2020 (10) TMI 522 - HC - Income Tax

Interest in terms of Section 244A - Whether interest component partakes the character of amount due under Section 244A? - payment of interest on interest - HELD THAT - A three judge bench of the Supreme Court in H.E.G. Ltd. 2009 (12) TMI 35 - SUPREME COURT while dealing with the expression refund of any amount becomes due to the assessee , held that the interest component will partake the character of amount due under Section 244A. When an order of refund is issued, the same should include interest payable on the amount, which is refunded. If the refund does not include interest due payable on the amount refunded, the revenue would be liable to pay interest on the short fall. This does not amount to payment of interest on interest. - If the interest has to be computed after 01.04.1989, the same has to be computed in accordance with Section 244A of the Act only and the assessee is entitled to interest in terms of Section 244A of the Act only. - Decided against revenue.

Summary

Issues Involved:
1. Whether the Tribunal was justified in dismissing the appeal by the Revenue regarding interest on delayed refund.
2. Whether the Tribunal was correct in relying on the case of CIT v. Sandvik Asia Ltd. for granting interest on delayed refunds.

Issue-wise Detailed Analysis:

1. Justification of Tribunal's Dismissal of Revenue's Appeal on Interest on Delayed Refund:
The core issue revolves around whether the Tribunal was justified in law in dismissing the Revenue's appeal by not appreciating that there is no specific provision in the Income Tax Act for payment of interest on the amount of interest. The Revenue contended that neither Section 243(1) nor Section 244(1) of the Act provides for interest on interest and that the Supreme Court's decision in Sandvik Asia Ltd. was not an authority for such a proposition. The Revenue argued that the Sandvik Asia Ltd. case dealt with compensation for delayed payment rather than interest on interest and cited subsequent clarifications by the Supreme Court in Commissioner of Income-Tax, Gujarat v. Gujarat Flouro Chemicals and other High Court decisions to support their stance. The Revenue maintained that in the absence of statutory provisions, the assessee is not entitled to interest on delayed payment.

2. Tribunal's Reliance on CIT v. Sandvik Asia Ltd.:
The Tribunal relied on the Supreme Court's decision in Sandvik Asia Ltd., which held that the Revenue must compensate the assessee when excess tax amounts are collected or amounts are wrongfully withheld without authority of law. The assessee's counsel highlighted that the Supreme Court in Commissioner of Income Tax v. Narendra Doshi upheld decisions that mandated the Revenue to pay interest on the amount of interest due. Further, the Supreme Court in Commissioner of Income Tax v. H.E.G. Ltd. clarified that the interest component partakes the character of the amount due under Section 244A and the Revenue would be liable to pay interest on any shortfall in the refund amount, which does not constitute payment of interest on interest. The Tribunal's reliance on Sandvik Asia Ltd. was thus justified as the principle of compensating the assessee for wrongful withholding of amounts was recognized.

Conclusion:
The High Court concluded that the language of Section 244A is clear and unambiguous, entitling the assessee to interest on refunds as calculated under its provisions. The decisions in Narendra Doshi and H.E.G. Ltd. by the Supreme Court, which are binding, support the view that the interest on the refund amount includes interest on any shortfall in the refunded amount. The court found no merit in the Revenue's appeal and dismissed it, affirming that the substantial questions of law were answered in favor of the assessee. The appeal was dismissed, and the Tribunal's decision was upheld.