CBDT clarifies no interest levy for delay in furnishing tax return if tax is paid before due date for filing tax return

 

THis Tax Alert explains Circular No.  2/2015 dated 10 February, 2015 (Circular) issued by Central Board of Direct Taxes (CBDT), being highest administrative body under the Indian Tax Laws (ITL), on levy of interest for delay in furnishing of return of income (ROI).

 

The ITL provides for levy of interest for delay in furnishing ROI beyond specified due date. Interest is levied on the amount of outstanding tax due after considering taxes paid during the tax year by way of advance tax, withholding tax, foreign tax credit etc. However, express language of the provision does not reckon credit of taxes paid during the period between end of tax year and due date of filing ROI (known as “self-assessment tax” or SA Tax).

 

In 2008, the Supreme Court of India (SC) in the case of CIT v. Pranoy Roy & Anr  had held that no interest can be levied for delay in furnishing ROI where SA Tax is paid before due date of filing ROI.
After more than 6 years, the CBDT reviewed the prevalent practice of levy of interest and has clarified that no interest should be levied for SA Tax paid before the due date of filing ROI in line with SC ruling. 

 

Whilst the legal position with reference to levy of interest for delay in furnishing ROI was already settled the by SC in 2008, it appears that there was varying practice within different Tax Authorities on compliance with the SC ruling.

 

Vide the present Circular, the CBDT has drawn attention of the Tax Authority to the ratio of the SC ruling and directed it to comply with the legal position as enumerated by the SC and to refrain from levying interest on SA tax paid before due date of furnishing ROI. It is settled under Indian jurisprudence that a circular issued by the CBDT, for proper administration, is binding on the Tax Authority. Pursuant to this Circular, one may expect consequential changes in the software used by Tax Authority for processing of tax returns.

However, in a case where SA Tax is paid after due date of furnishing ROI – say, after 10 days, but ROI is filed after further delay – say, after 3 months, question arises whether interest levy should be restricted for 10 days of delay in payment of SA tax beyond due date or it can be levied for full period of delay of 3 months in furnishing ROI. This circumstance is not addressed in the present Circular.