2025 (3) TMI 463 - AT - Income Tax

Entitlement to interest u/s. 244A(1)(b) on the amount of excess DDT refunded from 01.10.2010 to the date the refund was granted - HELD THAT - AO has treated DDT as being covered under the provision of sec.244A(1)(a)/(aa) and hence applied the proviso to these clauses. It is known that the accounting of DDT is done separately from advance tax or self-assessment tax. DDT is payable at the time of declaration/distribution or payment of any dividend whichever date is earlier. It cannot be termed as an advance tax as envisaged u/s 207 or a self-assessment tax as per Section 140A. Hence the interest on refund related to DDT paid in excess is covered under the residual clause as envisaged u/s 244A(1)(b) of the Act and is therefore eligible for interest u/s 244A(1)(b) of the Act on the amount of excess DDT refunded from 01.10.2020 to the date the refund was granted. Ergo the decision of the Ld. CIT(A) is affirmed. Appeal of the Revenue is dismissed.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

1. Whether the assessee is entitled to interest under Section 244A(1)(b) of the Income Tax Act on the refund of excess Dividend Distribution Tax (DDT) paid.

2. Whether the Assessing Officer was correct in withdrawing the interest granted to the assessee on the refund of excess DDT, based on the proviso to Section 244A(1)(a) and (aa).

ISSUE-WISE DETAILED ANALYSIS

1. Entitlement to Interest under Section 244A(1)(b)

Relevant legal framework and precedents: Section 244A of the Income Tax Act provides for interest on refunds due to the assessee. Sub-section (1)(b) specifically deals with cases other than those covered under sub-section (1)(a) and (aa), which pertain to refunds from TDS, TCS, advance tax, or self-assessment tax.

Court's interpretation and reasoning: The Tribunal interpreted that DDT does not fall under the categories outlined in Section 244A(1)(a) or (aa) as it is not advance tax or self-assessment tax. Instead, DDT is a separate tax paid at the time of dividend declaration or distribution, which qualifies it under the residual clause of Section 244A(1)(b).

Key evidence and findings: The Tribunal found that the excess DDT was indeed paid by the assessee and that the refund was determined based on the provisions of Section 115-O read with Section 237 of the Income Tax Act. The refund was due to the incorrect accounting of deemed dividends from wholly-owned subsidiaries.

Application of law to facts: The Tribunal applied Section 244A(1)(b) to conclude that the assessee was entitled to interest on the excess DDT refund, as it was not covered by the specific provisions of Section 244A(1)(a) or (aa).

Treatment of competing arguments: The Tribunal considered the Revenue's argument that the refund was less than 10% of the tax amount and thus not eligible for interest under the proviso to Section 244A(1)(a) and (aa). However, it rejected this argument by classifying the refund under Section 244A(1)(b), which does not have such a proviso.

Conclusions: The Tribunal concluded that the assessee is entitled to interest on the refund of excess DDT under Section 244A(1)(b) from October 1, 2010, to the date the refund was granted.

2. Withdrawal of Interest by Assessing Officer

Relevant legal framework and precedents: The Assessing Officer relied on the proviso to Section 244A(1)(a) and (aa), which states that no interest is payable if the refund amount is less than 10% of the tax determined.

Court's interpretation and reasoning: The Tribunal found that the Assessing Officer's application of the proviso was incorrect because the refund of excess DDT does not fall under the specific categories mentioned in Section 244A(1)(a) or (aa).

Key evidence and findings: The Tribunal noted that the refund was processed based on the order of the CIT(A), which recognized the excess DDT paid by the assessee and granted the refund accordingly.

Application of law to facts: By classifying the refund under Section 244A(1)(b), the Tribunal determined that the proviso to Section 244A(1)(a) and (aa) was not applicable, and therefore, the withdrawal of interest by the Assessing Officer was unjustified.

Treatment of competing arguments: The Tribunal considered the Revenue's reliance on the proviso but found it misplaced due to the nature of DDT and its classification under Section 244A(1)(b).

Conclusions: The Tribunal concluded that the interest withdrawal by the Assessing Officer was incorrect, and the assessee was rightfully entitled to interest on the excess DDT refund.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "DDT is payable at the time of declaration/distribution or payment of any dividend whichever date is earlier. It cannot be termed as an advance tax as envisaged u/s 207 or a self-assessment tax as per Section 140A of the Act. Hence, the interest on refund related to DDT paid in excess is covered under the residual clause as envisaged u/s 244A(1)(b) of the Act."

Core principles established: The judgment establishes that excess DDT refunds fall under the residual category of Section 244A(1)(b), thus entitling the assessee to interest on such refunds, irrespective of the 10% threshold applicable to other tax refunds.

Final determinations on each issue: The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to grant interest on the excess DDT refund under Section 244A(1)(b).

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