Section 201(1A) Default period of assessee in default shall be counted as per British Calendar month

By | October 13, 2015

Issue : ‘every month or part thereof’ appearing in Section 201(1A)- does it mean a calendar month or part thereof, or does it mean a ‘period of one month’ or part thereof. ?

Section 201(1A)

Section 201(1A)

There is no dispute that the expression ‘month’ is not defined for the purpose of section 201(1A) nor there is any direct judicial authority in the context of section 201. Section 3(35) of the General Clauses Act defines ‘month’ as, unless there is anything repugnant in the subject or the context, ‘a month reckoned according to the British calendar’. The expression ‘reckoned’, in plain English, refers to ‘count, compute or calculate’. In substance thus, the mandate of section 3(35) is to count, compute or calculate according to, or as per, the British calendar.

The expression ‘month’ refers to ‘a month reckoned according to the British calendar’. ‘A month as per the British calendar’ and ‘a month reckoned as per British calendar’ are not the same thing and cannot be used interchangeably. While former refers to a calendar month by itself, the latter refers to a period of time which qualified to be treated as a ‘month’. The subtle distinction between the scope of these two expressions cannot be ignored.

IN THE ITAT AHMEDABAD BENCH ‘SMC’

Oil & Natural Gas Commission

v.

Assistant Commissioner of Income-tax, (TDS), Surat

PRAMOD KUMAR, ACCOUNTANT MEMBER

IT APPEAL NOS. 1955 TO 1965 (AHD.) OF 2015
[ASSESSMENT YEARS 1997-98 TO 2006-07 AND 2009-10]

SEPTEMBER  15, 2015

S.N. Soparkar and Urvashi Shodhan for the Appellant. Anil Kumar for the Respondent.

ORDER

1. These eleven appeals, filed by the assessee, are directed against a consolidated order dated 10th April 2015, passed by the CIT(A) in the matter of order under section 154(1) r.w. Section 201(1A) of the Income Tax Act, 1961, for the assessment years 1997-98 to 2006-07, and 2009-10.

2. The short issue that I am required to adjudicate in these appeals as to what is the connotation of ‘every month or part thereof’ appearing in Section 201 (1A)- does it mean a calendar month or part thereof, or does it mean a ‘period of one month’ or part thereof.

3. The background in which this controversy arises is like this. Hon’ble Supreme Court had, vide judgment dated 7th November 2012 in this case, had directed “the assessee can’t be held as an assessee in default, in view of the directions of the High Court, for the period from 20.02.1996 to 15.3.2010 and hence was liable to interest only with effect from 16th November 2010”. Accordingly, the interest under section 201(1A) was required to be computed for a period of 16th November 2010 to 14th December 2012. When the interest was, on this basis, required to be recomputed, the Assessing Officer computed it for a period of 26 months on the basis that there was 24 calendar months in this period and this period included a part of calendar month November 2010 as also a part of calendar month December 2012. The assessee moved a rectification petition against the AO’s so giving effect to the directions of Hon’ble Supreme Court. The stand of the assessee was that since the total period was of 24 months and 28 days, the period for which interest under section 201(1A) could be levied was only 25 months. The Assessing Officer, however, was not impressed with this plea. Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without any success. The assessee is not satisfied and is in further appeal before me.

4. I have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.

5. Section 201(1A), for ready reference, is reproduced below:

“(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest,—

(i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and
(ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with the provisions of sub-section (3) of section 200:

Provided that in case any person, including the principal officer of a company fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident but is not deemed to be an assessee in default under the first proviso to sub-section (1), the interest under clause (i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident.”

6. The provision is quite simple and unambiguous inasmuch as interest is to be charged for “every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted”. The context in which the expression “month” is used here is a measurement of period for which time value of money is to be compensated. If a person ought to have deducted the tax on, say, 21st of October and he actually does so on 3rd of November, the period for which the Government is deprived of its legitimate taxes is less than a month. However, if we go by the interpretation canvassed by the Assessing Officer, which has the approval of the CIT(A) as well, this will be a period of two months – i.e. a part of October as also a part of November. Such a result is clearly incongruous. As for the alternate contention of the revenue, i.e. the period of a month could at best be taken as thirty days and, therefore, the period of 7th November 2010 to 14th December 2012 should be constructed as 26 months, it is also devoid of any merits. If that is the principle to be followed, when a person required to deduct tax at source on 21st March, actually deducts the tax at source on 18th March in the subsequent year, the period of delay will have to be taken as 13 months (i.e. 12 X 30 = 360 days plus 2 days as part of the month). This approach also, thus, leads to incongruous, and, if I may say so, somewhat absurd results. Clearly, therefore, approach followed by the authorities below does not merit my approval

7. There is no dispute that the expression ‘month’ is not defined for the purpose of Section 201(1A) nor there is any direct judicial authority in the context of Section 201. Section 3(35) of the General Clauses Act defines “month” as, unless there is anything repugnant in the subject or the context, “a month reckoned according to the British calendar”. The expression ‘reckoned’, in plain English, refers to “count, compute or calculate”. In substance thus, the mandate of Section 3(35) is to count, compute or calculate according to, or as per, the British calendar. It is also important to note that even this definition is not in absolute terms inasmuch as when “there is anything repugnant in the subject or the context”, this definition can be discarded. It is the context in which the matter is being examined that must be treated as decisive factor. The levy of interest under section 201(1A) is compensatory in nature and it represents the time vale of money attributable to delay in deduction of tax at source. What is to be thus seen is the gap of time between the point of time when tax ought to have been deducted at source vis-à-vis the point of time when the tax was actually deducted, and it is in this context that connotation of expression ‘month’ is to be examined. Now, if one has to compute the months as per the British calendar, the period from 21st October to 3rd November, as taken in the first example, is less than a month because it is only when the same date comes in the next month, the period of one month can be said to have elapsed. Similarly, the period of 21st March to 18th March of the subsequent year, as per the British calendar, is less than 12 months since the period of twelve months has not elapsed in between these two dates. Coming to the case in hand, the period of time gap between 16th November 2010 to 14th December 2012 is less than 25 months because, on 14th December 2012, the period of 25 months has not elapsed from 16th November, 2010. The period which is elapsed between these two dates is 24 months and 28 days. Going by the provisions of the General Clauses Act, therefore, the period of time between 16th November 2010 to 14th December 2012 is less than 25 months, and, accordingly, interest under section 201 (1A) could not have been levied for a period of more than 25 months.

8. During the course of arguments before me, the connotations of ‘calendar month’ were argued at length but these discussions proceeded on the fallacious assumption that the expression ‘month’, appearing in Section 201(1A), is either required to be interpreted as a calendar month or a period of thirty days. As a matter of fact, as evident from the discussions above, the expression ‘month’ refers to “a month reckoned according to the British calendar”. “A month as per the British calendar” and “a month reckoned as per British calendar” (emphasis supplied by me) are not the same thing and cannot be used interchangeably.

While former refers to a calendar month by itself, the latter refers to a period of time which qualified to be treated as a ‘month’. The subtle distinction between the scope of these two expressions cannot be ignored.

9. As I have decided the matter on the first principles and in the light of the plain meanings of the statutory provisions in the given context, and as learned Departmental Representative has not invited my attention to any judicial precedent holding to the contrary in this context, it is not really necessary to deal with judicial precedents in somewhat similar situations or to draw strength from those judicial precedents. I leave it at that.

10. In view of the above discussions, as also bearing in mind entirety of the case, I uphold the grievance of the assessee that, on the facts of this case, interest under section 201(1A) could not have been charged for more than 25 months. The Assessing Officer is, accordingly, directed to recompute the interest under section 201(1A) in the light of my observations above.

11. In the result, all the eleven appeals are allowed.

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