2023 (6) TMI 1037 - HC - Income Tax

Claim of interest on refund of penalty amount and interest paid thereon - Revision of revision of order u/s 264 - rejecting application of Petitioner to grant interest on refund under the provisions of Sections 244/244A - HELD THAT - Madras High Court in Needle Industries Pvt. Ltd., 1998 (6) TMI 84 - MADRAS HIGH COURT has held that the expression amount in the earlier part of Section 244 (1A) of the Act would refer to not only the tax but also the interest, and the expression amount is a neutral expression and it cannot be limited to the tax paid in pursuance of the order of assessment. The clear intention of the Parliament is that the right to interest will compensate the assessee for the excess payment during the intervening period when the assessee did not have the benefit of use of such money paid in whatsoever character. Madras High Court further held that in the context of Section 244(1A) of the Act, the expression tax would include interest also and the definition of tax under Section 2(43) meaning income tax cannot be applied in the context of Section 244(1A) - Court also held that consequently, the interest paid in pursuance of the order of Assessment has to be regarded as forming part of income tax or an adjunct to income tax and the result would be that Assessee is entitled to interest on the interest refunded also. We are in respectful agreement with the view expressed by the Madras High Court in Needle Industries Pvt. Ltd 1998 (6) TMI 84 - MADRAS HIGH COURT This has been followed by the Gujarat High Court in Gujarat State Warehousing Corporation (supra) and later Delhi High Court followed Gujarat State Warehousing Corporation 2001 (8) TMI 24 - GUJARAT HIGH COURT in the Modipon Ltd. 2004 (4) TMI 38 - DELHI HIGH COURT . We should also add that Section 240 of the Act makes no distinction between refund of tax or penalty paid and refund on other amount collected. The case of Respondent is totally off target because Petitioner is not claiming interest on interest which is due to Petitioner but what Petitioner has claimed is interest on amount which is paid by Petitioner as interest under Section 220(2) of the Act which forms part of refund due to Petitioner. The A.O. had wrongly demanded the amount of the interest under Section 220(2) of the Act. Petitioner had paid interest on outstanding amount of penalty. On deletion of penalty, Petitioner became entitled to refund of amount of penalty paid by Petitioner as well as the interest thereon paid under Section 220(2) of the Act. The amount of interest paid by Petitioner under Section 220(2) of the Act, in our view, thus became part of refund envisaged under Section 240 of the Act. Therefore, Petitioner is entitled to interest on the said amount under the provisions of Section 244(1A). Impugned order passed u/s 264 after going through the same and examining the question of the legality thereof, to quash, cancel and set aside the same.

Summary

Issues Involved:
1. Applicability of Section 244 or Section 244A of the Income Tax Act.
2. Entitlement to interest on refund of interest paid under Section 220(2) of the Act.

Summary:

Issue 1: Applicability of Section 244 or Section 244A of the Income Tax Act

Petitioner, a registered partnership firm engaged in ship breaking, challenged an order dated 30th April 2004 under Section 264 of the Income Tax Act, 1961, which rejected their application for interest on a refund under Sections 244/244A of the Act. The Court noted that the penalty was imposed on 4th August 1989, and the refund arose after 1st April 1989. Respondent No. 1 held that Section 244A, replacing Section 244 from 1st April 1989, applied. However, the Court agreed with the Petitioner that for the Assessment Year 1984-85, Section 244 should apply, based on sub-section 3 of Section 244 and sub-section 4 of Section 244A, which delineate their applicability based on assessment years.

Issue 2: Entitlement to Interest on Refund of Interest Paid under Section 220(2) of the Act

The Petitioner argued that interest on the refund was not calculated correctly as no interest was granted on the amount recovered as interest under Section 220(2). They contended that interest should be granted under Section 244 instead of Section 244A and also on the refund of interest recovered under Section 220(2). The Court noted that Section 244(1A) provides for interest on any amount paid, not just tax, and that the expression "amount" includes interest. The Court cited precedents from the Madras High Court in Needle Industries Pvt. Ltd., the Gujarat High Court in Gujarat State Warehousing Corporation, and the Delhi High Court in Modipon Ltd., which supported the view that interest on interest is permissible in cases of inordinate delay.

The Court concluded that the Petitioner is entitled to interest on the amount paid as interest under Section 220(2), as it forms part of the refund due under Section 240. Consequently, the Rule was made absolute, and Respondent No. 1 was directed to grant interest on the refund under Section 244 and also on the refund of the amount of interest recovered under Section 220(2).

Order:
The concerned Assessing Officer is directed to calculate the refund and pass the refund order within eight weeks from the date the judgment is uploaded. No order as to costs. Petition disposed.