Chetan N. Shah Vs M.K. Moghe (Bombay High Court)
Summary: Bombay High Court held that interest under Section 244A of the Income Tax Act, 1961 is consequential and mandatory once an amount paid as tax is found refundable, and the Revenue cannot deny such interest merely because the excess payment arose from a mistake committed by the assessee. The assessee had originally declared income of Rs.48.24 lakh for AY 1995-96 but subsequently realised that Rs.12.99 lakh had been wrongly offered in that year. Although the revised return could not be entertained because of the bar under Section 139(5), the Commissioner, exercising revisional jurisdiction under Section 264, accepted that Rs.12.99 lakh had been offered in excess and directed refund of the resulting excess tax.
The refund was quantified at Rs.7,50,768, but interest was denied on the ground that the excess tax payment resulted from the assessee’s own mistake. The High Court held that Section 244A gives the Assessing Officer no discretion to reject interest on this ground. The statutory limitation is contained in Section 244A(2), under which only the period of delay attributable to the assessee may be excluded while computing interest. The Act does not provide that a mistake by the assessee extinguishes the right to interest. Referring to CBDT Circular No. 549 dated 31 October 1989 and the Supreme Court ruling in Union of India v. Tata Chemicals Ltd., the Court reiterated that payment of interest on refund is a statutory and non-discretionary obligation.
Since no delay in the revision proceedings was attributed to the assessee, the Court set aside the order insofar as it refused interest and directed the Assessing Officer to calculate and pay interest on Rs.7,50,768 from 3 October 1997, the date of filing the revision application, until the date of refund.
Cases Discussed
Union of India v. Tata Chemicals Ltd. [2014] 363 ITR 658 (Supreme Court) — Relied upon. The Supreme Court held that payment of interest on refund under the Income Tax Act is a statutory and non-discretionary obligation and that money retained by the State without right carries an obligation to recompense the person whose money was used.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
This petition under Article 226 of Constitution of India, is directed against the order dated 9 February 2005 passed by the Commissioner of Income-tax-1 Mumbai, under Section 264 of the Income-tax Act, 1961 (the ‘Act’) to the extent it disallows the Petitioner’s claim for interest on the delayed refund of excess amounts paid as tax.
2. The impugned order dated 9 February 2005, while allowing the Revision Application resulting in reduction of the Petitioner’s income for the Assessment Year (AY) 1995-1996 by Rs.12.99 lakhs directed the refund of excess tax paid. However, Petitioner’s claim for interest on the excess amount paid as tax on the amount of Rs.12.99 lakhs was rejected.
3. On 29 March 1996 the Petitioner filed his Return of Income for AY 1995-1996 declaring a total income of Rs.48.24 lakhs. The same was accepted by the Assessing Officer on 27 September 1996 by intimation under Section 143(1)(a) of the Act.
4. During the scrutiny proceedings under Section 143(3) of the Act for AY 1994-1995, the Petitioner realised that he had offered an income of Rs.12.99 lakhs for AY 1994-1995 by mistake. Therefore the Petitioner filed a revised Return of Income for AY 1994-1995 and 1996-1997 offering additional income of Rs.12.99 lakhs to tax in the above two Assessment years. Consequently, on 27 March 1997, the Petitioner also filed a revised Return of Income for AY 1995-1996 reducing the Income offered to tax by Rs.12.99 lakhs as it was offered and subjected to tax in the other two years. However in view of the bar as provided under Section 139 (5) of the Act, the revised Return of Income for AY 1995-1996 was not accepted by the Assessing Officer.
5. Therefore the Petitioner filed an application for Revision to the Commissioner of Income Tax under Section 264 of the Act in respect of AY 1995-1996. In its Revision application the Petitioner pointed out that the original Return of income filed for the AY 1995-1996, filed on 29 March 1996, he had declared an amount of Rs.12.99 lakhs in excess of the income chargeable to tax. This excess declaration of income was on account of mistake as is evident from the fact that the above amount of Rs.12.99 lakhs was voluntarily subjected to tax in the AY 1994-1995 and 1996-1997.
6. The Commissioner of Income-tax by the impugned order dated 9 February 2005 accepted the Petitioner’s contention that an amount of Rs.12.99 was offered in excess of income chargeable taxable for AY 1995-1996. Consequently, reducing the taxable income for AY 1995-1996 from Rs.48.24 lakhs to Rs.35.25 lakhs and directing the Assessing Officer to rework the tax payable on the aforesaid basis and refund the excess, if any, due to the Petitioner. However, the claim for interest made by the Petitioner on the refund of the excess amount was rejected. This was the ground that the excess amount of tax had been paid by Petitioner on account of his mistake in the original Return of Income filed for AY 1995-1996.
7. On 15 February 2005 consequent to the order dated 9 February 2005 of the Commissioner of Income Tax, the Assessing Officer determined that excess tax paid by the Petitioner at Rs.7,50,768/-. We are informed that thereafter the amount of Rs.7,50,768/- has been refunded to the Petitioner.
8. Mr.Subhash Shetty, learned counsel in support of the Petitioner submits as under :
(a) Section 244A (1) (b) of the Act obliges the Revenue to grant interest on the refund of excess amount paid as tax by an assessee, in this case by the Petitioner for the AY 1995-1996.
(b) It is mandated by Section 244A of the Act, that the Revenue would pay interest on any amount which becomes refundable to the assessee. In this case the impugned order dated 9 February 2005 while granting refund refuses / rejects the claim for interest. The impugned order denies the benefit of interest by importing a concept of denial of intent due to a mistake committed by the assessee while making the payment of tax. Section 244A of the Act does not exclude the grant of interest on account of mistake even if committed by an assessee. It is submitted that if mistake deprives an assessee of interest it would result in no assessee getting any interest on the refund of excess tax paid; and
(c) In any event the issue stands covered in favour of the Petitioner by the decision of the Supreme Court in the case of Union of India v. Tata Chemicals Ltd. – [2014] 363 ITR 658 (SC) and C.B.D.T. Circular No.549 dated 31st October, 1989 which was issued while introducing Section 244A into the Act in 1989.
9. Mr.Shetty learned counsel for the Petitioner states that in this case the Petitioner is claiming interest only for the period from 3 October 1997 i.e. the date of making the Revision Application till the date of payment of Rs.7,50,768/-.
10. As against the above, Mr.Suresh Kumar learned counsel appearing for the Respondents-Revenue submits :
(a) The Petitioner is not entitled to any interest in view of the fact that the revised Return of Income was itself not acceptable due to the bar under Section 139(5) of the Act;
(b) As the Petitioner has himself offered the excess amount of income for purposes of tax albeit by mistake, he cannot claim interest on the same; and
(c) The decision of the Apex Court in the case of Tata Chemicals Ltd. (supra) is completely distinguishable as the amounts were refunded in that case consequent to an order passed in appeal by the Income Tax Appellate Tribunal.
In view of the above, the Revenue prays for dismissal of this petition.
11. Before considering the rival submissions, it would be appropriate to reproduce the relevant provisions of Section 244A of the Act.
“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 [ paid under section 115WJ or] [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 115WE or] 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.
(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) …………….. .
(4) …………….. .”
12. We have considered the rival submissions. It is not disputed that the Assessing officer could not have entertained the revised Return of Income from the AY 1995-96 in view of the bar as provided under Section 139(5) of the Act. Therefore, the Assessing Officer would not be able to examine the claim of the Petitioner that an excess income had been offered to tax in his earlier Return of Income filed for the AY 1995-96. However, once the Petitioner has filed a Revision application to the Commissioner of Income Tax and the same has been considered on merits resulting in a finding in the impugned order that an amount of Rs.12.99 lakhs had been offered as income in excess of that which was attributable to AY 1995-96, the question of interest becomes consequential.
13. The Assessing Officer has been given no discretion in the matter of granting interest. The amount of interest has to be paid to an assessee in terms of Section 244A of the Act. The only limitation provided therein under Section 244A of the Act is under sub-section 2 thereof which mandates that where any refund results to an assessee, while computing the interest payable thereon, the delay which is attributable to the assessee, in obtaining the refund would be excluded. The Act itself does not provide for rejecting the claim for interest on account of a mistake committed by an assessee. If such a proposition is to be accepted then all excess amounts of tax paid by the assessee on account of a mistake would stand rejected rendering Section 244A of the Act otiose. Section 244A of the Act provides for interest on refunds in respect of any amount which has been paid in excess to that otherwise payable under the law. In most cases the excess amount paid as tax would originate on account of some mistake either on fact or of law on the part of the assessee. Advisedly the Act does not empower the authorities to reject a claim for interest on account of a mistake committed by the assessee.
14. The impugned order does not seek to deny any part of interest on account of delay attributed to the Petitioner in disposal of the proceedings. The Petitioner has averred in the petition that though the application for refund was filed on 3 October 1997 the same was disposed of on 9 February 2005 only on account of the file not being located by Revenue. The aforesaid averment has not been challenged / denied by Respondent-Revenue in it’s affidavit in reply or even at the hearing before us.
15. Besides, it is relevant to note that when Section 244A of the Act was introduced, a Circular dated 31 October 1989 was issued by the C.B.D.T wherein it is illustrated that where the refund is granted to an assessee, interest would not be payable only for the period of delay attributable to the assessee. In this case the impugned order does not attribute any delay to the assessee in the proceedings of Revision resulting in the refund. Further the Apex court in Tata Chemicals Ltd. (supra) has held that under the Act interest payment is a statutory obligation and non-discretionary in nature both for the assessee as well as for the Revenue. Further the Apex Court held that :
“Providing for payment of interest in case of refund of amounts paid as tax or deemed tax or advance tax is a method now statutorily adopted by fiscal legislation to ensure that the aforesaid amount of tax which has been duly paid in prescribed time and provisions in that behalf form part of the recovery machinery provided in a taxing Statute. Refund due and payable to the Assessee is debt-owed and payable by the Revenue. The Government, there being no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, cannot shrug off its apparent obligation to reimburse the deductors lawful monies with the accrued interest for the period of undue retention of such monies. The State having received the money without right, and having retained and used it, is bound to make the party good, just as an individual would be under like circumstances. The obligation to refund money received and retained without right implies and carries with it the right to interest. Whenever money has been received by a party which ex ae quo et bono ought to be refunded, the right to interest follows, as a matter of course.” (emphasis supplied)
In the present case there is a statutory obligation to grant interest. However as observed by the Supreme Court in Tata Chemicals Ltd. (supra) even in the absence of a statutory provision the State is bound to recompensate the person whose money it has used.
16. In the above view the impugned order is set aside to the extent it refused to grant interest to the Petitioner on the sum of Rs.7,50,768/- lakhs being the excess amount already refunded by the Revenue to the Petitioner. However as the Petitioner has restricted his claim for interest on refund of Rs.7,50,768/- only from the date of filing the revision application on 3 October 1997 upto the date the refund of Rs.7,50,768/- was granted. We therefore direct the Assessing Officer to work out the interest payable to the Petitioner on Rs.7,50,768/- from 3 October 1997 to the date of refund and pay the same to the Petitioner.
Accordingly petition is allowed in above terms with no order as to costs.
