The Commissioner of Income Tax and The Income Tax Officer vs Arvind Fashions Limited

B.V. Nagarathna, J.—The Revenue has come up in this appeal being aggrieved by the order passed by the Income Tax Appellate Tribunal, Bangalore in ITA No. 1432/Bang/2002. dated 19.04.2005 raising the following substantial questions of law:

i) Whether, the Appellate Authorities were correct in holding that the assessee is not liable to pay interest u/s 201(1A) of. the Act for delayed remittance of TDS amount during the grace period of two months in view of Rule 30 of the India Tax Rules.

ii) Whether the Assessing Officer was correct in holding tat the assessee is not entitled for grace period while computing interest u/s 201(1A) of the Act in view of the Board Circular dated 21.7.1966.

We have heard the learned Counsel for the parties.

The Assessee for the assessment year 2001-02 remitted the TDS amount deducted by it to the Central Government Account on 19.06.2001 instead of depositing the same on or before 31.03.2001 as required u/s 195 of the Income Tax Act. The Assessing Officer levied interest u/s 201(1A) for the delayed remittance treating the respondent Assessee as a defaulter. The order of the Assessing Officer, dated 04.12.2001 was questioned by the Assessee by filing an appeal before the Commissioner of Income Tax (Appeals). The Commissioner by extending Rule 30 of the Income Tax Rules considering the grace period granted relief to the Assessee by his order dated 14.08.2002. Being aggrieved by the same, the Revenue filed an appeal before the Income Tax Appellate Tribunal. The Tribunal has dismissed the appeal concurring with the views of the Commissioner of Income Tax (Appeals).

Challenging the same, the present appeal is filed.

Having heard the Counsel for the parties, it is not in dispute that the Assessee was required to remit the tax deducted at source by it on or before 30.05.2001. It is also not in dispute that the Assessee herein has remitted the TDS amount on 19.6.2001. The short question that arise for our consideration is that:

If the Assessing Officer has treated the Assessee is in default while levying the interest whether he has to leave the grace period for the purpose of computing interest on the delayed payment and whether the Commissioner of Income Tax (Appeals) as well as the Income Tax Appellate Tribunal have committed an error in directing the Assessee to pay interest only after excluding the grace period up to 30th May of the relevant assessment year?

After careful consideration of Section 201 of the Act and Rule 30 of the Rules, it is clear to us that the Assessee has time to remit the tax deducted at source up to 30th May in view of Rule 30 the Rules. The grace period granted to the Assessee is to enable the Assessee to reconcile the accounts and remit the amount to the Department. If the Assessee has failed to utilise the grace period granted to it, it cannot contend that it would be liable to pay interest on belated payment after excluding grace period. If the grace period is not utilised by the Assessee to transfer the amount to Revenue, it goes without saying that the Assessee being a defaulter is liable to pay interest to be calculated from 1st April of the relevant assessment year.

Therefore we are of the view that the question of law framed here are to be answered in favour of the Revenue and against the Assessee holding that the Assessee cannot claim the grace period to exclude the payment of interest.