2015 (8) TMI 87 - HC - Income Tax

Calculation of interest under section 244A - Whether, the Tribunal erred in law in holding that the interest portion of the refund arising out of the order giving effect to appellate authority has to be ignored for the purpose of calculating interest under section 244A? - Held that - Both the CIT(A) and the Tribunal have on examination of facts correctly held that when a refund of tax has to be reduced by refund already granted it is only the tax element which has to be adjusted and not the interest element paid on the delayed refund of the tax. This is so as the interest which is paid to the assessee is for the wrongful withholding of the assessee s refund by the revenue. It has no element of tax which would justify reducing the same from the refund due while computing the interest payable on the delayed payment of refund. - Decided against revenue.

Issues:
1. Interpretation of Section 244A of the Income Tax Act, 1961 regarding the adjustment of interest portion of a refund granted to the assessee.
2. Whether the revenue is entitled to adjust only the refund paid earlier or also the interest paid along with the refund earlier while granting a refund to the assessee.

Analysis:
1. The appeal before the Bombay High Court challenged the order passed by the Income Tax Appellate Tribunal related to the Assessment Year 1997-98 under Section 260A of the Income Tax Act, 1961. The primary questions of law raised by the revenue were regarding the treatment of the interest portion of the refund arising from the appellate authority's order and the interpretation of Section 244A of the Act.

2. The main controversy in the case was whether the revenue, while granting a refund to the assessee following the Tribunal's order, could adjust only the refund paid earlier or also the interest paid along with the refund and pay interest only on the remaining balance. The facts revealed that the revenue initially granted a refund of Rs. 76.43 crores in 2007, along with interest of Rs. 9.74 crores for the delayed refund. Subsequently, the Assessing Officer recalculated the refund at Rs. 126.63 crores in 2010, adjusting the earlier refund and interest paid. This adjustment led to a discrepancy in the interest amount paid to the assessee.

3. The High Court analyzed the issue and upheld the decisions of the Commissioner of Income Tax (Appeals) and the Tribunal. Both authorities correctly held that when reducing a refund by the amount already granted, only the tax element should be adjusted, not the interest element paid for the delayed refund of tax. The interest paid to the assessee was deemed compensation for the wrongful withholding of the refund by the revenue and did not have a tax element justifying its reduction from the refund for calculating interest on delayed payments.

4. The Court found that the revenue failed to demonstrate how the questions of law raised in the appeal were relevant to the case. The grounds of appeal did not establish a connection between the impugned order and the interpretation of Section 244A of the Act. Ultimately, the Court concluded that the Tribunal's order did not give rise to any substantial question of law and dismissed the appeal, ruling in favor of the respondent-assessee. No costs were awarded in the case.

In summary, the Bombay High Court dismissed the revenue's appeal challenging the Tribunal's order related to the adjustment of interest portion in a refund granted to the assessee. The Court affirmed that only the tax element, not the interest element, should be adjusted when calculating interest on delayed refunds, as the interest served as compensation for the wrongful withholding of the refund by the revenue.

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