1989 (1) TMI 356 - HC - Income Tax

Summary

Issues Involved:
The issue involved in this case is whether the Tribunal was justified in directing the Income Tax Officer (ITO) to allow interest under section 244(1A) on the entire refund amount when such interest is payable only on tax or penalty.

Summary:
The High Court of Madhya Pradesh considered a reference under section 256(1) of the Income Tax Act, 1961, where the Tribunal had raised a question regarding the justification of allowing interest on the entire refund amount of Rs. 40,033 to the assessee. The assessee had initially paid a demand of Rs. 52,481, which included interest under sections 139(8) and 215 of the Act. Subsequently, due to an order by the Appellate Authority, the assessee became entitled to a refund of Rs. 22,525, and later an additional refund of Rs. 17,508 was granted by the Tribunal. The dispute arose when the ITO only allowed interest on the excess tax amount, which was contested by the assessee. The Tribunal ruled in favor of the assessee, directing the ITO to pay interest on the entire refund amount of Rs. 40,033 under section 244(1A) of the Act.

The Court examined the provisions of section 240 and section 244(1) of the Act, which govern the refund process and the payment of interest on delayed refunds. Section 240 mandates the ITO to refund any amount due to the assessee as a result of an order passed in appeal or other proceedings, without the assessee having to make a claim for the refund. On the other hand, section 244(1) stipulates that if the ITO fails to grant the refund within three months from the end of the relevant month, the Central Government is liable to pay simple interest on the refund amount due. The Court noted that the liability to pay interest is on the refund amount due, and in this case, the Tribunal had correctly determined the refund due to be Rs. 40,033. Therefore, the Court upheld the Tribunal's decision to allow interest on the entire refund amount.

In conclusion, the Court answered the question referred to it in the affirmative and against the Revenue. The parties were directed to bear their own costs in relation to this reference.