rs.98 since the Tax of Rs.2 deducted from the payee is due to be paid to the credit of Central Government. By debiting Rs.100 to P & L, the deductor is claiming Rs.100 (Gross) though has not remitted TDS of Rs.2. Hence, the deductor is deemed to have availed the deduction...

As explained before, disallowance U/s.40 is not applicable for non-deduction in case of Salary. Please also consider the situation 4 years back when non-compliance of TDS was not subjected to disallowing of the expenditure.

Inspite of interest & penalty provisions, non-complaince of TDS provisions are subjected to disallowance U/s.40. So, this stand will not help much, I believe...

RAJU (LEARNER) (1089 Points)
Replied 22 June 2010

Hi Amir,

Any luck on the matter?

Amir (Learner) (4016 Points)
Replied 22 June 2010

Hi Dharmraju,

I would still stick to my reply.......:)

Since an item, which is never claimed cannot be disallowed/allowed.

Bro, pls discuss it with your boss or other people in ur firm...

May I request other members to please come & contribute to this discussion.......

Finaly, I would be really happy to be proved wrong in this case.......

1 Like

RAJU (LEARNER) (1089 Points)
Replied 22 June 2010

Hi Amir,

Thanks for all your replies Amir. Surely I will seek clarification from other known people and will let you know the conclusion once I am clarified. Hope to make to Happy