2000 (6) TMI 138 - AT - Income Tax

Summary

Issues:
Allowance of interest under section 244(1A) of the Income Tax Act on refunds arising from waiver of interest under sections 139(8) and 217.

Analysis:
The appeals by the Revenue were based on identical facts and common grounds, arising from a common order of the Dy. CIT(A) dated 20th Sept., 1993. The primary issue was the allowance of interest under sections 139 and 217 on refunds resulting from the waiver of interest. The CIT, Jaipur, had waived the interest charged under sections 139 and 217, leading to the AO allowing the refund. The assessee then claimed interest under section 244(1A) on the refund, which was initially denied by the AO on the basis that section 244(1A) applies only to tax penalty and not interest. The AO argued that interest is not included in the definition of income-tax under section 2(43). However, the Dy. CIT(A) accepted the assessee's contention that interest paid is part of the liability to pay income-tax and, when refunded, becomes part of the total payment of income-tax, thus entitling the assessee to interest under section 244(1A).

The Revenue contended that the AO's order should be upheld, citing the case of CIT vs. Ayurved Sevashram Ltd. The authorized representative for the assessee referenced various High Court decisions supporting the allowance of interest on interest, including cases like D.J. Works vs. ITO and CIT vs. Sardar Balwant Singh Gujaral. The Jurisdictional High Court decision in the case of CIT vs. Ayurved Sevashram Ltd. was also highlighted in favor of the assessee.

The Tribunal considered the arguments presented by both parties and examined relevant case laws. Referring to a recent decision by the Madras High Court in CIT vs. Needle Industries (P) Ltd., it was held that the word 'tax' in section 244(1A) should be construed to include interest paid by the assessee. The Madras High Court's interpretation was supported by decisions from the Kerala High Court and Madhya Pradesh High Court. Additionally, the Supreme Court had granted Special Leave to appeal against a High Court decision, but until then, the High Court's decision in favor of the assessee would stand. Based on the precedents set by various High Courts, the Tribunal found no issue with the Dy. CIT(A) allowing interest on interest under section 244(1A).

Consequently, the appeals filed by the Revenue were dismissed, affirming the decision to allow interest under section 244(1A) on refunds arising from the waiver of interest under sections 139(8) and 217.