2019 (2) TMI 239 - HC - Income Tax

Interest u/s 244A on refunds - tax collected at source under Section 206C of the Act or paid by way of advance tax or treated as paid under Section 199 of the Act - assessee declared loss and in said return claimed the income relatable to the payments made during the said year as well as during earlier two Assessment Years - Held that - We are of the opinion that the Assesses case falls under clause (a) which covers situation where the refund is out of any tax collected at source or paid by way of advance tax or treated as paid under Section 199. This reference to treat tax as paid under Section 199 of the Act, would clearly cover the tax deducted at source. In the present case, the Assessee had suffered deduction of tax at source at the time of payments. In that view of the matter, the case of the Assessee would clearly be covered under clause (a) to subsection (1) of Section 244 of the Act. In such a situation, this clause provide that, interest shall be calculated at the rate of % for every month or part thereof, comprising a period from the 1st day of April of the Assessment Year to the date on which the refund is granted, provided the return is filed before the due date, specified in sub-section 1 of Section 139 of the Act. Here, the reference from the 1st day of April of the Assessment Year which is the starting point for computing the interest payable, must be to the Assessment Year, in which, the tax was deducted at source. Since this expression has to be read along with the main body of clause (a) which refers to the refund arising out of, inter alia, of the tax treated to have been paid as per Section 199 of the Act. Any other view, would be holding untenable since, the Revenue which has received the tax deducted at source from the payments to be made to the Assessee and appropriate the same, would refund the same but the interest would be accounted much later when the return giving rise to the refund, is filed. - Decided against revenue

Summary

Issues:
1. Interpretation of Section 244A of the Income Tax Act, 1961 regarding interest payable on refunds.

Analysis:

Issue 1: Interpretation of Section 244A of the Income Tax Act, 1961 regarding interest payable on refunds

The case involved a dispute over the interest payable on refunds to an Association of Persons (AoP) engaged in civil construction. The AoP followed the project completion method of accounting and claimed a refund for certain payments made during the Assessment Years 2003-04, 2004-05, and 2005-06. The Assessing Officer's order resulted in a refund, but the Revenue contended that interest could not be paid for any period before the Assessment Year 2005-06 since the income related to the payments was declared in that year. The Tribunal, relying on the Supreme Court judgment in Union of India v/s. Tata Chemicals Ltd., held in favor of the Assessee, leading to the Revenue's appeal.

The Court analyzed the relevant statutory provisions, including Section 199C, Section 194C, Section 199, and Section 244A of the Act. Section 244A provides for interest on refunds in different scenarios. The Court noted that the case fell under clause (a) of subsection 1 of Section 244A, which covers refunds related to tax collected at source, advance tax, or tax treated as paid under Section 199. The Court emphasized that interest should be calculated from the 1st day of April of the Assessment Year in such cases. Referring to the Supreme Court's judgment in Tata Chemicals Ltd., the Court reiterated the principles governing interest on refunds, emphasizing that interest is a statutory obligation and not discretionary. The Court highlighted that the State's obligation to refund excess tax includes paying interest for the period of undue retention of such monies.

In conclusion, the Court dismissed the Tax Appeal, affirming the Tribunal's decision that interest on the refund was payable from the 1st day of April of the Assessment Year. The Court's analysis underscored the statutory framework governing interest on refunds and the obligation of the Revenue to reimburse excess tax with accrued interest.