2010 (2) TMI 215 - HC - Income Tax

Refund- Interest on refund- The petitioner, a civil contractor assessed to income-tax, filed a belated return of income on September 8, 1997, for the assessment year 1995-96 declaring income of Rs. 50,240 and claiming refund of Rs. 2,41,505 being tax deducted at source, though March 31, 1997, was the last date for filing the belated return under section 139(4) of the Income- tax Act, 1961. Held that- allowing the petition, that the petitioner had made a belated claim for refund on Sep. 8 1997 along with an application to condone the delay filed on sep. 21, 1998 and this was required to be considered by the Board under section 119(2)(b) of the Act. In fact Instruction No. 12 of 2003 dated 30.10.2003, makes the instruction inapplicable to a belated claim for refund prior to assessment year 1996-97. In other words, the condition denying interest on the claim for refund made belatedly was not applicable to the petitioner s application to condone the delay. The petitioner claim for refund of Rs. 2,41,505 was required to be considered by the Board on the basis of the law as it then existed.

Issues Involved:
1. Whether the condition to deny interest on the refund amount due to an assessee under the Act, while admitting an application to condone the delay in making a claim for belated refund under section 237 of the Act, as contained in Instruction No. 12 of 2003 dated October 30, 2003, and Instruction No. 13 of 2006 dated January 22, 2006, of the Board, is inconsistent with sub-section (2) of section 244A of the Act?
2. Whether in the facts and circumstances, the respondent was justified in denying interest on the belated refund claimed for the assessment year 1995-96, by the order impugned?

Issue-wise Detailed Analysis:

1. Consistency of Instructions with Section 244A of the Act:

Section 237 of the Act provides for the claim of a refund of excess tax paid by the assessee. Section 239 prescribes the form and limitation for such claims, while section 119 allows the Board to condone delays in cases of genuine hardship. Interest on refunds is governed by section 244A, which allows interest unless the delay is attributable to the assessee.

The petitioner filed a belated return and sought to condone the delay under section 119(2)(b). The Board initially rejected this but later accepted the delay without granting interest on the refund, citing Circular No. 670 and Instruction No. 13 of 2006. The petitioner argued that denying interest based on these instructions was inconsistent with section 244A, which mandates interest on refunds.

The court examined the statutory provisions and concluded that the Board's instructions cannot override the Act. Section 119 allows the Board to issue instructions for proper administration but not to impose conditions contrary to the Act. The court cited precedents, including the Supreme Court's rulings in State of M.P. v. G.S. Dali and Flour Mills and Kerala Financial Corporation v. CIT, which held that executive instructions cannot contradict statutory provisions.

The court held that the instructions denying interest on belated refunds were inconsistent with section 244A and thus invalid. The first question was answered in the affirmative, confirming that the Board exceeded its jurisdiction by issuing such instructions.

2. Justification of Denying Interest on Belated Refund:

The petitioner filed the belated return and the application to condone the delay, which was eventually accepted. However, the respondent denied interest on the refund, citing the Board's instructions. The court noted that there was no evidence that the delay was attributable to the petitioner, as required by section 244A(2) to deny interest.

The court emphasized that the Board's instructions from 2003 and 2006 could not apply retroactively to the petitioner's case, which pertained to the assessment year 1995-96. The court found that the instructions were not applicable to the petitioner's claim and that the denial of interest was arbitrary and contrary to law.

The court referenced the Gujarat High Court's decision in Gujarat Electric Co. Ltd. v. CIT, which supported a liberal interpretation of "genuine hardship" under section 119(2)(b). The court concluded that the respondent's reliance on the Board's instructions to deny interest was unjustified.

The second question was answered in the negative, indicating that the respondent was not justified in denying interest on the belated refund.

Conclusion:

The petition was allowed in part. The court quashed the order denying interest on the refund and directed the respondent to calculate and pay the interest from the date of the application to condone the delay until the refund was adjusted, within two months.

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