Income tax Act provide for charge of interest on demands of taxes and penalty as well as it has provisions dealing with payment of interest to the taxpayer on any refunds due.
For calculating the interest payable by the assessee or the interest payable by the Central Government to the assessee under any provision of the Act rule 119A provide for a procedure calculating interest separately where interest is to be calculated on annual basis and where interest is to be calculated for every month or part of a month.
From 1.1.1975 this rule 119A is introduced to provide for charge/payment of interest on fraction of a month so that even one day of delay would be considered as one month for interest calculation . Act provisions were also synchronised from annual basis/PA to monthly basis in all possible sections by now .
This fractional interest charging has come detrimental to the interest of taxpayer as rate of interest payable to the government is twice/thrice that of rate of interest payable to the taxpayer and furthermore the interest paid is not tax deductible while interest received is subjected to tax.
More so there is no challenge possible even in situation when the default is clearly not intentional vide (1986) 157ITR 812.
Interestingly in rule 119A (a) there is a provision even today for annual basis calculation as well as for ignoring defaults of less than a month but in the Act there is no provision seeking calculation on annual basis make this rule as inconsistent and irrelevant to the subject. Moreover clause (a) and (b) of rule 119A are conflicting in nature with one provides for ignoring fraction of a month while the other deeming fraction of a month as full month.
In this scenario the taxpayer should be entitled to seek one that is favouring him following Madras High Court vide (1986) 157ITR 812 by which the liability is to be computed only with reference to the law as it then stood.