2010 (1) TMI 263 - HC - Income Tax

Refund- whether the Tribunal was justified in holding that the assessee is not liable to pay interest under section 234D on excess refund granted while sending intimation under section 143(1) of the Act for the assessment year 1999-2000? Held that- even though refund was granted while sending intimation under section 143(1) on June 28, 2000 and regular assessment under section 143(3) was completed converting the refund to demand of tax on January 22, 2004, interest could be demanded only for the period from June 1, 2003 till January 22, 2004.

Summary

Issues:
1. Interpretation of Section 234D - Liability to pay interest on excess refund granted under section 143(1) for the assessment year 1999-2000.
2. Effective date of operation of Section 234D for levying interest on the assessee.
3. Authority of the Commissioner to give retrospective operation to a substantive provision of law providing for interest.

Analysis:
1. The main issue in this case was the interpretation of Section 234D regarding the liability of the assessee to pay interest on an excess refund granted under section 143(1) for the assessment year 1999-2000. The Tribunal held that the assessee was not liable to pay interest under Section 234D. However, the High Court disagreed with this interpretation and stated that interest could be levied on the assessee from the effective date of the provision.

2. The High Court analyzed the effective date of operation of Section 234D for levying interest on the assessee. Section 234D was introduced by the Finance Act, 2003, with effect from June 1, 2003. The court clarified that interest could only be demanded for the period from June 1, 2003, till the date of regular assessment, which was January 22, 2004. The court emphasized that the provision on interest applies to all cases of refund granted under section 143(1) but interest could only be levied from June 1, 2003.

3. Another crucial issue was the authority of the Commissioner to give retrospective operation to a substantive provision of law providing for interest. The court held that the Commissioner did not have the authority to give retrospective operation to Section 234D, which was evident from the fact that the provision was effective from June 1, 2003. The court concluded that the Commissioner's order under section 263, directing the Assessing Officer to revise the assessment levying interest from the date of refund, was untenable.

In conclusion, the High Court dismissed the appeal but restored the assessment with a demand for interest levied under Section 234D with effect from June 1, 2003. The court clarified the correct position that Section 234D applies from June 1, 2003, and not from the assessment year 2004-05 onwards as held by the Tribunal.