1995 (5) TMI 266 - AAR - Income Tax

Whether the applicant is liable to interest under sections 234B and 234C in respect of tax paid vide cheque No. xxxxx xxxxx dated March 10 1994?

Issues Involved:

1. Maintainability of the application for advance ruling.
2. Applicability of Central Treasury Rules (CTR) and Central Government Account (Receipts and Payments) Rules (RPR).
3. Determination of the date of payment for the dishonoured cheque.
4. Liability to interest under sections 234B and 234C of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Maintainability of the Application for Advance Ruling:

The Commissioner argued that the application was not maintainable as it involved a general question of law regarding the chargeability of interest under sections 234B and 234C. The Commissioner contended that the Authority for Advance Rulings (AAR) was not constituted to handle questions of law of general applicability to all persons. However, the AAR found no merit in these arguments, citing section 245N of the Income-tax Act, which allows for the determination of a question of law or fact in relation to a transaction undertaken by the applicant. The AAR concluded that the application was maintainable as the issue of penal interest arose directly from the transaction of purchase and sale of shares and debentures.

2. Applicability of CTR and RPR:

The applicant's advocate initially argued that the ABC Bank was bound by the CTR, specifically rule 79(1)(b), which mandates immediate notification to the tenderer if a cheque is dishonoured. However, it was pointed out that the CTR was not applicable to payments of Central revenue after 1-6-1983, and the RPR applied instead. The relevant RPR rule, 19(1)(b), is identical to the CTR rule cited. The AAR noted that the ABC Bank failed in its duty to inform the applicant about the dishonoured cheque promptly, which would have allowed the applicant to rectify the situation sooner.

3. Determination of the Date of Payment for the Dishonoured Cheque:

The applicant argued that the payment should relate back to the date the cheque was originally presented (15-3-1994) since it was the same cheque that was later honoured. The Commissioner, however, contended that the date of encashment should be taken as the date of presentation of the second challan (15-4-1994). The AAR agreed with the Commissioner, stating that once a cheque is returned unpaid, it ceases to be a live instrument and cannot be rejuvenated by a fresh presentation. The AAR emphasized that the cheque's dishonour on 17-3-1994 meant it could not be considered valid for the original presentation date.

4. Liability to Interest under Sections 234B and 234C:

The AAR examined the provisions of sections 234B and 234C, which impose interest for defaults in payment of advance tax. The AAR noted that the capital gains arose in January 1994, and the applicant delayed the payment until the last permissible date (15-3-1994). The AAR found that the applicant did not act prudently to ensure the cheque's timely clearance. The AAR concluded that even if the cheque had been represented on 17-3-1994, it would still result in a default under section 234C as the last date was 15-3-1994. Consequently, the AAR ruled that the applicant was liable to pay interest under sections 234B and 234C.

Ruling:

On the stated facts of the case, the payment of the advance tax amount can be said to have been made, at the earliest, only on 15-4-1994. Therefore, the applicant is liable to interest under sections 234B and 234C.

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