|QUERY:||X Ltd. has issued debentures on which interest is payable every six months on December 31st and June 30th. The debentures are listed on the stock exchange. As per the consistently followed accounting practice, the company has made provision for interest on debentures for the period January 2010 to March 2010. However, it has neither deducted nor paid the TDS in respect of such provision. The tax is deducted and paid on or after each coupon date, and hence will be deducted and paid on 30th June, 2010. Certificates for TDS will be to the persons who are the registered holder of debentures as on the coupon date. The company wants to reconfirm whether the practice followed by it is correct in law or not? Please advise the company as to whether the amount of interest provided has to be included in the quarterly E-TDS return for March, 2010? Whether interest debited in P & L A/c. would be disallowed under section 40a(ia) of the Act?|
|ANSWER:||– From January 1 to March 31, 2010, “interest accrued but not due”, for which provision has been made in the accounts. However, it will be due only on June 30, 2010 and would be credited to payees account or suspense account or payable account only on June 30, 2010. Hence, no TDS is required to be deducted, as per IDBI vs. ITO [10 SOT 497 (Mum)]
– In the said decision, it has been held, that the whole scheme of TDS proceeds on the assumption that the person whose liability is to pay an income knows the identity of the beneficiary or recipient of the income. In this view of the matter, TDS mechanism cannot be put into practice until identity of the person in whose hands it is includible as income can be ascertained. Thus S. 193 does not require TDS to be deducted at source in respect of the provision for interest accrued but not due, made by an assessee where the ultimate recipient of such interest accrued but not due, cannot be ascertained at the point of time when the provision is made.
- No. It has to be included in quarterly e-TDS return of June, 2010.
- S. 40a(ia) of the Act is not applicable as the wordings of the section read as under:
“any interest, commission or brokerage, rent, royalty, fees for professional services or fees or technical services payable to a resident, or amounts payable to a contractor or sub contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVIIB and such tax has not been deducted or, after deduction, has not been paid,”
Thus reading the above provision, it is clear that unless tax is deductible and not deducted the amount of interest paid cannot be disallowed under section 40a(ia) of the Act.
|EXPERT:||CA. H. N. Motiwalla|
|CATCH WORDS:||disallowance, interest on securities, stock exchange, tax deducted at source|
Opinion Of Eminent Legal Luminaries On Controversial Issues
Whether Tax Is Required To Be Deducted In Respect Of Interest Accrued But Not Due?
Credit: Several of the queries and answers are reproduced with permission from the AIFTP Journal. We thank AIFTP for generously allowing us to host their research material.
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