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TMI Blog2017 (1) TMI 1402X X X X Extracts X X X X X X X X Extracts X X X X ..... two constituents in the same ratio (see Option C). Further, in view of the decision by the Apex Court in H.E.G. Ltd. (2009 (12) TMI 35 - SUPREME COURT ), relied upon by the ld. CIT(A), refund (withdrawal) of interest u/ss. 234A, 234B, 234C, etc., being in consequence to a tax default, partakes the character of ‘tax’ and, therefore, shall also carry compensatory interest u/s. 244A, to be allowed on the same basis and in the same manner as on the refund of tax proper. X X X X Extracts X X X X X X X X Extracts X X X X ..... A, as we shall demonstrate with a set of figures as under and, thus, the issue arising is to be construed as the manner in which the interest u/s. 244A is to be computed on the grant of a refund to the assessee: (Amount in Rs.) Particulars Amount of Refund Tax Interest u/s. 244A Remarks Refund due 120 100 20 Interest up to the date of refund (of tax) Option A - Assessee Refund granted (A) (60) (40) (20) Option A (by the assessee) Balance outstanding 60 60 0 Refund due less granted Interest u/s. 244A 3.6 -- 3.6 For 12 months @ 0.5 per cent (say) p.m. Amount Refundable 63.6 60 3.6 (Bal. due + interest) Option B - Revenue Refund granted (B) (60) (60) 0 Option B (by the Revenue) Balance outstanding 60 40 20 Refund due less granted Interest u/s. 244A 2.4 -- 2.4 For 12 months @ 0.5 per cent (say) p.m. Amount refundable 62.4 40 22.4 (Bal. due + interest) (*) (figures in brackets represent negative figures, liable to be deducted) Both the parties justify their respective stand on the basis that the interest u/s. 244A is being granted only on the tax refund due, and is therefore in terms of s. 244A. Clearly, one of the two is, or pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue being so obliged is in law not competent to grant refund of tax without commensurate interest thereon. It is in fact only because the interest is to be allowed up to date, that the refund amount, where less than the aggregate of tax (principal) and interest, so calculated, is considered a part refund, necessitating apportioning the refund amount, which though has to be in conformity with the provision. Appropriating it against tax, which is not to be refunded in isolation, is thus clearly incorrect. It is equally incorrect to consider the interest as due for payment, except where comprised in a refund amount that agrees with the principal amount being refunded, and which is the flaw that imbues the assessee's working. Appropriating the refund amount by adjusting it preferentially either against tax or interest is not in terms of and, thus, in violation of s. 244A. The working by both the assessee and the Revenue is clearly inconsistent with the provision; while one (assessee) seeks to maximize interest u/s. 244A, the other (Revenue) seeks to minimize it. An appropriation following the proportionate principle, i.e., in the same ratio as the total interest (on the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be therefore respected, as is that of s. 244A, allowing interest along with the amount of refund of tax, i.e., up to date, obliterating any scope for prejudice. The assessee's claim that it is not being allowed, by adopting its' method, interest on interest, is also missing the point. Even assuming it as not so, the interest cannot exceed that as provided by s. 244A. The interest obligation on the Revenue, it is to be noted, for the delayed refund of tax, is simple interest at the prescribed rate, which only a proportionate working - with up to date interest, ensures. Any interest in excess of the same is in excess of the obligation cast by law and, thus, without its sanction. How, for example, could the assessee claim being paid interest at ₹ 20, which admittedly is on tax of ₹ 100, on the tax refund of ₹ 40? While the first tax refund is granted along with interest at 50%, the second carries interest at 6% thereof! The two should bear a linear correlation, allowing difference only for the time factor. The correct interest u/s. 244A, going by the figures of the example, would be an interest of ₹ 20 for the first period and another ₹ 3 (i.e., on & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han the aggregate of tax being refunded and interest to date (of the refund) thereon, by working the elements of the total refund, to be made compositely, on a pro-rata basis. Even as we therefore agree with the two principles aforesaid, emanating from the section itself, we cannot disregard the third, also explicit in it's language. The reason is simple; it could be only on the peril of violating the provision. There is no estopple against law. We have already clarified that interest, to the extent appropriated in excess, so that it is in fact only tax, short adjusted to that extent, amounts to in effect granting interest on interest. Going by our example, the balance tax refund due - on which therefore interest u/s. 244A is exigible, is ₹ 50 and not ₹ 60; the difference of ₹ 10 being interest accrued (on the unpaid tax refund of ₹ 50), which will be become payable only on its refund ( ₹ 50), i.e., at ₹ 13, as part of refund ₹ 63, granted a year hence. The assessee is thus clearly claiming interest on interest, i.e., at ₹ 0.60 in our example, on the accrued interest of ₹ 10 (for one year). Interest, in terms of the provision, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... long with interest to date of ₹ 10, the other, a year hence, of ₹ 13, as depicted hereunder: (Amount in Rs.) Particulars Amount of Refund Tax -1 Tax -2 Interest u/s. 244A Remarks Tax refund due 100 50 50 Refund granted (at time T1) (50) (50) -- (10) As per s. 244A - principal with interest to date Balance due 50 -- 50 Refund due less granted Refund granted (at time T2, a year hence) (50) -- (50) (13) As per s. 244A - principal with interest to date Amount Refunded 100 50 50 23 Tax refund along with interest thereon to date The said decision would therefore be of no assistance to the assessee in relation to it's claim. Decision 4. The various amounts paid by and refunded to the assessee would therefore require being adjusted as under: (i) each payment, other than of TDS, TCS and Advance-tax, is to be adjusted first against interest due to date, and only the balance against tax (Explanation to s. 140A); (ii) each refund of tax, in-as-much as it is compensatory, shall be subject to interest u/s. 244A for the period up to the date of its grant; (iii) each refund is to bear principal and interest u/s. 244A thereon to date (of grant o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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