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TMI Blog2016 (5) TMI 945X X X X Extracts X X X X X X X X Extracts X X X X ..... towed payable by the revenue" is actually a perfect statement of law. It is certainly a theorem, but not Euclid's theorem. Therefore, the law as we see is well settled to the effect that what was due as a refund and what was payable as interest on such refund are debt claims within the meaning of Article 12.4. As a consequence, they satisfy the parameters of Article 12.3(a).- Decided in favour of the assessee. - Tax Case Appeal Nos. 19 to 21 of 2016 - - - Dated:- 20-4-2016 - MR.JUSTICE V.RAMASUBRAMANIAN AND MR.JUSTICE M.V.MURALIDARAN For the Appellant : Mr. N.V. Balaji For the Respondent : Mr. T. Ravikumar COMMON JUDGMENT (Delivered by V.Ramasubramanian,J) These appeals filed by the assessee under Section 260-A of the Income Tax Act, were admitted on 02.02.2016 on the following substantial questions of law: (i) Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in holding that interest under Section 244A of the Act on refund of income tax is not covered within the term 'interest' under Article 12(4) and accordingly, the same is not outside the purview of taxation by India as provided in Arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid to a resident of the other Contracting State may be taxed in both the Contracting States. 2. Notwithstanding the provisions of paragraph 1, the tax chargeable in a Contracting State on interest arising in that State and paid to a resident of the other Contracting State in respect of loans or debts shall not exceed 15 per cent of the gross amount of such interest. 3. Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State shall be exempt from tax in that State, if: (a) the payer of the interest is the Government of that Contracting State or a local authority thereof, or (b) the interest is paid to any agency or instrumentality (including a financial institution) which may be agreed upon in this behalf by the two Contracting States. 4. The term interest as used in this Article means income from Government securities, bonds or debentures, whether or not secured by mortgage and whether or not carrying a right to participate in profits, and debt-claims of every kind as well as all other income assimilated to income from money lent by the taxation law of the State in which the income arises. 9. From a reading of the above paragraphs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debt-owed and payable by the Revenue. The Government, there being no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, cannot shrug off its apparent obligation to reimburse the deductors lawful monies with the accrued interest for the period of undue retention of such monies. The State having received the money without right, and having retained and used it, is bound to make the party good, just as an individual would be under like circumstances. The obligation to refund money received and retained without right implies and carries with it the right to interest. Whenever money has been received by a party which ex ae quo et bono ought to be refunded, the right to interest follows, as a matter of course. 14. As a matter of fact, the issue that arose for consideration before the Supreme Court in Tata Chemicals, as seen from paragraph 2 was as to whether the Revenue was legally responsible under Section 244-A for payment of interest on the refund of tax made to the resident/deductor under Section 240 or not. Therefore, the contention of the learned counsel for the appellant is that all the three authorities erred in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. 19. The first portion of Article 12.6 states that the interest will be deemed to arise in a contracting State, when the payer is that State itself. To this rule found in the first line of Article 12.6, an exception is carved out in the remaining part of Article 12.6. What follows the first portion of Article 12.6 is that when the person paying the interest whether the resident of the contracting State or not, has a permanent establishment in a contracting State, such interest borne by the permanent establishment will be deemed to arise in that State. 20. In other words, if the assessee is the payer of the interest, it is only then that the second part of Article 12.6 will arise. In this case, the payer of interest is the Government of the contracting State, namely the Government of India. Therefore, Article 12.6 has no appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve a plain look at Section 244-A of the Income Tax Act. Under Sub-section (1) of Section 244-A, an assessee is made entitled to receive in addition to any amount of refund that has become due to him, simple interest calculated in the manner provided therein. Subsection (1) of Section 244-A uses two important expressions, namely (i) becomes due, and (ii) be entitled to. The expression becomes due is a clear indication that an assessee will be entitled to the benefit of Section 244-A only if the refund of any amount has become due. If a refund has become due, interest on the refund is also automatic subject to the satisfaction of other conditions. Anything that is due and which a person is entitled to collect, is naturally in the nature of a debt claim. Therefore, we do not think that the Supreme Court made a very stray observation in paragraph 38 of its decision in Tata Chemicals, without realising what they were actually indicating. The statement found in paragraph 38 of the decision in Tata Chemicals to the effect refund due and payable to the assessee is debtowed payable by the revenue is actually a perfect statement of law. It is certainly a theorem, but not Euclid's the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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