Interest under section 234C not leviable where the cheques were deposited in time but encashed after due dates

The Deputy Commissioner of Income Tax, LTU Vs Toyoto Boshoku Automotive (I) P. Ltd.

ORDER 

PER GEORGE GEORGE K:

This appeal instituted by the revenue and the cross objection filed by the assessee are directed against the order of the CIT(A) LTU, Bangalore dated 12.04.2010. The relevant assessment year is 2007-08.

2. The revenue has raised the following grounds of appeal:-

1) The learned CIT(A) has erred in holding that the provisions of section 234C are not attracted even though the cheques were realised after the due dates for payment of advance tax even though the assessee had deposited the cheques in the bank within time.

2). The learned CIT(A) has erred in relying judgement which were relating to the period in which the Central Government Treasury rules were in operation. These rules were replaced by Central Government Account (Receipts and Payments) rules, 1983.

3) The learned CIT(A) has erred in relying upon the CBbT Circular which was issued when Central Government Account (Receipts & Payments) Rules, 1983 were not operative.

4). The learned CIT(A) has failed to appreciate that the Chennai Bench of ITAT has held in favour of the department in the case of burametalic Sun-mar Limited (ITA 1437/Mad/2000) on the same issue.

3.  Brief facts of the case are as follows:–

The assessee is a company. For the concerned asst. year, return of income was filed on 29.10.2007. A revised return was filed on 13.10.2008 declaring an income of Rs. 25,60,97,200/-. As per the revised return filed, the assessee had claimed a refund of Rs. 7,01,740/-. On the revised return, an intimation u/s 143(1) was issued on 25.2.2009 raising a demand of Rs. 8,77,820/-. While passing the intimation, the AO has calculated interest u/s 234C of the Act amounting to Rs. 15,79,561/-. The AO had calculated 234C interest on the basis of date of clearance as per bank seal instead of date of payment being date of deposit of cheque towards advance tax instalments as under:–

Cheque No.	Date	Amount (Rs.)	Date of deposit of cheque	Date of clearing as per bank seal
236177	15.06.2006	20,000,000	15.06.2006	17.06.2006
238784	14.09.2006	20,000,000	14.09.2006	14.09.2006
240856	15.12.2006	22,500,000	15.12.2006	19.12.2006
240968	14.03.2007	17,500,000	14.03.2007	16.03.2007
Total		80,000,000

4. As against intimation, the assessee filed a rectification application, which was dismissed and being aggrieved, the assessee carried the matter before the first appellate authority.

5. The CIT(A) for her elaborate reasoning mentioned in para 3.1 of the order, allowed the appeal of the assessee. The relevant finding of the CIT(A) reads as follows:-

^” In view of the foregoing analysis, on account of the fact that the CB~T Circular No. 261 date 08.08.1979 clarifying that the date of payment would relate back to the date of presentation of the cheque if the cheque is honoured on presentation has not been withdrawn and continues to hold the filed and based on the Supreme Court decision in Ogale class Works (supra), I unhesitatingly uphold the appellant’s stand on this issue’.

6. The revenue being aggrieved is in appeal before us.

7. The learned bR supported the order of the AO whereas the learned AR reiterated the submissions made before the Income Tax Authorities and also relied on the decision of the Bangalore Bench of the Tribunal in the case of M/s GE Medical Systems (India) Pvt. Ltd. vide order dated 25.6.2010.

8. We have heard the rival submissions and perused the material on record. We find that on identical circumstances, the Bangalore Bench of the Tribunal in the case of M/s GE Medical Systems (India) Pvt. Ltd. in ITA No. 33/Bang/2010 vide order dated 25.6.2010 has held as follows:-

6. We have heard the rival submissions and perused the material on record. The solitary issue which arises for our consideration is, when the payments were made through a cheque what should be reckoned as the date of payment if such cheque is not dishonoured by the banker? Whether it should be the date of tendering of instrument or whether it should be the date of realisation.

6.1 Undisputed facts of the case are that all the cheques for the payment of advance tax were tendered within the stipulated due date thereof. It is also a fact that the cheques were honoured by the banker when the same was presented. We are of the opinion that this issue is no longer Res Integra in view of the various decisions of the jurisdictional High Court and the Bangalore Bench of the Tribunal.

6.2 In the case of Sahara Airlines Ltd. v Commissioner of Customs (Appeals) 110 Taxman 0378 (Kar.), it has been held that upon tendering of a cheque, if it is not dishonoured, it shall be deemed that payment has been made on the date when it was handed over to the Government’s banker. The relevant finding of the Honourable High Court reads as follows:-

“A harmonious reading of these provisions makes it clear that government dues can be presented in the form of cheque into the accredited bank. Upon tendering of a cheque, if it is not dishonoured later, it shall be deemed that payment has been made on the date when it was handed over to the government’s bankers.

The Honourable Supreme Court in the case of K Saraswatty v P 5 5 Somasundaram Chettiar (1989) 4 5CC 527 while dealing with a case u/s 10 and 82 of the Negotiable Instruments Act, 1881 has held that payment by cheque should be taken to be due payment if the cheque is subsequently en-cashed in the ordinary course. The Honourable Madras High Court in the case of CIT v Kumudam Publications (P) ~td. (1981) 128 ITR 617 decided on 1.9.1980 while dealing with the payment of advance tax under the Income Tax Act, 1961 has held that ‘In view of the Treasury Rules when cheques were handed over to government Officials or to the government Officer authorised to receive payment on behalf of the government, payment would be deemed to have been made on the date the cheque was handed over and the amount should be treated as payment of advance tax’.

6.3 In the case of CIT Vs Sharat Motor Services 163 ITR 843 (Kar.), the Honourable High Court was considering the following question of law u/s 256(1) of the Act:-

“(i) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to the benefit of interest u/s 214 of the IT Act, 1961 in respect of the second instalment of advance tax paid by the assessee.

The facts of the case was in respect of asst. year 1975-76, the assessee paid the second instalment of advance tax by way of cheque dated September 13, 1974, which was en cashed by the Income Tax Officer only on September 25, 1974. While framing the assessment for the year under reference, the Income Tax Officer did not determine the interest payable by the Department to the assessee as contemplated u/s 214 of the Act.

6.4 In the appeal before the Appellate Assistant Commissioner, the assessee submitted that the Income Tax Officer should have determined and paid interest to the assessee in respect of the instalment of advance tax paid by way of cheque on September 13, 1974. The Appellate Assistant Commissioner, however, held that since the assessee ought to have paid the instalment on September 15, 1974, it was not entitled to any interest u/s 214. According to the Appellate Assistant Commissioner, the date of handing over the cheque to the Income Tax Officer was not relevant for the purpose of granting interest u/s 214, but the relevant date was the date of en cash ment viz. September 25, 1974. So holding, the Appellate Assistant Commissioner rejected the appeal of the assessee. Against the order of the Appellate Assistant Commissioner, the assessee preferred an appeal before the Tribunal. The Tribunal upheld the claim ofthe assessee.

6.5 The Hon ‘ble High Court affirmed the view of the Tribunal by holding thus:-

^“So far as the first question is concerned, a similar question came up for consideration before this Court in CIT v P V S Beedies (P) ~td. (ITRC Nos.199 cf 200 of 1982 dated November 11, 1983) (1987) 163 ITR 846). There, this court following the judgement of the Supreme Court in CITv Ogale class Works (P) Ltd. (1954)25 ITR 529, held that payment by cheque relates back to the date of delivery of the cheque’.

6.6 In the case of ACIT v Molex (India) ~td. in ITA No.305/Bang/2003 (Bang.), the Tribunal had held that the date of presentation of cheque should be treated as the date of payment of tax, in spite of the fact that some time was required for the realisation of the cheque. The relevant finding of the Tribunal at para 3 reads as follows:-

^“After hearing both the sides, we do not find any infirmity in the impugned order. It appears that the Commissioner of Income-tax (Appeals) has followed the decision of the Karnataka High Court in the case of Sahara Airlines ~td. v Commissioner of Customs (Appeals) (110 Taxman 378). Further reliance was placed on the Board Circular No. 261 date 8.8.79 and the decision of the Supreme Court in the case of LJCO Bank in 238 ITR 88A. Looking to the aforesaid decisions, we find that it is a settled law that the date of presentation of the cheque should be treated as the date of payment of tax, in spite of the fact that some time was required for realisation of the cheque’.

8.1 In the instant case, admittedly, the cheques were presented and deposited before the authorised banker within the due date of payment of advance tax. Cheques were admittedly en cashed and amounts were realised subsequently. It is not the case of the revenue that the cheques were returned unpaid at any point of time. Therefore, the facts being identical to the facts in the case of M/s GE Medical Systems (India) Pvt. Ltd. (supra), we uphold the order of the CIT(A) and dismiss the appeal filed by the department.
9. In the result, the appeal filed by the revenue is dismissed.