2017 (11) TMI 589 - SC - Income Tax

Entitlement to interest u/s 244 (A) - refund arose on account of interest that was partially waived by an order of the Settlement Commission - powers of settlement commission - Held that - Commission cannot either waive or reduce interest which is statutorily payable unless there is express power to do so in that behalf. However, while so saying, the Court went on to clarify that the circulars issued pursuant to the powers under Section 119 of the Act, which empower the authorities under the Act to waive or reduce interest, may be availed by the Settlement Commission to waive interest. We are of the view that the expression due only means that a refund becomes due if there is an order under the Act which either reduces or waives tax or interest. It is of no matter that the interest that is waived is discretionary in nature, for the moment that discretion is exercised, a concomitant right springs into being in favour of the assessee. We are, therefore of view that the C.I.T. (Appeals) and the ITAT were correct in their view and that consequently, the High Court was incorrect in its view that since a discretionary power has been exercised, no concomitant right was found for refund of interest to the assessee.

Issues Involved:
1. Entitlement to interest under Section 244(A) of the Income-Tax Act, 1961.
2. Interpretation of the term "due" in Sections 240 and 244(A).
3. Discretionary power of the Settlement Commission to waive interest.
4. Applicability and interpretation of CBDT circulars.
5. Judicial precedents and their applicability to the present case.

Detailed Analysis:

1. Entitlement to Interest Under Section 244(A):

The core issue was whether the assessee was entitled to interest under Section 244(A) when a refund arose due to the waiver of interest by the Settlement Commission. The High Court of Karnataka held that the assessee was not entitled to such interest as the waiver was discretionary. However, the Supreme Court disagreed, emphasizing that Section 244(A) is broader than the previous Section 241 and includes any refund due under the Act. The Court cited the legislative intent behind Section 244(A), which aimed to simplify provisions and ensure interest on delayed refunds.

2. Interpretation of the Term "Due" in Sections 240 and 244(A):

The term "due" was crucial in determining the entitlement to interest. The respondent argued that a refund must be legally due for interest to be payable. The Supreme Court clarified that "due" means any refund arising from an order under the Act, including discretionary waivers by the Settlement Commission. Once the discretion to waive interest is exercised, a right to the refund and corresponding interest arises.

3. Discretionary Power of the Settlement Commission to Waive Interest:

The High Court had held that since the waiver of interest by the Settlement Commission was discretionary, no right to interest on the refund existed. The Supreme Court countered this by stating that once the Settlement Commission exercises its discretion to waive interest, a concomitant right to the refund and interest under Section 244(A) arises for the assessee.

4. Applicability and Interpretation of CBDT Circulars:

The Settlement Commission's power to waive interest was based on a CBDT circular. The Supreme Court referenced the judgment in Commissioner of Income Tax, Mumbai Vs. Anjum M.H. Ghaswala, which allowed the Settlement Commission to exercise such power under a circular issued pursuant to Section 119 of the Act. The Court held that the CBDT circulars validly empowered the Settlement Commission to waive interest, thereby entitling the assessee to a refund and interest under Section 244(A).

5. Judicial Precedents and Their Applicability:

The Supreme Court relied on several precedents, including the Madras High Court's judgment in Commissioner of Income-Tax Vs. Needle Industries Pvt. Ltd., which held that "refund of any amount" includes tax, penalty, and interest. The Court also referenced its own judgments in Sandvik Asia Ltd. Vs. Commissioner of Income Tax I, Pune and Others and Union of India Vs. Tata Chemicals Ltd., which supported the assessee's entitlement to interest on delayed refunds. These precedents affirmed that interest is due on any refund arising under the Act, including those resulting from discretionary waivers.

Conclusion:

The Supreme Court concluded that the High Court erred in its judgment. The assessee was entitled to interest under Section 244(A) on the refund arising from the Settlement Commission's waiver of interest. The appeals were allowed, and the High Court's judgment was set aside. The Court affirmed the decisions of the C.I.T. (Appeals) and the ITAT, which had granted interest on the refund to the assessee.

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