2008 (12) TMI 93 - HC - Income Tax

Interest on refund claim for interest on interest u/s 244A - case of Assessee is that on the date refund was given, from that date interest should have been given revenue submit that section 244A which holds the field from April 1, 1989, is different from section 244 and, hence, no interest is payable held that change in provision does not affect the grant of interest on interest held that assessee is entitled to interest even on the amount of interest allowed or allowable u/s 244A

Summary

Issues:
1. Interpretation of section 244A of the Income-tax Act, 1961 regarding entitlement to interest on interest.
2. Assessment of allowable deductions under section 80HH of the Act.

Analysis:
1. The primary issue in the case involved the interpretation of section 244A of the Income-tax Act, 1961, regarding the entitlement to interest on interest. The appellant, a company incorporated under the Companies Act, 1956, had filed its return declaring a total income, which was subsequently revised. The Assessing Officer made additions on the grounds of interest paid on loans and service charges, as well as disallowed deductions under section 80HH. The Commissioner of Income-tax (Appeals) partially allowed the appeal, leading to appeals before the Income-tax Appellate Tribunal. The Tribunal confirmed the decision of the Commissioner of Income-tax (Appeals), prompting further appeal. The central question was whether the assessee was entitled to interest on the amount of interest allowed or allowable under section 244A, which provides for simple interest only.

2. The court analyzed the provisions of section 244A in comparison to section 244 of the Act and previous judicial decisions. Section 244A outlines the entitlement to interest on refunds due to the assessee, calculated based on specific criteria. The court referred to precedents such as CIT v. Goodyear India Ltd. and CIT v. Narendra Doshi, where interest on interest was granted. Additionally, the court cited Sandvik Asia Ltd. v. CIT, emphasizing the principle that an assessee should only be taxed in accordance with the law, and any excess amounts collected wrongfully should be compensated. Further, the court referred to CIT v. Cholamandalam Investment and Finance Co. Ltd., affirming that an assessee is entitled to compensation for delays in payment of amounts lawfully due, including interest for wrongful withholding. Based on these legal principles and precedents, the court concluded that the grant of interest on interest is permissible under the law, regardless of changes in provisions.

3. Ultimately, the court dismissed the appeals, finding no merit in the arguments presented. The judgment clarified that interest on interest is permissible under the law, and the change in provisions does not affect this entitlement. The court's decision was based on a comprehensive analysis of relevant legal provisions, judicial precedents, and established principles governing the entitlement to interest on refunds.