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TMI Blog2006 (11) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The assessee had made payment of Rs. 1,75,85,615, as under:- ----------------------------------------------------------- Sr. Date of payment Amount No. (Rs.) ----------------------------------------------------------- 1. 14-9-1998 - Advance tax 9,50,000 2. 14-12-1998 - Advance tax 6,25,000 3. 13-3-1999 - Advance tax 6,00,000 1. Paid on 25-6-2002 10,00,000 2. Paid on 29-7-2002 10,00,000 3. Paid on 28-8-2005 10,00,000 4. Paid on 28-9-2005 10,00,000 5. Paid on 31-10-2002 50,00,000 6. 14-3-2002 - Adjusted RO of A.Y. 2000-01 22,84,506 7. 21-11-2002 - Adjusted RO of AY. 2001-02 25,94,612 8. 16-9-2002 - Adjusted RO of AY. 1998-99 4,86,370 9. 28-2-2003 - Adjusted RO of AY. 1997-98 32,20,127 ----------------------------------------------------------- Total 1,75,85,615 ----------------------------------------------------------- 5. Before the CIT(A) it was explained that the tax liability was determined at Rs. 52,92,421 and after adjusting the tax deducted at source Rs. 17,67,504 and advance tax of Rs. 21,75,000 and the aforesaid payment of Rs. 1,75,85,615, a refund of Rs. 1,62,35,698 was due to the assessee after adjusting a sum of Rs. 7,15,141 against interest charged under section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings and, therefore, is phrased in terms of 'any amount' becoming due to the assessee. He observed that the Supreme Court has then discussed other decisions of Delhi High Court in the case of CIT v. Goodyear India Ltd. [2001] 249 ITR 527, Madras High Court in the case of CIT v. Needle Industries (P.) Ltd. [1998] 233 ITR 370 and Kerala High Court in the case of CIT v. Ambat Echukutty Menon [1988] 173 ITR 581 and approved the said decisions. He observed that the Supreme Court has also approved the decision in the case of D.J. Works. He observed that the Court has then summarized its verdict in paragraph 38 of the order and held that the assessee would be entitled to refund of interest as held by various High Courts. He also observed that the Court noticed that the Department was following the twin tactic of adjusting tax payments made by assessee first against interest and then against taxes thereby keeping its claim of interest on the unpaid taxes alive. However, when it came to granting refunds, the department would first adjust refund against the taxes and thereby not paying/delaying interest without any fault of the assessee. Thereafter the Supreme Court has gone on further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 1992-93, dated 20-1-2006], (iv) Addl. CIT v. Harsiddh Sp. Family Trust [IT Appeal No. 380 (Ahd.) of 2001 for assessment year 1989-90, dated 13-1-2006] and the decision in the case of (v) Addl. CIT v. Nirma Ltd. [IT Appeal No. 2517 (Ahd.) of 2000 for assessment year 1995-96, dated 30-6-2006], as against the aforesaid decisions of the Tribunal and, therefore, the matter is required to be referred to the Special Bench. In this connection he relied upon the decision of the Supreme Court in the case of Jayaswals Neco Ltd. 2006 (195) ELT 142 and the decision of the Gujarat High Court in the case of Sayaji Iron & Engg. Co. v. CIT[2002] 253 ITR 749. He further submitted that in paragraph 23, the Tribunal has discussed the decisions in Gujarat State Fertilizers & Chemicals Ltd.'s case, and Kaira Distt. Co-operative Milk Producers Union's case, but not the two other decisions. He further submitted that the Supreme Court itself allowed interest on interest under section 244A as referred to in paragraph 28 of its order. He also submitted that the Gujarat High Court in the case of D.J. Works at page 231 held that interest becoming due on refund of tax it takes the character of tax. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial year immediately preceding the assessment year, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period from the 1st day of April of the assessment year to the date on which the refund is granted: Provided that no interest shall be payable if the amount of refund is less than ten per cent of the tax as determined under sub-section (1) of section 143 or on regular assessment; (b) in any other case, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period or periods from the date or, as the case may be, dates of payment of the tax or penalty to the date on which the refund is granted. Explanation.- For the purposes of this clause, 'date of payment of tax or penalty' means the date on and from which the amount of tax or penalty specified in the notice of demand issued under section 156(2). If the proceedings resulting in the refund are delayed for reasons attributable to the assessee, whether wholly or in part, the period of the delay so attributable to him shall be excluded from the period for which interest is payable, and where any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest in other cases of refund. Interest is granted for every month or part of the month comprised in the period from the date or as the case may be, dates of payment of the tax or penalty to the date on which the refund is granted. This clause would, thus, cover refund out of self-assessment tax or the other payments made pursuant to and after assessment. The Explanation provides that the 'date of payment of tax or penalty' means the date on and from which the amount of tax or penalty specified in the notice of demand issued under section 156 is paid in excess of such demand. This clause does not specify as to what are the contents of the refund. It seems to apply to all other cases of refunds, which are not covered by clause (a) of section 244A(1) aforesaid. Here the refund is neutral term and includes every kind of refund, be it of tax or of penalty or of interest becoming due under the Act or of interest paid under section 234A, 234B, or 234C or 220(2) or otherwise. The payment of interest to the assessee on such refund, however, is from the date of payment by the assessee to the date of refund. It, therefore, presupposes a payment by the assessee earlier and that the refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after 31-3-1975, 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 penalty, as the case may be, under this Act, the Central Government shall pay to such assessee simple interest at the rate specified in sub-section (1) on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund is granted: Provided that where the amount so found to be in excess was paid in instalments, such interest shall be payable on the amount of each such instalment or any part of such instalment, which was in excess, from the date on which such instalment was paid to the date on which the refund is granted: Provided further that no interest under this sub-section shall be payable for a period of one month from the date of the passing of the order in appeal or other proceeding: Provided also that where any interest is payable to an assessee under this sub-section, no interest under sub-section (1) shall be payable to him in respect of the amount so found to be in excess. (2) Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent) Act, 1987 with effect from 1-4-1989 and hence, was not applicable to the present case. The High Court has not considered section 240 as it stood then i.e., at the relevant point of time." 18. It is further made clear in paragraph 40 of the judgment by the Supreme Court that there cannot be any doubt that the award of interest on the refunded amount is as per the statute provisions of law as it then stood and on the peculiar facts and circumstances of each case. When a specific provision has been made under the statute, such provision has to govern the field. Therefore, the Court has to take all relevant factors into consideration while awarding the rate of interest on the compensation'. 19. As aforesaid section 244A grants interest only on that amount of refund that is out of the payments of tax or penalty, made by the assessee or collected from him. Here in the present case the assessee had made the payment of interest under section 234B, which was refunded as the same was found to be not chargeable. Therefore, the condition that refund was out of amount paid or collected from the assessee is satisfied for granting the interest. And this fact distinguishes the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to run as it starts from the date of payment of tax or penalty and not otherwise. There is no direct decision on this issue as to whether the interest levied and paid/collected from the assessee is a refund of tax or penalty. There are three decisions, which deal with the issue of refund of paid interest. But they are under the old provisions of section 244 of the Act which were applicable upto assessment year 1988-89. 22. One of them is in the case of Ambat Echukutty Menon's case. In this case for assessment years 1961-62 to 1963-64 interest under section 220 of the Act was levied and collected from the assessee as he failed to comply with the notices issued in pursuance of the decision of the Supreme Court, the amounts become refundable to the assessee. While granting the refund, the Income-tax Officer allowed interest under section 244 of the Act in respect of the amounts representing income-tax and penalty. He did not award interest under section 244 of the Act on that portion of refund which represented interest levied under section 220 of the Act and collected from the assessee. The Income-tax Officer took the view that the words "any amount" occurring in section 240 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 244 of the Act, that refund of the interest collected under section 220(2) is an amount coming within the purview of section 240 and so eligible for the interest contemplated by section 244(1) of the Act." 23. This was a case of interest under section 244(1) for assessment years 1960-61 to 1963-64 when even the provisions of sub-section (1A) was not there in existence. At that time there was no reference of 'tax or penalty' either for eligibility on refund thereof or the starting point for running the interest. It was a case of granting interest on refund on appeal to start running from after the expiry of three months of the order entitling the refund. In these circumstances the Court observed that interest is available on any amount of refund that is given to the assessee under section 240. 24. The second case is in the case or CIT v. Sardar Balwant Singh Gujral [MCC No. 125 (MP) of 1985, dated 18-1-1989] [1990] 86 CTR (MP) 64. In this case, for assessment year 1967-68 the demand of Rs. 52,481 was raised against the assessee including interest under sections 139 and 215 of the Act. This amount was paid by the assessee but as a result of the order passed by the AAC, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal against the order passed by the ITO refusing to grant interest on refund of interest charged under sections 139(8) and 215. The CIT(A) allowed the claim of the assessee. The Tribunal, on an appeal by the revenue, upheld the order of the CIT(A) and held that the assessee was entitled to interest under section 244(1A) in respect of interest collected under sections 139(8) and 215 and refunded under the provisions of the Act. On reference the High Court upheld the order of the Tribunal. The High Court, while construing the expression 'amount' in earlier part of section 244(1A) held that it would refer not only to the tax but also the interest as the expression 'amount' is a neutral expression and it cannot be limited to the tax paid in pursuance of the order of assessment. The High Court held as follows: "...There can be no dispute that the interest paid under sections 139(8) and 215 of the Act was paid in pursuance of an order of assessment. The interest levied may be a statutory levy; it may arise automatically once the default occurs, but still the interest was paid in pursuance of the order of assessment. The calculation of interest under section 139(8) or section 215 depends ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x. The result would be that the assessee is entitled to interest on the interest refunded also. As a matter of fact, in the subsequent order of rectification, the ITO has granted interest on the refunded interest which clearly shows the right thinking of the Department in accepting the position that the assessee would be entitled to interest on the interest refunded. The view of the Tribunal that the assessee would be entitled to interest on the refunded amount of interest levied under sections 139(8) and 215 of the Act is legally sustainable in law." 27. In the above judgment, the Madras High Court has followed the aforesaid judgments in the case of Ambat Echukutty Menon of Kerala High Court and Sardar Balwant Singh Gujral's case of the Madhya Pradesh High Court held that the liability to pay interest is on the amount of refund due and the assessee would be entitled to interest on the amount of refund due which includes interest paid under sections 139(8) and 215 and 220(2) of the Act. While agreeing with the view expressed by the Kerala High Court and the Madhya Pradesh High Court, the Madras High Court held that the expression 'amount' in section 244(1A) of the Act would includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out the date and payment of the excess amount which the assessee paid by way of tax or penalty to start the running of interest and that is the reason the expression 'from the date or, as the case may be, dates of payment tax or penalty' has been employed. To determine the date(s) of payment of the amount section 244A(1) gives emphasis on the amount paid by the assessee in pursuance of an order and that amount, in our opinion, cannot be limited to the amount of tax or penalty, but would encompass the amount of interest paid by the assessee. It seems to be intention of Legislature that the right to interest is to compensate the assessee for the excess payment during the intervening period when the assessee did not have the benefit of use of such money paid in whatsoever character. A literal meaning given to the expression, 'tax or penalty' found in clause (b) of the later part of section 244A(1) of the Act, would create an anomalous situation resulting in exclusion of the concept of the interest. In our opinion, therefore, in the context of section 244A(1)(b) of the Act, the expression 'tax' would include interest also and the definition of tax in section 2(43) meaning 'income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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