1990 (7) TMI 32 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to interest on tax refund.
2. Interpretation of sections 237 to 240, 241, and 244 of the Income-tax Act, 1961.
3. Effect of appellate orders on tax assessments and refunds.

Summary:

1. Entitlement to Interest on Tax Refund:
The assessee was subjected to assessments for the years 1968-69, 1969-70, and 1970-71, resulting in tax demands. Appeals led to the cancellation of these assessments and a direction for reassessment. The reassessment resulted in refunds, but the Income-tax Officer declined the assessee's request for interest on these refunds. The Commissioner upheld this decision. The High Court, however, found that the assessee was entitled to interest on the refunds, quashing the orders of the Income-tax Officer and the Commissioner.

2. Interpretation of Sections 237 to 240, 241, and 244 of the Income-tax Act, 1961:
The court analyzed the conjoint effect of sections 237 to 240, 241, and 244. Section 237 provides for the refund of tax, and section 240 obligates the Income-tax Officer to refund amounts due to the assessee as a result of appellate orders. Section 244 mandates the payment of interest on such refunds. The court emphasized that the refund becomes due as soon as an appellate order is passed, and interest is payable from that point.

3. Effect of Appellate Orders on Tax Assessments and Refunds:
The court noted that an appellate order setting aside an assessment makes the tax paid under that assessment refundable. The Allahabad High Court in Purshottam Dayal Varshney v. CIT and the Bombay High Court in CIT v. S. C. Shah had held that the tax becomes refundable immediately upon the setting aside of the assessment order. The Kerala High Court agreed with this view, rejecting the contrary interpretation in New Woodlands v. CIT, which had held that the notice of demand remains effective even after the assessment order is annulled.

Conclusion:
The High Court allowed the appeal, directing the Income-tax Officer to effect the refund with interest, in accordance with the principles indicated. The court emphasized that the statutory framework and judicial precedents support the assessee's entitlement to interest on refunds resulting from appellate orders.