2019 (12) TMI 1032 - AT - Income Tax

Tribunal rules 'month' as 30 days for interest calculation under Income-tax Act

Economic Laws Practice Versus CIT (Appeals) - 59 Mumbai

Economic Laws Practice Versus CIT (Appeals) - 59 Mumbai - TMI Issues Involved:1. Whether the interest on late payment of TDS under Section 201(1A) of the Act should be computed based on calendar months.2. Interpretation of the term 'month' as 'calendar month' in the context of Section 201(1A).3. Applicability of Section 3(35) of the General Clauses Act, 1897 to interpret the term 'month'.4. Consideration of undue hardship due to the interpretation of 'month' as 'calendar month'.5. Rejection of favorable decisions by higher appellate authorities.6. Whether the provisions of Section 201(1A) should be read with Rule 119A of the Income-tax Rules, 1962.7. Application of Rule 119A of the Income-tax Rules, 1962 in the context of Section 201(1A).Detailed Analysis:1. Computation of Interest on Late Payment of TDS:The primary issue was whether the interest on late payment of TDS under Section 201(1A) should be computed based on calendar months. The assessee argued that interest should be calculated based on the concept of a month starting from the date of commencement of the default. The plea was that if the delay was less than 30/31 days, interest should be computed for one month, and if more, for two months. The CIT(A) held that interest should be calculated for each calendar month or part thereof during which the default existed.2. Interpretation of 'Month' as 'Calendar Month':The CIT(A) interpreted the term 'month' as 'calendar month' based on Section 3(35) of the General Clauses Act, 1897. The CIT(A) stated that the governing section, i.e., Section 201(1A), explicitly requires interest to be calculated from the date of deduction to the date of deposit at the rate of 1.5% per month or part of the month. The Tribunal, however, referred to the decision of the Gujarat High Court in CIT v. Arvind Mills Limited, which held that the term 'month' must be given the ordinary meaning of a 30-day period, not a British calendar month.3. Applicability of Section 3(35) of the General Clauses Act:The CIT(A) applied Section 3(35) of the General Clauses Act to interpret 'month' as 'calendar month'. However, the Tribunal noted that the Gujarat High Court decision in Arvind Mills Limited and other tribunal decisions consistently held that the term 'month' should be interpreted as a period of 30 days, not a calendar month.4. Consideration of Undue Hardship:The assessee argued that interpreting 'month' as 'calendar month' would result in undue hardship. The Tribunal acknowledged this concern, noting that interpreting 'month' as a 30-day period aligns with the intention to avoid anomalous situations and undue hardship.5. Rejection of Favorable Decisions:The CIT(A) rejected favorable decisions from higher appellate authorities, including the Gujarat High Court and the Hyderabad Tribunal. The Tribunal emphasized that decisions from higher appellate authorities should be binding on lower authorities, and the CIT(A) erred in not following these precedents.6. Reading Section 201(1A) with Rule 119A:The assessee contended that Section 201(1A) should be read with Rule 119A of the Income-tax Rules, 1962. The CIT(A) disagreed, stating that Rule 119A pertains to Section 244A and not Section 201(1A). The Tribunal, however, noted that the language of Section 201(1A) is identical to Section 244A, and Rule 119A should apply similarly.7. Application of Rule 119A:The Tribunal referred to the decision of the Hyderabad Tribunal in Navayuga Quazigund Expressway, which held that for computing interest under Section 201(1A), 'month' should be interpreted as a 30-day period. This interpretation aligns with Rule 119A, which states that any fraction of a month should be deemed a full month.Conclusion:The Tribunal concluded that the issue was squarely covered in favor of the assessee by the decision in UTI Mutual Fund Vs. DCIT and other precedents. It held that for computing interest under Section 201(1A), 'month' should be interpreted as a period of 30 days, not a calendar month. The Tribunal directed the CPC-TDS/concerned AO to verify and charge interest accordingly. The appeal was allowed.