2006 (11) TMI 232 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to interest on refund of interest paid under section 234B.
2. Interpretation and applicability of section 244A.
3. Relevance of previous court decisions and their applicability to the current case.

Issue-wise Detailed Analysis:

1. Entitlement to Interest on Refund of Interest Paid under Section 234B:
The primary issue in this case was whether the assessee is entitled to interest on the refund of interest paid under section 234B, which was subsequently found to be not chargeable. The CIT(A) allowed the interest on such refunds, citing the Supreme Court decision in Sandvik Asia Ltd. v. CIT, which held that the assessee is entitled to interest on refunds, including interest paid under section 234B. The CIT(A) distinguished between the initial stage of proceedings under section 237 and the subsequent stage under section 240, emphasizing that "any amount" becoming due to the assessee includes interest.

2. Interpretation and Applicability of Section 244A:
Section 244A was the focal point for determining the entitlement to interest on refunds. The section provides that interest is payable on refunds arising from any amount due to the assessee under the Act. The Tribunal noted that clause (a) of section 244A(1) pertains to refunds out of tax collected at source or paid by way of advance tax, which was not applicable in this case. Clause (b) of section 244A(1) applies to other cases, including refunds out of self-assessment tax or other payments made pursuant to and after assessment. The Tribunal concluded that this clause covers refunds of interest paid under section 234B, as it is a neutral term encompassing every kind of refund, including interest.

3. Relevance of Previous Court Decisions and Their Applicability:
The Tribunal considered various previous court decisions, including those from the Gujarat High Court and the Supreme Court, to determine their relevance to the current case. The Tribunal distinguished the current case from the decision in GSFC Ltd., where the refund was of the amount due and accrued to an assessee under section 244A from the Department as interest on refund of some other tax paid by it and not out of any payment by the assessee. The Tribunal referred to the decisions in Ambat Echukutty Menon, Sardar Balwant Singh Gujral, and Needle Industries (P.) Ltd., which supported the view that interest on refunds should include interest paid under sections 139(8), 215, and 220(2). The Tribunal concluded that the expression "amount" in section 244A(1)(b) includes interest paid by the assessee, and thus, the assessee is entitled to interest on the refund of interest paid under section 234B.

Conclusion:
The Tribunal upheld the CIT(A)'s order, allowing interest on the refund of interest paid under section 234B, though for different reasons. The Tribunal emphasized that section 244A entitles the assessee to interest on refunds of any amount, including interest paid under section 234B, as it is a neutral term encompassing every kind of refund. The Tribunal distinguished the current case from previous decisions and concluded that the assessee is entitled to interest on the refund of interest paid under section 234B. The appeal by the revenue was dismissed.