2009 (12) TMI 35 - SC - Income Tax

Interest on Interest - the question raised by the Department is whether the assessee was entitled to claim interest on interest under the provisions of Section 244A of the Income Tax Act 1961 that during the Assessment Year 1993-1994 the amount paid by the assessee towards TDS was Rs. 45, 73, 528/-. The Tax paid after Original Assessment was Rs. 1, 71, 00, 320/-. The total of TDS amounting to Rs. 45, 73, 528/- plus Tax paid after Original Assessment of Rs. 1, 71, 00, 320/- stood at Rs. 2, 16, 73, 848/-. In other words the total tax paid had two components viz. TDS Tax paid after Original Assessment. The respondent was entitled to the refund of Rs. 2, 16, 73, 848/- (consisting of Rs. 1, 71, 00, 320/- and Rs. 45, 73, 528/- which payment was made after 57 months and which is the only item in dispute assessee claimed interest for delayed refund - held that - this is not a case where the assessee is claiming compound interest or interest on interest as is sought to be made out in the civil appeals filed by the Department. - we are of the view that the assessee was entitled to interest for 57 months on Rs. 45, 73, 528/-. The principal amount of Rs. 45, 73, 528/- has been paid on 31st December 1997 but net of interest which as stated above partook the character of amount due under Section 244A

Summary

Issues:
Interpretation of Section 244A of the Income Tax Act regarding entitlement to interest on interest; Proper framing of questions in income tax matters leading to confusion in answers.

Analysis:
The Supreme Court addressed the issue of entitlement to interest on interest under Section 244A of the Income Tax Act. The Court noted that confusion can arise in income tax matters if questions are not properly framed. In this case, the Department raised a question regarding the assessee's entitlement to claim interest on interest, which the Court found to be erroneous. The Court examined the Income-tax Computation and determined that the assessee was entitled to a refund consisting of two components: TDS amount and Tax paid after Original Assessment. The assessee claimed statutory interest for delayed refund, not compound interest. The Court clarified that the interest component forms part of the "amount due" under Section 244A, rejecting the Department's argument that interest accrued would not be included in the refund amount. The Court held that the assessee was entitled to interest for the delayed refund period, as the interest accrued was considered part of the principal amount due under Section 244A.

The Court further analyzed the meaning of "refund of any amount becomes due to the assessee" in Section 244A. It concluded that the interest component accrued by the assessee for the delayed refund period should be considered part of the amount due. The Court emphasized that the interest accrued due to the Department's short payment, and therefore, the assessee was entitled to interest under Section 244A. Consequently, the Civil Appeals filed by the Department were dismissed, with no order as to costs. The Court's decision clarified the interpretation of Section 244A and affirmed the assessee's entitlement to interest on the delayed refund amount, emphasizing the importance of proper framing of questions in income tax matters to avoid confusion in determining the correct answers.