Section 115S — Case Laws & Commentary

CHAPTER XII-E - SPECIAL PROVISIONS RELATING TO TAX ON DISTRIBUTED INCOME

SECTION 115S - INTEREST PAYABLE FOR NON-PAYMENT OF TAX

Case Laws & Commentary - Income-tax Act, 1961 (as amended by the Finance Act, 2026) - bharattax.co Treatise

Status: LIVE AS MACHINERY FOR THE IDT YEARS. Section 115S was inserted by the Finance Act, 1999 with effect from 1 June 1999 as the interest-charging machinery attached to section 115R. It imposes simple interest at one per cent for every month or part of a month on the additional income-tax (income-distribution tax) that a specified company or a Mutual Fund fails to pay within the fourteen-day period in section 115R(3), running from the day after the due date to the date of actual payment. Because the IDT itself ceased for income distributed on or after 1 April 2020, section 115S now operates only on defaults relating to income distributed up to 31 March 2020, but it remains fully in force for those years.

Finance Act, 2026 impact: None. The Finance Act, 2026 does not amend section 115S or Chapter XII-E.

Candour note on case law: Section 115S has generated no reported decision of its own, because the interest it imposes is automatic and arithmetical once an IDT default under section 115R is established. There is no Supreme Court or High Court ruling construing the section itself. In keeping with the discipline of this treatise nothing has been invented: Part C sets out clearly-labelled cognate authority on the mandatory and compensatory nature of statutory interest - the principles a court would apply to section 115S - and expressly states that none of those decisions is on section 115S.

A. SECTION COMMENTARY

A.1 Function - compensatory interest welded to section 115R

Section 115S is a pure machinery provision. It presupposes a liability to additional income-tax under section 115R and a failure to pay it, in whole or in part, within the fourteen days allowed by section 115R(3). On such failure the person responsible for paying the distributed income, and the specified company or Mutual Fund, 'shall be liable' to pay simple interest at one per cent for every month or part of a month on the unpaid tax, for the period running from the day immediately after the last date for payment to the date of actual payment. The interest is the standard time-value compensation the Act exacts for retention of money due to the exchequer; it is the exact counterpart of section 115-P (interest on unpaid DDT) and mirrors the structure of sections 201(1A), 220(2) and 234A-234C.

A.2 Three features that decide any question that arises

First, the levy is mandatory, not discretionary: the words 'shall be liable' leave no room for waiver or reduction by the Assessing Officer, in line with the settled construction of the Act's other interest provisions. Second, it is compensatory, not penal: it compensates the revenue for delayed receipt and carries none of the requirements of a penalty (no mens rea, no show-cause as a condition of charge), so interest under section 115S does not depend on any finding of contumacy. Third, it is automatic and self-computing: once the IDT default and its duration are known, the interest follows by arithmetic - which is why the section has thrown up no merits litigation of its own.

A.3 Operation in practice and the recovery link to section 115T

The interest attaches to the principal IDT and follows its fate: if the additional income-tax under section 115R(1) or (2) is not paid, section 115S quantifies the interest on it, and section 115T then treats the defaulter as an assessee in default in respect of the tax (and, with it, the machinery for recovery). The three provisions therefore form a closed enforcement chain - charge (115R), interest (115S), deemed default and recovery (115T) - that operates independently of the assessment of any person's total income. Since the regime is prospectively spent from 1 April 2020, section 115S is encountered today only in relation to closed (pre-1-4-2020) distribution years.

B. STATUTORY POSITION (verbatim operative text)

Reproduced verbatim from the Income-tax Act, 1961 (Bare Act, as amended up to the Finance Act, 2025; not amended by the Finance Act, 2026):

Interest payable for non-payment of tax.

115S. Where the person responsible for making payment of the income distributed by the specified company as referred to in clause (h) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002) or a Mutual Fund and the specified company or the Mutual Fund, as the case may be, fails to pay the whole or any part of the tax referred to in sub-section (1) or sub-section (2) of section 115R, within the time allowed under sub-section (3) of that section, he or it shall be liable to pay simple interest at the rate of one per cent every month or part thereof on the amount of such tax for the period beginning on the date immediately after the last date on which such tax was payable and ending with the date on which the tax is actually paid.

[Section 115S inserted by the Finance Act, 1999, w.e.f. 1-6-1999; references to the 'specified company' consequential on the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002).]

C. AUTHORITIES

No court has construed section 115S. The decisions below are included only because they state the principles a court would apply to it - that statutory interest of this kind is mandatory and compensatory. None is a decision on section 115S, and each is labelled accordingly.

Cluster C-1 : Statutory interest is mandatory (principle only)

CIT v. Anjum M.H. Ghaswala, (2001) 252 ITR 1 (Supreme Court, Constitution Bench).

Principle: Interest under sections 234A, 234B and 234C is mandatory. The deliberate use of 'shall' (replacing the earlier 'may') makes the charge compulsory; the authorities have no discretion to waive or reduce it save under a Board circular issued under section 119.

Application to s.115S: Section 115S also uses 'shall be liable'. On the Ghaswala reasoning the interest is mandatory and not within the Assessing Officer's discretion to waive or reduce. Cited on principle only.

Status: Supreme Court, Constitution Bench; (2001) 252 ITR 1. Authority on the mandatory character of statutory interest; not a decision on section 115S.

Cluster C-2 : Statutory interest is compensatory, not penal (principle only)

Bharat Commerce & Industries Ltd v. CIT, (1998) 230 ITR 733 (Supreme Court).

Principle: Interest payable for delayed or non-payment of tax is compensatory in character - it compensates the revenue for being kept out of money lawfully due - and is not in the nature of a penalty; the liability arises automatically by operation of the statute.

Application to s.115S: Confirms that section 115S interest, being for non-payment of the IDT within the statutory time, is compensatory and automatic, requiring no finding of default-with-fault. Cited on principle only.

Status: Supreme Court; (1998) 230 ITR 733. Authority on the compensatory nature of statutory interest; not a decision on section 115S.