Income Tax Appellate Tribunal - Ahmedabad
The Asstt. Commissioner Of Income-Tax vs Alembic Glass Industries Limited on 10 November, 2006
Equivalent citations: [2008]111ITD320(AHD)
ORDER
R.P. Garg, Vice President
1. This appeal by the Revenue is directed against order of the CIT(A)-I, Baroda, for assessment year 1999-2000, allowing interest on refund of interest paid Under Section234B of the Act.
2. The assessee made an application Under Section 154 requesting interalia that while giving effect to the order of the CIT(A) dated 22.6.2004, a short allowance of interest Under Section 244A of Rs.6,49,545 was made.
3. The Assessing Officer held that the assessee claimed interest Under Section244A of Rs. 15,85,352 instead of Rs.9,35,807 and the difference was because the interest claimed on refund out of interest payment Under Sections.234B and 234C of Rs.55,64,829. He held that interest is payable only on the excess payment of tax and penalty Under Section 244A, and therefore, rejected the contention of the assessee. The assessee carried the matter in appeal.
4. The assessee had made payment of Rs.l,75,85,615, as under:
Sr. Date of payment Amount
No. (Rs.)
1. I 14.09.98-Advance tax 9,50,000
2. 14.12.98-Advance tax 6,25,000
3. 13.03.99-Advance tax 6,00,000
1. Paid on 25.06.02 10,00,000
2. Paid on 29.07.02 10,00,000
3. Paid on 28.08.05 10,00,000
4. Paid on 28.09.05 10,00,000
5. Paid on 31.10.02 50,00,000
6. 14.03.02-Adjusted RO of A.Y. 22, 84,506
2000-2001
7. 21.11.02 - Adjusted RO of A.Y. 25,94,612
2001-02
8. 16.09.02 - Adjusted RO of A.Y. 4,86,370
1998-99
9. 28.02.03 - Adjusted RO of A.Y. 32,20,127
1997-98
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 234B; that there was a reduction of liability of interest Under Section 234B on which interest Under Section 244A was claimed by the assessee by contending that once the liability along with interest Under Section 234B is crystallized then it is the final amount of refund due which would be eligible for interest; that interest charged Under Section 234B on crystallization of final tax demand became refundable and like any tax paid in excess of final tax demand, it become excess tax paid and would be eligible to interest Under Section 244A; that the assessee has paid all the amounts only towards tax liability, but the Assessing Officer has adjusted the said taxes paid, firstly to interest liability Under Section 234B and then towards tax liability; and that on fmalization of tax demand, the Assessing Officer has denied the interest Under Section 244A on the reasoning that it is refund of interest and hence not eligible for interest Under Section 244A which had caused grave injustice to the assessee resulting in a short refund of interest Under Section 244A. Reliance was placed on the Gujarat High Court decisions in the case of D.J. Works v. DCIT 195 ITR 227, Chimanlal S. Patel v. CIT 210 ITR 419, CIT v. Gujarat State Warehousing Corporation 256 ITR 596 and Ahmedabad Tribunal decision in the case of Dhanvi Trading & Investment P. Ltd. v. AO 72 ITD 245 and the order in the case of GSFC Ltd for Asst. Year 1990-91.
6. The CIT (A) referred to the decision of Supreme Court in the case of Sandvik Asia 200 CTR 505 wherein hosts of decisions including the decision of Gujarat High Court in the case of D.J. Works (supra) and Supreme Court decision in the case of Narendra Doshi 254 ITR 606 were considered. The Supreme Court, according to him, distinguished between initial stage of proceedings under the Act dealt with by Section 237 and subsequent stage of procedure dealt with by Section 240. He observed that the Supreme Court has categorically stated at the initial stage of proceedings under the Act, the refund will depend on the excess of tax paid by the assessee hence Section 237 refers to the excess of tax. However, Section 240 deals with refund by Revenue on appeal etc., which concerns with all subsequent stages of proceedings 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 Goodyear India Ltd. 249 ITR 527, Madras High Court in the case of Needle Industries P. Ltd. 233 ITR 370 and Kerala High Court in the case of Ambat Echukuty Memon 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 (supra) 195 ITR 227 (Guj.). 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 in this case to award compensation on the delayed grant of refund over and above the interest Under Section 244/244A. He ultimately in paragraphs 23 and 24 held as under:
23. I have gone through the submissions made by the appellant and the relevant case law on the subject. A perusal of the Apex court decision in Sandvik Asia Ltd. as well as the direct decision of the Gujarat High Court and other High Courts which have been approved by the Hon'ble Supreme Court the issue is now beyond and shade of doubt that the Assessee would be entitled to interest Under Section 244/244A on the refund of interest paid in excess by it pursuant to an appeal proceeding. Although the Hon 'ble Supreme Court has considered and approved most of decisions cited therein which were dealing with interest Under Section 214, the interest Under Section 234B is also on similar lines.
24. Following the ratio of the decision of the Hon'ble Supreme Court, it is held that the appellant is entitled to interest on refund of interest payment under Section 234B after verifying all the payments. The Assessing Officer is directed to grant refund accordingly.
7. The Ld. CIT DR, Shri N.S. Dayam, relied heavily upon the recent decision of Ahmedabad Tribunal in the case of GSFC Limited in ITA No. 2348 and 2349/Ahd/2004 for Asst. Year 1995-96 order dated 31st July, 2006, wherein after considering the decision of the Supreme Court in the case of Sandvik Asia Ltd. (supra) it was held that the said decision was not be applicable from Asst. Year 1989-90 onwards. It is submitted that the case before Supreme Court was for granting of interest under general law or was Under Section 244, whereas in the present case Section 244A is the subject matter of consideration which came with effect from 1.4.1989. It is differently worded and therefore a decision arrived at on the construction of Section 244 would not govern the case Under Section 244 A of the Act.
8. The learned Counsel of the assessee, Shri S.N. Soparkar, on the other hand submitted that there are five orders in favour of the assessee, (i) ACIT v. Kaira Dist. Co.op. Milk Producers Union Ltd. ITA No. 2101 & 2102/Ahd/95 order dated 26.02.2001, (ii) ACIT v. Gujarat State Fertilizer & Chemicals Ltd. ITA Nos. 1736 & 1737/Ahd/2005 for Asst.Year 1990-91 and 1991-92 order dated 12.09.2005, (iii) ACIT v. Gujarat State Fertilizers & Chemicals Ltd. ITA No. 1890/Ahd/2005 for Asst.Year 1992-93 order dated 20.01.2006, (iv) Addl.CIT v. Harsiddh Sp. Family Trust ITA No. 380/Ahd/2001 for Asst.Year 1989-90 order dated 13.01.2006, and the decision in the case of (v) Addl. CIT v. Nirma Limited ITA No. 2517/Ahd/2000 for Asst.Year 1995-96 order dated 30th June, 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) E.L.T. 142 (S.C) and the decision of the Gujarat High Court in the case of Sayaji Iron And Engg. Co. v. CIT 253 ITR 749. He further submitted that in paragraph 23, the Tribunal has discussed the decisions in ITA No. 1890/Ahd/2005, 1736 and 1737/Ahd/2005 and Kaira Dist. Co. op. Milk Producers Union in ITA No. 2101-02/Ahd/95 dated 26.2.2001, 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 (supra) at page 231 held that interest becoming due on refund of tax it takes the character of tax. The fact that the Gujarat High Court decision was a case of writ is of no consequence, because once a law is laid, Tribunal has to implement the said law as held by the Gujarat High Court in the case of CIT v. Maganlal Mohanlal Panchal (HUF) 210 ITR 580. He further submitted that the Delhi High Court decision in the case of Goodyear India Ltd. (supra) was under the scheme of the Act, which was upheld by the Supreme Court. He then referred to in paragraph 20 of the Tribunal order in the case of G.S.F.C. (supra) and submitted that it is contrary to the Gujarat High Court decision.
9. The learned CIT D.R., in counter reply submitted that the three Tribunal decisions have already been considered by the Tribunal and the two decisions now cited additionally in this case fell on the similar line, and therefore, the matter is concluded by the decision of GSFC (supra) and does not require any reference to the Special Bench and the Revenue's appeal is to be allowed on the basis thereof.
10. We have heard the parties and considered their rival submissions. In our opinion none of the case referred to by the parties have any bearing in this case. The cases referred to are all on the issue whether the interest is can be granted on interest due, accrued and payable to the assessee Under Section 244A/244/214 of the Act, whereas in the present case, the question is whether the assessee is entitled to interest on refund of interest charged Under Section 234B of the Act which was paid by the assessee and on appeal that interest was found not chargeable and thus became refundable to the assessee. We therefore do not find it necessary either to consider the matter as fit to be referred to the Special Bench or to discuss the larger question of granting interest on interest due and payable to the assessee on excess payment of tax or penalty.
11. The section with which we are concerned in this appeal is Section 244A and that is for the sake of convenience is extracted below:
244A. (1) Where refund of any amount becomes due to the assessee under this Act, he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely:-
(a) where the refund is out of any tax collected at source under Section 206C or paid by way of advance tax or treated as paid under Section 199, during the 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 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 question arises as to the period to be excluded, it shall be decided by the Chief Commissioner or Commissioner whose decision thereon shall be final.
(3) Where, as a result of an order under [Sub-section (3) of Section 143 or Section 144 or 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 or an order of the Settlement Commission under Sub-section (4) of Section 245D, 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 Assessing 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.
(4) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989, and subsequent assessment years.
12. The opening sentence of the section starts with the words refund of any amount becomes due to the assessee under this Act', and it entitles an assessee to interest on such refund in addition to that amount. On a close reading of the provisions of Section 244A thereafter we find that the interest is granted in certain conditions and circumstances. Clause (a) of Sub-section (1) grants interest to the assessee on that amount of refund which is Out of the tax collected at source Under Section 206C or paid by the assessee by way of advance tax or treated as paid under Section 199 during the Financial Year preceding the Assessment Year and it is to be calculated for every month or part of the month from the 1st day of April of the Assessment Year to that date on which the refund is granted. Apparently this clause is not applicable in the present case as refund is not from any tax collected or deducted at source or treated as payment of tax Under Section 199. In this case refund is out of interest paid Under Section 234B and not out of tax collected or deducted at source or as treated to have been paid u/199 of the Act. Therefore, Clause (a) of Section 244A(1) would not apply.
13. Clause (b) of Sub-section (1) of Section 244A grants 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 include 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 refund. It, therefore, presupposes a payment by the assessee earlier and that the refund to the assessee is out of that. In absence of any payment thereof the starting point of running of meter of interest would be absent. It was in these circumstances it was held in GSFC's case (supra) that though the term refund may include the interest due to an assessee under the Act, the assessee would not be entitle to interest on late payment thereof because it was not out of any payment by the assessee.
14. Sub-section (2) of this section provides that if the delay is attributable to the assessee, interest to that extent is not to be paid. Sub-section (3) of this Section 244A provides that where as a result of an order of assessment, rectification, appeal or revision or settlement, amount on which interest was payable has been increased or decreased, the interest is to be increased or decreased accordingly. Here also increase or decrease is of the amount on which interest was payable i.e., of the refund out of tax paid or collected from the assessee.
15. Earlier Section 244 provided for interest on refund of amount due and granted to the assessee in pursuance of an order on appeal or other proceedings and if the AO did not grant the same within three months from the end of the month of such order, the interest was to be paid from the date immediately following the expiry of the three months period aforesaid, in which the order was passed. Sub-section (1A) instead provides for interest from the date of payment of the amount, if the amount was paid by the assessee after 31-3-1975. This section was applicable upto AY 1988-89 and was subject matter of consideration before the courts in various cases including the Supreme Court decision in Sanvik Asia (supra). It reads as under:
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 aforesaid to the date on which the refund is granted.
IA) Where the whole or any part of the refund referred to in Sub-section (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 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) Where a refund is withheld under the provisions of Section 241, the Central Government shall pay interest at the aforesaid rate on the amount of refund ultimately determined to be due as a result of the appeal or further proceeding for the period commencing after the expiry of [three months from the end of the month in which the order referred to in Section 241 is passed] to the date the refund is granted.
(3) The provisions of this section shall not apply in respect of any assessment for the assessment year commencing on the 1st day of April, 1989, or any subsequent assessment years.
16. On a comparative study of the provisions of Section 244 as were in force upto the AY 1988-89 and the provisions of 244A applicable from AY 1989-90 onwards and with which we are concerned in this case, we find that there is a marked difference in the language used in these two provisions. In Section 244 the interest was to be granted on any refund of 'the amount' becoming due on appeal or other proceedings. On the contrary Section 244A provides for the interest on refund of any amount out of the payments made by the assessee. See under Clause (a) of the Sub-section (1) it is on 'the amount of refund out of any tax paid by or collected from the assessee. Similar is the position under Clause (b) which grants interest in other cases. It is on refund of tax paid and from the date of payment of tax or penalty paid in excess of the tax demanded.
17. While disapproving the Bombay High Court decision, the Supreme court in the case of Sanvik Asia (supra) made it clear that the provisions as were introduced with effect from 1 -4-1989 were not applicable in earlier years by observing in paragraph 12 as under:
12. We have given our anxious and thoughtful consideration on the elaborate submissions made by counsel appearing on either side. In our opinion, the High Court has failed to notice that in view of the express provisions of the Act an assessee is entitled to compensation by way of interest on the delay in the payment of amounts lawfully due to the appellant which were withheld wrongly and contrary to the law by the Department for an inordinate long period of upto 17 years. The High Court, in our opinion, has unnecessarily made the judgment a bulky one by considering various provisions of the Act and, in particular, Section 240 which was inserted by Direct Tax Laws (Amendment) Act, 1987 w.e.f 1st April, 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 244 A 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 from that of GSFC Limited dated 31-07-2006 where the refund was of the amount due and accrued to an assessee Under Section 244A from the Department as interest on refund of some other tax paid by it and not out of any payment by the assessee.
20. The term "refund" has not been defined under the said Act. The dictionary meaning thereof, as appearing in the Advanced Law Lexicon is that "to repay; to give back; to restore; reimburse... to make return or restitution of a sum received or taken; to hand back, repay, restore" In New Lexicon Webster's Dictionary it is "to pay back (money spent) : to reimburse (some one) : to make repayment", whereas in terms of the Shorter Oxford English Dictionary, it means, "to give, restore, to make return or restitution of (sum received or taken), to hand back, retake, restore, to reimburse". Considering these dictionary meanings of the word "refund", it can be said that it is an act of repayment or reimbursement of what one has paid earlier. This test is satisfied in this case. The term "refund of any amount" in Section 240 and 244 has been held to include the refund due to an assessee though not necessarily out of the payments made by the assessee. The opening words of Section 244A use the same language as was in Section 244 effective upto 1988-89, namely " Where refund of any amount becomes due to the assessee under this Act". This may give an impression that here also interest available to an assessee is included in the term 'refund' and the assessee would be entitled to interest on such interest paid Under Section 234A, 234B, 234C etc. and also on interest due Under Section 244A, if it were not paid on the due date. But this is subject to the provisions of the section and the assessee would be entitled to receive simple interest calculated in the manner as provided in Clauses (a) and (b) thereof.
21. The next question is whether the interest paid by the assessee Under Section 23 4B was or has to be taken a payment of tax or penalty for granting interest under Clause (b) of Section 244A(1)? Clause (b) as such nowhere says that the refund has to be out of tax or penalty paid by the assessee. But it is implicit from the fact that the interest under this clause is to run from the date of payments of tax or penalty by the assessee. If therefore the assessee had made no payment as tax or penalty the interest cannot have basis 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 AY 1988-89.
22. One of them is in the case of CIT v. Ambat Echukutty Menon) 173 ITR 581 (Ker). In this case for Assessment Years 1961-62 toi 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 the Act could only refer to tax and penalty levied. The Appellate Assistant Commissioner was, however, of the view that the refund referred to in Section 240 of the Act is "of any amount that had become due to the assessee" and so would include the interest under Section 220 of the Act as well, which became refundable by virtue of the proviso to Section 220(2) of the Act. The Tribunal upheld the order of the CIT (A) and held that the refund of interest Under Section 220 of the Act is "an amount" which comes within the purview of Section 240 and, therefore, eligible for the interest contemplated by Section 244(1) of the Act. The Revenue filed Reference Application before the Kerala High Court and the Court upheld the order of the Tribunal by observing as under:
It is common ground that the amount collected by the Revenue included also interest levied and collected under Section 220 of the Act. The amounts became refundable to the assessee as a result of the order passed by the Supreme Court. The refund of the amounts was made to the assessee in consequence of such an order passed by the court. That was done under Section 240 of the Act. It cannot be disputed that income-tax, penalty and interest collected became refundable to the assessee. Whenever refund of any amount becomes due to the assessee and it is not granted within a particular period, Section 244 mandates payment of interest. Section 240 of the Income-tax Act is a general section which envisages refund of any amount that becomes due to the assessee. It will take within its fold even interest levied and collected under Section 220(2) of the Act. Section 244(1) makes a reference to Section 240 and states that when a refund is due to the assessee in pursuance of an order referred to under Section 240, interest shall be paid to the assessee by the Central Government at a certain percentage. There is no express or implied prohibition in Section 244 of the Act that interest shall not be paid on interest collected under Section 220(2) of the Act. If the interest collected under Section 220(2) of the Act also becomes refundable along with other amounts on the passing of an order in appeal and Section 240 envisages refund of such amount, the interest refunded is also eligible to interest under Section 244 of the Act. The Appellate Tribunal was justified in holding, on a reference to Sections 220(2), 240 and 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 1960-61to 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 illigiblity 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 of CIT v. Sardar Balwant Singh Gujral 86 CTR 64. In this case, for AY 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 assessee became entitled to refund of Rs. 22,525 and further refund consequent to the Tribunal order Rs. 17,508. The assessee claimed interest on the refund of these two amounts. But the Assessing Officer, however, allowed interest on the excess amount of tax only. The AAC affirmed his order. But the Tribunal in further appeal held that interest on the entire amount of refund had to be paid to the assessee Under Section 244(1) of the Act. The matter carried in Reference to the High Court and the High Court upheld the order of the Tribunal by observing in paragraph 4, as under:
4. Section 240 of the Act provided that where as a result of any order passed in appeal or other proceeding under this Act, refund of any amount becomes due to the assessee, the ITO shall, except as otherwise provided in this Act refund the amount to the assessee without his having to make any claim in that behalf. Sub-section (1) of Section 244 of the Act further provides that where a refund is due to the assessee in pursuance of an order referred to in Section 240 and the ITO 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 on the amount of refund due at the specified rate. The liability to pay interest is, therefore, on the amount of refund due. In the instant case, the Tribunal has found that the amount of refund due was Rs. 40,033. Under the circumstances, the Tribunal was justified in directing the ITO to allow interest on the entire amount of Rs. 40,033.
25. This case is also like that of a case before Kerala High Court excepting the fact that in the former case referred was interest charged Under Section 220(2) whereas in this later case it was of interest paid Under Section 139 & 215 of the Act. Both are of interest on interest Under Section 240(1) of the Act.
26. The third case is in the case of CIT v. Needle Industries (P) Ltd. 233 ITR 370 (Mad). In this case before Madras High court, the original assessment for the asst. yr. 1974-75 was completed on 29th Aug., 1977 and the order of assessment was the subject-matter of appeal before the appellate authority and the Tribunal. The Tribunal ordered refund. The ITO allowed interest under Section 244(1A) partly and declined to grant interest on refund of interest paid under Sections 139(8) and 215. The assessee filed an appeal against the order passed by the ITO refusing to grant interest on refund of interest charged Under Section 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(1 A) 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 upon the date on which the return was furnished or the date of completion of assessment. Though these amounts paid by the assessee are statutory levies, they were paid by the assessee in pursuance of the order of assessment.
Further, the expression, "amount" in the earlier part of the Section 244(1 A) would refer to not only the tax but also the interest and the expression "amount" is a neutral expression and it cannot be limited to the tax paid in pursuance of the order of assessment. We are of the opinion that the expression "tax or penalty" found in the later part of the Section 244(1 A) would not qualify or restrict the scope of the expression "amount" found in the earlier part to mean only "tax or penalty" As already seen, the function of the later part of Section 244(1 A) of the Act is to find out the excess of the amount which the assessee paid by way of tax or penalty and that is the reason the expression "tax or penalty" has been employed. However, to determine the amount on which the Revenue is liable to pay interest, Section 244(1A) sives emphasis on the amount paid by the assessee in pursuance of the order of assessment and the amount, in our opinion, cannot be limited to the amount of tax or penalty, but would encompass the amount of interest paid by the assess (assessee). The clear intention of Parliament is that the right to interest will 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. In addition, if a literal meaning is given to the expression, "tax" found in the later part of Section 244(1A) of the Act, it will create an anomalous situation resulting in exclusion of the concept of the interest. In our opinion, the word "tax" in the later part of Section 244(1A) has to be construed in the light of the expression "amount" found in the earlier part of Section 244(1 A) of the Act to include the amount of interest paid by the assessee. Therefore, in the context of Section 244(1A) of the Act, the expression "tax", in our opinion, would include interest also and the definition of tax in Section 2(43) meaning "income-tax" cannot be applied in the context of Section 244(1A) of the Act. Consequently, the interest paid in pursuance of the order of assessment has to be regarded as forming part of income-tax or an adjunct to income-tax. 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 inlaw.
(Underlining by us)
27. In the above judgment, the Madras High Court has followed the aforesaid judgments in the case of CIT v. Ambat Echukutty Menon (supra) of Kerala High Court and CIT v. Sardar Balwant Singh Gujral 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 include the amount of interest levied and paid under Sections 139(8) and 215 of the Act and collected in pursuance of an order of assessment which was refunded as the expression "amount" is a neutral expression and it cannot be limited to the tax paid in pursuance of the order of assessment.
28. The court also held that the expression "tax or penalty" found in the later part of the Section 244(1A) would not qualify or restrict the scope of the expression "amount" found in the earlier part to mean only "tax or penalty". It is stated that the function of the later part of Section 244(1A) of the Act is to find out the excess of the amount which the assessee paid by way of tax or penalty and that is the reason the expression "tax or penalty" has been employed. However, to determine the amount on which the Revenue is liable to pay interest, Section 244(1A) gives emphasis on the amount paid by the assessee in pursuance of the order of assessment and the 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. The clear intention of Parliament is that the right to interest will 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. In addition, if a literal meaning is given to the expression, "tax" found in the later part of Section 244(1A) of the Act, it would create an anomalous situation resulting in exclusion of the concept of the interest. In opinion of their lordship, therefore, in the context of Section 244(1A) of the Act, the expression "tax" would include interest also and the definition of tax in Section 2(43) meaning "income-tax" cannot be applied in the context of Section 244(1A) of the Act. Consequently, the interest paid in pursuance of the order of assessment has to be regarded as forming part of tax or an adjunct to income-tax. The result would be that the assessee is entitled to interest on the interest refunded also.
29. On a parity of reasoning the expression "tax or penalty" found in the Clause (b) in later part of the Section 244A(1) would not qualify or restrict the scope of the expression "amount" found in the opening part of the section to mean only "tax or penalty". The function of the Clause (b) of later part of Section 244(1 A) of the Act is to find out the date and payment of the excess amount which the assessee paid by way or 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" may not be applicable in the context of Section 244A(1) of the Act. Consequently, the interest paid in pursuance of an order Under Section 234B has to be regarded as forming part of tax or an adjunct to income tax. The result would be that the assessee is entitled to interest on the refund of interest paid Under Section 234B also. The decision of GSFC (supra) as aforesaid would have no application as in that case there was no payment at all by the assessee and therefore, it was held that even if the term refund included interest due, the interest could not run in absence of date of payment by the assessee and the assessee was not entitled to interest. Here in this case, the refund is out of payments made by the assessee, Clause (b) of Sub-section (1) of Section 244A would be workable as the date of payment by the assessee of the amount refunded is known with which the interest is to run.
30. In view of the above, we uphold the order of the CIT (A) though for different reasons as aforesaid.
31. In the result the appeal is dismissed.
This order pronounced in the open court on 10th November, 2006.