2010 (9) TMI 382 - HC - Income Tax

Interest on refund assessee filed its return of income on December 31 1992 - the assessee itself declared the amount of transport subsidy received by it to be taxable and voluntarily paid the tax. No claim to the contrary was raised in the course of the assessment proceeding. It is only in the appeal filed that the issue was raised and by the appellate order dated October 27 1994 the assessee s contentions were upheld. - Consequently the order deleting the transport subsidy amount from the total income and for consequential refund was passed by the Assessing Officer onDecember 13 1994. In the above circumstances it cannot but be held that the assessee was responsible for some delay in grant of refund. Refund being consequential to the order of the learned Commissioner of Income tax (Appeals) dated October 27 1994 by which the assessment order dated May 16 1994 became liable to modification it will be correct to hold that the assessee will be entitled to interest on the refunded amount with effect from May 16 1994 till date of payment of the refundable amount.

Summary

Issues:
1. Entitlement to interest under section 244A of the Income-tax Act, 1961 for delay in granting tax refund due to reasons attributable to the assessee.

Analysis:
The case involved a dispute regarding the entitlement of the assessee to interest under section 244A of the Income-tax Act, 1961 for a delay in granting a tax refund, where the delay was allegedly due to reasons attributable to the assessee. The appellant, the Revenue, contended that the delay in refund was caused by the assessee's conduct as they raised the issue of taxability of transport subsidy only during the appeal stage, leading to a delay in processing the refund. The Revenue argued that as the refund was delayed due to the assessee's actions, they should not be entitled to interest for the period of delay.

In contrast, the respondent-assessee argued that the provisions of the Act did not require the assessee to make a claim for refund, especially when the refund was consequential to an appellate order. They relied on legal precedents to support their position that interest on refund is automatic and does not depend on the initiation of a refund proceeding or a claim for refund. They emphasized that the purpose of interest under section 244A was to compensate for the hardship caused by wrongful levy and collection of tax.

The court analyzed the relevant provisions of the Act, particularly section 244A, and considered the nature of the refund in the present case, which was a result of the appellate order dated October 27, 1994. The court noted that the entitlement to refund was not dependent on the assessee making a claim for refund, as it was automatic following the appellate order. The court interpreted section 244A(2) to apply to any proceeding resulting in a refund, including appeal proceedings that lead to a refund becoming due.

Based on the facts of the case, where the assessee initially declared the transport subsidy as taxable income, paid the tax, and only raised the issue during the appeal stage, the court held that the assessee was partially responsible for the delay in granting the refund. The court concluded that the assessee should be entitled to interest on the refunded amount from the date of the appellate order modifying the assessment until the payment of the refundable amount. Therefore, the court allowed the appeal by the Revenue and reversed the order of the Tribunal in favor of the Revenue's contentions.

In summary, the judgment clarified the application of section 244A in cases where a refund is consequential to an appellate order, emphasizing that interest on refund is automatic and compensatory in nature. The court determined that the assessee, although partially responsible for the delay in refund, should still be entitled to interest for the period of delay attributable to them.