Interest calculation on delayed TDS/TCS payment amid Covid-19

Introduction

1. The Ordinance was promulgated by the Hon’ble President of India under the power conferred under Art. 123 of the Constitution of India. The main objective of this ordinance is to provide relaxation in the provisions of certain acts and for matters connected therewith or incidental thereto.

1.2 Further, the reason for bringing this Ordinance can also be appreciated from the preamble wherein it has been stated as “whereas in view of spread of pandemic COVID-19 across many countries of the world including India, causing immense loss to the lives of people, it has become imperative to relax certain provisions, including extension of time limit, in the taxation and other laws.”

1.3 The above reference to preamble gives us an idea that such Ordinance was brought in place to give relaxation under various provisions in law and reduce the burden by relaxing certain due dates and extension of time limit due to the pandemic of COVID-19, where it is not possible for the taxpayer to regularly function due to announcement of lockdown. This Ordinance come into effect from the 31-03-2020.

1.4 Section 2(2) of the Ordinance the following Acts are called as “Specified Acts” and to whom this Ordinance would apply, which are as follows:

(i) the Wealth Tax Act, 1957

(ii) the Income Tax Act, 1961

(iii) the Prohibition of Benami Property Transaction Act, 1988

(iv) Chapter – VII of the Finance (No. 2) Act, 2004

(v) Chapter VII of the Finance Act, 2013

(vi) the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Act, 2015

(vii) Chapter – VIII of the Finance Act 2016 or

(viii) the Direct Tax Vivad se Vishwas Act, 2020

1.5 Further, the Ordinance, vide sub-section (2) of Section 2 has clearly stated that words and expression used in Ordinance and not defined therein but defined in the Specified Acts (supra) or the Central Excise Act, 1944 or the Customs Act, 1962, or the Customs Tariff Act, 1975 or the Finance Act, 1994 as the case may be shall have the same meaning respectively assigned to them in that Act.

1.6 Meaning thereby if any word or expression has been defined in this ordinance then such meaning shall be considered and would over-ride the meaning stated in specified act. For any reason if any WORD or EXPRESSION has not been defined under this Ordinance then the meaning has to be borrowed from the relevant Specified Act (Supra).

1.7 Before proceeding further it is imperative to submit that term “expression” in legal terminology means that an act, process, or instance of representing or conveying in words or some other medium. This would be imperative when we interpret or make analysis of the Ordinance in detail.

PROVISION FOR INTEREST ON DELAYED PAYMENT OF TDS / TCS UNDER ORDINANCE AND INCOME TAX ACT.

2. Section 3 of the Ordinance, which provides relaxation of certain provisions under Specified Act (supra). By this section the Ordinance grants over-riding relaxation to certain provision of the Specified Act (supra).

2.1 Currently we are dealing with the interest on TDS therefore we are required to consider sub-Section (2) of Section 3 of the Ordinance. It is important to reproduce the same to understand:

“CHAPTER  II

RELAXATION OF CERTAIN PROVISIONS SPECIFIED ACT

3. (1) Where, anytime limit…………………………………. ………………………………………………………………..

(2) Where any due date has been specified in, or prescribed or notified under, the specified Act for payment of any amount towards tax or levy, by whatever name called, which falls during the period from the 20^th day of March, 2020 to 29^th day of June, 2020 or such other date after the 29^th day of June, 2020 as the Central Government may, by notification, specify in this behalf, and such amount has not been paid within such date but has been paid on or before the 30^th day of June, 2020 as the Central Government may, by notification specify in this behalf, then NOTWITHSTANDING anything contained in the specified Act, –

(a) the rate of interest payable, if any, in respect of such amount for the period of delay shall not exceed three – fourth per cent for EVERY MONTH OR PART THEREOF;

(b) no penalty shall be levied and no prosecution shall be sanctioned in respect of such amount for the period of delay.

Explanation – For the purpose of this sub-section, the “the period of delay” means the period between the due date and the date on which the amount has been paid.”

Section 3(2) of the Ordinance,includes the word “NOTWITHSTANDING” hence it overrides any contrary provision of the Specified Act (Supra). Section 3(2) of the Ordinance has certain conditions and on fulfilment of which a person  would be eligible for reduce rate of interest. The condition of Section 3(2) of the Ordinance are summarized as below:

(i) Any payment of Tax or Levy that is due within the specified period as per ordinance.

(ii) Specified Period = 20^th March 2020 to 29^th June, 2020

(iii) Payment of such Tax or Levy should be paid on or before 30^th June, 2020 (or such other date as the Central Govt may notify).

If the above conditions are fulfilled then a person would be liable for the reduced rate of interest at 0.75% p.m or part thereof. And, also there would be no penalty or prosecution on such delay.

2.2 In view of the above provision of the Ordinance which clearly states that when certain conditions stated gets fulfilled a person would be eligible for the reduced rate of interest. Till, here it was simple as plain vanilla but the important factors comes as to what shall be the period to be reckoned for computing the default on payment of TDS / TCS.

2.3 At the outset, Section 3(2) of the Ordinance states that reduced rate of interest on default will be reckoned for the period of delay only. Referred term has been defined at end of the Section 3(2) of the Ordinance which states that period commencing from the due date to actual date of payment.

2.4 It is submitted that Section 201 of the Income Tax Act deals with the consequences of failure to deduct or pay TDS / TCS. Reference of this Section is important for the reason that the Section 3(2) of the Ordinance would have over-riding effect on Section 201 of the Income Tax Act.

2.5 Section 201 of the Income Tax is important for us to considered wherein at sub-Section (1A), it has been stated that a person when he makes default for payment or / non deduction of, TDS / TCS,he would be liable to pay interest on such default. The tabular chart explaining Section 201(1A) of the Income Tax Act is as under:

2.6 A look on the above provision and in consideration to Rule 119A of the Income Tax Rules wherein procedure to be followed in calculating interest has been defined. It states that “where the interest is to be calculated for EVERY MONTH OR PART OF A MONTH comprised in a period, any fraction of a month shall be deemed to be a full month and the interest shall be so calculated.” Therefore, while calculating Section 201(1A) of Income Tax Act, interest for fraction of month needs to be calculated as full month.

ANALYSIS OF ORDINANCE WITH INCOME TAX ACT IN RELATION TO CALCULATION OF PERIOD OF DEFAULT.

3. On basis of the above, it is submitted as follows

• The Ordinance supersedes the Section 201(1A) of the Income Tax Act.

• The Ordinance would be applicable to those payment of tax or levy whose Due date falls within specified period (20-03-2020 to 29-06-2020)

• As per Ordinance, the period of delayhas been categorically defined which would be from due date of making payment (refer Section 200 r.w. Rule 37BB) till actual date of making payment (that should be on or before 30^th June, 2020 or such other date as the Central Govt may notify)

• There shall be no interest from the date of deduction till due date of payment as envisaged in the Section 201(1A) of the Act. This is relaxation given through Ordinance.

• Here, the interest for default would be on number of daysreckoned from the due date and any fraction would not be converted into full month. It is submitted that Ordinance has used the term “per month or part thereof” as against term used in the Section 201(1A) “per month or part of the month”.

• Therefore, from above the intention of Ordinance is clear that they would charge only for the delay for number of days and not for entire month as per the Income Tax Act. This is a special Ordinance and its intent and objective needs to be considered while reaching to any conclusion.

3.1 This is also substantiated from the words and expression used in the Ordinance and the Income Tax Act. The comparison is reproduced herein below:

• It is submitted that the Ordinance has specifically used the term “PM OR PART THEREOF” and has not used “PM OR PART OF THE MONTH” as it used in the specified acts (Income Tax Act).

• Here, it can be appreciated that the words and expression used in the Ordinance and Specified Act (Income Tax Act) are different and distinct. Here, the term “every month or part thereof” needs to be harmoniously understoodconsidering the reason for such ordinance. The word and expression used has definite meaning and used for specific purpose. It is elementary rule of construction that the legislature and even the body exercising subordinate legislative function does not waste words while enacting law.

• Each words and expression, it is presumed, is meant to serve a purposes. Thus, the expression “or part thereof” used in the Ordinance can only mean that it has specific meaning assigned and that has been read and cannot be ignored while interpreting. Further, it is settled position of law that statutory provisions are required to be given harmonious interpretation keeping in view the objective sought to be achieved.

3.2 Thus, in view of the above the expression “or part thereof” cannot be isolated while interpreting the Ordinance and one cannot presume that interest shall be charged on monthly basis. The legislative body was aware that the word and expression used in the Section 201(1A) are “month or part of the month” but they have specifically selected the word “month or part thereof”. Therefore, the Rule 119A of the Income Tax Rules cannot be applied on the contrary it helps us to substantiate and conclude that interest under Ordinance would be charged on number of days basis.

IS THERE ANY LEGAL PRECEDENT TO SUPPORT THE ABOVE CONTENTION?

4. At the outset it may be appreciated that world has faced such pandemic for the first time and the countries are working to provide relaxation and ease the burden, therefore, one may not have direct nexus of any judicial precedent. One has to read the Ordinance in the light to the objective stated in the preamble and that states that it is promulgated because it was imperative to provide relaxation in taxation and other laws in view of spread of pandemic of COVID-19. Thus, there would be no direct legal basis to support the contention that the expression “or part thereof” means that the period of actual delay and one cannot convert into full month.. However, there are few judicial discussion which tend to support the finding, which are submitted herein below:

• There is direct judgment from the Honourable Madras High Courtin the case of Sakthi Sugars Limited v The Assistant Commissioner of Commercial Taxes, Central Assessment Circle I, Coimbatore 1985 59 STC 52 Mad dated 14^th November, 1984.

• Another the decision of Honourable Andhra Pradesh High Courtin the case of Lamina Suspension Products (P.) Ltd. v. State of Andhra Pradesh[1991] 187 ITR 105 (Andhra Pradesh).

• Also the decision of Honourable Allahabad High Courtin case of Brooke Bond India Limited v Commissioner of Sales Tax, Uttar Pradesh.

4.1 Interestingly, in the case of Shimoga Steels Ltd v. The Karnataka Electricity Board [1999 (1) KarLJ 1] dated 06^th November 1998 wherein majority of the above decision has been considered and their lordships have interpret the word “or part thereof” and it has been concluded therein that it shall means the actual number of days only.

4.2 Thus, in view of the above, when the term “per month or part thereof” used in the Ordinance means that the delay should be reckoned for actual number of days.

Conclusion.

1. The Ordinance is the Special Statue and that is brought in place to provide extension of time limit along with relaxation for the default that is subjected to because of lockdown and the restrain for spread of pandemic COVID-19.

2. Section 3(2) of the Ordinance has overriding effect on Section 201(1A) of the Income Tax Act. And by that the interest would be charged only at the rate of 0.75% per month or part thereof. It would eligible only for those due date that are falling within specified period 20^thMarch, 2020 to 29^thJune 2020 (or further as notified by Government) and same stands paid on or before 30^th June 2020.

3. The period of delay and using of term “part thereof” further gives relaxation that the interest need to be computed from the end of the due date till actual date of payment and the default will be only for number of days.

4. This is further justifiable from the fact that on the lifting off the lockdown one can pay the due TDS / TCS immediately without any further delay and thereby restrict his interest burden which was only on account of unanticipated situation arising from lockdown.