2011 (3) TMI 1029 - AT - Income Tax

Tribunal absolves assessee from interest levy due to bank delay in TDS credit.

The Tribunal ruled in favor of the assessee, setting aside the interest levy under section 201(1A) of the Income Tax Act. It held that the assessee was ... Interest under section 201(1A) for delayed deposit of TDS - Deemed payment on delivery of cheque/pay order to Government banker - Liability for delay attributable to collecting bank - CBDT Circular / treasury rule principle treating payment as made on tender to Government bankerInterest under section 201(1A) for delayed deposit of TDS - Deemed payment on delivery of cheque/pay order to Government banker - Liability for delay attributable to collecting bank - Whether interest under section 201(1A) can be levied on the assessee where the assessee handed over a pay order to an authorised bank before the due date but the bank credited the amount to the Central Government after the due date. - HELD THAT: - The Tribunal found as an admitted fact that the assessee deducted TDS for June 2008 and handed over a pay order to an authorised Government banker on 4th July 2008, and the bank collected the amount through the bankers' clearing house on 7th July 2008, the due date for deposit. Although the Central Government account was credited on 8th July 2008, the delay in crediting was attributable to the authorised collecting bank and not to the assessee. The Tribunal applied the established principle (as reflected in the cited High Court decision) that payment by cheque or draft is deemed to have been made on the date of delivery to the Government banker where the instrument is tendered and honoured; this principle is supported by the CBDT/treasury instruction treating payment as made on tender to Government bankers. Consequently, where the collecting bank accepted and collected the pay order on or before the due date, the assessee cannot be held liable for interest under section 201(1A) for the subsequent delay in the bank's crediting to the Central Government account. [Paras 6]Interest levied under section 201(1A) was deleted because payment was deemed to have been made when the assessee handed over the pay order to the authorised bank on or before the due date and any subsequent delay in crediting was the bank's responsibility.Final Conclusion: The Tribunal allowed the appeal, holding that the assessee discharged its TDS deposit obligation by tendering the pay order to the authorised bank before the due date and accordingly deleted the interest levied under section 201(1A). Issues:Levy of interest under section 201(1A) of the Income Tax Act for alleged delay in depositing TDS.Detailed Analysis:Issue 1: Confirmation of levy of interest under section 201(1A) of the Income Tax ActThe appeal was filed against the order of the CIT(A)-III, Lucknow concerning the levy of interest under section 201(1A) of the Income Tax Act for delayed deposit of TDS. The DCIT (TDS) issued a notice for short deductions, including interest on late payment. The assessee contended that TDS was not required on interest payment to a bank under section 194A. Despite timely deposit of TDS, the DCIT levied interest due to a perceived delay in crediting the amount to the Central Government, which was disputed by the assessee.Issue 2: Appeal to CIT(A) and subsequent argumentsThe assessee appealed to the CIT(A), reiterating that the TDS was deposited on time and any delay in crediting the amount was the bank's fault, not theirs. The CIT(A), however, upheld the interest levy based on the date mentioned in the challan. The assessee further argued, citing a judgment, that the bank's delay should not make them liable for interest.Issue 3: Tribunal's analysis and decisionThe Tribunal noted that the TDS was deducted and deposited on time by the assessee. The authorized bank collected the amount on the due date but credited it to the Central Government a day later. The Tribunal emphasized that the delay was on the bank's part, absolving the assessee of any fault. Referring to a circular and a precedent, the Tribunal concluded that the payment should be deemed to have been made on the date of handing over the pay order to the bank. Consequently, the Tribunal set aside the interest levy, ruling in favor of the assessee.Conclusion:The Tribunal allowed the appeal, stating that the assessee was not at fault for the delayed crediting of TDS amount to the Central Government. The decision was based on the understanding that the bank's actions caused the delay, and the assessee had fulfilled its obligation by depositing the TDS on time.