2003 (12) TMI 7 - HC - Income Tax

Interest on refund advance tax - whether the Tribunal is right in holding that the assessee is entitled to interest under section 244(1A) where the refund arises out of the advance tax paid by the assessee beyond the previous year under the first proviso to section 212(3A) of the Income-tax Act? - On any adjustment being made the amount adjusted becomes the tax paid pursuant to the order of assessment. - No error in the order of the Tribunal directing payment of interest under section 244(1A).

Summary

Issues involved:
Interpretation of provisions related to interest under section 244(1A) of the Income-tax Act for advance tax paid before assessment.

Analysis:

The judgment delivered by the High Court of Madras involved the issue of whether the assessee is entitled to interest under section 244(1A) of the Income-tax Act for advance tax paid before assessment. The case pertained to the assessment year 1975-76, where the assessee had paid advance tax, including a substantial amount paid in January 1976, which was later adjusted towards the assessed tax by the Assessing Officer. Initially, the Assessing Officer denied interest on the excess amount paid after the closure of the financial year, citing that interest under section 214 was not required to be paid. Upon appeal, the Commissioner directed the payment of interest, but the Tribunal set aside this order, agreeing with the Assessing Officer that interest was not payable for advance tax paid after the financial year's closure.

The Tribunal, however, acknowledged the assessee's right to receive interest under section 244(1A) and ruled in favor of the assessee. The Revenue contended that since the amount was paid before the assessment order, interest under section 244(1A) should not apply. The High Court analyzed the provisions and emphasized that advance tax payments are meant to be adjusted against the assessed tax, transforming the advance tax into actual tax upon assessment. The Court clarified that the words "in pursuance of" in the provision do not necessitate the payment to be made post-assessment, but rather refer to the excess amount found after the appellate order.

Rejecting the Revenue's interpretation, the Court highlighted that denying interest solely based on the timing of payment would defeat the purpose of advance tax payments. The Court explained that the word "paid" in the provision implies the date of the assessment order as the payment date, as adjustment of advance tax against assessed tax discharges the liability, constituting payment. The Court upheld the Tribunal's decision to grant interest under section 244(1A) to the assessee, ruling in favor of the assessee and awarding costs. The judgment clarified the application of interest provisions in cases of advance tax payments, ensuring fair treatment for taxpayers in such situations.