2011 (9) TMI 591 - HC - Income Tax

Levy of interest for assessment years prior to the introduction of the section 234D- Regular assessment was completed on 30 March 2004 the provision on interest is not introduced with reference to any assessment year but with effect from 1 June 03 - Held That - Assessee is liable to pay interest on the excess refund amount received.

Summary

Issues Involved:
1. Applicability of Section 234D of the Income-tax Act for assessment years prior to its introduction.
2. Levy of interest under Section 234D for periods subsequent to its introduction when the assessment year is prior to the introduction.

Detailed Analysis:

Issue 1: Applicability of Section 234D for Assessment Years Prior to its Introduction

Facts and Arguments:
- The assessee, a finance company, filed its income return for the assessment year 2001-02 and later revised it. The return was processed, and an assessment order was passed.
- The Assessing Officer levied interest under Section 234D for excess refund.
- The assessee argued that Section 234D, introduced on June 1, 2003, should not apply retrospectively to assessment years before its introduction.
- The Revenue contended that the date of levying interest is what matters, not the assessment year.

Legal Precedents and Judgment:
- The court referred to various judgments, including CIT v. South Indian Bank Ltd. and CIT v. Kerala Chemicals and Proteins Ltd., which held that Section 234D applies from June 1, 2003, and interest can only be levied from that date.
- The court also cited cases like Sree Karpagambal Mills Ltd. v. CIT and Karimtharuvi Tea Estate Ltd. v. State of Kerala, emphasizing that laws effective from a specific date cannot be applied retrospectively unless explicitly stated.
- The court concluded that Section 234D, effective from June 1, 2003, cannot be applied to assessment years prior to its introduction. However, if the regular assessment is completed after this date, the provision applies.

Issue 2: Levy of Interest under Section 234D for Periods Subsequent to its Introduction

Facts and Arguments:
- The assessee received a refund, but subsequent checks revealed it was not entitled to it, leading to the levy of interest under Section 234D.
- The Tribunal held that interest could not be charged for assessment years before June 1, 2003, even if the regular assessment was completed after this date.

Legal Precedents and Judgment:
- The court examined the principles laid down in cases like J. K. Synthetics Ltd. v. CTO, which differentiate between charging sections and machinery provisions, and emphasized that provisions for levying interest are substantive laws.
- The court noted that the regular assessment in this case was completed on March 30, 2004, well after Section 234D came into force.
- The court held that the date of regular assessment, not the assessment year, determines the applicability of Section 234D. Since the regular assessment was completed after June 1, 2003, the assessee is liable to pay interest on the excess refund.

Conclusion:
- The court allowed the Revenue's appeal, holding that Section 234D applies to refunds determined after June 1, 2003, irrespective of the assessment year.
- Interest on excess refunds is applicable from the date of the regular assessment if it is completed after the introduction of Section 234D.
- The orders of the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal were set aside, and the assessee was held liable to pay interest on the excess refund.