1997 (6) TMI 16 - HC - Income Tax

Summary

Issues Involved:
1. Payment of interest on refunds admissible to the assessee.
2. Interpretation of "regular assessment" under section 214 of the Income-tax Act.
3. Applicability of sections 214 and 244(1A) of the Income-tax Act for interest on refunds.

Issue-wise Detailed Analysis:

1. Payment of Interest on Refunds Admissible to the Assessee:
The primary issue concerns the payment of interest on refunds due to the assessee, which was previously considered by the Supreme Court in Modi Industries Ltd. v. CIT [1995] 216 ITR 759. The facts reveal that the assessee paid advance tax and had tax deducted at source, resulting in an initial tax assessment that required additional payment. Upon appeal, the assessee was granted a substantial refund, but the interest allowed by the Inspecting Assistant Commissioner was limited to a specific amount. The Tribunal later ruled in favor of the assessee, entitling it to interest on the entire refund amount. The High Court was asked to opine on whether the Tribunal was right in holding that the assessee was entitled to interest under section 214 on the refunded amount.

2. Interpretation of "Regular Assessment" under Section 214 of the Income-tax Act:
The Supreme Court in Modi Industries Ltd. clarified that "regular assessment" means "the first assessment made either under section 143 or 144 of the Act." It was determined that interest is payable on the excess advance tax from the first day of the relevant assessment year until the date of the first assessment order. The Supreme Court emphasized that once advance tax is treated as income-tax payable by the assessee, it cannot be treated again as advance tax for interest calculation purposes.

3. Applicability of Sections 214 and 244(1A) of the Income-tax Act for Interest on Refunds:
The Supreme Court's interpretation of sections 214 and 244(1A) was pivotal. Section 214 deals with interest on excess advance tax paid from the first day of the assessment year to the date of the first assessment. Section 244(1A) applies when tax or penalty paid after March 31, 1975, is found to be excessive due to an appellate order, necessitating interest payment on the excess amount from the date of payment to the date of refund. The High Court noted that section 214 interest is applicable for the period from the first day of the assessment year to the original assessment date, while section 244(1A) interest applies from the date of payment to the refund date.

The Tribunal's order lacked specificity regarding the period for which interest under section 214 was admissible. The High Court directed the Tribunal to reconsider the case under section 244(1A) based on the Supreme Court's guidelines. The objection raised by the Income-tax Department's counsel about jurisdiction under section 256 was dismissed, emphasizing that the principal question involved the period of interest admissibility, irrespective of the section referenced.

Conclusion:
The High Court answered in favor of the assessee, indicating that interest under section 214 is admissible from the first day of the assessment year to the original assessment date, and interest under section 244(1A) is applicable from the payment date to the refund date. The Tribunal was instructed to re-evaluate the case under section 244(1A). There was no order as to costs.