• Jul
  • 26
  • 2012

Interest u/s. 234C cannot be imposed in case of refund of advance tax

IN THE ITAT BANGALORE BENCH ‘A’

DCIT V/s. Mysore Paper Mills Ltd.

IT APPEAL NOS. 352 & 391 (BANG.) OF 2011

[ASSESSMENT YEAR 1996-97]

Date of Pronouncement – 08.06.2012

ORDER

George George K , Judicial Member

These two appeals, one preferred by the revenue and the other by the assessee are directed against the CIT(A)’s order dated 25.11.2010 in relation to assessment year 1996-97.

2. Since these appeals pertain to the same assessee, they are heard together and disposed off by this consolidated order for the sake of convenience.

3. We shall first consider the revenue’s appeal (ITA No.352/2011).

3.1 The revenue has raised five grounds in its memorandum of appeal. The grounds no.1, 4 and 5 are general in nature and no specific adjudication is called for; hence, the same are dismissed.

4. The surviving ground, namely, ground nos.2 and 3 reads as follows:-

2. The CIT(A) erred in deleting the levy of interest under section 234C as the provisions of section 234C envisage calculation of interest with reference to returned income and not the assessed income and alteration of interest under section 234C is not provided in the Act unlike the provisions of section 234B.

3. The CIT(A) erred in directing the Assessing Officer to grant interest under section 244A on refund of self assessment tax when the provisions of section 244A do not explicitly provide for payment of interest on refund of self assessment tax.

5. Brief facts in relation to the above grounds are as follows:-

The assessee is a Government of Karnataka Undertaking, engaged in the manufacture and sale of paper and sugar. For the concerned assessment year, return of income was filed on 2/12/1996 declaring an income of Rs. 15,37,75,610/-. The assessee had TDS credit to the tune of Rs. 84,83,970/-. It had paid advance tax of Rs. 5 crores on 15/12/1995 and self assessment tax under section 140A on 24/6/1996 amounting to Rs. 1,50,00,000/-. Interest under section 234C was also paid to the tune of Rs. 18,64,618/-. The assessment was completed fixing a total income of Rs. 22,25,04,630/- on 30/3/1999. From time to time, the assessment order for the assessment year 1996-97 was modified in order to give effect to the appellate order for the concerned year and also for orders for assessment years 1993-94, 1994-95 and 1995-96. The loss carried forward for assessment years 1993-94 to 1995-96 were set off against the income determined for the assessment year 1996-97 and ultimately, the Assessing Officer passed order giving effect to the order on 3/8/2004 wherein the loss for the concerned assessment year, namely, 1996-97 was determined at Rs. 1,60,82,321/-. As a consequence to the Assessing Officer’s order, the assessee was granted refund of TDS of Rs. 84,83,970/-, interest paid under section 234B, advance tax and tax paid under section 140A of the Act. However, the Assessing Officer in his order dated 3/8/2004 did not refund the interest levied under section 234C amounting to Rs. 80,64,680/-. The Assessing Officer also did not grant interest under section 244A on the self assessment tax paid by the assessee amounting to Rs. 1,50,00,000/- on 24/6/1996.

6. Aggrieved, the assessee filed a Rectification Application contending that the assessee is entitled to refund of the interest under section 234C of the Act and also is entitled to the grant of interest under section 244A of the Act on payment made under section 140A of the Act. The assessee further contended that it is entitled to interest on interest. The Assessing Officer passed order under section 154 of the Act (dated 31st August, 2005) rejecting the plea of the assessee.

7. Aggrieved, the assessee filed appeal before the first appellate authority.

8. The CIT(A) partly allowed the assessee’s appeal by directing the Assessing Officer to refund the interest that was paid under section 234C of the Act. The CIT(A) also held that the assessee is entitled to interest on self assessment tax from 24/6/1996 to 26/6/2000 by taking support of the judgement of the Hon’ble Karnataka High Court in the case of CIT v. N.G.E.F. Ltd. [2000] 244 ITR 665/[2001] 115 Taxman 590. As regards the claim of the assessee with reference to interest on interest, the same was rejected by the CIT(A).

9. The revenue being aggrieved by the CIT(A)’s direction to grant refund of interest paid under section 234C of the Act and also his direction to grant interest under section 244A with reference to self assessment tax under section 140A of the Act from 24/6/1996 to 26/6/2000, is in appeal before us.

10. The learned DR submitted that the provision of section 234C is clear and the section envisages calculation of interest with reference to the ‘returned income’ and not to the ‘assessed income’. With reference to interest granted under section 244A on self assessment tax payment, it was submitted that there is no provision in the Income Tax Act for granting interest under section 244A and hence, the CIT(A) has erred in giving direction to grant interest under section 244A.

11. The learned AR, on the other hand, reiterated the submissions made before the Income Tax authorities and strongly relied on the findings of the CIT(A).

12. We have heard the rival submissions and perused the materials on record. It is an undeniable fact that the original assessment concluded on 31.3.1999 on an income of Rs. 22.25 crores was subjected to modifications consequent on the findings of the appellate authorities and the loss carried forward from the earlier assessment years was set off against the income of the assessee for the AY under dispute. Accordingly, loss of Rs. 1.6 crores was arrived at and the assessee was entitled to receive all the amounts which were earlier paid as per the original assessment order. Consequently, the Revenue had refunded the TDS, advance-tax, interest paid u/s 234B of the Act, but, refused to refund the interest levied u/s 234C of the Act.

12.1 It is pertinent to recall the ground realities that when the assessee had ventured to furnish its return of income for the AY under consideration, its disputes with the Revenue in respect of earlier assessment orders [AY 1993-94, 94-95 and 95-96] were pending under various stages before the appellate authorities. Under peculiar circumstances of the situation, the assessee was obliged to furnish its return of income, admitting, an income of Rs.15.37 crores and, accordingly, fulfilled its tax obligations, such as payments of advance-tax, self-assessment tax, besides dutifully interest u/s 234C of the Act. This act of the assessee exhibits its bona-fide intention towards payment of taxes to Government Exchequer. When the appellate authorities have allowed the assessee’s contention to carry forward the losses for the AYs 1993-94, 94-95 and 95-96 and to set off against the income of the assessee for the AY 1996-97 (under consideration) and while giving effect to such appellate orders, the AO had determined the loss at Rs.1.6 crores (for the AY 1996-97) and, consequently, refunded the entire TDS, advance-tax, self-assessment tax and also interest payment u/s 234B of the Act, but refused to refund the interest levied u/s 234C of the Act.

12.2 It is an undisputable fact that though the AO had concluded the assessment way back in 1999, the assessment reaches its finality in all respects only when the appellate forum decided the issues on such an assessment. In the present case, consequent on the final findings recorded by the appellate authorities, there was no liability to pay tax u/s 207 of the Act for the AY under consideration and, therefore, levy of interest u/s 234C for deferment of advance-tax payable by the assessee does not arise when the income of the assessee had finally been arrived at a loss of Rs. 1.6 crores. Interest paid under section 234C is for deferment of advance tax. When advance tax paid is refunded and also interest paid under section 234B, there is no logic in making the assessee liable for interest under section 234C, namely, for deferment of payment of advance tax.

12.3 Considering the facts and circumstances of the issue, we are of the considered view that the CIT (A) was justified in directing the AO to refund the interest levied u/s 234C of the Act. It is ordered accordingly.

13. The next ground is that the CIT (A)’s direction to the AO to grant interest u/s 244A on refund of self assessment tax.

13.1 It was the contention of the Revenue that when the provisions of s.244A of the Act do not explicitly provide for payment of interest on refund of self-assessment tax, there was no question of grant of interest u/s 244A of the Act. At this juncture, we would like to point out that we have carefully analyzed the wordings of section 244A of the Act which came into force w. e. f. 1.4.1989. For appreciation of facts, we extract the relevant portion of section 244A of the Act as under:

“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…..”

We would like to make it explicit that ‘refund of any amount becomes due to an 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.… .‘ Thus, the assessee is entitled to receive interest on refund which is out of any tax. The interpretation of the Revenue is that interest can be paid only if Act says interest on refund of self-assessment tax. However, section 244A doesn’t distinguish that the assessee shall be entitled to receive interest only on certain refunds such as advance-tax, TDS. The provisions of section are very explicit and categorical that “where refund of any amount, becomes due to the assessee under this Act…..”. There is misconception in the interpretation of the AO that the provisions of s. 244A do not explicitly provide for payment of interest on refund of self assessment tax. If the interpretation of the Revenue were to be taken on its face value, we are apprehensive that it would lead to miscarriage of justice. We are, therefore, in disagreement with the contention put-forth by the Revenue. Moreover, the Hon’ble jurisdictional High Court in the case of N.G.E.F. Ltd.(supra) had categorically held that the assessee is entitled to interest on the self assessment tax paid. We, therefore, sustain the findings of the CIT (A) on this point. It is ordered accordingly.

II. ITA No. 391/B/11 – by the assessee:

14. The lone grievance of the assessee is that the CIT (A) ought to have appreciated that the assessee was entitled to interest on delayed grant of interest on self-assessment tax.

14.1 Briefly, the assessee had, while furnishing its return of income, made payment of self-assessment tax of Rs. 1.5 crores and by virtue of order dated 26.6.2000, the AO had refunded the said sum without allowing interest u/s 244A of the Act. It was the claim of the assessee that interest on such interest from 26.6.2000 till the grant of interest on Rs. 1.5 crores be allowed. Further, it was claimed that the AO, while giving effect to the appellate order, denied refund of Rs. 37,74,420/- which has, however, been rectified vide his order dated 31.8.2005 which is under dispute. It was, therefore, of the assessee’s claim that since the refund of Rs. 37.74 lakhs should have been granted on 3.8.2004 itself, in stead, it was refunded only on 31.8.2005, it was entitled to interest from 3.8.2004 to 31.8.05.

14.2 To support the assessee’s claim, the learned A R relied on the following case laws:

 CIT v. Narendra Doshi [2002] 254 ITR 606/122 Taxman 717 (SC) &

 Sandvik Asia Ltd. v. CIT [2006] 280 ITR 643/150 Taxman 591 (SC)

At this point of time, with due regards, we would like to recollect the ruling of the Hon’ble High Court of Madhya Pradesh in the case of CIT v. H.E.G. Ltd. [2009] 310 ITR 341 which in turn relied on the ruling of the Hon’ble Supreme Court in the case of Sandvik Asia Ltd (supra) on a similar issue. For appreciation of facts, we tend to highlight the relevant portion of the observations of the Hon’ble Court as under:

‘… .that in view of the express provisions of the IT Act, 1961, an assessee was entitled to compensation by way of interest for the delay in the payment of amounts lawfully due to the assessee which were withheld wrongly and contrary to law. The Government was liable to pay interest at the rate applicable to the excess amount refunded to the assessee.’

In view of the aforesaid enunciation of law, we are of the considered opinion that grant of interest on interest is permissible and the change in the provision does not affect the same”

It may not be out of place to mention here that the Hon’ble High Court of M.P had, in fact, analyzed the issue as to whether that assessee H.E.G. Ltd. (supra) was entitled to interest on interest u/s 244A of the Act. However, we find that the issue has not been appropriately addressed to either by the AO or the CIT (A) for that matter. Under the above circumstances and also keeping in view the principles of natural justice and equity, this issue is remitted back to the file of the AO with a specific direction to look into the matter afresh and to take appropriate action in accordance with the provisions of the Act. While doing so, the AO shall keep in view the judicial pronouncements on a similar issue, especially the ruling of the Hon’ble Madhya Pradesh High Court referred supra. It is ordered accordingly.

15. In the result, (i) the Revenue’s appeal is dismissed; & (ii) the assessee’s appeal is allowed for statistical purposes.

Sandeep Kanoi

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