2012 (7) TMI 420 - AT - Income Tax

Interest on amount of refund u/s 244 versus Interest on any tax u/s 244A - Held that - There is misconception in the interpretation of the AO that interest can be paid only on the tax portion in the refund and not on the entire amount of refund. - Moreover, section 244A doesn t distinguish that the assessee shall be entitled to receive interest only on tax portion in the refund and not on the entire amount of refund as projected by the Revenue. If the interpretation of the Revenue were to be taken on its face value, we are afraid; it would lead to miscarriage of justice. Assessee was entitled to further interest u/s 244 on interest u/s 214 which had been withheld by the Revenue - When the refund of tax becomes payable as a result of orders passed in appeal or other proceedings under the Income-tax Act, 1961, this refund is to be given along with interest which is to be calculated as per section 244A of the Act In favor of assessee

Summary

Issues:
- Interpretation of interest payment on tax refund
- Application of judicial precedents on interest payment

Analysis:

Issue 1: Interpretation of interest payment on tax refund
The Revenue raised grounds related to interest payment on the tax portion in the refund and not on the entire amount of refund. The CIT(A) directed the Assessing Officer to re-calculate the interest on the refund based on the assessee's computation. The Revenue contended that interest can only be paid on the tax portion in the refund, relying on specific sections of the Income Tax Act. However, the ITAT analyzed the provisions of section 244A of the Act, emphasizing that the assessee is entitled to receive interest on the refund arising only on the tax portion, rejecting the Revenue's interpretation. The ITAT highlighted that the concept put forth by the Revenue could lead to a miscarriage of justice, aligning its views with the ruling of the Hon'ble Madhya Pradesh High Court on a similar issue.

Issue 2: Application of judicial precedents on interest payment
The ITAT extensively quoted and analyzed judicial precedents, including the rulings of the Hon'ble Supreme Court and various High Courts, to support its decision. The ITAT referred to the decisions of the Hon'ble Madhya Pradesh High Court and the Hon'ble Delhi High Court to establish that interest on interest is permissible under the law. The ITAT emphasized that the change in the provision does not affect the grant of interest on interest. By comparing and contrasting the rulings of different High Courts, the ITAT concluded that the learned CIT(A) was justified in her decision, and no intervention was required from the ITAT. Consequently, the Revenue's appeals for the assessment years in question were dismissed.

In conclusion, the ITAT's detailed analysis and reliance on judicial precedents led to the dismissal of the Revenue's appeals, affirming the CIT(A)'s direction to re-calculate the interest on the tax refund. The judgment emphasized the correct interpretation of the relevant provisions of the Income Tax Act and the application of legal principles established by various High Courts and the Hon'ble Supreme Court.