Payment of tax

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j.madhusudhanan (Querist)
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03 December 2007 For Certifying that the tax(any tax)has been remitted within the due date or not,whether we need to go by date of deposit of cheque or by date of clearance of cheque.i.e. whether is it sufficient that if i deposit cheque on or within due date or is it mandatory that the cheque has to be realized within the due date. please give case law references if any.

R.V.RAO

R.V.RAO (Expert)
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03 December 2007 • Central Board of Direct Taxes, in exercise of powers conferred under the Income-Tax Act, 1961 issued Circular No 261 dated August 8, 1979 (CBDT Circular) in line with the above rules, clarifying that in case of payment of tax by cheque/draft, if honoured, the date of payment would relate back to the date of handing over of the cheque/draft to the government's bankers;

• Central Government Account (Receipts and Payments) Rules 1983 (1983 Rules) were framed. These rules provide that the date of payment of government dues tendered in form of cheque/draft shall be the date on which it was cleared and entered in the receipt scroll;

• The apex Court in CIT v Ogale Glass Works Ltd AIR (1954) 25 ITR 529 (SC) and K Saraswathy v PSS Somasundaram Chettiar (1989) 4 SCC 527 (SC) held that the date of payment relates back to the date of tender of cheque, provided the cheque is honoured on presentation.

In the backdrop of the above, an issue arises as to whether the CBDT Circular which was issued in the context of the Old Rules, still holds good after enforcement of the 1983 Rules. In other words, can one consider the date of tender of cheque/draft as the date of payment in line with judgments of the apex court?

The Chennai Tribunal (Tribunal), in a recent judgment, in the case of PL Haulwel Trailers Ltd v DCIT [2006] 100 ITD 485 (Chennai) had an occasion to dwell on the issue. The assessee, in this case, paid advance tax, for assessment year 1996-97, by depositing the cheques with the authorised bank within the due date. These cheques however, were realised after the due date. The assessing officer taking the actual date of realisation of cheques, as the date of payment, levied interest for deferment of advance tax u/s 234C of the Income-Tax Act, 1961.

The tribunal observed that CBDT Circular, which was issued by the apex administrative body under the Income-Tax Act, 1961, was not withdrawn after the 1983 Rules were framed, i.e. it still holds field and would hence be binding on the Income-Tax authorities in preferences to any other executive instruction issued by any other authority.

The tribunal further observed that the 1983 Rules were framed by the government in exercise of executive powers conferred by the Constitution of India (Article 283), and as settled by the apex court in a number of judgments, in case of a conflict between the rules framed by executive and the law enacted by the Parliament, the law enacted by the Parliament will prevail. Accordingly, the 1881 Act read with the apex court's judgment in K Saraswathy's case, would prevail over the 1983 Rules.

The tribunal thus held that, as cheques were presented and deposited with the authorised banker within the due date and encashed subsequently, date of tender of the cheque should be taken as the date of payment.
SOURCE:www.indiantaxsolutions.com
R.V.RAO