2005 (8) TMI 69 - HC - Income Tax

Interest on refund - Interest under sub-section (1A) of section 244 is payable when the tax or penalty paid by an assessee pursuant to an order of assessment has been reduced in appeal or any other proceeding This sub-section substantially alters the scheme of payment of interest on refund contained in sections 243 and 244 of the Income-tax Act, but does not affect the scope of section 214 in any way. Section 214 deals with payment of interest on the amount of tax found to have been paid in excess of the tax determined as payable on the regular assessment. Interest will have to be paid from the first day of the relevant assessment year to the date of the regular assessment, i.e., the first assessment. If the amount on which the interest was payable was varied subsequent to the first assessment, then the quantum of interest had also to be increased or decreased accordingly. But the period for which the interest had to be paid was not altered by the newly substituted sub-section (1A) of section 214 - we direct respondent to compute the interest payable to the petitioner

Issues Involved:
1. Entitlement to interest on refunded tax amounts for the assessment years 1982-83 and 1983-84.
2. Application of amended provisions of sections 214 and 244(1A) of the Income-tax Act.

Detailed Analysis:

Entitlement to Interest on Refunded Tax Amounts:
The petitioner challenged the order dated June 14, 1988, by the Commissioner of Income-tax, which denied interest on refunded tax amounts for the assessment years 1982-83 and 1983-84. The petitioner had filed returns declaring losses and had paid advance tax and tax deducted at source. Subsequent assessments and appeals resulted in refunds, but no interest was granted on these refunds. The petitioner filed applications under section 264 of the Income-tax Act seeking interest under sections 214 and 244(1A).

For the assessment year 1982-83, the petitioner declared a loss of Rs. 23,82,75,310 and paid Rs. 6,30,00,000 as advance tax. The total income was computed at Rs. 7,93,48,600, resulting in a refund of Rs. 1,19,78,111 with interest of Rs. 31,14,306. Subsequent orders and appeals adjusted the refund amount, but no interest was granted. Similarly, for the assessment year 1983-84, the petitioner declared a loss of Rs. 21,83,75,509, paid Rs. 1,02,50,000 as advance tax, and the total income was computed at Rs. 3,47,58,742, resulting in a refund of Rs. 1,03,07,855 without interest.

Application of Amended Provisions of Sections 214 and 244(1A):
The petitioner argued that the Commissioner of Income-tax erroneously applied the law as it stood before the amendment effective April 1, 1985. The petitioner contended that the amended provisions should apply, making the denial of interest an error apparent on the face of the record.

The petitioner relied on the Division Bench judgment in CIT v. Saswad Mali Sugar Factory Ltd. [2001] 249 ITR 756 (Bom), which held that the Taxation Laws (Amendment) Act, 1984 is procedural and applies to all pending actions. The court found no merit in the Department's argument that the amendment did not apply retrospectively. The right to receive interest accrued only when the Assessing Officer gave effect to the appellate order, making the amendment applicable.

The petitioner also cited the Supreme Court judgment in Modi Industries Ltd. v. CIT [1995] 216 ITR 759, which clarified that section 214 deals with interest from the first day of the relevant assessment year to the date of the regular assessment. Section 244(1A) deals with interest on excess tax paid, including advance tax and tax deducted at source, from the date of payment to the date of refund. The Supreme Court emphasized that both provisions should not result in simultaneous interest payments, and the period for interest under section 214 remains unchanged by the amendment.

Conclusion:
The court concluded that the Commissioner of Income-tax misapplied the law by not considering the amended provisions. The judgments in Saswad Mali Sugar Factory Ltd. and Modi Industries Ltd. established that the petitioner is entitled to interest under sections 214 and 244(1A). The court directed the Commissioner to compute the interest payable to the petitioner for the assessment years 1982-83 and 1983-84 in accordance with the law, within three months.

Final Judgment:
The court made the rule absolute, directing the Commissioner of Income-tax to compute and pay the interest as per the calculations provided by the petitioner, in line with the legal principles established in the cited judgments.

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