Allowance or disallowance of interest on TDS

COMMISSIONER OF INCOME TAX vs. CHENNAI PROPERTIES & INVESTMENT LTD.

HIGH COURT OF MADRAS

R. Jayasimha Babu & N.V. Balasubramanian, JJ.

Tax Case No. 468 of 1986

20th April, 1998

(1999) 239 ITR 435 (MAD) : (1999) 105 TAXMAN 346 (MAD)

Legislation referred to

Sections 201(1A), 37,

Case pertains to

Asst. Year 1981-82

Decision in favour of

Revenue

Business expenditure—Interest paid on agricultural loans—Interest under s. 201(1A)—Interest paid for period of delay takes colour from the nature of principal amount required to be paid but not paid within time—Principal amount here would be income-tax and interest is payable for failure to pay the tax deducted at source—The fact that income-tax required to be remitted was not income-tax payable by assessee but on behalf of another does not in any manner after the character of payment—Income-tax is not allowable as business expenditure—Amount not deducted and remitted has the character of tax—Therefore, interest paid under s. 201(1A) cannot assume the character of business expenditure and is not allowable as deduction.

Conclusion

Interest paid under s. 201(1A) cannot assume the character of business expenditure and is not allowable as deduction as the liability to pay interest is directly related to the failure to deduct or remit the tax deducted at source.