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2006 (1) TMI 465 - AT - Income TaxRefunds - Whether interest u/s 244A granted to assessee in the proceedings u/s 143(1)(a) of the Act is taxable in the year of its receipt or in the year in which proceedings u/s 143(1)(a) attains finality ? - HELD THAT:- In our view, the right to grant interest is absolute since existence of such right is not dependent on any event. For example, assessee is granted interest on the date of granting refund. Subsequently, u/s 244A(3), it is reduced by virtue of assessment u/s 143(3). In our opinion, the right of interest came into existence on the date of refund by virtue of section 244A(1) though its quantification may or may not vary depending upon the outcome of assessment. The view of ours is justified by the judgment of the Hon’ble Supreme Court in the case of Kedarnath Jute Mfg. Ltd. Co. Ltd. v. CIT [1971 (8) TMI 10 - SUPREME COURT], approving the judgment of the Hon’ble Madras High Court in the case of Pope the King Match Factory v. CIT [1962 (3) TMI 81 - MADRAS HIGH COURT]. It has been apprehended by assessee’s counsel that assessee would be without remedy if the interest is reduced by virtue of assessment u/s 143(3). This apprehension, in our opinion, is unfounded. If interest is reduced by virtue of sub-section (3) of section 244A on account of assessment u/s 143(3), the interest granted in earlier year gets substituted and it is the reduced amount of interest that would form part of income of that year. Thus, it would amount to mistake rectifiable u/s 154 of the Act. In our opinion, if the basis, on which income was assessed is varied or ceases to exist, then such assessment would become erroneous and can be rectified. This can be explained with an example. Similarly, any income assessed may become non-taxable by virtue of retrospective amendment and consequently, erroneous assessment can be rectified. Therefore, in our humble opinion, if the interest granted u/s 244A(1) is varied under sub-section (3) of such section, then the interest originally granted would be substituted by the reduced/increased amount as the case may be. Thus, income on account of interest if assessed can be rectified u/s 154. Thus, we are of the view that interest on refund u/s 244A(1) would be assessable in the year in which it is granted and not in the year in which proceedings u/s 143(1)(a) attain finality. The matter will now go to the regular Bench for decision on merits.
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