Section 115TE — Case Laws & Commentary

CHAPTER XII-EB - SPECIAL PROVISIONS RELATING TO TAX ON ACCRETED INCOME OF CERTAIN TRUSTS AND INSTITUTIONS

Section 115TE — Interest payable for non-payment of tax by specified person

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

Provision: Imposes simple interest at one per cent for every month or part of a month on the accreted-income tax under section 115TD where the principal officer/trustee and the specified person fail to pay it within the fourteen days allowed by section 115TD(5).

Operative window: Inserted, with sections 115TD and 115TF, by the Finance Act, 2016 with effect from 1 June 2016; the Explanation aligns “specified person” with section 115TD. No subsequent change of substance.

Present status under FA 2026: Unchanged. The Finance Act, 2026 makes no amendment to section 115TE.

Reading note: Section 115TE is the companion interest provision of the exit-tax code, modelled exactly on section 115-P (DDT), section 115TB (securitisation) and section 115S (income-distribution tax). There is no direct authority on it; the candour rule applies, and the section is illuminated by the settled Supreme Court law on the mandatory and compensatory character of statutory interest.

A. SECTION COMMENTARY

A.1 A standard, mandatory, compensatory interest charge

Section 115TE does for the accreted-income tax what section 220(2) does for an ordinary demand and what sections 115-P, 115TB and 115S do for the cognate distribution taxes: it attaches automatic interest to a default in payment. The rate is one per cent for every month or part of a month; the base is “the amount of such tax” (the section 115TD additional income-tax); and the period runs “from the date immediately after the last date on which such tax was payable” — i.e., the day after the fourteen-day window in section 115TD(5) closes — “and ending with the date on which the tax is actually paid.” The drafting is mechanical and leaves no discretion: once the principal tax is unpaid past its due date, the interest accrues by operation of law.

A.2 The trigger date is borrowed wholesale from section 115TD(5)

Because section 115TE pegs the start of interest to “the time allowed under sub-section (5) of” section 115TD, the often-contested question of when the tax was due is answered by the carefully tiered dates in section 115TD(5) — fourteen days from the expiry of the section 253 appeal period (or receipt of the confirming appellate order) in a cancellation case; fourteen days from the end of the previous year in a modification or failure-to-reapply case; fourteen days from the merger date; fourteen days from the expiry of the dissolution window. The practical consequence is that interest under section 115TE cannot be computed without first fixing the section 115TD(5) due date, which in turn depends on the validity and date of the underlying trigger. A successful challenge to the cancellation (Cluster C-1 of the section 115TD note) collapses both the tax and the interest.

A.3 Who is liable, and the joint formulation

The liability is fastened on “the principal officer or the trustee of the specified person and the specified person” — the same joint formulation as the charge in section 115TD(5) and the default in section 115TF(1). The interest is thus recoverable from the entity and from the individual office-holders, consistent with the policy that the persons in control at the exit point should answer for the exit tax and its companions. The Explanation borrows the definition of “specified person” from clause (iia) of the Explanation to section 115TD, so the reach of section 115TE is exactly co-extensive with the charge.

B. STATUTORY POSITION (verbatim operative text)

Section 115TE, Income-tax Act, 1961 (Chapter XII-EB), as it stands on the statute book:

115TE. Where the principal officer or the trustee of the specified person and the specified person fails to pay the whole or any part of the tax on the accreted income referred to in sub-section (1) of section 115TD, within the time allowed under sub-section (5) of that section, he or it shall be liable to pay simple interest at the rate of one per cent for 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.

Explanation.—For the purposes of this section, “specified person” shall have the same meaning as assigned to in clause (iia) of the Explanation to section 115TD.

C. AUTHORITIES

Candour note: there is no reported decision on section 115TE. As with the cognate interest provisions of the distribution-tax chapters, the section is governed by the general law on the character of statutory interest, set out below, and by the section 115TD(5) timing on which the interest is parasitic. The authorities are stated on principle, with their relationship to section 115TE made explicit.

Cluster C-1 : The character of statutory interest — mandatory and compensatory

CIT v. Anjum M.H. Ghaswala, (2001) 252 ITR 1 / 119 Taxman 352 (SC) (Constitution Bench).

Principle: The levy of statutory interest for delayed payment of tax is mandatory and compensatory in nature; where the statute provides for interest in mandatory terms, the authority has no discretion to waive or reduce it save as the statute itself permits. Interest follows automatically once the conditions for its levy are satisfied.

Application to s.115TE: Section 115TE imposes interest in mandatory terms (“shall be liable to pay simple interest at the rate of one per cent for every month or part thereof”) for failure to pay the accreted-income tax within the fourteen days allowed by section 115TD(5). Ghaswala supplies the governing characterisation: the interest is automatic and compensatory, accrues by operation of law from the day after the due date, and is not dependent on any further finding or exercise of discretion. Cited on principle, there being no direct authority on section 115TE.

Status: Supreme Court (Constitution Bench). Foundational authority on the mandatory and compensatory character of statutory interest; cognate to, not a decision on, section 115TE.

Bharat Commerce and Industries Ltd. v. CIT, (1998) 230 ITR 733 / 98 Taxman 151 (SC).

Principle: Interest payable for delay in payment of tax is compensation to the Revenue for being kept out of money lawfully due to it; it is compensatory and not penal, and the taxpayer's use of the funds in the meantime does not relieve the obligation to pay interest for the period of delay.

Application to s.115TE: Confirms the compensatory rationale of the section 115TE interest: it compensates the Exchequer for the period between the section 115TD(5) due date and actual payment of the accreted-income tax, running “from the date immediately after the last date on which such tax was payable” to the date of payment. Cited on principle to explain why the interest is neither a penalty nor discretionary.

Status: Supreme Court. Authority on the compensatory nature of interest for delayed tax payment; cognate to section 115TE, not a decision upon it.

Cluster C-2 : The due-date that section 115TE depends on (cross-reference)

Section 115TE runs from the section 115TD(5) due date and from no other. The authorities that fix the validity and timing of the section 115TD(3) trigger — and hence the section 115TD(5) due date — therefore govern the start of interest under this section. They are catalogued in Cluster C-1 of the section 115TD note and are cross-referenced here rather than repeated.

Industrial Infrastructure Development Corporation (Gwalior) M.P. Ltd. v. CIT, (2018) 403 ITR 1 / 253 Taxman 480 / 301 CTR 153 / 163 DTR 49 (SC).

Principle: An express power to cancel a registration granted under section 12A was conferred on the Commissioner for the first time by the insertion of sub-section (3) in section 12AA by the Finance (No. 2) Act, 2004 with effect from 1 October 2004. Until that date the Commissioner had no power to cancel, withdraw or recall a registration once granted; a substantive power of cancellation cannot be read into the statute by implication, and the 2004 amendment is prospective, not retrospective.

Application to Chapter XII-EB: The whole of section 115TD(3)(i) is keyed to a cancellation of registration or approval; and the Explanation fixes the “date of conversion” as the date of the order cancelling the registration. A cancellation that is itself without jurisdiction or beyond power can therefore furnish no foundation for the accreted-income charge — no valid cancellation, no deemed conversion, no specified date, no charge. This Supreme Court authority is the source of the discipline that the validity and the precise date of the cancellation order are anterior questions to any levy under section 115TD.

Status: Supreme Court. Authority on the source and prospectivity of the power to cancel registration under section 12AA(3); decided before Chapter XII-EB fell for consideration, but directly governs the trigger in section 115TD(3)(i).

M.M. Patel Charitable Trust v. CIT (Exemptions) (ITAT Pune, ITA No. 1130/PUN/2024, order dated 21 February 2025).

Principle: The concept of “specified violation” in section 12AB(4), and the power thereunder to cancel a registration, were introduced only with effect from 1 April 2022; they cannot be invoked to cancel a registration retrospectively for earlier years (there, AYs 2019-20 to 2021-22). A cancellation purporting to operate before the provision existed is without authority of law and is liable to be quashed, and the registration restored.

Application to Chapter XII-EB: Directly material to the date and the validity of the conversion under section 115TD. Because the “date of conversion” (and hence the specified date on which the accreted income is frozen and the fourteen-day clock in section 115TD(5) starts) is the date of the cancellation order, a cancellation that is invalid — or that cannot in law take effect for the year claimed — cannot fix a specified date or sustain the exit tax. The decision shows the first line of defence to a section 115TD demand: attack the cancellation that is said to constitute the conversion.

Status: ITAT Pune; cancellation quashed, registration restored. Tribunal-level decision on the reach of section 12AB(4); cited for its bearing on the timing and validity of the section 115TD(3)(i) trigger, not as a decision construing section 115TD.

Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text reproduced verbatim from the Income-tax Act, 1961. Citations stated as reported; tribunal and stay-stage orders are flagged as such. This material is for professional reference and is not legal advice.