Madras High Court
Tamilnadu Industrial Investment ... vs Deputy Commissioner Of Income-Tax on 15 July, 2004
Equivalent citations: (2004)192CTR(MAD)521, [2004]270ITR566(MAD)
JUDGMENT N.V. Balasubramanian, J.
1. This is an appeal preferred by the assessee against the order of the Income-tax Appellate Tribunal/ Madras "A" Bench (hereinafter referred to as "the Appellate Tribunal"), dated April 12, 2001, made in I. T, A. No. 1992/Mds. of 1991 under section 260A of the Income-tax Act, 1961.
The assessment year involved is 1985-86. The assessment for the assessment year 1985-86 was completed under section 143(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), and after the completion of the assessment proceedings, the Assessing Officer found that the appellant had received a sum of Rs. 4,09,344 by way of interest under section 214 of the Act for the assessment year 1981-82 by order dated September 6,1984. The Assessing Officer was of the view that the interest received by the assessee is an income of the assessee chargeable to tax which had escaped assessment and reopened the assessment earlier made under section 143(1) of the Act and assessed the interest income received by the assessee and revised the assessment. The Commissioner of Income-tax (Appeals), on appeal, held that the receipt by the assessee of interest under section 214 of the Act would constitute income in the hands of the assessee and since it was received by the asses-see during the previous year relevant to the assessment year 1985-86, the Assessing Officer was justified in assessing the income in the assessment year in question. The assessee carried the matter in appeal before the Appellate Tribunal. A difference of opinion arose between the two learned members of the Appellate Tribunal who heard the appeal as the learned Accountant Member of the Appellate Tribunal held that the interest received by the assessee under section 214 of the Act was income in nature as it accrued in the previous year relevant to the assessment year 1985-86 and it was rightly assessed for the assessment year 1985-86, whereas the learned Judicial Member took a different view and held that though interest received under section 214 of the Act was income in nature, the question whether it is liable to be taxed in the year 1985-86 would depend upon the final outcome of the appeal filed against the order of assessment for the assessment year 1981-82 and hence, he remanded the matter with a direction to the first appellate authority to await the decision on the appeal preferred against the order of assessment for the assessment year 1981-82, Since there was a difference of opinion between the two learned members of the Appellate Tribunal, the matter was referred to a third member. The learned Third Member held that the interest quantified and paid would retain the character of income and it was assessable as revenue receipt in the year of payment by the Department. He agreed with the view of the learned Accountant Member and held that the interest received by the asses-see under section 214 of the Act was an income for the assessment year 1985-86. He also gave a direction that in case the assessee repays the excess interest received, that would be allowed as a deduction under section 37 of the Act in the year in which the assessee is called upon to repay and made such repayment. It is against the order of the Appellate Tribunal, the assessee has preferred the appeal. This court admitted the appeal on the following substantial question of law :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest received by the appellant was income liable to be assessed to tax for the assessment year 1985-86?"
Mr. P. P. S. Janarthana Raja, learned counsel for the assessee, submitted that the assessment for the assessment year 1981-82 did not attain its finality as appeal against the assessment order was pending on the file of the Appellate Tribunal on the date when the refund was granted, and therefore the interest was not income in the hands of the assessee till finality was reached in respect of the assessment for the assessment year 1981-82 as the question whether there was any payment of excess advance tax would depend upon the final outcome of the assessment which attained finality only in the year 1995-96. He therefore submitted that the interest received by the assessee was not income in nature on the date when it was granted and received as the assessment proceedings for the assessment year 1981-82 had not reached finality.
Mr. Nareshkumar, learned junior standing counsel for the Department, on the other hand, submitted that the interest paid under section 214 of the Act is of income nature and there was no condition attached to the grant of refund and the interest income accrued during the previous year relevant to the assessment year in question and therefore the order of the Appellate Tribunal does not call for any interference. Section 214 of the Act provides for interest payable by the Central Government on the excess amount of advance tax paid during the financial year. This court in B. Seshamma v. CIT [1979] 119 ITR 314 held that there is no distinction between the interest paid under section 237 read with section 243 of the Act and the interest paid under section 214 of the Act and the interest cannot be construed to be a capital receipt and the interest was paid under a statutory obligation with reference to the amount refundable and it is an income assessable under the head "Other sources". This court further held that the interest is not paid as personal compensation, but it is paid for deprivation of the use of the money. It has been held by the Patna High Court in CIT v. Maharajadhiraj Sir Kameshwar Singh (No. 2) [1953] 23 ITR 212 and Raja Bahadur Vishweshwara Singh v. CIT [1954] 26 ITR 573 (Patna) that the interest on advance payment of tax is neither a capital receipt nor a casual receipt and is liable to be included in the assessee's total income for the purpose of being taxed. The Karnataka High Court in CIT v. Syndicate Bank [1986] 159 ITR 464 has held that the amount is a revenue receipt and it is taxable in the year in which it was granted. Following the decisions of this court, the Patna High Court and the Karnataka High Court, we hold that the interest granted under section 214 of the Act by the Central Government on the excess amount of advance tax paid by the assessee is liable to be taxed as income of the assessee as it is a revenue receipt and it is neither a capital receipt, nor a casual receipt. We hold that the Appellate Tribunal was correct in holding that the receipt of interest is of income nature.
The next question that arises for consideration is in which year the interest is liable to be taxed. We are of the view that though the interest was paid with reference to the excess advance tax paid during the previous year relevant to the assessment year 1981-82, the interest was granted only during the previous year relevant to the assessment year 1985-86 as the assessee was granted the interest under section 214 of the Act by order dated September 6, 1984. Since the right to income accrued during the previous year relevant to the assessment year 1985-86, we hold that the interest income is assessable in the assessment year 1985-86.
We are fortified by the view taken by the Allahabad High Court in J. K. Spinning and Weaving Mills Co. v. Addl. CIT [1976] 104 ITR 695 where the Allahabad High Court has taken a view that interest would be taxable in the year in which the right to receive the interest accrued though it was not actually received. The Karnataka High Court in Syndicate Bank's case [1986] 159 ITR 464 has also taken the same view. We are of the view that so far as the assessee is concerned, the right to receive the interest under section 214 of the Act accrued on September 6, 1984, when the assessee was granted interest in the previous year relevant to the assessment year 1985-86, The next submission of Mr. P. P. S. Janarthana Raja, learned counsel for the assessee, is that the assessment proceedings for 1981-82 had not reached finality when the interest was received and the assessment proceedings for 1981" 82 reached finality in the year 1994-95 long after the assessment year 1985-86 and hence, the interest income is not taxable in 1985-86. Learned counsel, in his fairness, relied upon the decision of the Supreme Court in K. C. P. Ltd. v. CIT [2000] 245 ITR 421.
We have carefully considered the submissions of Mr. P. P. S, Janarthana Raja, learned counsel for the assessee. We are of the view that the decision of the Supreme Court in K. C. P. Ltd.'s case [2000] 245 ITR 421 really supports the case of the Revenue, The interest granted on the excess advance tax paid by the assessee was received by the assessee without any condition attached to it to refund the same, nor there was a liability to refund the same. Though the assessment proceedings for the year 1981-82 was the subject matter of appeal, the amount of interest was quantified and was granted and also was received by the assessee, and it is a pure revenue receipt during the previous year relevant to the assessment year 1985-86 and we are of the view that it does not make any difference as to the nature, quality and content of the receipt merely because the assessee had challenged the order of assessment for the assessment year 1981-82. We are of the view that the mere fact that the assessee challenged the order of assessment for the year 1981-82 would not have any bearing as to the nature of receipt of interest on excess advance tax paid and even if the appeal filed by the assessee for the assessment year 1981-82 fails, there would not be any liability on the part of the assessee to refund any part of the amount received by the assessee. We therefore hold that the Appellate Tribunal was correct in holding that the amount received by the assessee as interest under section 214 of the Act is of income nature and assessable in the year in which the right to the income has accrued.
The Appellate Tribunal has also given a further direction following the decision of the Karnataka High Court in Syndicate Bank's case [1986] 159 ITR 464 to the effect that if the assessee is called upon to repay excess interest received, that would be allowed to the assessee as a deduction under section 37 of the Act in the year in which the assessee is called upon to repay on the ground that the interest repaid by the assessee would be an allowable expenditure as revenue expenditure under section 37 of the Act. We are of the view that to get over such difficulty, the Legislature should step in and make a suitable provision in the Income-tax Act providing for reduction of the amount of income in the year of receipt so that there may not be any difficulty in the administration of tax law and the assessee is also not required to pay more tax than that is due by him. We find that the Legislature has made a provision in section 41(2) of the Act in the case of transfer of capital assets to recapture the depreciation granted on the transfer of assets and on the same analogy, we are of the view that it would be better to introduce a provision empowering the officer to suitably amend the order of assessment in case the assesses is required to pay back the refund amount within a specific period from the date of repayment of excess interest refunded by the assessee which will obviate the difficulty faced by the assessee and which will bring in fairness in the administration of tax law.
We answer the question of law framed against the assessee and dismiss the tax case appeal. However, in the circumstances, there will be no order as to costs.