THE assessee approached CIT(A) in appeal whereby CIT (A) allowed interest on refund of interest paid u/s 243B of the Income Tax Act. And predictably, the Revenue moved Tribunal in appeal against the said order.
The Tribunal observed that :-
• 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:”
• 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 subsection (1) of section 143 or on regular assessment;
• 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 [subsection (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. ”
• 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.
• Clause (a) of sub-section (1) 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 u/s.199 . In this case refund is out of interest paid u/s.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.
• Clause (b) of sub-section (1) of section 244A grants interest in other cases of refund . 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 u/s 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.
• 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.
• 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.
• 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.
• As section 244A 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 u/s 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.
• 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 u/s 234A, 234B, 234C etc. and also on interest due u/s 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.
• The next question is whether the interest paid by the assessee u/s 234B 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.
• 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.
• The expression “tax or penalty” found in the clause (b) in later part of the s. 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 s. 244(1A) of the Act is to find out the date and payment of the excess amount which the assessee paid by way of 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 s. 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 s. 244A(1)(b) of the Act, the expression “tax” would include interest also and the definition of tax in s. 2(43) meaning “income-tax” may not be applicable in the context of s. 244A(1) of the Act. Consequently, the interest paid in pursuance of an order u/s 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 u/s 234B also.
• 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.
