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2010 (3) TMI 449 - HC - Income TaxRefund-Whether section 244(1)(b) read with the Explanation thereto excludes payment of interest on refund of self-assessment tax? Held that- the assessee should be on principle entitled to interest thereon since the self-assessment tax falls within the expression refund of any amount . The computation of interest on self-assessment tax has to be in terms of section 244A(1)(b) i.e. from the date of payment of such amount up to the date on which refund is actually granted. In the light of the decision of the Madras High Court in Cholamandalam Investment and Finance Co. Ltd. 2007 -TMI - 2122 - HIGH COURT MADRAS the special leave petition against which order was dismissed by the Supreme Court. Even otherwise it is trite law that wherever the assessee is entitled to refund there is statutory liability on the Revenue to pay the interest on such refund on general principles to pay the interest on sums wrongfully retained. Thus the question of law is in favour of the assessee and against the Revenue. The present appeal is accordingly dismissed.
Issues Involved:
1. Whether section 244(1)(b) read with the Explanation thereto excludes payment of interest on refund of self-assessment tax. Issue-wise Detailed Analysis: 1. Background and Facts: The respondent-assessee for the assessment year 1998-99 paid self-assessment tax under section 140A of the Income-tax Act, 1961. An order under section 250/143(3) of the Act was framed on April 24, 2002, resulting in a refund of Rs. 66,90,474, which was earlier paid as self-assessment tax. The assessee claimed interest on the refunded amount, which was denied by the Assessing Officer. The assessee's appeal to the Commissioner of Income-tax (Appeals) was dismissed, but the Income-tax Appellate Tribunal allowed the appeal, granting interest on the refund from the date of payment till the date of refund, relying on the Supreme Court decision in Modi Industries Ltd. v. CIT. 2. Legal Provisions and Historical Context: Before the insertion of section 244A by the Direct Tax Laws (Amendment) Act, 1987, the liability to pay interest on refund of pre-paid taxes was governed by section 214 read with section 244(1A). The Supreme Court in Modi Industries Ltd. held that interest on refund of pre-paid taxes (advance tax, TDS, etc.) was payable from the first day of the assessment year and, in the case of self-assessment tax, from the date of payment till the date of refund. 3. Section 244A Provisions: Section 244A provides for interest on refunds due to the assessee. Clause (a) relates to refunds out of pre-paid taxes, and clause (b) covers refunds of other taxes, including self-assessment tax, calculated from the date of payment to the date of refund. The Central Board of Direct Taxes (CBDT) Circular No. 549 explained that section 244A was introduced to simplify and rationalize the provisions for payment of interest on delayed refunds. 4. Judicial Precedents: In Sandvik Asia Ltd. v. CIT, the Supreme Court held that an assessee is entitled to compensation by way of interest for delays in payment of amounts lawfully due. The Madras High Court in CIT v. Cholamandalam Investment and Finance Co. Ltd. held that self-assessment tax paid under section 140A is entitled to interest under section 244A(1)(b). The Supreme Court dismissed the special leave petition against this decision, reinforcing the principle that interest is payable on refunds of self-assessment tax. 5. Analysis and Conclusion: The court analyzed section 244A and concluded that where "refund of any amount" becomes due, the assessee is entitled to simple interest. The calculation of interest on refunds of self-assessment tax falls under section 244A(1)(b), from the date of payment to the date of refund. The principle that the government should compensate the assessee for wrongfully retained monies supports this conclusion. The court found support in the Madras High Court decision in Cholamandalam Investment and Finance Co. Ltd. and the Supreme Court's dismissal of the special leave petition against it. 6. Judgment: The court answered the question of law in favor of the assessee, holding that the assessee is entitled to interest on the refund of self-assessment tax under section 244A(1)(b). The appeal by the Revenue was dismissed.
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