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TMI Blog2002 (2) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... NT The judgment of the court was delivered by K. K. Lahoti J. -The following two questions have been referred by the Division Bench for adjudication before the larger Bench: "1. In view of the judgment passed by the apex court in the case of Modi Industries Ltd. [1995] 216 ITR 759, whether the Tribunal is justified in law in holding that the assessee was entitled to interest under sections 214 and 244(1A) of the Income-tax Act in respect of the assessment years 1972-73 to 1976-77? 2. Whether the Tribunal was justified in law in holding that the assessee was entitled to the benefit of interest under section 244(1A) on refunds in respect of any amount of tax including self-assessment tax paid or given credit in the assessment completed after March 31,1975?" The facts which are essential to be stated in both the cases are as under: (A) Income-tax Reference No. 35 of 1994 (CIT v. Udhoji Shri Krishandas): In this reference the assessment years involved are 1972-73 to 1976-77. M/s. Udhoji Shri Krishandas Agarwal is a registered partnership firm in which the following were partners in the relevant year: Ranjana Agarwal, Jagannath Prasad Agrawal, Ramdulari Agrawal, Narsingd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit of the firm, whether by way of advance tax, self-assessment tax, TDS paid after the completion of the regular assessment. No appeal was filed by the Department against the said order of the Assistant Income-tax Commissioner before the Tribunal. As per the direction of the Assistant Commissioner of Income-tax dated April 19, 1982, the share income was excluded from the computation of the total income and the entire tax was refunded. So far as the assessment years 1973-74, 1975-76 and 1976-77 are concerned, assessments were completed in the case of the firm and the share income was included in the income of the partner assessees. In the assessment year 1975-76, the share income of the partners was reduced as a result of the appellate order and because of reduction in the share income; the assessed income in the cases of the partners came below the returned income. Thereafter the assessees filed applications for all the five years under section 154 before the Income-tax Officer to allow interest under sections 214(1), 214(2), 244/244(1A) of the Act. The Income-tax Officer rejected the applications on the ground that there was no mistake apparent on the face of the record. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion Bench while considering the aforesaid contention held that the decision in M. C. C. No. 259 of 1993 was decided after the decision of the apex court in the case of Modi Industries Ltd. [1995] 216 ITR 759. It has also observed that the various applications were filed before the court for reviewing the order passed by M. C. C. No. 259 of 1993. The review matter came for hearing before the Division Bench in M. C. C. No. 718 of 1986. The Division Bench referred to the total scenario and passed an order, the relevant portion of which we think it seemly to reproduce: "Considering the totality of circumstances, we are of the considered opinion that the matter has to be adjudicated by a larger Bench. Propriety and judicial discipline so commands. Accordingly, we frame the question for adjudication by the larger Bench as follows: '1. In view of the judgment passed by the apex court in the case of Modi Industries Ltd. [1995] 216 ITR 759, whether the Tribunal is justified in law in holding that the assessee was entitled to interest under sections 214 and 244(1A) of the Income-tax Act in respect of the assessment years 1972-73 to 1976-77? 2. Whether the Tribunal was justified in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been paid by him in pursuance of any order of penalty or such amount or part having been found in appeal or other proceedings under the Act to be in excess of the amount which such assessee is liable to pay as tax or penalty, as the case may be, the assessee is entitled for simple interest on the amount so found to be in excess from the date on which such amount was paid to the date to which the refund is granted. Contending aforesaid learned counsel for the Revenue submits that the scope of both the sections is different and the Tribunal was not justified in law in holding that the assessee was entitled to interest under sections 214 and 244(1A) of the Act. So far as the second question that the entitlement of assessee for the interest under section 244(1A) on refund of tax for which the assessee is found entitled for refund after March 31, 1975, is concerned, it has to be considered as per section 244(1A) and accordingly the reference deserves to be answered in favour of the Revenue. Learned counsel appearing for the assessee has supported the order passed by the Tribunal and contended that in view of the consistent view of this court and various other High Courts, restricted m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be tax payable by the assessee and the provisions of this Act shall apply accordingly. (2) On any portion of such amount which is refunded under this Chapter, interest shall be payable only up to the date on which the refund was made. 244. Interest on refund where no claim is needed. -(1) Where a refund is due to the assessee in pursuance of an order referred to in section 240 and the Income-tax Officer does not grant the refund within a period of three months from the end of the month in which such order is passed, the Central Government shall pay to the assessee simple interest at twelve per cent, per annum on the amount of refund due from the date immediately following the expiry of the period of three months aforesaid to the date on which the refund is granted. (1A) Where the whole or any part of the refund referred to in subsection (1) is due to the assessee, as a result of any amount having been paid by him after the 31st day of March, 1975, in pursuance of any order of assessment or penalty and such amount or any part thereof having been found in appeal or other proceeding under this Act to be in excess of the amount which such assessee is liable to pay as tax or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... answered the reference in favour of the assessee. In para. 8 of the judgment the Division Bench held as under: "This view is consistent with the scheme of refund and interest contained in sections 214 and 244 of the Act. The former contemplates interest payable up to the date of the regular assessment while the latter contemplates interest payable during a period after passing of an order in appeal or other proceedings, that is, a future period. To hold that the words 'regular assessment' in section 214 should be understood as meaning only assessment by the Assessing Officer and not as including the order modifying the assessment order by the appellate or revisional authority will lead to absurd results. Take a case where the assessing authority arrives at a correct decision and fixed the taxable income at such an amount as to entitle the assessee to obtain refund of part of the advance tax paid and the order is not interfered with by the appellate or revisional authority. In such a case the assessee would be entitled to interest on the refundable amount till the date of the regular assessment. Take a case where the Assessing Officer by an erroneous view of law or facts holds th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be paid for any period after the date of such provisional assessment. (1A) Where on completion of the regular assessment the amount on which interest was paid under sub-section (1) has been reduced, the interest shall be reduced accordingly and the excess, if any, paid shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly." With effect from April 1,1985, sub-section (1A) was substituted. It reads as follows: "(1A) Where as a result of an order under section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 the amount on which interest was payable under sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced, the Income-tax Officer shall serve on the assessee, a notice of demand in the prescribed form specifying the amount of the excess interest paid and requiring him to pay such amount ; and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly." In the present ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er interest is payable on it under section 214. Interest, if any, on delayed refund is payable under section 243. If a further sum of money becomes refundable as a result of any appellate order, that amount has to be refunded under section 240 and with interest, if any, under section 244. The refund amount is not treated any more in the Act as a portion of the advance tax paid by the assessee. What is refunded pursuant to an appellate order is a portion of what was treated and dealt with as payment of Income tax by the assessee. Its character is in no way different from the tax paid pursuant to notice of demand under section 156 by an assessee. If the assessment order is set aside by a higher authority in its entirety and a direction is given to pass a fresh assessment order, the position would remain the same. There cannot be any question of giving credit for advance tax at the stage of any revised assessment passed in consequence of the order of any higher authority. The underlying idea behind section 243 has been taken to the logical conclusion by section 244(1A) which applies where the assessee pays tax or penalty after March 31,1975, pursuant to an order of assessment or pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was varied subsequent to the first assessment, then the quantum of interest had also to be increased or decreased accordingly. But the period for which the interest had to be paid was not altered by the newly substituted sub-section (1A) of section 214. The apex court in the case of Modi Industries Ltd. [1995] 216 ITR 759 considering the various decisions of the High Courts, true nature of advance tax, the significance of making the interest payable only from the first day of the assessment year, the scheme of the Act and the scope of sections 214 and 244(1A) of the Act, held: "(i) Up to March 31, 1975, interest under section 214 is payable from the first day of April of the relevant assessment year to the date of the first assessment order. The amount on which the interest is to be paid is the amount of advance tax paid in excess of the tax payable by the assessee as calculated in the regular assessment (the first assessment order). The amount on which interest was payable did not vary due to reduction or enhancement of tax as a result of any subsequent proceeding. But with effect from April 1, 1985, while the period for which interest was payable remained constant, the amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other proceeding under this Act, refund of any amount becomes due to the assessee, the Assessing Officer shall, except as otherwise provided in this Act, refund the amount of the assessee without his having to make any claim in that behalf: Provided that where, by the order aforesaid, - (a) an assessment is set aside or cancelled and an order of fresh assessment is directed to be made, the refund, if any, shall become due only on the making of such fresh assessment; (b) the assessment is annulled, the refund shall become due only of the amount, if any, of the tax paid in excess of the tax chargeable on the total income returned by the assessee.' It will also be beneficial to peruse section 244 of the Income-tax Act. It is as follows: '244. (1) Where a refund is due to the assessee in pursuance of an order referred to in section 240 and the Assessing Officer does not grant the refund within a period of three months from the end of the month in which such order is passed, the Central Government shall pay to the assessee simple interest at fifteen per cent, per annum on the amount of refund due from the date immediately following the expiry of the period of three months af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be an assessee. In the present case the DDA was considered to be liable to deduct the tax at source. It failed to do so. Hence, the order under sections 201(1) and 2O1(1A) was passed raising the demand and the amount of tax was paid. The order of refund was passed in the appellate proceedings under the Act attracting section 240 of the Act. Certain decisions were cited at the Bar to show the meaning of the words 'assessee' and 'assessment' and different stages of the assessment proceedings need not be dealt with in view of the clear definition of the word 'assessee' under the Act as quoted above. The High Court has rightly provided in para. 12 of its judgment quoted earlier for applying sub-section (1A) of section 244 of the Act for determining interest for the period covered by the assessment year 1988-89. It is so also for the reason that the amount was paid by way of deductions after March 31, 1975, as provided under sub-section (1A) of section 244 of the Act." In view of the aforesaid enunciation of law the position that emerges is that under section 214 of the Act as it stood in the statute book at the relevant time, the assessee was entitled under section 214 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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