2010 (4) TMI 887 - AT - Income Tax

Advance tax - interest on the amount of prepaid taxes Held that - Interest payable under section 214 will increase or decrease in accordance with the variation in the quantum of the excess payment of tax brought about by orders passed subsequent to the regular assessment as mentioned in sub-section (1A) - assessee is entitled to grant of interest under section 214 and under section 244(1A) in favor of assessee Once the amount of advance tax is treated as payment of tax in respect of income of the relevant previous year and credit as such for the amount has been given to the assessee in the assessment order, the amount loses its character of advance tax and becomes income-tax paid in respect of the income of the relevant previous year

Issues Involved:
1. Entitlement to interest under sections 214(1A) and 244(1A) of the Income-tax Act.
2. Interpretation of Explanation 1 to section 214.
3. Relevance of Board's instruction under F.No. 12/12/68-IT(A-II) dated December 11, 1968.
4. Eligibility for interest under section 244(1A) on prepaid taxes.
5. Validity of the Commissioner of Income-tax (Appeals) order versus the Assessing Officer's decision.

Detailed Analysis:

Issue 1: Entitlement to Interest under Sections 214(1A) and 244(1A)
The Commissioner of Income-tax (Appeals) directed the allowance of interest under sections 214(1A) and 244(1A) for both assessment years 1986-87 and 1988-89. The Revenue contested this, arguing that the interest should not be allowed based on the original assessment and subsequent appellate orders. The Tribunal upheld the Commissioner's decision, referencing the Supreme Court's ruling in Modi Industries Ltd. v. CIT, which established that interest under section 214(1A) should be recalculated based on the revised tax amount from appellate orders, and interest under section 244(1A) should be allowed on refunds arising from appellate reductions.

Issue 2: Interpretation of Explanation 1 to Section 214
The Revenue argued that the Commissioner ignored Explanation 1 to section 214, which defines the tax on which interest is allowable. The Tribunal noted that the legal position had changed with the enactment of section 214(1A) by the Taxation Laws (Amendment) Act, 1984, effective from 1985-86. This amendment required recalculating interest based on revised tax amounts resulting from appellate orders, contrary to the Revenue's reliance on the older interpretation by the Allahabad High Court in Lala Laxmipat Singhania v. CIT.

Issue 3: Relevance of Board's Instruction under F.No. 12/12/68-IT(A-II)
The Revenue cited a Board's instruction from 1968, clarifying the amount on which interest under section 214 is allowable. The Tribunal found this instruction outdated due to the legislative changes in section 214(1A), which necessitated recalculating interest based on revised tax amounts from appellate orders, as supported by the Supreme Court's ruling in Modi Industries Ltd.

Issue 4: Eligibility for Interest under Section 244(1A) on Prepaid Taxes
The Revenue contended that interest under section 244(1A) was only payable on amounts refunded due to assessment or penalty orders, not prepaid taxes. The Tribunal disagreed, citing the Supreme Court's decision in Modi Industries Ltd., which clarified that interest under section 244(1A) applies to refunds of any tax paid pursuant to an assessment order, including prepaid taxes, if such refunds arise from appellate orders.

Issue 5: Validity of the Commissioner of Income-tax (Appeals) Order
The Revenue sought to set aside the Commissioner's order and restore the Assessing Officer's decision. The Tribunal upheld the Commissioner's order, referencing multiple high court rulings and the Supreme Court's decision in Modi Industries Ltd., which supported the allowance of interest under sections 214(1A) and 244(1A) based on revised tax amounts from appellate orders. The Tribunal found no infirmity in the Commissioner's order and dismissed the Revenue's appeals.

Conclusion:
The Tribunal dismissed the Revenue's appeals for both assessment years, affirming the Commissioner's decision to allow interest under sections 214(1A) and 244(1A) based on revised tax amounts from appellate orders, in line with the Supreme Court's ruling in Modi Industries Ltd. v. CIT and other high court judgments.

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