2014 (7) TMI 913 - HC - Income Tax

Claim of interest on delayed refund u/s 244(1A) Held that - The second proviso to Section 244 (1A) of the Act only excludes a period of one month for payment of interest Relying upon Commissioner Of Income Tax Versus Hansa Agencies Private Limited 1997 (9) TMI 49 - PUNJAB AND HARYANA High Court - assessee is entitled to interest u/s 244 (1A) of the Act on the Self-Assessment Tax paid by him from the date when the original assessment order was made with the rider in terms of second proviso to Section 244 A of the Act, a period of one month from the date of passing the order in appeal will not carry any interest and the same is to be excluded - the Commissioner of Income Tax, Mumbai is directed to pay after verification to the assessee the amount being the interest payable from 28th March 1989 to the date of grant of refund on 30th March 1998 after excluding a period of one month as provided in second proviso to Section 244(1A) of the Act. The Revenue by not paying over the interest due have deprived the assessee of its money for sixteen long years following the decision in Commissioner of Income Tax, Gujarat Versus Gujarat Fluoro Chemicals 2013 (10) TMI 117 - SUPREME COURT - Commissioner of Income Tax is directed to verify and pay the amount being the interest payable from 28th March 1989 up to the grant of refund on 30th March 1998 after having excluded interest for one month in terms of second proviso to Section 244(1A) of the Act the assessee s prayer to direct the Commissioner of Income Tax to grant interest on the interest of ₹ 6,76,002/- from 28th March 1989 till payment is rejected Decided partly in favour of Assessee.

Issues Involved:
1. Entitlement to interest on the refund of Self Assessment Tax under Section 244(1A) of the Income Tax Act, 1961.
2. Applicability of the Supreme Court's decision in Modi Industries Ltd. regarding interest on Advance Tax to Self Assessment Tax.
3. Nature of interest as compensatory and entitlement under general principles.
4. Entitlement to interest on delayed payment of interest (interest on interest).
5. Interpretation of the second proviso to Section 244(1A) regarding the exclusion period for interest calculation.

Issue-wise Detailed Analysis:

1. Entitlement to Interest on Refund of Self Assessment Tax:
The petitioner challenged the denial of interest on the delayed refund of Self Assessment Tax under Section 244(1A) of the Income Tax Act for the period from its payment on 30th July 1986 to the date of refund on 30th March 1998. The Commissioner of Income Tax had rejected the claim, stating there was no provision for payment of interest on excess Self Assessment Tax under Section 244(1A).

2. Applicability of Modi Industries Ltd. Decision:
The petitioner argued that the Supreme Court's decision in Modi Industries Ltd., which allowed interest on Advance Tax post-assessment order, should apply to Self Assessment Tax. The Court in Modi Industries interpreted "in pursuance of an order of assessment" to include Advance Tax and TDS paid prior to the assessment order. The petitioner contended that the same principle should apply to Self Assessment Tax. The Revenue countered that Modi Industries dealt specifically with Advance Tax, not Self Assessment Tax, and thus was not applicable.

3. Nature of Interest as Compensatory:
The petitioner asserted that interest is compensatory in nature and that the Revenue should compensate for the period during which it retained the excess amount. Reliance was placed on the Supreme Court decisions in Sandvik Asia Ltd. and Union of India v. TATA Chemicals Ltd., which held that interest is a compensation for the use and retention of money collected unauthorizedly by the Department. However, the Court noted that statutory provisions specifically govern the grant of interest, and general principles of compensation cannot override these provisions.

4. Entitlement to Interest on Delayed Payment of Interest:
The petitioner sought interest on the delayed payment of the interest amount of Rs. 6,76,002/- from 1st April 1998 till payment. The Revenue referred to the Supreme Court decision in Gujarat Fluoro Chemicals, which clarified that no interest on interest is payable. The Court agreed with the Revenue, stating that compensation for delayed payment of interest as granted in Sandvik Asia was specific to its facts and was not a general principle applicable to all cases.

5. Interpretation of Second Proviso to Section 244(1A):
The Revenue argued that no interest is payable for one month from the date of the order in appeal. The Court clarified that the second proviso to Section 244(1A) excludes a period of one month from the date of the order in appeal for interest calculation but does not state that no interest is payable till after one month. The Court held that interest is payable from the date of the assessment order till the date of refund, excluding one month as per the proviso.

Conclusion:
The Court set aside the order of the Commissioner of Income Tax and directed the payment of Rs. 6,76,002/- as interest from 28th March 1989 to 30th March 1998, excluding one month as per the second proviso to Section 244(1A). The petitioner's claim for interest on the delayed payment of interest was rejected based on the Supreme Court's decision in Gujarat Fluoro Chemicals. The writ petition was partly allowed with no order as to costs.

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