TMI Blog2006 (11) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,75,85,615, as under:- ----------------------------------------------------------- Sr. Date of payment Amount No. (Rs.) ----------------------------------------------------------- 1. 14-9-1998 - Advance tax 9,50,000 2. 14-12-1998 - Advance tax 6,25,000 3. 13-3-1999 - Advance tax 6,00,000 1. Paid on 25-6-2002 10,00,000 2. Paid on 29-7-2002 10,00,000 3. Paid on 28-8-2005 10,00,000 4. Paid on 28-9-2005 10,00,000 5. Paid on 31-10-2002 50,00,000 6. 14-3-2002 - Adjusted RO of A.Y. 2000-01 22,84,506 7. 21-11-2002 - Adjusted RO of AY. 2001-02 25,94,612 8. 16-9-2002 - Adjusted RO of AY. 1998-99 4,86,370 9. 28-2-2003 - Adjusted RO of AY. 1997-98 32,20,127 ----------------------------------------------------------- Total 1,75,85,615 ----------------------------------------------------------- 5. Before the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 240. He observed that the Supreme Court has categorically stated at the initial stage of proceedings under the Act, the refund will depend on the excess of tax paid by the assessee hence section 237 refers to the excess of tax. However, section 240 deals with refund by revenue on appeal etc., which concerns with all subsequent stages of proceedings and, therefore, is phrased in terms of 'any amount' becoming due to the assessee. He observed that the Supreme Court has then discussed other decisions of Delhi High Court in the case of CIT v. Goodyear India Ltd. [2001] 249 ITR 527, Madras High Court in the case of CIT v. Needle Industries (P.) Ltd. [1998] 233 ITR 370 and Kerala High Court in the case of CIT v. Ambat Echukutty Menon [1988] 173 ITR 581 and approved the said decisions. He observed that the Supreme Court has also approved the decision in the case of D.J. Works. He observed that the Court has then summarized its verdict in paragraph 38 of the order and held that the assessee would be entitled to refund of interest as held by various High Courts. He also observed that the Court noticed that the Department was following the twin tactic of adjusting tax payments made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion Ltd. [IT Appeal Nos. 2101 and 2102 (Ahd.) of 1995, dated 26-2-2001], (ii) Asstt. CIT v. Gujarat State Fertilizers Chemicals Ltd. [IT Appeal Nos. 1736 and 1737 (Ahd.) of 2005 for assessment years 1990-91 and 1991-92, dated 12-9-2005], (iii) Asstt. CIT v. Gujarat State Fertilizers Chemicals Ltd. [IT Appeal No. 1890 (Ahd.) of 2005 for assessment year 1992-93, dated 20-1-2006], (iv) Addl. CIT v. Harsiddh Sp. Family Trust [IT Appeal No. 380 (Ahd.) of 2001 for assessment year 1989-90, dated 13-1-2006] and the decision in the case of (v) Addl. CIT v. Nirma Ltd. [IT Appeal No. 2517 (Ahd.) of 2000 for assessment year 1995-96, dated 30-6-2006], as against the aforesaid decisions of the Tribunal and, therefore, the matter is required to be referred to the Special Bench. In this connection he relied upon the decision of the Supreme Court in the case of Jayaswals Neco Ltd. 2006 (195) ELT 142 and the decision of the Gujarat High Court in the case of Sayaji Iron Engg. Co. v. CIT[2002] 253 ITR 749. He further submitted that in paragraph 23, the Tribunal has discussed the decisions in Gujarat State Fertilizers Chemicals Ltd.'s case, and Kaira Distt. Co-operative Milk Producers Union's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee 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 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 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or deducted at source or treated as payment of tax under section 199. In this case refund is out of interest paid under section 234B and not out of tax collected or deducted at source or as treated to have been paid under section 199 of the Act. Therefore, clause (a) of section 244A(1) would not apply. 13. Clause (b) of sub-section (1) of section 244A grants interest in other cases of refund. Interest is granted for every month or part of the month comprised in the period 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. This clause would, thus, cover refund out of self-assessment tax or the other payments made pursuant to and after assessment. The Explanation provides that the '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. This clause does not specify as to what are the contents of the refund. It seems to apply to all other cases of refunds, which are not covered by clause (a) of section 244A(1) aforesaid. Here the refund is neutral term and includes every kind of refu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee simple interest at [fifteen] per cent per annum on the amount of refund due from the date immediately following the expiry of the period of [three] months aforesaid to the date on which the refund is granted. (1A) Where the whole or any part of the refund referred to in sub-section (1) is due to the assessee, as a result of any amount having been paid by him after 31-3-1975, in pursuance of any order of assessment or penalty and such amount or any part thereof having been found in appeal or other proceeding under this Act to be in excess of the amount which such assessee is liable to pay as tax or penalty, as the case may be, under this Act, the Central Government shall pay to such assessee simple interest at the rate specified in sub-section (1) on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund is granted: Provided that where the amount so found to be in excess was paid in instalments, such interest shall be payable on the amount of each such instalment or any part of such instalment, which was in excess, from the date on which such instalment was paid to the date on which the refund is granted: Provided f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the payment of amounts lawfully due to the appellant which were withheld wrongly and contrary to the law by the Department for an inordinate long period of upto 17 years. The High Court, in our opinion, has unnecessarily made the judgment a bulky one by considering various provisions of the Act and, in particular, section 240 which was inserted by Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989 and hence, was not applicable to the present case. The High Court has not considered section 240 as it stood then i.e., at the relevant point of time." 18. It is further made clear in paragraph 40 of the judgment by the Supreme Court that there cannot be any doubt that the award of interest on the refunded amount is as per the statute provisions of law as it then stood and on the peculiar facts and circumstances of each case. When a specific provision has been made under the statute, such provision has to govern the field. Therefore, the Court has to take all relevant factors into consideration while awarding the rate of interest on the compensation'. 19. As aforesaid section 244A grants interest only on that amount of refund that is out of the payments of tax or penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest under clause (b) of section 244A(1)? Clause (b) as such nowhere says that the refund has to be out of tax or penalty paid by the assessee. But it is implicit from the fact that the interest under this clause is to run from the date of payments of tax or penalty by the assessee. If, therefore, the assessee had made no payment as tax or penalty the interest cannot have basis to run as it starts from the date of payment of tax or penalty and not otherwise. There is no direct decision on this issue as to whether the interest levied and paid/collected from the assessee is a refund of tax or penalty. There are three decisions, which deal with the issue of refund of paid interest. But they are under the old provisions of section 244 of the Act which were applicable upto assessment year 1988-89. 22. One of them is in the case of Ambat Echukutty Menon's case. In this case for assessment years 1961-62 to 1963-64 interest under section 220 of the Act was levied and collected from the assessee as he failed to comply with the notices issued in pursuance of the decision of the Supreme Court, the amounts become refundable to the assessee. While granting the refund, the Income-tax Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0(2) of the Act. If the interest collected under section 220(2) of the Act also becomes refundable along with other amounts on the passing of an order in appeal and section 240 envisages refund of such amount, the interest refunded is also eligible to interest under section 244 of the Act. The Appellate Tribunal was justified in holding, on a reference to sections 220(2), 240 and 244 of the Act, that refund of the interest collected under section 220(2) is an amount coming within the purview of section 240 and so eligible for the interest contemplated by section 244(1) of the Act." 23. This was a case of interest under section 244(1) for assessment years 1960-61 to 1963-64 when even the provisions of sub-section (1A) was not there in existence. At that time there was no reference of 'tax or penalty' either for eligibility on refund thereof or the starting point for running the interest. It was a case of granting interest on refund on appeal to start running from after the expiry of three months of the order entitling the refund. In these circumstances the Court observed that interest is available on any amount of refund that is given to the assessee under section 240. 24. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... original assessment for the assessment year 1974-75 was completed on 29-8-1977 and the order of assessment was the subject-matter of appeal before the appellate authority and the Tribunal. The Tribunal ordered refund. The ITO allowed interest under section 244(1A) partly and declined to grant interest on refund of interest paid under sections 139(8) and 215. The assessee filed an appeal against the order passed by the ITO refusing to grant interest on refund of interest charged under sections 139(8) and 215. The CIT(A) allowed the claim of the assessee. The Tribunal, on an appeal by the revenue, upheld the order of the CIT(A) and held that the assessee was entitled to interest under section 244(1A) in respect of interest collected under sections 139(8) and 215 and refunded under the provisions of the Act. On reference the High Court upheld the order of the Tribunal. The High Court, while construing the expression 'amount' in earlier part of section 244(1A) held that it would refer not only to the tax but also the interest as the expression 'amount' is a neutral expression and it cannot be limited to the tax paid in pursuance of the order of assessment. The High Court held as follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the context of section 244(1A) of the Act, the expression 'tax', in our opinion, would include interest also and the definition of tax in section 2(43) meaning 'income-tax' cannot be applied in the context of section 244(1A) of the Act. Consequently, the interest paid in pursuance of the order of assessment has to be regarded as forming part of income-tax or an adjunct to income-tax. The result would be that the assessee is entitled to interest on the interest refunded also. As a matter of fact, in the subsequent order of rectification, the ITO has granted interest on the refunded interest which clearly shows the right thinking of the Department in accepting the position that the assessee would be entitled to interest on the interest refunded. The view of the Tribunal that the assessee would be entitled to interest on the refunded amount of interest levied under sections 139(8) and 215 of the Act is legally sustainable in law." 27. In the above judgment, the Madras High Court has followed the aforesaid judgments in the case of Ambat Echukutty Menon of Kerala High Court and Sardar Balwant Singh Gujral's case of the Madhya Pradesh High Court held that the liability to pay inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to interest on the interest refunded also. 29. On a parity of reasoning the expression 'tax or penalty' found in the clause (b) in later part of the section 244A(1) would not qualify of restrict the scope of the expression 'amount' found in the opening part of the section to mean only 'tax or penalty'. The function of the clause (b) of later part of section 244(1A) of the Act is to find out the date and payment of the excess amount which the assessee paid by way of tax or penalty to start the running of interest and that is the reason the expression 'from the date or, as the case may be, dates of payment tax or penalty' has been employed. To determine the date(s) of payment of the amount section 244A(1) gives emphasis on the amount paid by the assessee in pursuance of an order and that amount, in our opinion, cannot be limited to the amount of tax or penalty, but would encompass the amount of interest paid by the assessee. It seems to be intention of Legislature that the right to interest is to compensate the assessee for the excess payment during the intervening period when the assessee did not have the benefit of use of such money paid in whatsoever character. A literal meanin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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