Law: Income Tax Act, 1961

Section: 37,201,201(1A)

Income-tax----Business expenditure---Investment---Interest paid under S.201(1A) for failure to deduct tax at source and remit it to Central Government---Interest is not deductible as business expenditure---Indian Income Tax Act, 19-61, Ss.37 & 201(1A). Income-tax is not allowable as business expenditure. The liability for deduction of tax arises by reason of the provisions of the Act. Under section 201 of the Income Tax Act, 1961, the consequence of failure to comply with the same renders that person liable to be deemed as an assessee in default with all the consequences attached thereto. The liability to pay interest on the amount not deducted or deducted but not paid is directly related to the failure to deduct or remit the amount. The amount required to be deducted is the amount payable as income-tax. 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: The principal amount here would be the income-tax and the interest payable for delayed payment is the consequence of failure to pay the tax and in the circumstances, in the nature of a penalty though not described as such. in subsection (1A) of section 201 of the Act. 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 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: Held, that the Tribunal was not right in holding that the interest under section 201(1A) paid by the assessee was an expenditure allowable as a deduction from profits and gains of business. C.I.T. v. Ahmedabad Cotton Manufacturing Co. Ltd. (1994) 205 ITR 163 (SC); Malwa Vanaspati and Chemical Co. v. CIT (1997) 225 ITR 383 (SC); Mahalakshmi Sugar Mills Co. v. CIT (1980) 123 ITR 429 (SC) and Prakash Cotton Mills (P.) Ltd. v. CIT…

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