{"id":7804,"date":"2020-06-10T10:04:14","date_gmt":"2020-06-10T04:34:14","guid":{"rendered":"https:\/\/itatonline.org\/articles_new\/?p=7804"},"modified":"2020-06-10T10:04:14","modified_gmt":"2020-06-10T04:34:14","slug":"advance-tax-of-the-covid-financial-year-first-installment-of-dilemma","status":"publish","type":"post","link":"https:\/\/itatonline.org\/articles_new\/advance-tax-of-the-covid-financial-year-first-installment-of-dilemma\/","title":{"rendered":"Advance Tax Of The Covid Financial Year – First Installment Of Dilemma!!"},"content":{"rendered":"

\"Anuj-Kisnadwala\"Advocate Anuj Kisnadwala has eloquently voiced the dilemma that all taxpayers are presently facing with regard to the payment of advance-tax. While non-payment attracts levy of interest, excess payment creates the problem of seeking a refund. The ld. author has pointed out that in any event, interest is payable at only 0.75% and not at 1% as prescribed by section 234C of the Act. He has also opined, relying on judicial precedents, that interest under section 234C of the Act can be charged only for the actual period of default and not for the entire period of three months <\/strong> <\/p>\n

1) The next date of compliance, of some significance, under the Income Tax Act, 1961 (‘the Act’), falls on 15thJune, 2020 by which assessee will have to discharge the obligation of payment of first instalment of advance tax for the financial year 2020-21. Out of the total estimated tax liability of the year (after reducing T.D.S.), 15% of tax has to be paid on or before that date unless the date is extended. As the government is in urgent need of resources, the chances of extension of due date are not very bright. Although, recently the Government has granted extension in respect of due date for payment of GST, it has come with a stipulation of interest. (except for small businesses)<\/p>\n

<\/p>\n

Estimation of income – Almost an impossible task<\/u><\/strong><\/p>\n

\n 2) Due to the pandemic and consequential lockdown, most of the businesses have not remained operational in this financial year till recently. It is safe to assume that most of the businesses would not have earned any income so far, rather would have made losses. However, advance tax liability is based on the income of the whole year. Considering the present uncertainties, estimating the income for the current year would definitely be a tough task. For those assessees, who would be ultimately filing loss returns (best vaccine if the tax rate is increased to 40%), there is no need to worry about estimate going wrong. However, for others, chances of estimate going wrong are quite high. This is for the reasons that (i) going by the present conditions, one would be pessimistic about future earnings (but eventually it may happen) and (ii) even in a case where tax liability is envisaged, one may not be able to discharge it due to liquidity issues. <\/p>\n

\n Consequence of default – interest u\/s 234C<\/u><\/strong><\/p>\n

\n 3) The default in payment of advance tax would invite a liability of payment of interest u\/s 234C of the Act, the relevant part of which reads as under;<\/p>\n

\n “234C. (1)[Where in any financial year,—<\/em><\/p>\n

\n [(a) an assessee, other than [the assessee referred to in clause (b)], who is liable to pay advance tax under section 208 has failed to pay such tax or –<\/em><\/p>\n

\n (i) the advance tax paid by such assessee on its current income on or before the 15th day of June is less than fifteen per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of September is less than forty-five per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of December is less than seventy-five per cent of the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one per cent per month for a period of three months on the amount of the shortfall from fifteen per cent or forty-five per cent or seventy-five per cent, as the case may be, of the tax due on the returned income;<\/em><\/p>\n

(ii) ……..”<\/em><\/p>\n

Thus, in case of shortfall, the section prescribes payment of interest ‘<\/strong>at the rate of one per cent per month for a period of three months on the amount of the shortfall’<\/em><\/strong>. Two questions arising out of the above are proposed to be discussed viz. (i) what would be the rate of interest and (ii) what would be the period for which interest would be levied u\/s 234C of the Act.<\/p>\n

\n Rate of interest<\/u><\/strong><\/p>\n

\n 4) As noted above, S. 234C of the Act prescribes charging of interest at the rate of one percent. However, recently, the Central Government has issued an Ordinance called ‘The taxation and other laws (Relaxation of certain provisions) Ordinance, 2020’, which has been notified in the Official Gazette of India on 31.03.2020. The Ordinance has been issued to give certain relaxation in respect of the provisions of certain Specified Act, including Income Tax Act. Section 3(2) of the said Ordinance reads as under;<\/p>\n

\n “(2)Where any due date has been specified in, or prescribed or notified under, the specified Act for payment of any amount towards tax or levy, by whatever name called, which falls during the period from the 20th day of March, 2020 to the 29th day of June, 2020 or such other date after the 29th day of June, 2020, as the Central Government may, by notification, specify in this behalf, and such amount has not been paid within such date, but has been paid on or before the 30th day of June, 2020, or such other date after the 30th day of June, 2020 as the Central Government may, by notification, specify in this behalf, then, not withstanding anything contained in the specified Act, – <\/em><\/p>\n

\n (a) the rate of interest payable, if any, in respect of such amount for the period of delay shall not exceed three-fourth per cent for every month or part thereof;<\/em><\/p>\n

\n (b) ……..”<\/em><\/p>\n

As per the above sub-section, where any due date for payment falls between 20-03-2020 and 29-06-2020 (which date can be extended by government) and if such payment has not been made, the rate of interest to be charged cannot exceed 0.75% per month for the period of delay. However, this concession is subject to the condition that such amount has been paid on or before 30th June 2020 (or extended date). The above sub-section also contains a non obstante clause and thus overrides S. 234C of the Act so far as it relates to the rate of interest. Although S. 234C of the Act do not specify the exact period (i.e. from which date to which date) to which three months relates, it is safe to conclude that the period of three months is from 15-06-2020 to 15-09-2020 being the due date of next installment of advance tax. Viewed from this angle, there is a conflict between S. 234C of the Act and provisions of Ordinance and therefore the rate of interest prescribed in the Ordinance shall prevail. Thus, the rate of interest to be charged would be 0.75% and not 1% during the period from 16th June,2020 to 30th June, 2020 (or extended date)provided the payment is made by 30th June 2020 (or extended date).<\/strong> Whether interest would be levied for the period of delay or the entire period of 3 months is the issue discussed next.<\/p>\n

\n Period of interest<\/u><\/strong><\/p>\n

\n 5. The next question to be considered is – if the assessee, who has missed the due date, but has made the payment of advance tax subsequently say on 10-07-2020, what would be the period for which interest would be charged? Whether interest would be charged for the period of default only (i.e. 16-06-2020 to 10-07-2020) or for the period of three months? <\/p>\n

6. As noted above, S. 234C of the Act provides for charging of interest ‘at the rate of one per cent per month for a period of three months’<\/em><\/strong>. The section provides for the interest at the rate of one per cent per month<\/strong>. Thus, the interest has to be calculated on monthly basis and it is suggested that it has to be for the period of delay only. The use of the words ‘for a period of three months<\/strong>’ is for the purpose of signifying the outer limit of the period. If the legislature would not have used the words ‘for a period of three months’, <\/strong>interest would run beyond the date of next installment. This could not have been intended, as the section provides for further interest from the date of next installment, if default continues. Charging of interest twice on the same amount could not have been intended. It may be noted that the legislature has not provided for charging of interest ‘at the rate of three per cent’, which could have been done if the intention was to charge interest at the rate of one per cent for a fixed period of three months.<\/strong> Instead the section uses the words ‘one per cent per month’ which indicates that interest is to be charged on monthly basis till the date of actual payment.<\/p>\n

7. Further, interest u\/s 234C of the Act is compensatory in nature, i.e. it is intended to compensate the government for depriving of money due to delayed payment of tax and hence it cannot be charged beyond the period of default. Apart from the above, the interpretation that interest is to be charged for three months, irrespective of period of delay, results in absurdity. An assessee who has delayed the payment for few days would be treated at par with the assessee who has not paid the advance tax at all. Interpretation leading to such unjust treatment is to be avoided more particularly when other interpretation is equally possible.  <\/p>\n

8. The Hon’ble Tribunal in the case of Kailash Associates v. DCIT [50 ITD 431; 52 TTJ 213 (<\/strong>Amritsar<\/strong>)]<\/strong> opined that the interest u\/s 234C of the Act is chargeable only for the period of default, subject to maximum period of 3 months. The Hon’ble Tribunal considered the language of S. 234C of the Act as well as pre-decessor S. 216 of the Act. It also considered CBDT Circular Explaining Provisions of Finance Bill 1987 wherein it is observed that ‘interest shall be chargeable for period of three months’. Following reasoning of the Hon’ble Tribunal is worth noting;<\/p>\n

"There is a distinction between the word ‘chargeable’ and ‘charged’. Section 234C does not provide that interest shall be charged for a period of three months but it provides that interest shall be chargeable, as also rightly explained by the CBDT, for a period of three months. When we say interest is chargeable for a period of three months it means the maximum period for which interest is chargeable. One may ask as to what is the significance of the words ‘from for a period of three months’ provided in Section 234C <\/strong>. It is pertinent question which we would like to answer. As already pointed out assessee was required to pay 20 per cent of the tax due on the returned income by 15-9-1990. 50 per cent of the tax due was payable by 15-12-1990. Now as in this case assessee has committed default in the payment of 20 per cent of the advance-tax by 15-9-1990 as well as in the payment of second instalment which was due by 15-12-1990. If the restriction for the levy of interest for a maximum period of three months had not been provided then it would result in the levy of interest twice and in some cases thrice for the same default.<\/em>” (emphasis supplied)<\/p>\n

The Hon’ble Tribunal further noted the history of insertion of S. 234C, which has replaced the earlier provisions of S. 216 of the Act. It also noted that u\/s 216 of the Act, interest could be charged only for the period of default. The Hon’ble Tribunal relied upon the CBDT circular clarifying that S. 234C has replaced S. 216 of the Act and concluded as under;<\/p>\n

\n “The above section clearly provides for levy of interest per annum for the period during which payment was deficient. The CBDT having clarified that Section 234C replaced Section 216 the contention raised on behalf of the assessee that the interest is chargeable only for the period of default not exceeding three months gets credence.<\/em>”<\/p>\n

\n 9. The above order of the Hon’ble Tribunal was followed by the Hon’ble Tribunal in case of Panther Investrade Ltd v. DCIT [160 taxman 203 (Mum)]<\/strong>. Relying on series of High Court decisions, it was held that the interest u\/s 234C of the Act is compensatory in the nature. The Hon’ble Tribunal also held that if Departmental stand is accepted, it will result in to disadvantage to a person who has taken extra pain to pay the tax. Ignoring payment received by the Government and asking the assessee to pay interest on a sum which was already paid would be unjust and inequitable.<\/p>\n

10. The Hon’ble Tribunal in the cases of Vesuvius India Ltd v. <\/strong>ACIT<\/strong> [116 TTJ 393 (Kol)] and DCIT v. M\/s Indian Explosives Ltd. (ITA No. 1149\/Kol\/2014 dated 23-08-2017)<\/strong> followed the orders of the Hon’ble Tribunal in case of Kailash Associates v. DCIT (supra) and Panther Investrade Ltd v. DCIT (supra) and held that interest u\/s 234C of the Act is chargeable only during the period of default and not for a period of 3 months.<\/p>\n

11. Based on the above, it can be concluded that the interest u\/s 234C of the Act can be charged only for the period of default and not for the period of three months.<\/strong><\/p>\n

Concluding remarks<\/u><\/strong><\/p>\n

\n 12. One would not love to hold back tax payment (and invite interest liability) when the country needs it the most. At the same time, considering the huge uncertainties, one would also not like to pay now and pray later for the refund (counted as a stimulus package). A difficult decision – ‘To be, or not to be: that is the question’<\/p>\n\n\n
Disclaimer: <\/strong>The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor itatonline.org and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of itatonline.org<\/td>\n<\/tr>\n<\/table>\n","protected":false},"excerpt":{"rendered":"

Advocate Anuj Kisnadwala has eloquently voiced the dilemma that all taxpayers are presently facing with regard to the payment of advance-tax. While non-payment attracts levy of interest, excess payment creates the problem of seeking a refund. The ld. author has pointed out that in any event, interest is payable at only 0.75% and not at 1% as prescribed by section 234C of the Act. He has also opined, relying on judicial precedents, that interest under section 234C of the Act can be charged only for the actual period of default and not for the entire period of three months<\/p>\n

Read more ›<\/a><\/div>\n

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