2015 (4) TMI 3 - AT - Income Tax

Eligibility for interest on refund - Held that - No substance in the argument of the Revenue that the delay n the refund was caused because of the conduct of the assessees. In fact, the assessee was questioning the proposition of the Revenue to assess the income in the hands of the Main Trusts. That is why the beneficiary trusts have filed their individual returns of income disclosing the benefits received from the main trusts also. But when KVSS was pronounced by the Government of India, it was for the assessees to decide whether to take benefit out of that or not. Therefore, it is only when KVSS was promulgated, the assessee had an occasion to make a move and settle the dispute. So also the proceedings were locked up in different appellate forums. Therefore, there is no merit in the argument of the Revenue that the delay was caused by the conduct of the assessees. Therefore, we also find that the assessing officer has rightly granted interest to the assessees on refunds due to them. - Decided in favour of assessee. Interest on interest - Held that - According to decision of CIT vs. Gujarat Flouro Chemicals, 2013 (10) TMI 117 - SUPREME COURT the interest which can be granted to the assessee on refund as per section 244A would be the interest provided in that section and no other interest on such statutory interest can be provided. Thus, it was pleaded by Ld. DR that there is no provision according to which assessee can be granted interest on interest. - Decided against assessee.

Summary

Issues Involved:
1. Entitlement to interest on refund of Rs. 40,442/-
2. Entitlement to interest on refund of Rs. 11,138/-
3. Entitlement to interest on interest

Detailed Analysis:

Entitlement to Interest on Refund of Rs. 40,442/-
The assessees, beneficiaries of a specific family trust, filed returns for the assessment year 1984-85 and paid taxes amounting to Rs. 51,580/-. The income was assessed on a protective basis since the main trust's income was assessed substantively. The main trust settled the dispute under the Kar Vivad Samadhan Scheme (KVSS), leading to the deletion of income in the hands of the present trusts. Consequently, the Assessing Officer (AO) refunded Rs. 11,138/- but denied interest on the refund of Rs. 40,442/-. The Special Bench had previously ruled in favor of granting interest on similar facts, emphasizing that interest is compensatory and must accompany the principal refund. The Tribunal upheld this view, directing the revenue to grant interest on the refund of Rs. 40,442/- as per the Special Bench and Gujarat High Court precedents.

Entitlement to Interest on Refund of Rs. 11,138/-
The AO refunded Rs. 11,138/- but denied interest on this amount. The Tribunal noted that the income was not assessable in the hands of the assessees due to the main trust's settlement under KVSS. The Special Bench had previously ruled that beneficiaries are entitled to interest on refunds in similar cases. The Tribunal directed the revenue to grant interest on the refund of Rs. 11,138/-, aligning with the Special Bench and Gujarat High Court decisions.

Entitlement to Interest on Interest
The assessees argued for interest on the interest due to the delayed refund. However, the Tribunal referred to the Supreme Court's decision in CIT vs. Gujarat Fluoro Chemicals, which clarified that only statutory interest under section 244A of the Income Tax Act is permissible. Consequently, the Tribunal held that the assessees are not entitled to interest on interest.

Conclusion:
The Tribunal allowed the appeals partially, directing the revenue to grant interest on the refunds of Rs. 40,442/- and Rs. 11,138/- but denied the claim for interest on interest. The Tribunal also noted the revenue's unnecessary litigation despite clear precedents, although no costs were imposed due to the absence of a specific request from the assessees' counsel.