2014 (5) TMI 437 - HC - Income Tax

Withdrawal of the interest - Whether interest allowed u/s 244(1) can subsequently be withdrawn in view of creation/restoration of demand in subsequent appeal Held that - The interest u/s 244(IA) would be payable by taking into consideration the result of any appellate order - the AO rightly withdrew the interest which was not payable after giving the appeal effect Relying upon On a similar issue, the Hon ble Calcutta High Court in the case of ANZ Grindlays Bank Pl. Vs. C.I.T. 1999 (8) TMI 29 - CALCUTTA High Court - where on completion of the regular assessment the amount on which the interest so paid under sub-sec.(1) has been reduced, the interest shall be reduced accordingly, and the excess, if any paid, shall be deemed to be tax payable by assessee and the provisions of this Act shall apply - where the tax deducted at source and advance tax paid by the assessee did not exceed the tax assessed either on regular assessment or after giving effect to the orders or the Tribunal, interest u/s 214 & 244 (IA) granted to the assessee was not due at all and had to be recovered from the assessee no substantial question of law arises for consideration Decided against Assessee.

Summary

Issues:
1. Whether interest allowed u/s 244(1) can subsequently be withdrawn in view of creation/restoration of demand in subsequent appeal.

Analysis:

Issue 1:
The primary issue in this case revolves around the withdrawal of interest under section 244(1) of the Income Tax Act following the creation or restoration of demand in a subsequent appeal. The facts of the case indicate that the assessee initially filed a return of income tax, which was later revised, leading to a protective assessment and subsequent appeals. The Income Tax Appellate Tribunal directed the framing of assessment in substantive capacity, resulting in the withdrawal of interest previously allowed to the assessee. The Tribunal upheld the withdrawal of interest based on the principle that interest payable under section 244(1A) is contingent upon the result of any appellate order. The decision was supported by previous judgments, including one by the Hon'ble Supreme Court in "Modi Industries Ltd. Vs. CIT" (1995) 216 ITR 559 (SC), emphasizing that interest under section 244 is payable when the tax paid by an assessee is reduced in appeal. The High Court affirmed the Tribunal's decision, stating that interest not due after the final appeal effect can be withdrawn and recovered from the assessee.

Issue 1 - Continued:
Moreover, the High Court referenced the judgment of the Hon'ble Calcutta High Court in "ANZ Grindlays Bank Pl. Vs. C.I.T." (1999) 157 CTR (Cal.) 161, 169, which highlighted that if the tax deducted at source and advance tax paid by the assessee did not exceed the tax assessed, interest under section 214 & 244 (IA) granted to the assessee was not due and had to be recovered. The High Court also cited a case involving "C.I.T. Vs. M/s Hansa Agencies Pvt. Ltd." (1998) 234 ITR 271, where the assessee was entitled to interest on the excess amount of pre-assessment tax paid. These precedents support the view that interest can be withdrawn based on the outcome of appellate orders.

Issue 1 - Conclusion:
In light of the legal principles established by the Hon'ble Supreme Court and other High Courts, the High Court upheld the withdrawal of interest by the Assessing Officer and dismissed the appeal. The Court emphasized that interest can be withdrawn under section 244 of the Act when the appellate order affects the tax liability of the assessee. The judgment of the Hon'ble Supreme Court in "Modi Industries Ltd. Vs. CIT" was deemed applicable to the present case, while the conflicting judgment of the Gujarat High Court was not considered due to lack of information on its status before the Supreme Court. Ultimately, the High Court dismissed the appeal, citing no substantial question of law for adjudication.

Conclusion:
The High Court's decision affirms the principle that interest allowed under section 244(1) can be withdrawn based on subsequent appellate orders affecting the tax liability of the assessee. The judgment highlights the importance of considering the impact of appellate decisions on interest payments and aligning with established legal precedents to determine the validity of interest withdrawal in such cases.