TMI Blog2024 (4) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... standing and then against tax, and also the provisions of section 220 of the Act charging interest on the portion of outstanding demand of tax including interest, the hon ble court held that the same principle would follow if Revenue defaults in full payment of refund. Since section 244A of the Act debars payment of interest on interest refund, it held that part refund needs to be adjusted against interest first otherwise the assessing Officer/ Revenue would refund the principal amount and not pay the interest component u/s 244A for an unlimited period with impunity and without any sanction which would tantamount to allowing a premium on non-compliance with the law. Since the issue has been so decided in favour of the assessee by the Hon ble Delhi High Court and no other contrary decision of either the jurisdictional High Court or the Hon ble apex court has been brought to our notice, we have no hesitation in allowing the assesses appeal directing interest to be allowed on all outstanding after adjustment of part refund. First contention of the DR is that interest being in the nature of compensation for amount outstanding and not paid, whatever is once paid , there is no question o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders passed by the ld. Commissioner of Income-Tax (Appeals)-12, Ahmedabad [hereinafter referred to as CIT(A) for short] dated 02.03.2023 and 07.03.2023, pertaining to the Assessment Years (AY) 1993-94 1998-99 respectively, under Section 250(6) of the Income-tax Act, 1961 [hereinafter referred to as the Act for short]. 2. It was stated that the issue arising in both the appeals was identical; and therefore, both the appeals were taken up together for adjudication. 3. The ld. Counsel for the assessee stated that the solitary issue/ dispute in both the appeals relates to the adjustment of part income-tax refund received by the assessee against the total outstanding refund, comprising of principal/ tax and interest - with the assessee contending that the refund be adjusted first against the interest component outstanding and then against the principal/tax, while the Department s contention was to the contrary. The result of the entire exercise would be the effect on the quantum of interest to which the assessee would be entitled u/s 244A of the Act on the outstanding principal so remaining after adjustment of the part refund received. That if, as pleaded by the ld. Counsel for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efund Rs. 3,97,33,225/- and balance interest of Rs. 5,67,88,058/-. 7. In sum and substance, therefore, the dispute is regarding the adjustment of part refund granted by way of adjustment of refund against outstanding demand for various A.Y s, which while the Department has adjusted by reducing both the interest and the tax component of outstanding refund in a particular proportion, the case of the assessee is that the adjustment ought to be made entirely against outstanding refund of interest. As a consequence while the refund computed by the department and granted to the assessee of Rs. 6.28 Crs comprises of tax Rs. 2.07 Crs and interest of Rs. 4.21 Crs, as per the assessee, the refund works out to Rs. 9.65 Crs comprising of tax Rs. 3.97 Crs and interest Rs. 5.67 Crs. AY 1998-99 8. The facts pertaining to AY 1998-99 are that, in pursuance to order passed u/s 154 of the Act on 30.05.2016, the income of the assessee was assessed at Rs. 72,22,89,780/- . Subsequently, on 11.10.2017, the Hon ble High court granted relief to the assessee to the extent of Rs. 25,90,06,699/-. On 04.04.2018, the order giving effect to the High Court order was passed assessing the income of the assessee at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed earlier shall be first adjusted against the entire interest and then the balance be adjusted against the principal amount; (iii) the decision of the Hon ble Apex Court in the case of CIT Vs. Gujarat Fluro Chemicals, SLP (C) No.11406 of 2008, order dated 18.09.2018, categorically held that interest can be claimed only as per law laid down in this regard, and if the assessee s plea is accepted, it would tantamount to interest on interest; it would be in violation of the order of the Hon ble Apex Court. 11. The ld. DR has also filed submissions in writing before us, contending that interest being in the nature of compensation for use of money borrowed, or retained, or not paid to the person to whom it is due; therefore, once the money is paid back to the assessee, no question of further payment of any compensation for deprivation of income-tax refund payable will arise. She has also referred to the provisions of the Indian Contract Act, Section 59 to 61 dealing with the appropriation of payments, and summarized the same stating that, as per the said provisions, it is the debtor who has first right to intimation of debt at the time of payment; if the debtor fails to intimate the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular debt, the payment, if accepted, must be applied accordingly. Illustrations (a) A owes B, among other debts, 1,000 rupees upon a promissory note which falls due on the first June. He owes B no other debt of that amount. On the first June, A pays to B 1,000 rupees. The payment is to be applied to the discharge of the promissory note (b) A owes to B, among other debts, the sum of 567 rupees. B writes to A and demands payment of this sum. A sends to B 567 rupees. This payment is to be applied to the discharge of the debt of which 8 had demanded payment 60 Application of payment where debt to be discharged is not indicated.- Where the debtor has omitted to intimate and there are no other circumstances indicating to which debt the payment is to be applied, the creditor may apply it at his discretion to any lawful debt actually due and payable to him from the debtor, whether its recovery is or is not barred by the law in force for the time being as to the limitation of suits 61 Application of payment where neither party appropriates.- Where neither party makes any appropriation, the payment shall be applied in discharge of the debts in order of time, whether they are or are not barre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute before us is the manner of adjustment of part refund granted to the assessee, whether first against interest component of refund as argued by the Ld. Counsel for the assessee or otherwise as per the Revenue. 13. It is an admitted fact that the issue of adjustment of refund against outstanding principal/tax and interest has already been decided by the ITAT in the decisions as cited by the ld. Counsel for the assessee before us as noted above. This issue was first decided by the Mumbai Bench of the Tribunal in the case of Union Bank of India (supra), wherein it was held as under:- 3.4 We have gone through the facts of this case and submissions made by both sides, provisions of law as well as judgments placed before us. It is noted that the only issue to be decided by us is that while granting the refund in pursuance to the appeal effect order, whether the amount of refund granted earlier should be adjusted first against the interest component of the earlier refund and thereafter the balance amount should be adjusted against the principal component of tax in the refund granted earlier order OR vice-versa as has been done by the AO. It is noted that this issue is not coming fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same procedure needs to be followed in respect of refund due to the assessee i.e., the amount shall first be adjusted towards interest payable and balance, if any, shall be adjusted towards lax payable (in the instant case tax refundable to the assessee). 5. Learned counsel, appearing on behalf of the assessee, pleaded accordingly. On the other hand learned Departmental Representative submitted that the assessee is not entitled to interest on interest. However with regard to the plea of the assessee that it does not amount to payment of interest on interest but only adjustment of the refund from the Revenue against interest component first and thereafter against tax component, in which event u/s. 244A assessee is entitled to interest on the tax component, learned Departmental Representative could not place any decision contrary to the decision of Hon'ble Delhi High Court cited by learned counsel for the assessee. 6. We have carefully considered the rival submissions. As rightly pointed out by the assessee Hon'ble Delhi High Court rightly explained that the amount refunded by the Revenue has to be adjusted towards interest payable to the assessee and the balance, if any, sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een paid on December 31, 1997 but net of interest which, as stated above, partook of the character of amount due under Section 244A. 15. A reading of the aforesaid passage from the decision of the Supreme Court in HEG Limited (supra) indicates that it would be incorrect and improper to regard payment of interest when part payment is made as interest on interest. What has been elucidated and clarified by the Supreme Court is that when refund order is issued, the same should include the interest payable on the amount, which is refunded. If the refund does not include interest due and payable on the amount refunded, the Revenue would be liable to pay interest on the shortfall. This does not amount to payment of interest on interest. An example will clarify the situation and help us to understand what is due and payable under Section 244A of the Act. Suppose Revenue is liable to refund Rs. 1 lac to an assessee with effect from 1st April, 2010, the said amount is refunded along with interest due and payable under Section 244A on 31st March, 2013, then no further interest is payable. However, if only Rs. 1 lac is refunded by the Revenue on 31st March, 2013 and the interest accrued on Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no specific provision has been brought on the statute with respect to adjustment of refund issued earlier for computing the amount of interest payable by the revenue to the assessee on the amount of refund due to the assessee. Thus, the law is silent on this issue. Under these circumstances, fairness and justice remands that same principle should be applied while granting the refund as has been applied while collecting amount of tax. The revenue is not expected to follow double standards while dealing with the tax payers. The fundamental principle of fiscal legislation in any civilized society should be that the state should treat its citizens (i.e. tax payers in this case) with the same respect, honesty and fairness as it expects from its citizens. It is further noted by us that Hon'ble Delhi High Court has already decided this issue in clear words which has been followed by the Tribunal in assessee's own case in the earlier years. It is further noted by us that assessee is not asking for payment for interest on interest. It is simply requesting for proper method of adjustment of refund and for following the same method which was followed by the department while making co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout extending the similar benefit to a resident/deductor who has deducted tax at source and deposited the same before remitting the amount payable to a non-resident/ foreign company. 38. Providing for payment of interest in case of refund of amounts paid as tax or deemed tax or advance tax is a method now statutorily adopted by fiscal legislation to ensure that the aforesaid amount of tax which has been duly paid in prescribed time and provisions in that behalf form part of the recovery machinery provided in a taxing Statute. Refund due and payable to the assessee is debt-owed and payable by the Revenue. The Government, there being no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, cannot shrug off its apparent obligation to reimburse the deductors lawful monies with the accrued interest for the period of undue retention of such monies. The State having received the money without right, and having retained and used it, is bound to make the party good, just as an individual would be under like circumstances. The obligation to refund money received and retained without right implies and carries with it the right to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be first adjusted against interest outstanding and then against tax, and also the provisions of section 220 of the Act charging interest on the portion of outstanding demand of tax including interest, the hon ble court held that the same principle would follow if Revenue defaults in full payment of refund. The Hon ble High court also noted that since section 244A of the Act debars payment of interest on interest refund, it held that part refund needs to be adjusted against interest first otherwise the assessing Officer/ Revenue would refund the principal amount and not pay the interest component u/s 244A for an unlimited period with impunity and without any sanction which would tantamount to allowing a premium on non-compliance with the law. 15. Taking note of the decision of the Hon ble Delhi High Court as above, the ITAT held that there is no case of payment of interest on interest in such circumstances and accordingly held that the decision of the Hon ble apex court in the case of Gujarat Fluoro Chemicals (supra) did not apply. 16. Since the issue has been so decided in favour of the assessee by the Hon ble Delhi High Court and no other contrary decision of either the jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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