2025 (7) TMI 524 - HC - Income Tax

Petitioner's Income Declaration Scheme 2016 application wrongly rejected despite timely payment before deadline

Gujarat HC held that petitioner's Income Declaration Scheme 2016 application was wrongly rejected. Petitioner deposited third installment on 28.09.2017 ... Declaration filed under the Income Declaration Scheme, 2016 - rejecting the application of the petitioner and not issuing Form 4 - timing of payment of the declared tax amounts - HELD THAT:- It is not in dispute that the petitioner has deposited the third installment on 28.09.2017 which is evident from the Bank Certificate dated 05.10.2017 issued by the Sarvodaya Sahakari Bank Ltd. Thus, the petitioner has already deposited the amount but the same was credited in the account of the respondent on 06.10.2017. As the petitioner has deposited the amount in the Cooperative Bank the same was transferred to Union Bank of India and as such, there was a delay in credit of the amount in the account of the treasury. In such circumstances, no fault can be found on the part of the petitioner for not paying the third installment within time. In view of the above facts that the petitioner has already deposited the third installment by 28.09.2017 which is already debited from the books of account of the petitioner on 29.09.2017, by the Bank as it appears from the Bank Statement placed on record at page ‘29’, there is an effective payment by the petitioner on or before 30.09.2017 and merely because the amount is credited in the account of the Union Bank of India on 06.10.2017, the petitioner cannot be deprived of the benefit of the Scheme, 2016 on the ground that there is a failure on the part of the petitioner to make the required payment before the last date. Petitions succeed and accordingly are allowed. The core legal questions considered in this judgment revolve around the validity of a declaration filed under the Income Declaration Scheme, 2016 (hereinafter 'the Scheme, 2016') and the entitlement of the petitioner to receive a certificate of declaration (Form 4) under the Scheme. Specifically, the issues are:1. Whether the petitioner's declaration under the Scheme, 2016 for the Assessment Years 2012-13 and 2015-16 is valid given the timing of payment of the declared tax amounts.2. Whether the payment of taxes made by the petitioner via cheques on 28.09.2017, which were debited from the petitioner's bank account on 29.09.2017 but credited to the government treasury only on 06.10.2017, satisfies the Scheme's deadline for payment, which was 30.09.2017.3. Whether the petitioner's failure to pay interest on the delayed installment payment, as required under the Scheme and relevant Circulars, affects the validity of the declaration and entitlement to Form 4.Issue-wise Detailed Analysis:1. Validity of the Declaration under the Scheme, 2016 and Timing of PaymentThe Scheme, 2016 was introduced under Section 183 of the Finance Act, 2016, allowing assessees to declare undisclosed income within a prescribed time limit by paying applicable taxes, surcharge, and penalty. The petitioner filed the declaration for the relevant Assessment Years and paid the amounts in installments. The controversy arose over the timing of the third installment payment.The petitioner submitted that the payment was made by cheque on 28.09.2017 and was debited from the petitioner's bank account on 29.09.2017, which is before the last date of payment under the Scheme (30.09.2017). The respondent rejected the application for Form 4 on the ground that the payment was credited in the treasury only on 06.10.2017, which was after the deadline.The respondent relied on Circular No. 15 of 2019 issued by the Central Board of Direct Taxes (CBDT), which extended the last date for payment of the third installment to 30.09.2017, and clarified that payments must be credited by the bank on or before the due date, taking intervening holidays into account. The Circular specified that payments tendered beyond this date would be considered late.The petitioner countered that the payment was effectively made before the deadline because the cheque was issued and debited before 30.09.2017, and the delay in crediting the amount to the treasury was due to the banking process involving a cooperative bank and a clearing bank (Union Bank of India). The petitioner argued that such procedural delay should not be attributed to them.The Court examined the bank certificate submitted by the petitioner, which confirmed that the cheque dated 28.09.2017 was presented through clearing and paid on 29.09.2017 by debiting the petitioner's account. This evidence established that the petitioner had discharged the payment obligation within the prescribed time.The Court reasoned that since the petitioner had no control over the inter-bank transfer process and the delay in crediting the amount to the treasury was attributable to the banking system, the petitioner should not be penalized for the delay in crediting. The Court held that effective payment occurs when the amount is debited from the payer's account, not necessarily when the treasury receives the funds.2. Requirement of Interest Payment for Late PaymentThe respondent also relied on Notification No. 103 of 2019 dated 13.12.2019, which extended the last date for payment with interest to 31.01.2020. It was contended that if the payment was late, interest must be paid to validate the declaration. The petitioner did not pay any interest, and hence the declaration should be invalidated.The Court, however, found that since the petitioner's payment was effectively made before the deadline, the question of payment of interest did not arise. The respondent's contention that the payment was late and interest was due was based on the date of credit to the treasury, which the Court rejected as the controlling factor.3. Application of Law to Facts and Treatment of Competing ArgumentsThe Court applied the legal framework of the Scheme, 2016, relevant CBDT Circulars, and Notifications to the facts established by the bank certificate and payment records. It carefully considered the respondent's reliance on the Circulars and the petitioner's evidence of timely payment.The Court distinguished between the date of payment initiation and the date of credit to the treasury, emphasizing that the former is determinative for compliance with the Scheme. The Court rejected the respondent's argument that the delay in crediting the amount to the treasury invalidated the declaration.This approach balanced the technical requirements of the Scheme with practical realities of banking transactions, ensuring that taxpayers are not unfairly penalized for procedural delays beyond their control.Conclusions on IssuesThe Court concluded that the petitioner had validly made the payment within the prescribed time limit under the Scheme, 2016. The delay in crediting the amount to the treasury was not attributable to the petitioner and did not affect the validity of the declaration. Consequently, the petitioner was entitled to the issuance of Form 4 (Certificate of Declaration) under the Scheme.Significant HoldingsThe Court held:'In such circumstances, no fault can be found on the part of the petitioner for not paying the third installment within time. In view of the above facts that the petitioner has already deposited the third installment by 28.09.2017 which is already debited from the books of account of the petitioner on 29.09.2017, by the Bank as it appears from the Bank Statement placed on record, there is an effective payment by the petitioner on or before 30.09.2017 and merely because the amount is credited in the account of the Union Bank of India on 06.10.2017, the petitioner cannot be deprived of the benefit of the Scheme, 2016 on the ground that there is a failure on the part of the petitioner to make the required payment before the last date.'The Court quashed the impugned orders rejecting the petitioner's application and directed the respondent to issue Form 4 within twelve weeks.Core principles established include:Effective payment under the Scheme, 2016 is determined by the date of debit from the taxpayer's bank account, not the date of credit to the government treasury.Procedural delays in banking transactions beyond the taxpayer's control cannot invalidate a declaration filed under the Scheme.Requirement of payment of interest for late payment under the Scheme arises only if payment is actually late; if payment is effectively timely, interest is not due.