2014 (6) TMI 1000 - HC - Income Tax

Tax on the interest received by the assessee on account of refund - Held that - Section 244A provides where refund of amount becomes due to the assessee under the Act he shall subject to the provisions of this section be entitled to receive in addition to the said amount simple interest thereon calculated in the manner stipulated in the said Act. The said interest received by the assessee could be income in the hands of the assessee. Section 4 of the Act which is the charging section levies tax under the Act on such interest. The income received on 9.3.2004 is to be assessed for the years 1.4.2003 to 31.3.2004 which is previous year as the assessment year being 1.4.2004 to 31.3.2005. When once the assessee receives the income by way of interest the liability to pay tax under the Act arises. As that income is received prior to 31.3.2004 it has to be declared for the year commencing from 1.4.2003 to 31.3.2004 and it has to be assessed during the period from 1 4.2004 to 31.3.2005. The date on which the order of the Tribunal is passed though determined the rights of the parties on that day no income is received by the assessee. It is on receipt of the income the liability to file return under the Act would arise. The law provides for a reference to the civil court if the compensation awarded by the land acquisition officer in the opinion of the land owner is not sufficient and the reference court has jurisdiction to enhance the compensation and also to award interest on the said compensation. The said order is also subject to appeal and second appeal. In that context it has been held that unless a competent court determines the liability to pay enhanced compensation and the compensation is paid in pursuance of such determination the liability to pay tax on such compensation or the interest which is a component of interest would not arise. In the instant case we are not dealing with any compensation. It is a simple case of payment of interest on the amount of refund which department found due to the assessee subject to the determination by the Appellate Authority. Therefore no fault can be found in the order passed by the authorities. Decoded in favour of the revenue and against the assessee.

Summary

Issues:
1. Taxability of interest received by the assessee on account of refund under Section 244A of the Income Tax Act, 1961 for the assessment year 2004-2005.

Analysis:
The judgment dealt with the appeal against the order of the Income Tax Appellate Authority, which levied tax on the interest received by the assessee on account of refund under Section 244A of the Income Tax Act, 1961. The assessee, an individual, did not file a return of income for the assessment year 2004-2005 initially. The Assessing Officer noted that the assessee had received interest of &8377; 87,81,443/- under Section 244A of the Act during the relevant previous year but had not included this income in the return. The Tribunal held that the interest granted to the assessee on account of excess tax paid to the Government must be taxed in the year it was received by the assessee, as the interest had accrued to the assessee irrevocably and was credited to the bank account. The Tribunal dismissed the appeal, affirming the orders of the Commissioner of Income Tax (Appeals) and the Assessing Officer.

The Tribunal found no infirmity in the orders passed by the authorities, as the interest received by the assessee was certain and not contingent, making it liable for taxation under Section 244A of the Act. The Tribunal emphasized that the interest had accrued to the assessee and was irrevocably received, thus rejecting the assessee's argument that the income should be assessed for a different period. The Tribunal also highlighted that the interest income was to be assessed for the relevant years based on the date of receipt, not the date of the Tribunal's order. The judgment clarified that the liability to pay tax arises upon receipt of income, even if an appeal is pending, and that the assessee could adjust any potential refund if the appeal outcome required repayment.

In response to the substantial question of law regarding the taxability of the interest received by the assessee, the Court upheld the decisions of the lower authorities. The Court explained that the interest income received by the assessee was taxable in the year it was received, as per Section 244A of the Act. The Court rejected the assessee's arguments regarding the timing of assessment and distribution of the interest income, emphasizing that the liability to pay tax arises upon receipt of income, regardless of the appeal status. The Court distinguished the case from those involving compensation under the Land Acquisition Act, stating that the present case involved a straightforward payment of interest on a refund. Ultimately, the Court ruled in favor of the revenue, dismissing the appeal and upholding the taxability of the interest received by the assessee on account of the refund.

In conclusion, the judgment clarified the taxability of interest received by the assessee on account of a refund under Section 244A of the Income Tax Act, affirming that such interest is taxable in the year it is received by the assessee, irrespective of pending appeals or the date of any tribunal orders.