2017 (1) TMI 1402 - AT - Income Tax

Interest u/s. 244A - adjustment of a part refund/s comprising tax and interest - amount reckoned where the entire sum of tax and interest (u/s. 244A) thereon (up to the date of grant of refund) is not paid in full but is granted in part - Held that - The various amounts paid by and refunded to the assessee would therefore require being adjusted as under (i) each payment other than of TDS TCS and Advance-tax is to be adjusted first against interest due to date and only the balance against tax (Explanation to s. 140A); (ii) each refund of tax in-as-much as it is compensatory shall be subject to interest u/s. 244A for the period up to the date of its grant; (iii) each refund is to bear principal and interest u/s. 244A thereon to date (of grant of refund) i.e. proportionately and there can be no mismatch between the two. The component 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. (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.

Summary

Issues Involved:
1. Manner of reckoning interest under Section 244A of the Income Tax Act, 1961.
2. Adjustment of part refunds comprising tax and interest.
3. Compliance with the statutory provision of Section 244A.

Detailed Analysis:

1. Manner of Reckoning Interest under Section 244A:
The core issue revolves around the appropriate method to calculate interest under Section 244A when a partial refund is granted. The Tribunal examined whether the interest component in the refund should be appropriated first against the interest due or proportionately between tax and interest.

2. Adjustment of Part Refunds Comprising Tax and Interest:
The Tribunal addressed the dispute between the assessee and the Revenue on how to adjust partial refunds. The assessee advocated for the adjustment of the refund first against the interest due, while the Revenue contended that the refund should be appropriated against the tax component first. The Tribunal analyzed both approaches and found that neither was fully compliant with Section 244A.

3. Compliance with Statutory Provision of Section 244A:
The Tribunal emphasized that the correct method of appropriation must adhere strictly to Section 244A, which mandates that interest should be calculated on the tax refund due and paid along with the principal tax amount. The Tribunal proposed a proportionate method to ensure compliance with Section 244A, where the refund amount is considered as a composite of tax and interest in the same ratio as the total interest bears to the total tax.

Conclusion:
The Tribunal concluded that both the assessee's and the Revenue's methods were inconsistent with Section 244A. The Tribunal proposed a proportionate method for adjusting refunds, ensuring that the refund amount comprises both tax and interest in the same ratio as their total amounts. This approach aligns with the statutory provision and prevents the granting of interest on interest, which is not permissible under the law.

Decision:
The Tribunal directed that:
1. Payments should first be adjusted against interest due to date and then against tax.
2. Refunds should include both tax and interest up to the date of the refund, calculated proportionately.
3. Refunds of interest due to tax defaults should also carry compensatory interest under Section 244A.

Both parties partly succeeded in their appeals, and the Tribunal's decision was pronounced on January 31, 2017, in Chennai.