2017 (12) TMI 523 - AT - Income Tax

TDS u/s 194A - time limit for depositing the tax deducted at source under section 194A - Interest demand under section 201(1A) - interest for delay in depositing the tax at source, for a period of two months - Held that - In the case before us, the TDS is deposited on 8th of October 2014. There is thus clearly delay in depositing tax at source. Learned counsel does not even dispute that. All that he prays for is that the levy of interest should be reduced to actual period of delay in depositing the tax at source, i.e. from the date on which tax was deducted and till the date on which tax was deposited. It is only if such a period exceeds one month, then the question of levy of interest will arise. However, what has been done in the present case is that the interest has been charged for two calendar months, i.e. September and October. This plea of the assessee indeed meets our approval in the sense that the question of levy of interest for the second month can arise only if the period of time between the date on which tax was deducted and the date on which tax was paid to the Government exceeds one month. We, therefore, direct the Assessing Officer to recompute the levy of interest under section 201(1A) accordingly.

Summary

Issues:
Challenge to correctness of order upholding interest demand under section 201(1A) for assessment year 2014-15.

Analysis:
The appellant, a nationalized bank's branch office, challenged the interest demand under section 201(1A) of the Income-tax Act, 1961 for the assessment year 2014-15. The taxes deducted at source under section 194A for September 2014 were deposited on 8th October 2014, leading to interest charges. The CIT(A) upheld the Assessing Officer's decision to charge interest for two months. The appellant contended that interest should be charged for one month only. The CIT(A) referred to a Supreme Court case to support the calculation of interest from the date of deduction. The appellant appealed to the ITAT against the decision.

The ITAT noted that the time limit for depositing tax deducted at source under section 194A is "on or before seven days from the end of the month in which the deduction is made." The TDS was deposited on 8th October 2014, indicating a delay. The ITAT agreed that interest should be charged only for the period exceeding one month from the date of deduction to the date of deposit. The Assessing Officer was directed to recalculate the interest levy under section 201(1A) accordingly.

The ITAT rejected the appellant's argument that levying interest for a one-day delay was too harsh, emphasizing that interest is a compensatory levy for the time the tax deductor enjoyed the government's money. The ITAT clarified that interest is not penal in nature but serves to compensate for the time value of money. Therefore, the appeal was partly allowed, and the Assessing Officer was instructed to adjust the interest calculation based on the period of delay in depositing the tax at source.

In conclusion, the ITAT partially allowed the appeal, directing the Assessing Officer to recompute the interest levy based on the actual period of delay in depositing the tax at source, in accordance with the provisions of section 201(1A) of the Income-tax Act, 1961.