Payment of Tax on last date through cheque but cleared subsequently

I came into question of the case where a person issued a cheque for payment of IDS on dated 31.03.2020 but the cheque was clear on 08.04.2020. Because there was banking channel to clear the cheque.

Now the question arises whether the cheque issued on dated 31.03.2020 will be treated as the payment of Tax or the date on which the cheque was cleared by the bank on dated 08.04.2020.

I searched the answer through some circulars and case laws which are given below:

Circular F.No 12/80/64-IT(B)   DATED 01.06.1965

This circular was issued by the CBDT for payment of interest U/s 214 of the Income Tax Act 1961 for out station cheque according to the Para 1 of the Circular which says as under:

The effective date of the payment was the date on which cheque was encased

 Date of encashment of cheque is the date of payment of tax in terms of rule 81 of Treasury Rules

1. Attention is invited to Board’s Circular No. 3 [F.No. 16/5/69-IT(Coord)], dated 11-2-1969.

2. In para 5 of the above referred circular, it was stated that the date of tax payment would be the date on which the proceeds of the cheque were realised and credited to the Government amount.

3. Instances have come to notice where assessees have claimed interest under section 214 in respect of payments made towards advance tax through cheques which were encashed in the financial year subsequent to the one in which the payment should have been made. They have drawn support from rule 80(1) of the Treasury Rules which says that payment made through a cheque would be deemed to have been made on the date of presentation of the cheque, if it is honored.

4. The above plea taken by most of the assessees is not correct inasmuch as rule 81 of the Treasury Rules specifically empowers the department, which undertakes to accept cheques from the public, to prescribe any overriding conditions. The condition prescribed in para 5 of Board’s circular letter, referred to above, was prescribed within the meaning of the rule 81 of the Treasury Rules.

5. The opinion of the Law Ministry has been obtained. They too are of the view that the party which takes advantage of the facility of payment by cheque, as contemplated in Board’s circular referred to above, will have to conform to the conditions and limitations prescribed therein which are quite permissible in view of rule 81 of the Treasury Rules. Accordingly, the date of encashment of the cheque will be the date of payment of tax.

6. However, proper care must be exercised to ensure that the cheques so received are sent to the Bank without any delay.

Circular: No. 141 [F. No. 400/2/74-ITCC], dated 23-7-1974.

The Central Government Account (Receipts and Payments) Rules, 1983. Which came in to force 1-6-1983?

19. Cheque, bank drafts tendered in payment of Government revenues, dues, etc.—

(a) Cheques, bank drafts drawn on local branch of a scheduled bank may be accepted by departmental officers or by the specified branch of the accredited bank or by a bank specially notified for the purpose, in payment of Government dues or in settlement of other transactions with the Government, subject to the provisions of special instructions, if any, issued by a Ministry, Department and, or union territory, in consultation with the Controller General of Accounts, relating to any specific type of dues being followed. The cheques, bank drafts, should be crossed by the drawer before tendering. However, until they are cleared, the Government cannot admit that payment has been received; consequently, the receipt of the cheque alone may be acknowledged when it is tendered. A formal payment receipt shall be given to the tenderer (or sent to his address wherever such an arrangement is envisaged by the department, or bank) after the cheque or draft has been cleared. The preliminary acknowledgement of the receipt of the cheque or draft, will be given in the form indicated below by the departmental Officers:—

“Received cheque/ draft number ——- for Rs ——– drawn on ——— on account of ——–“.

NOTE 1.—The bank reserve to itself the right to refuse to accept cheques or drafts, collection of which in its opinion cannot reasonably be undertaken. If, however, a bank draft drawn on a branch of a bank is tendered at the same (i.e. the drawee) branch for being credited to Govt. account, the receipted challan may be delivered to the tenderer on the same day, if the draft is otherwise in order. {Refer Correction Slip 11}

NOTE 2.—Metal or paper token or a preliminary acknowledgement as above will be issued by the bank to the depositor to facilitate delivery of the receipted challan to him in due course.

(b) In the event of the cheque or draft being dishonored, the fact shall be reported at once to the tenderer with a demand for payment in cash and the dishonored cheque or draft should be returned to the tenderer on surrendering the preliminary acknowledgement of the receipt of the cheque or draft or any token previously granted. The Government cannot, however, accept any liability for loss or damage which may possibly occur as a result of delay in intimating that the cheque or draft has been dishonored.

NOTE.—The challan accompanying the cheque or draft and presented to the bank should not be returned to the tenderer when the dishonored cheque or draft is returned to him but should be retained and destroyed in due course.

(c) In the case of Government dues which are payable by a certain fixed date, the person desiring to make payments by means of cheque or bank draft must take suitable precaution to ensure that his cheque or draft reaches the bank or the departmental office concerned in good time, keeping in view the provisions of rule 20 and (ii). The bank, and, or departmental office may, at its discretion, refuse to accept—

(i) cheques or drafts tendered on the last day to the former, and on the last two working days to the latter respectively; and, or

(ii) cheques or drafts which require clearance at the inter-bank clearing house before credit can be afforded to Government Account, if and when work of such clearing house is disrupted or apprehended to get disrupted so as to impede realization of credit thereof by the due date.

Explanation.—For the purpose of this rule and rule 20 “working day” shall be deemed to be a day on which the departmental office and the bank are both open for transacting their respective ordinary business.

The Government may, in relation to any particular class of transactions involving payment of Government dues, issue orders varying or relaxing any of the conditions prescribed in this rule.

20. Date of receipt of Government revenues, dues etc.—

Government dues tendered in the form of a cheque or draft which is accepted under the provisions of rule 19 and is honored on presentation, shall be deemed to have been paid-

(i) where the cheque or draft is tendered to the bank, on the date on which it was cleared and entered in the receipt scroll;

(ii) where a cheque or draft is tendered to a departmental officer (in cases where such tendering is permissible or required under relevant departmental provisions) on the third working day after its presentation;

(iii) if it is sent by post in pursuance of instructions to make payment by post, on the date on which the cover containing it is put into the post:

Provided that, where a cheque or draft is marked as not payable before a certain date, the payment shall not be deemed to have been made until the date on which it becomes payable.

NOTE.—

The provisions of clause (iii) shall apply mutatis mutandis to payments made to the Government by postal money order or by any other recognized mode of remitting money by post, wherever such a mode of payment is authorized by any particular department.

According to the Central Government Account (Receipts and Payments) Rules, 1983. The payment i.e Tax paid through cheque shall be considered paid or deposited on the date on which the cheque was cleared by the bank in other words in the given case payment of the tax shall be considered on dated 07.04.2017

Time for payment of tax. UNDER THE IDS 2016.

Section 187 of the IDS 2016 says:-

187. (1) The tax and surcharge payable under section 184 and penalty payable under section 185 in respect of the undisclosed income, shall be paid on or before a date to be notified by the Central Government in the Official Gazette.

(2) The declarant shall file the proof of payment of tax, surcharge and penalty on or before the date notified under sub-section (1), with the Principal Commissioner or the Commissioner, as the case may be, before whom the declaration under section 183 was made.

(3) If the declarant fails to pay the tax, surcharge and penalty in respect of the declaration made under section 183 on or before the date specified under sub-section (1), the declaration filed by him shall be deemed never to have been made under this Scheme.

(IF THE TAX IS PAID LATE AND OR DEEMED TO BE TREATED AS PAID/ DEPOSITED LATE. THE IDS DECLATION FILED WILL BE TREATED HAS NEVER BEEN FILED.

The CBDT has issued a circular in which the board has directed the entire banks to accept cash for deposit of IDS taxes of any amount. So to avoid any such inconvenience TO pay taxes in cash.

COMMISSIONER OF INCOME TAX vs. AVERY FREEWHEELS (P.) LTD., HIGH COURT OF PUNJAB & HARYANA, 178 ITR 0517

Interest under s. 214—Advance tax paid by cheque dt. 15th March—Cheque encashed on 20th March—Interest under s. 214 is payable

COMMISSIONER OF INCOME TAX vs. ROHTAK DELHI TRANSPORT PVT. LTD., HIGH COURT OF PUNJAB & HARYANA, 130 ITR 777

Advance tax—Payment by cheque in time—Delay in encashment by Department—Assessee not liable for delay in payment

Held : When the assessee handed over the two cheques to the ITO on 20th March, 1967 and 23rd March, 1967, respectively, the tax should be considered to have been paid. If the ITO had sent the cheques for encashment on the date of receipt of the cheques the amount would have been received immediately thereafter. Admittedly, the ITO did not send the cheques for encashment till 15th April, 1967 on which date they were actually encashed. The assessee cannot be held to be liable for non-payment of the amount in time when he handed over the cheques to the ITO who failed to encash the same forthwith.

COMMISSIONER OF INCOME TAX vs. TRAUB (INDIA) (P) LTD., HIGH COURT OF BOMBAY, (1979) 118 ITR 0525

Interest under s. 214—Allowabillity—Department accepting last instalment paid beyond prescribed date but within financial year as towards advance tax—Assessee is entitled to interest under s. 214

COMMISSIONER OF INCOME TAX vs. BHARAT MOTORS SERVICE, HIGH COURT OF KARNATAKA, K. Jagannatha Shetty & S.A. Hakeem, JJ., IT Ref. Case No. 100 of 1980, 26th November, 1984

The respondent is a firm. In respect of the asst. yr. 1975-76, the assessee paid the second instalment of advance tax by way of cheque dated September 13, 1974, which was encashed by the ITO only on September 25, 1974. While framing the assessment for the year under reference, the ITO did not determine the interest payable by the Department to the assessee as contemplated under s. 214 of the Act.

Interest payable under s. 214—Advance tax paid by cheque—Cheque delivered on 13th September encashed on 25th September—Eligible for interest under s. 214

COMMISSIONER OF INCOME TAX vs. OGALE GLASS WORKS LTD., SUPREME COURT OF INDIA,  (1954) 25 ITR 0529

None of the cheques has been dishonoured on presentation and payment cannot, therefore, be said to have been defeated by the happening of the condition subsequent, namely, dishonour by non-payment and that being so there can be no question, therefore, that the assessee did not receive payment by the receipt of the cheques. The position, therefore, is that in one view of the matter there was, in the circumstances of this case, an implied agreement under which the cheques were accepted unconditionally as payment and on another view, even if the cheques were taken conditionally, the cheques not having been dishonoured but having been cashed, the payment related back to the dates of the receipt of the cheques and in law the dates of payments were the dates of the delivery of the cheques. The engagement of the Governmental was to make payment by cheques. The cheques were drawn in Delhi and received by the assessee in Indian State by post. According to the course of business usage in general to which, as part of the surrounding circumstances, the parties must have intended that the cheques should be sent by post which is the usual and normal agency for transmission of such articles and according to the Tribunal’s findings they were in fact received by the assessee by post. Apart from the implication of an agreement arising from such business usage the assessee expressly requested the Government to “remit” the amounts of the bills by cheques. This, clearly amounted in effect to an express request by the assessee to send the cheques by post. The Government did act according to such request and posted the cheques in Delhi. It can scarcely be suggested with any semblance of reasonable plausibility that cheques drawn in Delhi and actually received by post in Indian State would in the normal course of business be posted in some place outside British India. This posting in Delhi, in law, amounted to payment in Delhi.

Applying the above principles to the facts found by the Tribunal the position appears to be this. The engagement of the Government was to make payment by cheques. The cheques were drawn in Delhi and received by the assessee in Aundh by post. According to the course of business usage in general to which, as part of the surrounding circumstances, attention has to be paid, under the authorities cited above, the parties must have intended that the cheques should be sent by post which is the usual and normal agency for transmission of such articles and according to the Tribunal’s findings they were in fact received by the assessee by post. Apart from the implication of an agreement arising from such business usage the assessee expressly requested the Government to “remit” the amounts of the bills by cheques. This, on the authorities cited above, clearly amounted in effect to an express request by the assessee to send the cheques by post. The Government did act according to such request and posted the cheques in Delhi. It can scarcely be suggested with any semblance of reasonable plausibility that cheques drawn in Delhi and actually received by post in Aundh would in the normal course of business be posted in some place outside British India. This posting in Delhi, in law, amounted to payment in Delhi. In this view of the matter the referred question should, with respect, have been answered by the High Court in the affirmative. We, therefore, allow the appeal and answer the question accordingly. In view of the fact that the appellant has failed in the main argument but has succeeded on a new one we think no order should be made as to costs except that each party should bear and pay his or its own costs before us as well as before the High Court.

TDS

If the TDS is paid through cheque, the tender date appears as the payment of TDS on oltas. Not the date on which the cheque is cleared.

Conclusion:- It is advised and requested that the CBDT to issue a proper guidelines in the payment and clearance of cheque for the payment of taxes.

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(Republished with Amendments by Team Taxguru)