Charge or levy of interest means extension or revision of of due date to pay and related performance.

[DEVKUMAR KOTHARI]

Charge of interest recognizes ground realities about likely delays in payment. Interest is paid/ received as compensation and it means further time is allowed and time for payment and / or other performance is extended.

Common man point of view:

Any common man will consider charges of interest as compensation or reward for holding money or for availing credit facility.

The person receiving interest receives interest for money or credit facility provided and person paying interest consider it as reward for money or credit facility provided.

Clauses for interest in contracts and laws:

We find clauses in contracts, legal provisions, general trade practices, general terms, and conditions prevailing in any trade and commerce, standing orders etc.

Even in legislations we find provision for levy and payment of interest. For example, in tax laws , provident fund laws, ESI laws, Compensation laws for land acquisition , labor compensation etc.

Recognition of ground realities:

Clauses relating to interest in any law or documents or in trade  practices and even verbal  manner as agreed or as per practices  recognizes ground realities of any business or even in personal  affairs which involves payment from one person to another person, that there can be delay in payment. Such delays can be for variety of reasons.

Charge and payment of interest is very common in any field.

In case of legal provisions even in absence of specific provision for interest, Courts may allow or grant  interest as compensation for unreasonable delays.

In present days drafting, we find provision for interest in various legislations where situation of payment from one person to another person or authority and also payment from an authority to another person or authority is envisaged.

Delays in payment  does not mean infraction of law or crime

Delays in payment of dues may not be considered as good sign of financial discipline and financial health. But it cannot be considered infraction of law  or committing a crime.

Payment of interest is envisaged to deal with situations, which can cause delay in payment.

Rate of interest in contracts:

Rate of interest is a matter of negotiations in contracts. Rate depends on goodwill of party liable to pay, his circumstances which suggest degree of chances of delays. Interest rates can also be increasing  progressively  depending on delays, Therefore, it is recognized that there can be problems in payment of original dues on due date and delays can of some short period or longer period.

Rate of interest in laws:

We find different rate of interest payable by government in case of refunds to public this is at a lower rate and higher rate is charged in case of delays in payment or deposit by public.

Levy of interest is understood as allowing time for late payment:

In case of contracts, a levy of interest is understood that time for payment or due date was extended. On accepting payment of agreed interest it means that time for delay in payment was extended. Therefore, the party receiving interest is considered to have received compensation for such delay and therefore, he will not be entitled to raise a claim for further damages for the reason for delay in payment.

Levy of interest under law may means that time for delay has been extended:

Similarly, depending on ground realities and relevant provisions of  legislation if in  any law which provide for payment of interest for any period, then levy of interest can be considered as extension of time to pay or deposit or to do something envisaged in that law which provided for a due date for payment and / or doing or performing some activity or compliance.

Ruling of the Supreme Court of India rendered in year 1984 in context of income-tax law:

In the  case of COMMISSIONER OF INCOME-TAX, AP VERSUS M. CHANDRA SEKHAR [1984 (12) TMI 1 - SUPREME COURT]

To understand the implications and import of  the judgment important parts are reproduced below with highlights added and observations of author:

This was a case of reference under S.256.1 of the Income-tax Act, 1961 for the following questions of law raised before the High Court of Andhra Pradesh:

" 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in concluding that the charging of interest indicated that the Income-tax Officer was satisfied that there was sufficient cause for delay in filing the return of income ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the penalties levied under section 271(1)(a) ?

Bothe above questions were answered in favor of assessee by the High Court and on appeal of Revenue, the Supreme Court confirmed or approved the answer given by the High court after considering different type of Return of income which are filed under different clauses of S.139..

Per author- significance of the above questions and answers thereto:

This reference  was under income-tax law and significance of question of law is many folds some of which are as follows:

A charging of interest may be construed that:

 (a) there was sufficient or reasonable cause for delay in filing of income tax return and similarly it may be construed in other circumstance to pay or peform.  

(b) compensation for  delay in payment of tax  was duly charged and  paid,

In case of  other laws and commercial contract also, applying the positive answers to above questions can be considered that

(c)  delays in payment or performance of contract or statutory obligation may   not be  an offence or infraction of law and it may not be   against public policy.

(d) When interest for delay is charged as per law, or contract and in absence of such clause for interest, payment if interest is  accepted, or levied that means  the terms are  revised and delay is condoned or compensated by other party or authority by paying interest and party or authority receiving and accepting interest has agreed to extend the time allowed for payment and related performance, if any , in particular circumstances or situations.

(e) in case of other legislations also, charge of interest can be considered as extension of time to pay and to do or perform or discharge some obligations.

(f) If interest is not provided in original  document then also  levy and payment of interest can be considered as mutual agreement to revise terms and conditions as relaxation of original terms and conditions.

( g) under provisions like   EPF, ESI, pension fund, gratuity fund etc.   also levy of interest can be considered as extension of  due date  by the period for which interest is charged.

Learned readers are requested to share their views and experience in various cirumstances.