S.N. Agrawal Vs Union of India (Chhattisgarh High Court)
Summary: The High Court of Chhattisgarh at Bilaspur has held that the petitioners were entitled to interest on income-tax refunds arising from excess self-assessment tax from the date on which the tax was paid, up to 01.06.2016. The Court also noted that interest for the period from 01.06.2016 to 30.07.2018 had already been paid by the Income-Tax Department.
The petitioners had paid self-assessment tax for AY 2009-10 and subsequently succeeded before the Commissioner of Income Tax (Appeals), which held that the land transferred by them did not constitute a capital asset. Consequently, substantial additions were deleted and refunds became payable.
The Court relied upon the principles laid down by the Supreme Court in Union of India v. Tata Chemicals Ltd., 2014 (6) SCC 335, and the Karnataka High Court in Commissioner of Income-Tax v. Vijaya Bank, holding that where excess tax paid by an assessee becomes refundable, interest is payable on such excess payment from the date of payment where the case falls outside the specific situations covered by Section 244A(1)(a).
Facts of the Case
The petitioners had filed their returns for Assessment Year 2009-10 declaring total incomes of Rs.68,27,080/- and Rs.89,40,150/- respectively. They claimed deduction under Chapter VI-A of the Income Tax Act, 1961 and claimed credit for tax deducted at source.
They paid self-assessment tax under Section 140A of the Act amounting to Rs.17,27,000/- and Rs.23,56,000/- respectively on 25.02.2010. Initially, they claimed nominal refunds of Rs.230/- and Rs.110/- respectively.
During assessment proceedings, the Assessing Officer disallowed their claims for exemption under Section 54-B and made additions of Rs.2,01,51,363/- and Rs.1,02,27,293/- respectively.
The petitioners challenged the assessments before the Commissioner of Income Tax (Appeals). By orders dated 31.08.2012, the appellate authority held that the land transferred by the petitioners did not constitute a “capital asset” within the meaning of the Income Tax Act, 1961 and directed exclusion of the gains from their taxable income.
As a result, the taxable income was reduced to Rs.8,88,070/- in WPT No.114 of 2023 and Rs.9,80,885/- in WPT No.115 of 2023.
Although the appellate orders had been passed, the assessed income was not reduced in the departmental records due to inadvertence. The mistake was subsequently rectified under Section 154 by order dated 09.05.2013.
Following the rectification, refunds of Rs.16,09,310/- and Rs.21,64,020/- became payable to the petitioners.
The Department ultimately paid the refund amounts on 30.07.2018. Interest at 6% plus 3% per annum was subsequently paid for the period from 01.06.2016 to 30.07.2018 on 16.06.2020.
Issue
Whether the petitioners were entitled to interest on the refund arising from excess self-assessment tax from the date of payment of such tax, and whether additional interest under Section 244A(1A) was payable in respect of the delayed refund.
Submissions of the Petitioners
The petitioners contended that they were entitled to interest on the refund from the date on which the self-assessment tax was paid.
It was submitted that although the CIT (Appeals) passed orders on 31.08.2012, the orders were given effect to only subsequently and the departmental records were ultimately rectified on 09.05.2013. The refund itself was paid only on 30.07.2018.
The petitioners accordingly claimed interest under Sections 244A and 244A(1A), including interest at 6% plus additional interest at 3% per annum.
Submissions of the Revenue
The Revenue argued that the tax liability had been self-assessed by the petitioners and that, before the amendment introduced by the Finance Act, 2016, Section 244A did not specifically provide for interest on refunds arising from self-assessment tax.
It was contended that the amended provisions could not be applied retrospectively. The Revenue further submitted that the appellate orders had been given effect to and that interest had already been paid for the period from 01.06.2016 to 30.07.2018.
Findings and Legal Reasoning
The Court considered the payments of self-assessment tax of Rs.17,27,000/- and Rs.23,56,000/- and noted that the petitioners subsequently succeeded in appeal concerning the treatment of the transferred land.
The Court reproduced Section 244A, including clause (aa), which specifically provides for interest where the refund is out of tax paid under Section 140A, at the rate of one-half per cent for every month or part of a month for the prescribed period.
The Court also reproduced Section 244A(1A), which provides additional interest at 3% per annum where a refund arises as a result of giving effect to an order under specified provisions including Section 250.
While examining the entitlement to interest, the Court relied upon the judgment of the Supreme Court in Union of India v. Tata Chemicals Ltd., reported in 2014 (6) SCC 335. The Supreme Court had held that a refund becomes due when tax deducted at source, advance tax, self-assessment tax and tax paid on regular assessment exceed the tax chargeable for the year as a result of an order passed in appeal or other proceedings.
The Supreme Court had further held that interest payment is a statutory obligation and non-discretionary in nature and that the statutory scheme recognises the substantive right to interest on refunds.
The Chhattisgarh High Court also relied upon the Karnataka High Court decision in Commissioner of Income-Tax v. Vijaya Bank, IT Appeal No.45 of 2011, decided on 27.07.2011. In that case, the Karnataka High Court held that where an excess payment of tax does not fall under clause (a) or the Explanation to clause (b) of Section 244A, the excess tax is to be refunded with interest from the date of payment of such tax.
Applying these principles, the Chhattisgarh High Court concluded that the petitioners were entitled to the interest component on the refund amount from the date of payment of tax until 01.06.2016.
The Court specifically noted that interest for the period from 01.06.2016 to 30.07.2018 had already been paid by the Department.
Conclusion
The High Court disposed of both writ petitions and directed the respondents to determine the interest payable to the petitioners accordingly and make payment within 60 days.
Thus, on the facts before the Court, the petitioners were held entitled to interest on the refund arising from excess self-assessment tax from the date of payment of the tax up to 01.06.2016, with the later period already covered by interest payment made by the Department.
Cases Discussed
1. Union of India v. Tata Chemicals Ltd., 2014 (6) SCC 335 — Supreme Court held that interest on refundable excess tax is a statutory and non-discretionary obligation and considered the date from which interest becomes payable.
2. Commissioner of Income-Tax v. Vijaya Bank, IT Appeal No.45 of 2011, decided on 27.07.2011 — Karnataka High Court held that excess tax payment falling outside clause (a) and the Explanation to clause (b) of Section 244A is refundable with interest from the date of payment.
FULL TEXT OF THE JUDGMENT/ORDER OF CHHATTISGARH HIGH COURT
1. In both petitions, the petitioners have sought following relief(s) :
“(i) to direct respondent Assessing Officer to determine the amount that becomes due under section 244A of the Act i.e. income-tax and interest thereon.
(ii) to direct grant of interest on the amount that becomes due for the period from 25/02/2010 (the date of payment of tax) to the date on which the refund is granted, at the rate of one half per cent per month or part thereof.
(iii) to direct grant of additional interest as per provisions of section 244A(1A) of the Act for the period from 01/01/2013 (from the end of three months in which order under section 250 was received) to the date on which the refund is granted, at the rate of three per cent per annum or part thereof.
(iv) to direct grant of interest on interest at the same rate as that of interest specified in section 244A (6% per annum) and 244A(1A) (3% per annum) (in aggregate 9% per annum) in compensation of depriving the petitioner of the amount of refund that became due to him under the provisions of the Act.
(v) To pass such other and/or further order and/or orders as the Hon’ble High Court may deem fit and proper in the facts and circumstances of the case.
2. The facts, in brief, are that the petitioners paid self-assessment tax for the assessment year 2009-10 on 26.02.2010, declaring their total income to the tune of Rs.68,27,080/- and Rs.89,40,150/-, respectively, after claiming deduction of Rs.1,00,000/- under Chapter VI-A of the Income Tax Act, 1961 (for short, ‘the Act of 1961’). The returned income comprised income from house property to the tune of Rs.76,097/-, long-term capital gain of Rs.59,39,010/- and Rs.79,59,265/-, respectively, and further income from other sources of Rs.9,11,976/- and Rs.10,04,791/-, respectively. The petitioners claimed credit of tax deducted at source of Rs.86,400/- and Rs.95,780/-, respectively, and paid self-assessment tax to the tune of Rs.17,27,000/- and Rs.23,56,000/-, respectively, under Section 140-A of the Act of 1961 on 25.02.2010. The petitioners claimed nominal refunds of Rs.230/- and Rs.110/-, respectively.
During the course of assessment proceedings, the Assessing Officer examined the petitioners’ claims for exemption under Section 54-B of the Act of 1961 and found the same to be inadmissible, resulting in an addition of Rs.2,01,51,363/- and Rs.1,02,27,293/-, respectively, and, thus, the total income was assessed at Rs.2,69,78,440/- and Rs.1,91,77,440/-, respectively.
The petitioners preferred appeal(s) before the Commissioner of Income Tax (Appeals) and vide order dated 31.08.2012, the Appellate Authority held that the land transferred by the petitioners did not constitute a ‘capital asset’ within the meaning of the Act of 1961 and, accordingly, directed the Assessing Officer to exclude the gains arising from the transfer of such land from the taxable income of the petitioners. Pursuant to the appellate order(s), the taxable income of the petitioners stood reduced to Rs.8,88,070/- and Rs.9,80,885/-, respectively. Though orders were passed by the Appellate Authority but due to inadvertence, the assessed income was not reduced in the records of the department and, subsequently, in accordance with the provisions of Section 154 of the Act of 1961, the mistake was rectified vide order dated 09.05.2013.
3. In WPT No.114 of 2023, the assessed income was reduced from Rs.68,27,080/- to Rs.8,88,070/-, resulting in determination of refund of Rs.16,09,310/-, whereas, in WPT No.115 of 2023, the assessed income was reduced from Rs.89,40,150/- to Rs.9,80,885/-, resulting in determination of refund of Rs.21,64,020/-.
4. Mr. Rao, learned counsel appearing for the petitioners would submit that the petitioners are entitled to interest on the refund amount with effect from the date on which the tax was paid by them. He would further submit that though orders were passed by the CIT (Appeals) on 31.08.2012, same were given effect to on 15.10.2012 and, subsequently, a rectification order was passed on 09.05.2013. He would contend that the refund amount was paid by the department on 30.07.2018. Mr. Rao would further contend that the department has paid interest on the refund amount at the rate of 6% + 3% for the period from 01.06.2016 to 30.07.2018. He would submit that the petitioners are entitled for interest component in accordance with the provisions of Sections 244A and 244A(1A) of the Act of 1961, i.e., at the rate of 6% + 3% from the date tax was paid till date of refund. He would pray to allow both petitions.
5. On the other hand, learned counsel appearing for the respondents would oppose the submissions. Mr. Kumrani would submit that the tax liability was self-assessed by the petitioners and, therefore, they are not entitled to claim interest on the refund. He would contend that, prior to the amendment introduced by the Finance Act, 2016, Section 244A of the Act of 1961 did not contain any provision for grant of interest on refund arising out of self-assessment tax. He would contend that the provisions of Sections 244A and 244A(1A) of the Act of 1961 cannot be given retrospective effect. It is further submitted by Mr. Kumrani that the orders were passed by the CIT (Appeals) on 31.08.2012 and were given effect to on 15.10.2012, and subsequently, a rectification order was passed on 09.05.2013. Therefore, the petitioners cannot claim interest on the refund amount from the date of deposit of the tax. He would further contend that the department has already paid interest on the refund amount for the period from 01.06.2016 to 30.07.2018 and, therefore, both the petitions deserve to be dismissed.
6. Heard the learned counsel appearing for the parties and perused the documents placed on record.
7. In both the cases, the petitioners had paid self-assessment tax to the tune of Rs.17,27,000/- and Rs.23,56,000/-, respectively. The exemption claimed by the petitioners under Section 54-B of the Act of 1961 was disallowed by the Assessing Officer. Subsequently, the petitioners challenged the said orders by filing appeal(s) before the Commissioner of Income Tax (Appeals). Vide order dated 31.08.2012, the Appellate Authority allowed the appeals preferred by the petitioners, holding that the land transferred by the petitioners did not constitute a ‘capital asset’ within the meaning of the Act of 1961 and, accordingly, directed the Assessing Officer to exclude the gains arising from the transfer of such land from the taxable income of the petitioners. Pursuant to the appellate order(s), the taxable income of the petitioners stood reduced to Rs.8,88,070/- and Rs.9,80,885/-, respectively. Though the orders were passed by the Appellate Authority but due to inadvertence, the tax amount was not reduced in the records of the department and, subsequently, in accordance with the provisions of Section 154 of the Act of 1961, the mistake was rectified vide order dated 09.05.2013.
The Finance Act, 2016 introduced an amendment to Section 244A of the Act of 1961, which deals with the payment of interest on refunds arising from self-assessment tax. The department made payment of the refund amount without interest on 30.07.2018. Subsequently, interest on the refund amount for the period from 01.06.2016 to 30.07.2018 at the rate of 6% + 3% per annum was paid to the petitioners on 16.06.2020.
8. Section 244A and Section 244A(1A) of the Act of 1961 are reproduced herein below :
“244A. Interest on refunds. (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,-
(i) from the 1st day of April of the assessment year to the date on which the refund is granted, if the return of income has been furnished on or before the due date specified under sub-section (1) of section 139; or
(ii) from the date of furnishing of return of income to the date on which the refund is granted, in a case not covered under sub-clause (i):
[Provided that where refund arises as a result of an order passed by the Assessing Officer in consequence of an application made by the assessee under sub-section (20) of section 155, 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 date of such application to the date on which the refund is granted;]
(aa) where the refund is out of any tax paid under section 140A, 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 date of furnishing of return of income or payment of tax, whichever is later, to the date on which the refund is granted:
244A(1A) In a case where a refund arises as a result of giving effect to an order under section 250 or section 254 or section 260 or section 262 or section 263 or section 264, wholly or partly, otherwise than by making a fresh assessment or reassessment, the assessee shall be entitled to receive, in addition to the interest payable under sub-section (1), an additional interest on such amount of refund calculated at the rate of three per cent. per annum, for the period beginning from the date following the date of expiry of the time allowed under sub-section (5) of section 153 to the date on which the refund is granted:]
[Provided that where proceedings for assessment or reassessment are pending in respect of an assessee, in computing the period for determining the additional interest payable to such assessee under this sub-section, the period beginning from the date on which such refund is withheld by the Assessing Officer in accordance with and subject to provisions of sub-section (2) of section 245 and ending ‘[with the date up to which such refund is withheld], shall be excluded.
9. The Hon’ble Supreme Court, in the matter of Union of India Vs. Tata Chemicals Ltd., reported in 2014 (6) SCC 335, in paragraph 30, held that the refund becomes due when the tax deducted at source, advance tax paid, self assessment tax paid, and tax paid on regular assessment exceed tax chargeable for the year as a result of an order passed in appeal or other proceedings under the Act. The relevant paragraphs 30 and 39 are reproduced hereinbelow:
“30. The refund becomes due when tax deducted at source, advance tax paid, self assessment tax paid and tax paid on regular assessment exceeds tax chargeable for the year as a result of an order passed in appeal or other proceedings under the Act. When refund is of any advance tax (including tax deducted/collected at source), interest is payable for the period starting from the first day of the assessment year to the date of grant of refund. No interest is, however, payable if the excess payment is less than 10 percent of tax determined under Section 143(1) or on regular assessment. No interest is payable for the period for which the proceedings resulting in the refund are delayed for the reasons attributable to the assessee (wholly or partly). The rate of interest and entitlement to interest on excess tax are determined by the statutory provisions of the Act. Interest payment is a statutory obligation and non- discretionary in nature to the assessee. In tune with the aforesaid general principle, Section 244A is drafted and enacted. The language employed in Section 244A of the Act is clear and plain. It grants substantive right of interest and is not procedural. The principles for grant of interest are the same as under the provisions of Section 244 applicable to assessments before 01.04.1989, albeit with clarity of application as contained in Section 244A.
39. In the present case, it is not in doubt that the payment of tax made by resident/ depositor is in excess and the department chooses to refund the excess payment of tax to the depositor. We have held the interest requires to be paid on such refunds. The catechize is from what date interest is payable, since the present case does not fall either under clause (a) or (b) of Section 244A of the Act. In the absence of an express provision as contained in clause (a), it cannot be said that the interest is payable from the 1st of April of the assessment year. Simultaneously, since the said payment is not made pursuant to a notice issued under Section 156 of the Act, Explanation to clause (b) has no application. In such cases, as the opening words of clause (b) specifically referred to “as in any other case”, the interest is payable from the date of payment of tax. The sequel of our discussion is the resident/deductor is entitled not only the refund of tax deposited under Section 195(2) of the Act, but has to be refunded with interest from the date of payment of such tax.”
10.The High Court of Karnataka in the matter of Commissioner of Income-Tax Vs. Vijaya Bank, passed in IT Appeal No.45 of 2011, decided on 27th July, 2011, while dealing with the similar issue in paragraph 12 & 13 held as under :
“12.Clauses (a) and (b) specifically refer to the instances where interest is paid under the Act. It is not exhaustive. It is possible, in a given case, that after the expiry of the financial year, the assessee may pay tax either along with the self-assessment return or even before the return is filed. If ultimately the said payment is found to be in excess and the Department chooses to refund the said amount, then the question would be, from what date interest is payable since interest is payable on such refunds under section 244A. In the absence of an express proviso as contained in clause (a), it cannot be said that the interest is payable from the Ist of April of the assessment year. At the same time, as the said payment of tax was not made in pursuance of a notice of demand issued under section 156, Explanation to clause (b) has no application. In such cases, as the opening words of clause (b) specifically referred to ‘as in any other case’, the interest is payable from the dates of payment of the tax. As clause (b) expressly provides in any other case the payment of tax subsequent to the First day of April of the assessment year, either before or along with filing of the return would squarely fall under clause (b) and therefore, when the said amount is ordered to be refunded the interest is to be calculated from the date of such payment of tax. Having regard to the scheme of section 244A, and the circular issued by the Board which shows how the Department has understood the section coupled with the fact that the principle underlying the said section is that, any excess payment of tax paid by the assessee is not only to be refunded but it has to be refunded with interest, if the case of the assessee does not fall under clause (a) or the Explanation to clause (b), the excess tax paid shall be refunded with interest from the date of payment of such tax.
13. In the instant case, it is not in dispute that the assessee has paid a sum of Rs. 15.5 crores on 29-6-2002, even before the date of filing of the returns. It is that amount which is ordered to be refunded as excess payment. Though the occasion to order for refund arose after the assessment order in which the payment of tax was adjusted towards the tax liability, the case does not fall under clause (a) or Explanation to clause (b). The said excess payment is to be refunded with interest from the date of payment of such tax, that is from 29-6-2002, till the date of refund. This is precisely what the Appellate Commissioner as well as the Tribunal has said. It is in accordance with law. No illegality nor any case for interference is made out. The substantial question of law is answered in favour of the assessee and against the revenue. Appeal stands dismissed. No costs.”
11. Having considered the facts discussed hereinabove, the orders passed by the CIT (Appeals), and the law laid down by the Hon’ble Supreme Court and the High Court of Karnataka, in the opinion of this Court, the petitioners shall be entitled for interest component on the refund amount from the date of payment of tax till 01.06.2016, only as the interest for the period from 01.06.2016 to 30.07.2018 has already been paid. Accordingly, these petitions are disposed of.
12. The respondents sha0ll determine interest accordingly and make payment within a period of 60 days.
