2013 (9) TMI 451 - HC - Income Tax

Disallowance of interest - Interest due to part refund - Interest on Interest - Held that - there are two components of the tax paid by the assessee for which the assessee was granted refund, namely TDS of Rs.45,73,528 and tax paid after original assessment of Rs.1,71,00,320. The Department contends that the words any amount will not include the interest which accrued to the respondent for not refunding Rs.45,73,528 for 57 months. We see no merit in this argument. The interest component will partake of the character of the amount due under Section 244A. It becomes an integral part of Rs.45,73,528 which is not paid for 57 months after the said amount became due and payable. As can be seen from the facts narrated above, this is the case of short payment by the Department and it is in this way that the assessee claims interest under Section 244A of the Income-Tax Act. Therefore, on both the afore-stated grounds, we are of the view that the assessee was entitled to interest for 57 months on Rs.45,73,528/-. The principal amount of Rs.45,73,528 has been paid on December 31, 1997 but net of interest which, as stated above, partook of the character of amount due‖ under Section 244A - Interest payable under Section 234B and 234C become part of the demand notice issued under Section 156 and it is on this amount, i.e., the tax payable plus interest payable under Sections 234B and 234C that interest under Section 220(2) is calculated from the date mentioned in the notice of demand till the date of actual payment. Under Explanation to Section 140A(1), it is stipulated where the amount paid by an assessee under self-assessment falls short of the aggregate amount of tax and interest aforesaid, the amount paid shall first be adjusted towards the interest payable and the balance, if any, shall be adjusted towards the tax payable. The interpretation given by us follows the same principle, when Revenue defaults and makes part payment of the amount refundable. The aforesaid interpretation also ensures that the Assessing Officer/Revenue refund the entire amount, which is due and payable, including interest payable under Section 244A. It discourages part payment. There is no other provision under the Act under which an Assessing Officer/Revenue can be made liable to pay interest when part payment is made and the entire amount, which is refundable is not paid to the assessee. Otherwise the Assessing Officer/Revenue can refund the principal amount and not pay the interest component under Section 244A for an unlimited period with impunity and without any sanction, which would amount to granting premium to a non-compliance of law. In the present case, the interest component was withheld for the period ranging between 9 to 13 years - Decided in favour of assessee.

Issues Involved:
1. Whether the Income Tax Appellate Tribunal was right in denying interest of Rs.1,60,30,495/- for Assessment Year 1989-90.
2. Whether the Income Tax Appellate Tribunal was right in denying interest of Rs.41,11,644/- for Assessment Year 1990-91.

Issue-wise Detailed Analysis:

Assessment Year 1989-90:

(a) The appellant was entitled to interest under Section 244A of the Income Tax Act, 1961, as per the tribunal's order dated 22nd June 2007. This order had attained finality and was not challenged by the Revenue. Therefore, the issue was the quantification of interest payable under Section 244A.

(b) The appellant was entitled to a refund of Rs.2,06,52,845/-. Part payments of Rs.1,70,01,266/- and Rs.36,51,579/- were made on 28th March 1995 and 1st June 1999, respectively. Interest accrued on these amounts was Rs.1,60,30,495/-, which was paid on 11th June 2008.

(c) The appellant claimed interest on Rs.1,60,30,495/- from the date it was due until the date of refund. The Revenue contended that this would amount to payment of interest on interest, which is forbidden.

Assessment Year 1990-91:

(a) Similar to the previous year, the tribunal's order dated 22nd June 2007 had become final, and the question was the quantification of interest payable under Section 244A.

(b) The appellant was entitled to a refund of Rs.53,01,570/-. Part payments of Rs.38,12,810/-, Rs.10,87,686/-, and Rs.4,01,074/- were made on 28th March 1995, 31st March 1997, and 19th March 1999, respectively. Interest accrued on these amounts was Rs.41,11,644/-.

(c) The appellant claimed interest on Rs.41,11,644/- from the date it was due until the date of refund. The Revenue contended that this would amount to paying interest on interest, which is contrary to Section 244A.

Decision:

1. There was no dispute on the initial interest payable by the Revenue, which should have been paid along with the refund of taxes. The dispute arose because the Revenue did not pay the interest accrued on the tax amount refundable when making the refund.

2. The interest payable on the refund was quantified on the date when the refund was issued. Interest stopped accruing on the said day and became part of the capital or principal amount due.

3. If the Revenue does not pay the interest accrued on the date of the refund, they would be liable to pay interest under Section 244A on the said amount. This is not interest on interest but payment of interest on the total amount refundable, including the interest accrued on the delayed refund of the tax.

4. Section 244A provides that where a refund of any amount becomes due to the assessee, they are entitled to receive simple interest calculated in the manner stipulated. The words "any amount" include the interest element accrued and payable on the date of the refund.

5. The Delhi High Court in Commissioner of Income Tax vs Goodyear India Limited and other cases had held that interest should be awarded on the interest component of the unpaid refund.

6. The Supreme Court in CIT vs HEG Limited clarified that the interest component becomes an integral part of the amount due under Section 244A. Therefore, the Revenue is liable to pay interest on the shortfall if the refund does not include the interest due.

7. The interpretation ensures that the Assessing Officer/Revenue refunds the entire amount due, including interest payable under Section 244A, and discourages part payment.

8. The court concluded that the appellant was entitled to interest on the amounts claimed, and the Revenue's contention of interest on interest was incorrect. The questions of law were answered in favor of the appellant, and the appeals were disposed of.

← Previous Next →