2000 (10) TMI 194 - AT - Income Tax

Summary

Issues Involved:
1. Levy of interest under section 201(1A) of the Income-tax Act, 1961.
2. Calculation of the period of delay for charging interest.
3. Consideration of financial difficulties as a reasonable cause for delay.

Detailed Analysis:

1. Levy of Interest under Section 201(1A):
The primary issue in these appeals is the levy of interest under section 201(1A) of the Income-tax Act, 1961. The assessee company was liable to pay interest on credit balances in the accounts of its sister concerns. The Assessing Officer (AO) noticed delays in remitting the Tax Deducted at Source (TDS) to the Central Government, with delays ranging from two to six months. Despite the assessee's explanation of financial difficulties, the AO charged interest totaling Rs. 72,832, reckoning the period of delay from the last day of the relevant assessment year till the date of actual payment.

2. Calculation of the Period of Delay:
The assessee contended that the AO incorrectly calculated the interest period, not considering Rule 30(1)(b) of the Income-tax Rules, which allows a two-month period for remittance of TDS. The Commissioner (Appeals) did not accept this contention but directed the AO to verify the claim regarding credit for interest already paid. The Tribunal found merit in the assessee's argument that the AO should not have reckoned the period of delay from 1st April but from 1st June, allowing the two-month period as per Rule 30(1)(b). The Tribunal directed the AO to charge interest only for the period after the two months allowed by Rule 30(1)(b), i.e., from 1st June of the respective year.

3. Consideration of Financial Difficulties as a Reasonable Cause:
The assessee argued that the delay was due to financial difficulties and thus constituted a reasonable cause for not remitting TDS on time. However, the Tribunal referred to judicial pronouncements, including the Bombay High Court's decision in Bennet Coleman & Co. Ltd v. Mrs. V.P. Danile and the Rajasthan High Court's decision in CIT v. Rathi Gum Industries, which held that the provisions for payment of interest under section 201(1A) are mandatory and automatic. The Tribunal emphasized that the liability to pay interest is not dependent on the default being intentional or due to reasonable cause. Therefore, the Tribunal did not accept the assessee's contention that financial difficulties should exempt them from paying interest.

Conclusion:
The Tribunal partly allowed the appeals by modifying the order of the Commissioner (Appeals). It directed the AO to charge interest under section 201(1A) for the delay starting from 1st June of the respective year, rather than from 1st April, thereby acknowledging the two-month period allowed by Rule 30(1)(b) for remittance of TDS. The Tribunal upheld the mandatory nature of interest under section 201(1A), irrespective of the assessee's financial difficulties.