2014 (9) TMI 1177 - HC - Income Tax

Interest on the delayed refund of excess amounts paid as tax - Held that - When Section 244A of the Act was introduced a Circular dated 31 October 1989 was issued by the C.B.D.T wherein it is illustrated that where the refund is granted to an assessee interest would not be payable only for the period of delay attributable to the assessee. In this case the impugned order does not attribute any delay to the assessee in the proceedings of Revision resulting in the refund. In the present case there is a statutory obligation to grant interest. However as observed by the Supreme Court in Tata Chemicals Ltd. 2014 (3) TMI 610 - SUPREME COURT even in the absence of a statutory provision the State is bound to recompensate the person whose money it has used. In the above view the impugned order is set aside to the extent it refused to grant interest to the Petitioner on the sum of 7, 50, 768/-lakhs being the excess amount already refunded by the Revenue to the Petitioner. However as the Petitioner has restricted his claim for interest on refund of 7, 50, 768/- only from the date of filing the revision application on 3 October 1997 upto the date the refund of 7, 50, 768/-was granted. We therefore direct the Assessing Officer to work out the interest payable to the Petitioner on 7, 50, 768/- from 3 October 1997 to the date of refund and pay the same to the Petitioner.

Summary

Issues:
1. Petitioner's claim for interest on delayed refund of excess tax amount disallowed by Commissioner of Income-tax.
2. Dispute regarding entitlement to interest on excess amount paid as tax by the Petitioner.
3. Interpretation of Section 244A of the Income-tax Act, 1961 concerning interest on refunds.

Issue 1:
The petition challenged the order disallowing the Petitioner's claim for interest on the delayed refund of excess tax paid. The impugned order reduced the Petitioner's income for the Assessment Year (AY) 1995-1996 by Rs. 12.99 lakhs but rejected the claim for interest on the excess amount paid as tax. The Petitioner filed a revised Return of Income for AY 1995-1996, reducing the income offered to tax by Rs. 12.99 lakhs, which was not accepted by the Assessing Officer due to the bar under Section 139(5) of the Act. The Commissioner of Income-tax accepted that the excess amount was offered in error and directed the Assessing Officer to rework the tax payable but rejected the claim for interest on the refund of the excess amount.

Issue 2:
The Petitioner argued that Section 244A of the Act mandates interest on the refund of excess tax paid and that the denial of interest due to a mistake by the assessee would render the provision meaningless. The Petitioner relied on the decision of the Supreme Court in Union of India v. Tata Chemicals Ltd. and a CBDT Circular to support the claim for interest. The Respondent contended that the revised Return of Income was not acceptable under Section 139(5), and as the excess income was offered by mistake, interest cannot be claimed. The Respondent distinguished the Tata Chemicals Ltd. case where amounts were refunded after an order by the Income Tax Appellate Tribunal.

Issue 3:
The Court analyzed Section 244A of the Act, emphasizing that the Assessing Officer's inability to entertain the revised Return due to Section 139(5) did not preclude the entitlement to interest once the Commissioner considered the Revision application. The Court held that the Act does not empower authorities to reject a claim for interest based on an assessee's mistake. It noted that interest payment is a statutory obligation and non-discretionary, even in cases of mistakes by the assessee. The Court referred to the Tata Chemicals Ltd. case, highlighting the statutory obligation to grant interest on refunds. Consequently, the Court set aside the order and directed the Assessing Officer to calculate and pay interest to the Petitioner on the refunded amount from the date of filing the revision application.

This detailed analysis of the judgment in the High Court of Bombay highlights the issues related to the claim for interest on the delayed refund of excess tax paid, the interpretation of Section 244A of the Income-tax Act, and the arguments presented by both parties, leading to the Court's decision to allow the petition and grant interest to the Petitioner.