2015 (2) TMI 1129 - HC - Income Tax

Interest under Section 244-A on refund resulted out of Self Assessment Tax Paid - date from which such interest is payable - whether the tax paid under Section 140A will not attract Section 244A at all and, therefore, the interest allowed by CIT (A) is clearly illegal? - Held that - The Scheme of statute makes it very clear that liability of interest as per the situation is on both the sides. Where assessment is completed at an income higher than the returned income, the tax payable by Assessee is specified in the notice of demand issued under Section 156 of Act, 1961. In case of shortfall in payment of tax vis-a-vis the tax finally due on the assessed income, the Assessee is liable to pay interest under Section 234B of Act, 1961. In the same way where amount of tax paid by Assessee is found higher and an amount is found refundable to Assessee, a similar obligation has been fastened upon Revenue. Where the prepaid tax are in excess of assessed tax, Assessee is entitled for refund of excess tax along with the interest. In the absence of an express provision as contained in Clause (a), it cannot be said that the interest is payable from the 1st of April of the assessment year. Simultaneously, since the said payment is not made pursuant to a notice issued under Section 156 of the Act, Explanation to Clause (b) has no application. In such cases, as the opening words of Clause (b) specifically referred to as in any other case , the interest is payable from the date of payment of tax. - Decided in favour of Assessee.

Summary

Issues Involved:
1. Validity of interest allowed under Section 244A of the Income Tax Act, 1961 on refund resulting from Self Assessment Tax Paid.
2. Determination of the date from which such interest is payable.

Issue-wise Detailed Analysis:

1. Validity of Interest Allowed under Section 244A of the Income Tax Act, 1961 on Refund Resulting from Self Assessment Tax Paid:

The primary issue in this case is whether the interest allowed by the Commissioner of Income Tax (Appeal) [CIT(A)] under Section 244A of the Income Tax Act, 1961, on the refund resulting from self-assessment tax paid, is valid. The Department contended that tax paid under Section 140A does not attract Section 244A, and thus, the interest allowed by CIT(A) is illegal. However, this submission was found to be thoroughly misconceived.

Section 244A(1)(a) and (b) of the Act clearly state that where a refund of any amount becomes due to the assessee, they are entitled to receive simple interest thereon. Section 244A(1)(a) applies to tax paid under specific sections like 115WJ, 206C, and 199, while Section 244A(1)(b) applies to all other cases, which includes Section 140A. Therefore, the tax paid under Section 140A is eligible for interest under Section 244A(1)(b).

The court referenced several judgments to support this view, including decisions from the Madras High Court, Delhi High Court, Rajasthan High Court, Karnataka High Court, Punjab and Haryana High Court, and Bombay High Court. These judgments consistently upheld that interest is payable on refunds resulting from self-assessment tax paid under Section 140A.

2. Determination of the Date from Which Interest is Payable:

The second issue revolves around the date from which the interest on the refund is payable. The Department argued that interest should be paid from the date of the notice under Section 156, as per the Explanation in Section 244A(1)(b). However, this contention was rejected based on precedents from the Karnataka High Court and Bombay High Court.

The courts held that the interest is payable from the date of payment of the tax to the Revenue, not from the date of the notice under Section 156. This interpretation aligns with the decisions in Commissioner of Income Tax Vs. Vijaya Bank and Stock Holding Corporation of India Limited Vs. N.C. Tewari, Commissioner of Income Tax, which clarified that interest is payable from the date the tax is paid to the Revenue.

The Supreme Court's decision in Union of India Vs. Tata Chemicals Limited further reinforced this view, stating that the Government is obligated to pay interest on refunds from the date of payment of such tax. The Court emphasized that the refund due and payable to the assessee is a debt owed by the Revenue, and interest is a form of compensation for the undue retention of money.

Conclusion:

Both questions were answered against the Revenue and in favor of the Assessee. The court found the appeal to be frivolous and an unnecessary harassment to the Assessee, resulting in its dismissal with costs quantified at Rs. 10,000.

This judgment underscores the importance of the statutory provisions of Section 244A and clarifies that interest on refunds is payable from the date of payment of the tax, ensuring fair compensation for the undue retention of funds by the Revenue.