1994 (1) TMI 33 - HC - Income Tax

Summary

Issues:
1. Calculation of interest on refundable tax amount above Rs. 26 lakhs.
2. Interpretation of sections 214 and 244A of the Income-tax Act.
3. Applicability of interest rate on excess tax paid.
4. Treatment of tax deducted at source in relation to advance tax.
5. Distinction between advance tax paid by assessee and tax deducted at source.
6. Constitutional validity under Article 14.

Analysis:
1. The petitioner sought interest on a refundable tax amount exceeding Rs. 26 lakhs for the accounting year ending September 30, 1987. The interest rate was a key contention, with the petitioner arguing for an additional interest amounting to around Rs. 10 lakhs from May 1, 1988, to September 4, 1991.

2. Section 214 of the Income-tax Act governed the rate and payment of interest, while section 244A, inserted later, was discussed. The judgment emphasized that the treatment of advance tax and tax deducted at source was already at par, with section 244A being declaratory rather than modificatory.

3. The court analyzed the terms of section 214 applicable during the relevant accounting year to determine the rate of interest payable. The judgment highlighted the importance of the specific wording of the section regarding the payment of advance tax during the financial year.

4. The respondents contended that the advance payment made through tax deduction at source was distinct from direct payment of advance tax by the assessee. However, the court disagreed, citing provisions like section 199 and 209(1)(d) which treated tax deducted at source on equal footing with self-paid advance tax.

5. The judgment clarified that the language of section 214 did not exclude its applicability to excess deductions made at source and paid to the Central Government. It reasoned that a purposive construction supported the inclusion of deductions made at source for interest calculations.

6. Lastly, the court addressed the constitutional aspect under Article 14, highlighting the potential class distinction if a different interpretation was applied. It concluded that such differentiation between individuals based on the method of tax payment lacked a reasonable basis and could not further the objectives of the Income-tax Act.

In conclusion, the court ruled in favor of the petitioner, directing the respondents to pay interest at a simple rate of 15 per cent. per annum from April 1, 1988, until payment on the refundable sum. The judgment emphasized the parity between advance tax and tax deducted at source, ensuring equitable treatment for taxpayers.