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					In terms of provisions of Income-Tax Act, 1961 (Act) the payment of taxes i.e. advance
Income-Tax, fringe benefit tax, tax deducted/ collected at source are to be made before
the specified due dates and even a day's delay in payment attracts penal interest or may
lead to disallowance of expenses in tax assessments/ returns. In cases where taxes are
paid through cheque, the date of payment could be the date of tender of cheque to the
authorised banker or the date of clearance of cheque from the payer's account. In view
of conflicting judicial precedents it is important to be aware of the legal position on the
matter and issues involved.

As a background to the issue it may be mentioned that prior to June, 1983 payments to
government account were regulated by Central treasury rules (erstwhile rules) which
provided that in case of realised cheque, the payment date would relate back to date of
presentation of the cheque with the banker.

These rules were subsequently replaced by Central Government Account (Receipts &
Payment) Rules,1983 (Rules) in June, 1983 which provided that in such cases, the date
on which the cheque is cleared and entered in receipt scroll would constitute the date of

During the period when the erstwhile rules were in force, the Central Board of Direct
Taxes (CBDT) had issued Circular No. 261 dated August 8, 1979 clarifying a similar
position i.e. in case of realised cheques, the date of payment would relate back to date
of presentation of the cheque with the banker. Interestingly, the above circular has not
been withdrawn after insertion of the rules and continues to remain in force.

However, on a conjoint reading of Circular and Rules, the apparent conflict between the
two is clearly evident, which has resulted in the controversy as to what would be
construed as 'date of payment'. The above conflict has been duly noticed by Authority for
Advance Ruling, while rendering decision in AAR No. P 2 of 1994 reported in 221 ITR

Independent of the Rules, it may be mentioned that the Act authorises the CBDT to
issue circulars and clarifications for proper administration of the Act and the authorities
employed in execution of the Act are bound to observe and follow such instructions. The
binding nature of circulars issued by the CBDT on the tax department has been time

 again affirmed by judicial authorities, as recent as by the apex court in the case of UCO
Bank reported in 237 ITR 889. Thus, as far as the matter relates to execution,
administration of the Act, the position clarified in circular may be construed as binding on
Income-Tax authorities in preference to any other executive instructions issued by any
other authorities.

Further, the issue regarding 'date of payment' of tax in case of payment through cheque
was subject matter of consideration before the Chennai Tribunal in case of PL Haulwel
Trailers Ltd reported in 100 ITD 485, wherein the tribunal has affirmed the position that
in case of payment of tax by cheque, the date of presentation should be taken as date of
payment. While rendering its decision, the tribunal has duly considered the conflict
between the Rules, Circular and the provisions of Negotiable Instruments Act, 1881.
Other than upholding the binding nature of the Circular, the tribunal has observed that
under the Negotiable Instruments Act, 1881 it has been held that once the cheque is
encashed in ordinary course, it will discharge the drawer from payment, and thus there
exists an apparent conflict between interpretation of Negotiable Instrument Act, 1881
and the Rules which have been framed by executive authorities in exercise of powers
under Article 283(1) of the Constitution of India.

The tribunal has thereafter, held that in such a scenario, the law enacted by the
Parliament would prevail i.e. Negotiable Instruments Act, 1881 would prevail over the

Though the reasoning given by the tribunal appears to be on a strong footing, the matter
is likely to be disputed by the tax authorities at various levels, until the position is further
clarified by the CBDT.

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