2022 (3) TMI 957 - AT - Income Tax

Taxability of Interest earned as per the provisions of section 244A - interest on income-tax refund received at the time of processing of return u/s.143(1) - HELD THAT - If the amount of interest on income-tax refund received at the time of processing of return u/s.143(1) in the financial year relevant to the assessment year under consideration is charged to tax, which has eventually been refunded on completion of assessment u/s 143(3) in the year 2017, and later on the assessee becomes entitled to refund through some appellate proceedings and again receives interest u/s.244A, that also covers interest for the period from the A.Y. 2012-13 up to the date of grant of earlier refund on 12.3.2014, which will have to be necessarily charged to tax in the year of receipt, then the amount of interest initially received on processing of return u/s.143(1) during the year under consideration would stand charged to tax twice, which is impermissible under the law. Had it been a case of the assessee receiving refund along with interest on 12.3.2014 simpliciter not followed by any regular assessment u/s.143(3), thereby assigning finality to the processing of return u/s 143(1), the amount of interest on income-tax refund would have merited inclusion in the total income of the year of receipt itself. C Thus we are satisfied that the ld. CIT(A) was justified in holding that interest on income-tax refund amounting to ₹ 1.18 crore cannot be charged to tax on the processing of return u/s.143(1) during the year under consideration for the raison d etre that the regular assessment made in the year 2017 resulted into creation of demand and wiping out the refund already granted to the assessee along with recovery of interest. This ground is, therefore, not allowed. Education cess as an allowable expenditure - Revenue has set up a case that the provisions of section 40(a)(ii) have not been taken into consideration - HELD THAT - It is seen that this issue is no more res integra in view of the judgment of Hon ble jurisdictional High Court in Sesa Goa Ltd. 2020 (3) TMI 347 - BOMBAY HIGH COURT laying down that education cess is not disallowable expenditure u/s.40(a)(ii) of the Act. Similar view has earlier been taken by the Hon ble Rajasthan High Court in Chambal Fertilisers and Chemicals Ltd. and Another Vs. JCIT ( 2018 (10) TMI 589 - RAJASTHAN HIGH COURT - Since the ld. CIT(A) s view accords with that of the Hon ble jurisdictional High Court, we, ergo, accord our imprimatur to the same. This ground is not allowed.

Summary

Issues:
1. Taxability of interest earned under section 244A of the Income-tax Act, 1961.
2. Allowability of education cess as an expenditure.

Issue 1: Taxability of interest earned under section 244A:
The appeal by the Revenue challenges the holding by the ld. CIT(A) that interest earned under section 244A of the Income-tax Act, 1961 was not chargeable to tax. The case revolved around the refund granted to the assessee, including an interest component, for the assessment year 2012-13. The AO observed that the interest amount on the income tax refund was not offered for taxation. The assessee explained that the interest was adjusted by the Revenue against a demand without informing them. The ld. CIT(A) accepted the assessee's submission and ordered the deletion of the addition. The ITAT analyzed the legal position, citing the Avada Trading Co. case, and highlighted that interest on income tax refund is chargeable to tax in the year of receipt. The final assessment for the assessment year 2012-13 resulted in the recovery of the interest granted earlier, along with additional interest charged. The ITAT concluded that the interest on income tax refund became returnable due to the later assessment, and thus, it was not chargeable to tax in the year under consideration.

Issue 2: Allowability of education cess as an expenditure:
The Revenue contested the ld. CIT(A)'s direction that education cess was an allowable expenditure. The assessee raised this issue regarding the secondary and higher education cess on income-tax. The ld. CIT(A) relied on various Tribunal orders in favor of the assessee, including the judgment in the case of Sesa Goa Ltd. The ITAT noted that the issue was settled by the Hon’ble Bombay High Court and the Hon’ble Rajasthan High Court, holding that education cess is not a disallowable expenditure under section 40(a)(ii) of the Act. Consequently, the ITAT upheld the ld. CIT(A)'s decision, dismissing the Revenue's appeal.

In conclusion, the ITAT dismissed the appeal by the Revenue, affirming the ld. CIT(A)'s decisions on both issues. The judgment provides a detailed analysis of the taxability of interest earned under section 244A and the allowability of education cess as an expenditure, referencing relevant legal provisions and court judgments to support the conclusions reached.