2013 (4) TMI 964 - AT - Income Tax

Tribunal affirms interest levy on delayed TDS deposits under Income-tax Act

ICICI Bank Limited Versus DCIT (TDS), Lucknow

The Tribunal upheld the orders of the ld. CIT(A) confirming the interest levy under section 201(1A) of the Income-tax Act, 1961 for delayed TDS deposit ... - ISSUES PRESENTED AND CONSIDERED 1. Whether interest under section 201(1A) of the Income-tax Act is correctly leviable where tax deducted at source (TDS) was deposited after the date on the challan but the assessee contends the bank receipt/physical delivery occurred earlier. 2. What is the applicable rule for determining the date of payment of Government dues tendered by cheque/draft/pay order - whether the date of handing over the instrument to the bank or the date of clearance/entry in the receipt scroll governs - and whether earlier authority/circulars applying Central Treasury Rules are applicable after 1.6.1983. 3. Whether any discretion exists to waive or ignore interest under section 201(1A) on grounds of bona fide belief, reasonable cause, or constitutional challenge (Article 14) when there is a short delay in deposit of TDS. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Levy of interest under section 201(1A) where date of deposit appears delayed Legal framework: Section 201(1) treats a person as an assessee-in-default for failure to deduct or pay TDS; section 201(1A) prescribes interest at one percent per month or part of a month from the date tax was deductible to the date such tax was actually paid. Clause (b) of Rule 119A of the Income-tax Rules deems any fraction of a month to be a full month for interest calculation. Precedent treatment: Decisions cited (e.g., Majestic Hotel Ltd.; Munni Lal & Co.; Bennet Coleman; Dhanalakshmy Weaving Works; K.K. Engg. Co.; Assam Small Industries Dev. Corpn.; Prem Nath Motors) establish that interest under s.201(1A) is mandatory and not punitive for which reasonable cause is irrelevant for waiver; these authorities were followed. Interpretation and reasoning: The Court accepted the Assessing Officer's application of the statutory provision and Rule 119A: where the date on the challan indicates a later clearing/entry date, interest is chargeable for the intervening period. The Tribunal found the assessee failed to establish that the challan date should not be treated as the date of payment. Ratio vs. Obiter: Ratio - interest under section 201(1A) is mandatory and accrues from the statutory deductible date until the date tax is actually paid as determined under applicable receipts/payment rules; any fraction of a month is treated as a full month for interest computation under Rule 119A. Observational dicta - emphasis on the assessee's burden to prove an earlier effective payment when the challan shows a later date. Conclusion: Interest under section 201(1A) was rightly levied because the date on the challan (reflecting the date of clearing/entry) indicated delayed payment and the assessee did not prove entitlement to an earlier payment date. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Applicable rule for date of payment - Receipts and Payments Rules (RPR) vs. Central Treasury Rules (CTR) and effect of Rule 19(1)(c) & Rule 20(i) Legal framework: Receipts and Payments Rules (RPR) as applicable w.e.f. 01.06.1983: Rule 19(1)(c) requires depositors to take precautions when tendering cheques/drafts for payment of Government dues; Rule 20(i) deems payment made when the cheque/draft is cleared and entered in the receipt scroll. Earlier Circulars and Treasury Rules (e.g., Rule 80 of CTR) provided that tendering an instrument might be treated as payment when handed over. Precedent treatment: Authority for Advance Rulings (Y Ltd., In re) and later decisions applying RPR were relied upon to hold that RPR governs post-1983 transactions, and that Rule 20(i) requires deeming payment upon clearance/entry. Decisions relying on CTR/CBDT Circular No.261 (pre-1983 treatment) were distinguished because CTR compilation is not applicable for the period after 1.6.1983. Interpretation and reasoning: The Court accepted that RPR applies to the period in issue. Under RPR, mere handing over of a cheque/pay order does not constitute payment for Government accounts unless the instrument is cleared and entered in the receipt scroll; depositor bears the risk of delayed realization and must ensure timely presentation as per Rule 19(1)(c). The decision in Kangold (relying on CTR) is distinguishable on this factual/timing basis. Ratio vs. Obiter: Ratio - for dates on or after 01.06.1983, RPR governs the date of payment of Government dues tendered by cheque/draft and payment is deemed to have been made on date of clearance and entry in the receipt scroll under Rule 20(i); Rule 19(1)(c) places the onus on the depositor to ensure timely presentation. Observations distinguishing pre-1983 CTR authority are explanatory but integral to the holding. Conclusion: The date on the challan (10.10.2007) reflecting clearance/entry is the operative date of payment under RPR; therefore payment was after the due date and interest is chargeable. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Discretion to waive interest and constitutional complaint under Article 14 Legal framework: Section 201(1A) prescribes payment of interest and is not included within the waiver/penalty-reasonableness provisions such as section 273B; Rule 119A computes interest monthly with fractions deemed full months. Precedent treatment: Binding authorities affirmed that interest under s.201(1A) is mandatory and not a penalty subject to discretionary waiver for bona fide belief or reasonable cause; such reasoning was applied and authorities cited by the lower authority were followed. Interpretation and reasoning: The Tribunal reiterated that reasonableness of cause is relevant for penalty imposition (s.271C etc.) but not for determining default under s.201(1A). The mandatory nature of interest and the statutory mechanism for calculation (including rounding up fractions of months) preclude waiver. The Article 14 (equality) challenge was noted in grounds but not entertained as the Tribunal found no infirmity in applying the statutory scheme. Ratio vs. Obiter: Ratio - absence of jurisdiction to waive interest under s.201(1A) on grounds of bona fide or reasonable cause; mandatory character affirmed. Observations on harshness of monthly rounding and Article 14 are obiter in the sense that they were asserted but not sustained as a ground to invalidate the statutory scheme in this case. Conclusion: No discretion arises to exempt interest under s.201(1A) for short delays or bona fide reasons; constitutional challenge was not accepted in face of the statutory framework and precedents. ADDITIONAL OBSERVATIONS / CROSS-REFERENCES 1. The Tribunal cross-referenced the RPR analysis (Issue 2) directly into the determination under section 201(1A) (Issue 1): because the date of clearance/entry (RPR) was later than the deductibility date, interest calculation under section 201(1A) followed inevitably. (See cross-reference between Issue 1 and Issue 2 analyses.) 2. The Court treated cited authorities relying on CTR/CBDT Circulars as distinguishable where the RPR applies; authorities holding the mandatory character of s.201(1A) were followed and applied to reject grounds seeking waiver or different treatment. FINAL CONCLUSION The levy of interest under section 201(1A) was upheld: the date on the challan reflecting clearance/entry under Rule 20(i) of the Receipts and Payments Rules (applicable w.e.f. 01.06.1983) is the date of payment for TDS; interest is mandatory and any fraction of a month is to be treated as a full month under Rule 119A, and no relief on grounds of bona fide belief, reasonable cause or Article 14 was available to the assessee. Appeals dismissed.