TMI Blog2017 (1) TMI 1402X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in H.E.G. Ltd. (2009 (12) TMI 35 - SUPREME COURT ), relied upon by the ld. CIT(A), refund (withdrawal) of interest u/ss. 234A, 234B, 234C, etc., being in consequence to a tax default, partakes the character of ‘tax’ and, therefore, shall also carry compensatory interest u/s. 244A, to be allowed on the same basis and in the same manner as on the refund of tax proper. - ITA Nos.2221 & 2222/Mds/2016 - - - Dated:- 31-1-2017 - SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER Appellant by : Shri A.V. Sreekanth, Jt. CIT Respondent by : Shri R. Vijayaraghavan, Advocate O R D E R Per Sanjay Arora, AM: This is a set of two Appeals by the Assessee arising out of a common Order by the Commissioner of Income Tax (Appeals)-17, Chennai dated 30.03.2016, partly allowing the assessees appeal contesting the order by the Assessing Officer (AO) giving appeal effect to the Tribunal s order u/s. 254(1) of the Income Tax Act, 1961 ( the Act hereinafter) for assessment years (AYs) 1998- 99 1999-2000 dated 31.12.2012 and 19.07.2013 respectively. 2. The only issue arising in these appeals is the manner in which the interest u/s. 244A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demonstrate with a set of figures as under and, thus, the issue arising is to be construed as the manner in which the interest u/s. 244A is to be computed on the grant of a refund to the assessee: (Amount in Rs.) Particulars Amount of Refund Tax Interest u/s. 244A Remarks Refund due 120 100 20 Interest up to the date of refund (of tax) Option A - Assessee Refund granted (A) (60) (40) (20) Option A (by the assessee) Balance outstanding 60 60 0 Refund due less granted Interest u/s. 244A 3.6 -- 3.6 For 12 months @ 0.5 per cent (say) p.m. Amount Refundable 63.6 60 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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. (2) (4) [emphasis, ours] The same clearly postulates refund of tax and interest thereon, i.e., up to the date of grant of refund (of tax). It is therefore not open for the Revenue to refund either tax alone (as where the refund in our example, is for ₹ 100/-) or interest alone (as where the refund is for ₹ 20/- only), i.e., to any extent, and, as such, disproportionately. The reason is simple. The interest is to be allowed on a simple interest basis and, further, granted at the time of grant of the tax refund, in addition thereto, i.e., together with tax, calculated up to the date of grant of it s refund. That is, becomes payable only at the time of grant of the refund of the principal. The Revenue being so obliged is in law not competent to grant refund of tax without commensurate interest thereon. It is in fact only because the interest is to be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion. The ld. AR would, on our so observing during hearing, would submit that the proportionate method being advocated prejudices the assessee. We are unable to see how, as the assessee is being allowed interest u/s. 244A, at all times, on the tax being refunded, at simple interest, up to the date of grant of tax refund, i.e., as provided by s. 244A. The prejudice cannot be notional, and has only to be per the provision, i.e., with reference to that statutorily allowable. A refund of ₹ 100 (say), going by our example, would not imply a tax refund only, as considered by the Revenue, but of tax at ₹ 83.33 (i.e., ₹ 100 x 100/120) and interest thereon at ₹ 16.67 (i.e., ₹ 100 x 20/120). The prejudice is to be with reference to the statutory provision allowing interest and not in a preconceived manner, or with reference another provision of Act, as for example s. 140A. Section 140A carries, by way of Explanation thereto, a clear mandate for preferential adjustment of interest, which has to be therefore respected, as is that of s. 244A, allowing interest along with the amount of refund of tax, i.e., up to date, obliterating any scope for prejudice. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax refunded on simple interest basis, satisfying further the condition of refund of tax along with the interest thereon to date. It is the non-observance of this clear mandate of s. 244A that causes the distortion in the interest figure. In fact, to the extent the amount of tax is considered as interest, the assessee is only, through wrong appropriation, seeking interest on interest. The assessee s alluding to the commercial principles or practices is, again, out of context. The mode and manner of working interest in a commercial transaction would be governed by the terms of the relevant contract, while of statutory interest, as u/s. 244A, is to be per the provision, as clarified again by the Apex Court in Gujarat Flouro Chemicals (supra). We may next advert to the order by the tribunal in Wheels India Ltd. (supra), relied upon by the assessee. The decision, the ratio decidendi of which only has precedence value, is premised on, as afore-stated, two principles/ considerations, i.e., (i) no interest being admissible on interest; and (ii) as long as tax remains unpaid, it shall be subject to interest. There is, however, another aspect to the matter, on which we observe no fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted and not in dispute. It was under these circumstances that the Hon'ble Apex Court held that refund of interest, due and payable to the assessee, shall attract interest u/s. 244A, and that the words any amount in s. 244A(1) does not restrict its application only to tax, and that it would not be interest on interest or payment of interest at a compound rate. We are unable to see as to how the said decision supports the assessee s case of preferential adjustment of interest, which the ld. CIT(A) allows, though clearly repudiates the Revenue s claim of appropriating refund against tax, as was in fact the admitted position in the said case. We have already clarified in abundant detail that the appropriation adopted by both the parties is not in terms of s. 244A, each causing thus prejudice, i.e., with reference to the provision, to the other. The decision in fact clearly supports the proportionate adjustment advocated by us which accords with s. 244A in-asmuch as there is in that case no interest due and payable at any stage which remains unpaid; each refund bearing the proportionate load of interest to date. It is only when interest is granted along with the tax refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of each can be determined by considering the refund amount as a gross amount comprising the two constituents in the same ratio (see Option C). Further, in view of the decision by the Apex Court in H.E.G. Ltd. (supra), relied upon by the ld. CIT(A), refund (withdrawal) of interest u/ss. 234A, 234B, 234C, etc., being in consequence to a tax default, partakes the character of tax and, therefore, shall also carry compensatory interest u/s. 244A, to be allowed on the same basis and in the same manner as on the refund of tax proper. Before parting with our order, we can t help wondering as to why, the law being clear, does the Revenue not grant refunds for years, or grants part refunds which should be exceptional, as in a case of wrong calculation, which is again undertaken through computerized software - requiring such adjustments. However, once so granted, as in the instant case, appropriation becomes imperative, for which the Department should itself provide requisite guidelines. We decide accordingly, and both parties succeed partly. 5. In the result, both the Revenue s appeals are disposed of on the afore-said terms. Order pronounced on January 31, 2017 at Chennai. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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