TDS Deposit: Are You Paying Excess Interest for Delay in ?

When there is a delay in TDS deposit,  interest is payable by you on the delay, which is computed in months by following rule 119A of the Income Tax Rule. Now , Rule 119A(b) of Income Tax Rule says 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.

Add to this the meaning of “month”; if taken as a British calendar month following section 3 of the General Clauses Act, the computation of delay will always be higher.

What is the Rule for Computing Interest for Delay in the TDS Deposits?

Rule 119A of the Income Tax Rule provides the procedure for calculating interest payable by the taxpayer or to be paid to the taxpayer under any provision of the  Income Tax Act. 

119A. In calculating the interest payable by the assessee or the interest payable by the Central Government to the assessee under any provision of the Act,—

(a) ………..

(b) 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;

(c) ………………

The most important point in the clause is that any fraction of a month shall be deemed a month. This means even one day delay will make you pay interest for one month.

What is the Meaning of the Month for TDS Interest?

The term month is not defined anywhere under Income Tax Act. When something is not defined in the Act, the definition given in Gnereal Clauses Act prevails as per section 3 of the said act  As per sub-section (35) of section 3, the word ‘month’ has been defined to mean a month reckoned according to the British calendar.

The word ‘month’ is described in Webster’s Third New International Dictionary (unabridged) as a measure of time corresponding or nearly corresponding to the period of time moon’s revolution or as one of the twelve portions into which the year is divided in the Gregorian calendar as also a period of time about the length of a lunar month but not necessarily coinciding with a calendar month. 

The same dictionary also explains the term ‘calendar month’ as one of the months as named in the ‘calendar’ or the period from a day of one month to the corresponding day of the next month if such exists or, if not, to the last day of the next month.

Why is the Meaning of the Month Important?

Section 201(1A) (i), it is clear that the interest for non-deduction of TDS will be paid from

1. The date on which the tax is required to be deducted to the date of actual deduction @1% and
2. from the date of deduction to the date of actual payment @1.5% p.m.

Let me give an example.

The due date for the deposit of TDS is 29th March.

You deposited TDS on 3rd April

Total delay in days: 5 days.

But the computation of delay will be 2 months, following Rule 119A(b) and taking month as Calendar month.

So, departmental computation based on Rule 119A and the General Clauses Act will be the interest of 2 months, when the delay was only five days.

Fortunately, Courts and tribunals have held such computation wrong.

For Interest u/s 244A, Month means 30 days, not British Calendar Month.

The Gujarat High Court in CIT vs Arvind Mills Ltd,16 taxmann.com 291(Guj), in the context of interest on refunds u/s 244A of the Act, the Hon’ble Gujarat High Court held that the term ‘month’ must be given the ordinary sense of the term, i.e. 30 days of period. Not the British calendar month as defined u/s 3(25) of the General Clauses Act, and such a definition under the General Clauses Act cannot be adopted for the purposes of Section 244A of the Act inasmuch as such importation of definition would lead to anomalous situation. The Para 38 of the Order contains an example of such an “anomalous situation “.See below : 

38. We are of the opinion that the definition contained in Section 3(35) of the General Clauses Act defining the term ‘month’ cannot be adopted for the purpose of sub-section (1) of Section 244A of the Act. Such importation of the definition would lead to anomalous situation. For example, the assessee who pays tax on 1st January of a particular year and is granted refund on 28th of February of the same year, would be entitled to receive interest for two months. If the contention of the assessee in the present case is accepted, in a case where the assessee pays tax on 31st January and is granted refund on 1st February of the same year, shall also be entitled to interest for two full months. This would be so because the assessee contends that for the purpose of sub-section (1) of Section 244A the term ‘month’ should be understood as British Calender month and since Rule 119(A) of the Rules provides for ignoring a fraction of month and granting interest for the full month instead, the assessee in the second example given above should receive interest for month of January as well as for the month of February. To our mind such interpretation would only lead to anomalous situation and should therefore be avoided.

For interest under section 201, month means “30 days”.

At least four judgments from different ITATs have pronounced that for the purpose of charging interest for delay in deposit of TDS, month means “30 days” and not the “British Calendar Month”. The Hobble Gujarat High Court decision in Arvind Mills is the basis of their rulings.

1. In the case of Navayuga Quazigund Expressway P. Ltd., (2015) 39 ITD 612 , the Hyderabad Bench of this Tribunal, while respectfully following the decision of the Gujarat High Court in the case of Arvind Textile Mills, considered the definition of the month in the context of Section 201(1A) of the Act and held that Section 244A(1) is analogous to provisions of Section 201(1A)(ii) read with Rule 119A of the Act and a month must be given ordinary meaning of the term by taking a period of 30 days and not British calendar month as defined u/s 3(35) of the General Clauses Act. 

• 2. ITAT Delhi, E.I. DuPont India P. Ltd. Vs DCIT (ITAT Delhi) I.T.A. Nos. 386 & 387/Del/2016 Date of Judgement/Order: 24/01/2019 Related Assessment Year: 2013-14

• Assessee made the tax deduction on 31.3.2013 and made the actual remittance on 2.5.2013, whereas the due date of remittance was 31.4.2013. Learned AO calculated the interest calculated interest for three months -, from 31.3.2013 to 31.3.2013- one month, 1.4.2013 to 30.4.2013 –second month and 1.5.2013 to 2.5.2013 – third month.

• It is the argument of the learned AR that the learned AO had treated one day in the month of March and two days in the month of May, being the parts of the British calendar month, as two different months and put together with the month of April, learned AO calculated the interest for three months. 

• Learned AR submits that in view of the decision of the Hon’ble Gujarat High Court in the case of CIT vs Arvind Mills Ltd. (2011) 16 taxmann.com291(Guj) and the decision of the Hyderabad Tribunal in the case of Navayuga Quazigund Expressway P. Ltd. vs DCIT, (2015) 39 ITD 612 (Hyderabad Tribunal) and Ahmedabad Tribunal decision  in Oil and Natural Gas Commission vs ACIT, ITA No.1955 to 1965 (Ahd0/2015, the term ‘month’ must be given the ordinary meaning of the term of 30 days period and not the British calendar month as defined in Section 3(35) of the General Clauses Act.

• 3. ITAT, Mumbai in UTI Mutual Fund Vs DCIT (ITAT Mumbai) ITA No. 2295/Mum/2018 order dt 01/07/2019 , Hon’able Tribunal Bench held 

• “​​Respectfully following the ratio of aforesaid decision‟s, we allow the appeal of the assessee, by holding that for purpose of computation of interest payable u/s. 201(1A)(ii) of the 1961 Act read with Rule 119A(b) of the 1962 Rules, month is to be interpreted as period of 30 days and not British Calendar Month”

• 4. Similarly, in a case before  ITAT  “E” BENCH, MUMBAI,  in Economic Law s Practice vs CIT(Appeals) – 59 , I.T.A. No.7146/Mum/2018 order date 12/12/2019 , 

• the facts of the assessee was that the assessee while computing interest payable to Central Government for such delay in deposit of TDS computed voluntarily interest payable by taking period of delay in deposit of TDS in number of days wherein if the delay in deposit of TDS is upto 30/31 days, it was taken as one month delay but where it exceeded 30/31 days but up-to 61/62 days, the same was taken as two months delays while Revenue has taken rollover of month as basis for computing interest payable by the assessee for late deposit of TDS, as where the TDS is deducted in the month of October 2013 but paid in November 2013, the interest is computed by taking delay for 2 months and hence the differential demand for interest payable raised by Revenue to the tune of Rs.4,19,060/- , vide intimation dated 30.03.2014 issued by learned DCIT under Section 200A of the 1961 Act.

• The Tribunal did not agree. It followed the decision of ITAT Hyderabad  in Navayuga Quazigund Expressway P. Ltd. and held as under : 

• 5. Since the factual matrix as well as issue before us is identical, respectfully following the above decision of this Tribunal, taking the same view, we hold that for the purpose of computation of interest, the expression month is to be interpreted as period of 30 days and not British calendar. The Ld. AR has placed on record computation to submit that excess interest levied would be Rs.49,363/- which need to be reversed. We direct Ld. CPC-TDS / concerned AO to verify the same and charge interest accordingly in terms of our above order.

Summing Up

Tax professionals are advised to check the interest charged by CPC-TDS on the delayed payment of TDS and see if they charged interest for one month more than legally required. File a claim to recompute, citing aforesaid decisions.

If interest is charged more , you need to file a rectification petition citing the decisions above and then go to appeal if the AO did not entertain the petition.