Assessee is entitled to Interest on Income tax Refund

Mrs. Lakshmi Sriram for the Appellant. T.R. Senthilkumar for the Respondent.

JUDGMENT

V. Ramasubramanian, J. – The assessee has come up with the above appeal on the only question of law as to whether the assessee is entitled to interest under section 244A on the amount of Rs. 20,00,000/- paid by them under section 140A.

2. Heard Mrs. Lakshmi Sriram, learned counsel for the appellant and Mr. T.R. Senthilkumar, learned Standing Counsel for the respondent.

3. The appellant/assessee filed a return of income for the assessment year 1991-92. A notice was sent on 13.11.1992 demanding tax payable in terms of section 143 (1) of the Act.

4. After travelling back and forth, the assessing officer passed an order in revision on 23.3.2000 determining a sum of Rs. 55,46,424/- as a refund due to the assessee and re-determined the total income. This order was actually to give effect to, a petition for rectification filed on 11.12.1999.

5. Admittedly, the appellant had paid a sum of Rs. 20,00,000/- on 29.6.1991, as tax due under section 140A. This amount actually became refundable due to the appellate proceedings. Therefore, the appellant claimed the refund of the said amount of Rs. 20,00,000/- together with interest under section 244A. The assessing officer granted refund of Rs. 20,23,272/-.

6. Similarly, the assessing officer granted relief under section 80 HHC only partially. Therefore, the non-payment of interest as well as the disallowance of a portion of the claim under section 80 HHC, became the subject matter of an appeal before the Commissioner.

7. The Commissioner of Income Tax (Appeals), by order dated 4.10.2001, held that the assessee is entitled to interest under section 244A. However, the assessee’s case with regard to section 80 HHC was dismissed by the appellate Commissioner.

8. As against the disallowance of the claim under section 80HHC, the appellant filed a further appeal before the Tribunal. Similarly, the Revenue filed an appeal as against the order of the Commissioner of Income Tax (Appeals) granting interest. By a common order dated 26.6.2005, the Tribunal allowed the appeals of the assessee as well as the Revenue. The Tribunal also allowed the cross objection of the assessee partially.

9. The Revenue has not come up with any appeal either against the order of the Tribunal allowing the assessee’s appeal or against the order of the Tribunal partially allowing the cross-objection of the assessee. However, the assessee has come up with the above appeals insofar as the rejection of their claim of interest under section 244A.

10. The assessee has been compelled to file two appeals in view of the fact that the Department’s appeal was allowed and the cross- objection was only partly allowed. But, the questions arising for consideration in both the appeals revolve only around the entitlement of the appellant to interest. The following questions of law were framed at the time of admission:—

“1. Whether the Income Tax Appellate Tribunal is right in law in holding that the appellant is not entitled to interest under Section 244A(1)(a) because the payment did not fall under advance tax falling under Section 244A(1)(a), when the assessing officer himself treated the payment as Advance Tax in the order passed under Section 143(1)(a), 143(3) and 154?

2. Whether the Income Tax Appellate Tribunal is right in law in negativing the alternative claim for interest even if the tax paid is treated by way of self-assessment tax under Section 140A got adjusted against the assessed tax thereby pertaining the character of tax paid pursuance of assessment?

3. Whether the Income Tax Appellate Tribunal is right in law in ignoring the object of the scheme of section 244A and negativing the interest payment when the appellant claimed the interest on self assessment tax and interest on interest on the refund due?

4. Whether the Income Tax Tribunal is right in law in holding that the appellant is not eligible for interest on interest when the department withheld the amount that is rightly due to the assessee?”

11. Since the only question that arises for consideration, revolves around the entitlement of the appellant to interest under section 244A, it would be useful to extract sub-section (1) of section 244A which reads as follows:—

“244A. (1) Where refund of any amount becomes due to the assessee under this Act, he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely:-

(a) where the refund is out of any tax paid under section 115WJ or collected at source under section 206C or paid by way of advance tax or treated as paid under section 199, during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period from the 1st day of April of the assessment year to the date on which the refund is granted;

Provided that no interest shall be payable if the amount of refund is less than ten per cent of the tax as determined under sub-section (1) of section 115WE or sub-section (1) of section 143 or on regular assessment;

(b) in any other case, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period or periods from the date or, as the case may be, dates of payment of the tax or penalty to the date on which the refund is granted.

Explanation. – For the purposes of this clause, “date of payment of tax or penalty” means the date on and from which the amount of tax or penalty specified in the notice of demand issued under section 156 is paid in excess of such demand.”

12. A careful look at sub-section (1) of section 244A would reveal that it has three parts. The first part deals with the entitlement of a person to interest whenever he is due to get a refund from the Department. The second part relates to the method of computation of such interest. There are two methods of computation of interest, one provided in clause (a) and another provided in clause (b). In the first method of computation, the liability of the Department to pay interest, starts only from the first day of April of the assessment year, if the liability to refund arises out of section 115 WJ or 206 or 199. The liability to pay interest commences from the date of payment of tax or penalty, under clause (b), in cases not covered by clause (a).

13. There is no dispute about the fact that the case of the appellant does not fall under section 115WJ or 206 or 199. Therefore, it would, naturally, fall under the residuary provision in clause (b) of clause 1 of section 244A.

14. Unfortunately, the Tribunal proceeded on the footing that since the refund to which the assessee was entitled had been paid before the completion of assessment, the assessee may not be entitled to interest under section 244A. The relevant portion of the order of the Tribunal reads as follows:—

“7. We have considered the rival contentions in the light of the material placed before us and the precedents relied upon. In this regard, we find that the learned CIT (A) had made the aforesaid decision in favour of the assessee placing reliance upon Hon’ble Jurisdictional High Court decision in CIT v. Needle Industries (P.) Ltd. (111 Taxman 679). It is contention of the Revenue that the decision relied on the CIT (A) is not applicable in this case, since the question considered in that case was whether interest paid under section 139(8) & 215 which becomes refundable could be considered as “amount paid in pursuance of any order of assessment or not as laid down in section 244(1A) since the amount refundable has been paid before completion of assessment. Further, the Revenue has contended that the assessee is not entitled to interest on this amount under section 244A(1)(a) also because the sum does not represent advance tax or TDS which are covered under that section. Similarly, it has been contended that the assessee’s case also does not fall under section 244A(1)(b) also since coupled with the section thereto the sum does not represent amount of tax specified in the notice of demand.”

15. But, as we have pointed out, the entitlement of a person to interest on the refund arises out of substantive part of sub-section (1) of section 244A. Clauses (a) and (b) relate only to the method of computation. The method of computation dealt with by clause (a) relates to specific cases of refund under certain provisions. Therefore, the starting point for calculation of the interest is fixed as 1st April in clause (a). Clause (b) is a residuary clause, as could be seen from the usage of the expression “in any other case”. Therefore, the starting point for the computation of interest under clause (b) is the date of payment. The provisions under section 244A do not distinguish the cases where payment is made on assessment under section 140A. The explanation to section 244A does not really talk about the entitlement or disentitlement. The explanation, which we have extracted above, would show that the expression “date of payment of tax or penalty” means the date on and from which the amount of taxes or penalty specified in the notice of demand issued under section 156 is paid in excess.

16. The above explanation does not give room for an interpretation that if a person has paid money otherwise than by way of demand under section 156, he is not entitled to interest on refund under section 244A. The explanation cannot, really, curtail the method of computation prescribed in clause (b) or the substantive part of section 244A. Therefore, the question of law is answered in favour of the assessee. The Tax Case Appeal is allowed. No costs. The connected miscellaneous petitions are closed.