2013 (6) TMI 41 - HC - Income Tax

Interest on refund u/s 244A - The case of the Department for denying the claim of the petitioner with regard to the interest is that in view of the Explanation to section 244A, as no amount was paid in excess of the demand notice issued under section 156, interest is not payable. - held that - An assessee who has paid the tax as demanded in the notice of demand issued under section 156 of the Act, and also challenged the demand in appeal and the appeal is allowed fully or partially the demand stands modified accordingly, to the extent the relief is granted, the amount becomes in excess to the original demand and it is liable to be refunded. The Explanation intends to define date of payment of tax or penalty for the purposes of calculation of interest amount. The circumstances when interest will be payable by the Revenue has been given sub-section (1) of section 244A. The Explanation, therefore, cannot be interpreted in a manner which will control, prevail upon sub section (1) of section 244A. It cannot control the substantive provision. The interpretation of the Explanation, as suggested by the Department, runs counter to the scheme of grant of interest on refund. The said interpretation cannot be accepted as there cannot be any situation from where a person will pay tax or penalty over and above or in excess of the demand notice under section 156. Petitioner is entitled to receive interest from the date of actual deposit on the excess amount made in pursuance of the demand notice issued under section 156 of the Income-tax Act to the date of actual refund. The stand of the Department that since the petitioner has not paid in excess of any sum mentioned in the notice of demand issued under section 156, no interest is payable, is rejected. This is a novice stand which has been taken by the Department in the present case. The apex court in the case of Sandvik Asia Ltd. v. CIT 2006 (1) TMI 55 - SUPREME Court has examined the question of payment of interest upon the interest amount in great depth. In that connection, it has observed that payment of interest for delayed refund is nothing but a compensation for depriving the assessee to utilize the money. Then it was urged that in view of sub-section (2) of section 244A, the delay is attributable to the petitioner and, therefore, the petitioner is not entitled for any interest. The said argument has been stated to be rejected. - It is apposite to note that the delay attributable to the assessee is referable to the late filing of the return, etc., and has nothing to do with regard to the claim of the refund. The said point can be illustrated with the help of example II as given in the Departmental Circular No. 549. It demonstrates that where the return was filed with delay of four months, the interest shall not be payable by the Government for the period of delay attributable to the assessee. Except making a bald statement, it was neither pleaded nor proved with the help of cogent material to show that the delay was attributable to the petitioner. - Interest allowed - Decided in favor of assessee.

Issues Involved:
1. Entitlement to refund of excess tax deposited.
2. Entitlement to interest on delayed refund.
3. Interpretation of Section 244A and its Explanation.
4. Department's responsibility and inaction.
5. Entitlement to interest on interest.

Detailed Analysis:

1. Entitlement to Refund of Excess Tax Deposited:
The petitioner, a company incorporated under the Companies Act, 1956, deposited income tax for the assessment years 1992-93, 1993-94, and 1994-95 as per the assessment orders. These orders were challenged, and the petitioner received marginal relief from the first appellate authority and the Income-tax Appellate Tribunal. The Tribunal's orders became final, entitling the petitioner to refunds of Rs. 7,45,163, Rs. 6,39,771, and Rs. 2,05,770 for the respective years. The petitioner pursued the refund claim for five to six years without success until the Department issued refund vouchers in 2012.

2. Entitlement to Interest on Delayed Refund:
The petitioner confined the writ petition to the grant of interest on the delayed refund. The Department initially contended that no interest was payable as per Section 244A, arguing that the petitioner did not pay any amount in excess of the demand notices issued under Section 156. However, the court found that the petitioner is entitled to interest from the date of actual deposit to the date of actual refund, rejecting the Department's interpretation.

3. Interpretation of Section 244A and Its Explanation:
The court examined Section 244A, which provides for interest on refunds due to the assessee. The Explanation to Section 244A was interpreted to mean that the date of payment of tax or penalty is the date when the amount is deposited by the assessee in response to a demand notice. The court emphasized that the Explanation cannot control the substantive provision of Section 244A(1). The court referred to the Departmental Circular No. 549, which supports the view that interest on refund is due from the date of actual payment.

4. Department's Responsibility and Inaction:
The Department's counter-affidavit admitted delays in granting refunds due to frequent changes of Assessing Officers and inaction on the part of the petitioner. The court rejected this plea, stating that it is the Department's obligation to grant refunds without the assessee having to pursue it. The court noted that the delay attributable to the assessee is referable to the late filing of returns and not to the claim of refund.

5. Entitlement to Interest on Interest:
The petitioner claimed interest on the interest amount based on the Supreme Court judgment in Sandvik Asia Ltd. v. CIT [2006] 280 ITR 643 (SC). The court left this question open for the Department to consider, directing it to pass a speaking order in light of the Supreme Court judgment.

Conclusion:
The court concluded that the petitioner is entitled to interest on the refund amount from the date of actual deposit to the date of actual refund. The Department's interpretation of the Explanation to Section 244A was rejected. The court directed the Department to pay the interest within one month and awarded Rs. 5,000 towards the cost to the petitioner. The court also left the question of interest on interest open for the Department's consideration.

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