Case Law Details
DCIT Vs Savita Oil Technologies Ltd. (ITAT Mumbai)
A careful look at sub-section (1) of section 244A would reveal that it has three parts. The first part deals with the entitlement of a person to interest whenever he is due to get a refund from the Department. The second part relates to the method of computation of such interest. There are two methods of computation of interest, one provided in clause (a) and another provided in clause (b). In the first method of computation, the liability of the Department to pay interest, starts only from the first day of April of the assessment year, if the liability to refund arises out of section 115 WJ or 206 or 199. The liability to pay interest commences from the date of payment of tax or penalty, under clause (b), in cases not covered by clause (a).
There is no dispute about the fact that the case of the appellant does not fall under section 115WJ or 206 or 199. Therefore, it would, naturally, fall under the residuary provision in clause (b) of clause 1 of section 244A.
Unfortunately, the Tribunal proceeded on the footing that since the refund to which the assessee was entitled had been paid before the completion of assessment, the assessee may not be entitled to interest under section 244A.
But, as we have pointed out, the entitlement of a person to interest on the refund arises out of substantive part of sub-section (1) of section 244A. Clauses (a) and (b) relate only to the method of computation. The method of computation dealt with by clause (a) relates to specific cases of refund under certain provisions. Therefore, the starting point for calculation of the interest is fixed as 1st April in clause (a). Clause (b) is a residuary clause, as could be seen from the usage of the expression “in any other case”. Therefore, the starting point for the computation of interest under clause (b) is the date of payment. The provisions under section 244A do not distinguish the cases where payment is made on assessment under section 140A. The explanation to section 244A does not really talk about the entitlement or disentitlement. The explanation, which we have extracted above, would show that the expression “date of payment of tax or penalty” means the date on and from which the amount of taxes or penalty specified in the notice of demand issued under section 156 is paid in excess.
The above explanation does not give room for an interpretation that if a person has paid money otherwise than by way of demand under section 156, he is not entitled to interest on refund under section 244A. The explanation cannot, really, curtail the method of computation prescribed in clause (b) or the substantive part of section 244A. Therefore, the question of law is answered in favour of the assessee.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal, filed by Revenue , being ITA No. 7620/Mum/2016, is directed against appellate order dated 16.09.2016 passed by learned Commissioner of Income Tax (Appeals)-50, Mumbai (hereinafter called “the CIT(A)”) in Appeal No. CIT(A)-50/IT-248/2015-16, for assessment year(AY) 2010-11, the appellate proceedings had arisen before learned CIT(A) from the order dated 29.06.2015 passed by learned Assessing Officer (hereinafter called “the AO”) giving effect to the appellate order of learned CIT(A) in appeal no. CIT(A)-50/IT-631/2013-14 for AY 2010-11.
2. The grounds of appeal raised by Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:-
“1) “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to grant interest u/s.244A , without appreciating the fact that the same is beyond the preview of the provisions enshrined in the Income-tax Act.”
2) “On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the assessee is eligible to receive interest u/s.244A relying on the submissions made by the appellant without calculating the interest, if any , payable as per the provisions of the Income-tax Act”
The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.
The appellant craves leave to amend or alter any ground and/or add new grounds which may be necessary.”
3. A question which has arisen in this appeal for our adjudication is as to whether the assessee based on the facts and circumstances of the case is entitled for interest u/s 244A of the Income-tax Act,1961 ( hereinafter called “the Act”) on the refund payable to the assessee arising out of self assessment tax paid in excess than the tax due by the assessee The interest on refund so quantified u/s 244A of the 1961 Act by learned CIT(A) in its appellate order dated 16.09.2016 at page 1 is Rs. 65,04,559/- payable to the assessee on refund due to the assessee arising out of self assessment tax paid in excess than tax due by the assessee. The AO , however, did not granted any interest on refund due to the assessee on account of self assessment tax paid in excess than tax due by the assessee. The relevant assessment yearbefore us is AY 2010-11 , while Section 244A of the 1961 Act was brought into statute by Direct Tax Laws(Amendment) Act , 1989 , w.e.f. 01.04.1989. As we will see later in this order, the issue is contentious as Courts have interpreted this issue differently , so much so Hon’ble Supreme Court has set aside the matter to Hon’ble Delhi High Court in the case of Engineers India Limited v. CIT reported in (2017) 397 ITR 16(SC) to be decided by larger Bench as Hon’ble Delhi High Court has taken a view in favour of Revenue in the case of CIT v. Engineers India Limited reported in (2015) 373 ITR 377(Del) as against its earlier decision in the case of CIT v. Sutlej Industries Limited (2010) 325 ITR 331(Del) wherein view in favour of the tax-payer was taken by Hon’ble Delhi High Court. The Hon’ble Delhi High Court in the later case of Sutlej Industries Limited v.CIT reported in (2016) 67 taxmann.com 76(Delhi) noted the conflicting decisions of its own court and referred the matter to Larger Bench of three judges to be constituted by Hon’ble Chief Justice of Delhi High Court. Further, in the case of CIT v. Rajaratna Mills Limited reported in (2016) 241 Taxman 313(SC), the Hon’ble Supreme Court has admitted Special leave Petition(SLP). The Hon’ble Bombay High Court in the case of Stock Holding Corporation of India Limited v. CIT reported in (2015) 373 ITR 282(Bom.) has decided this issue in favour of the tax-payer by holding that interest on refund will be payable u/s 244A(1)(b) of the 1961 Act on refund arising out of excess self assessment tax paid u/s 140A of the 1961 Act which shall be payable from the date of payment of self assessment tax till the date of grant of refund to the taxpayer . We are bound by the decision of Hon’ble jurisdictional High Court which we will Respectfully follow as we will see later in this order and relief to the assessee will be granted vide this order. Incidentally Hon’ble Delhi High Court decided this issue in favour of Revenue in the case of CIT v. Engineers India Limited(supra) after duly considering the decision of Hon’ble Bombay High Court in the case of Stock Holding Corporation Limited(supra) and took a view in favour of Revenue by holding that Hon’ble Bombay High Court did not notice the clarification given by Hon’ble Apex Court in the case of CIT v. Gujarat Flouro Chemicals 2013 (296) ELT 433(SC): (2013) 358 ITR 291(SC).
3.2 The brief facts of the case are that the assessee has filed its return of income with Revenue on 24.09.2010 , declaring total income of Rs. 102,50,48,112/- . The return of income was processed by Revenue on 05.03.2012 u/s. 143(1) of the Act determining refund due to assessee of Rs. 1,09,84,740/-. The case was selected for framing scrutiny assessment u/s 143(3) read with Section 143(2) of the 1961 Act. The assessee revised its return of income declaring total income of Rs. 102,56,82,471/-. The AO framed assessment u/s 143(3) vide order dated 30.03.2013 assessing total income at Rs. 109,31,57,263/- under normal provisions of the 1961 Act while book profit was computed u/s 115JB at Rs. 130,76,03,940/- . The income was later revised by the AO to Rs. 108,07,80,966/- to correct mistakes apparent from records u/s 154 of the 1961 Act vide order dated 10.06.2014. The assessee had filed an appeal with learned CIT(A) challenging additions made by the AO while framing scrutiny assessment and learned CIT(A) was pleased to grant relief to the assessee vide appellate order dated 28.02.2015 in Appeal No. CIT(A)-50/IT-631/2013-14 . The AO was pleased to pass an order dated 29.06.2015 giving effect to the appellate order dated 28.02.2015 passed by learned CIT(A), wherein the income computed was Rs. 1,01,85,84,082/- after taking into effect relief granted by learned CIT(A). The assessee was granted further refund of Rs. 1,70,84,640/- vide order dated 29.06.2015. Thus, the total refund which stood granted to the assessee was Rs. 2,80,69,376/- ( Rs. 1,09,84,740/- vide order u/s 143(1) and Rs. 1,70,84,640/- vide order dated 29.06.2015 giving appeal effect to learned CIT(A) appellate order dated 28.02.2015 . No interest u/s. 244A of the Act was allowed to the assessee by the AO while granting aforesaid refunds aggregating to Rs. 2,80,69,376/- to the assessee, while learned CIT(A) has held in favour of the assessee and interest u/s 244A was granted vide clause (b) to sub-section 1 to Section 244A of the 1961 Act.
4.The non granting of the interest u/s 244A of the 1961 Act on the aforesaid refund arising out of self assessment tax paid in excess of tax due was challenged by assessee before learned CIT(A). The working of the gross demand of taxes , payment of taxes by the assessee and refund due to the assessee are detailed here under:
( In Rs.)
| TDS | (A) | 9,29,646 |
| Advance tax | (B) | 28,85,00,000 |
| Self Assessment Tax | (A) | 6,38,21,500 |
| Taxes Paid (Gross) | (C) = (A)+(B)+(C) |
35,32,51,146 |
| Gross demand as per order dated 29. 06. 2015 | (D) | 32,51,81,770 |
| Amount by which Taxes Paid (Gross) exceeds Gross demand as per order dated 29.06. 2015 | (F)=(D)-(E) | 2,80,69,376 |
| Refund already granted to the appellant u/s 143(1) on | (G) | 1,09,84,736 |
| Excess Tax paid net of refund already issued | (F)-(G) | 1,70,84,640 |
4.2 The learned CIT(A) was pleased to allow interest u/s 244A(1)(b) of the 1961 Act on refund granted to the assessee , vide appellate order dated 16.09.2016 passed by learned CIT(A), by holding as under:
“ 5.1 Ordinarily, interest is payable to the assessee on amount refunded. Payment of such refund is governed by section 244A of the Act. For this purpose, the cases where refund becomes due have been divided into two categories:
Category 1: These are cases where the refund is out of any tax paid u/s 115WJ or collected at source u/s 206C or paid by way of advance tax or treated as being u/s 199, during the financial year. They are covered by clause (a) of sec. 244A.
Category 2: These are cases which do not fall under category 1. They are covered by (b) which is the residual clause.
5.2 In cases under category 1, interest u/s 244A is payable if and only if it is not covered by the proviso to clause (a) of sec. 244A. In category 2 cases, however, interest is payable in all cases.
The present case is not covered by clause (a) because aggregate of payments made through the modes of payments mentioned in that clause was less than the tax liabilities determined. Therefore, it is covered by clause (b) which is the residual clause.
5.4 In cases covered by clause (b) interest is payable for each month or part of the month comprised in the period or periods from the day or, as the case may be, dates of payment of the tax or penalty to the day on which the refund is granted. Therefore, the appellant is entitled to receive interest u/s 244A. The AO is directed to grant interest u/s 244A as under:
(i) interest on Rs. 1,09,84,736/- for the period from date of payment of Self Assessment Tax to the date of intimation u/s 143(1) and
(ii) interest on Rs, 1,70,84,640 for the period from date of payment of Self Assessment Tax to 29.06.2015.”
Thus, the Ld. CIT(A) held that clause (b) to sub-section 1 to Section 244A of the 1961 Act is applicable in the instant case and hence the assessee is entitled for interest on the refund due to assessee on excess of self assessment tax paid over the tax due from the assessee, as detailed above .
5. The Revenue being aggrieved by the appellate order dated 16.09.2016 passed by learned CIT(A) and has filed an appeal before the tribunal. It is contended by Ld. DR that interest is not allowable to the assessee u/s 244A of the 1961 Act on refund due out of self assessment tax paid by the assessee. While on the other hand the Ld. Counsel for the assessee has contended before the Bench that the assessee is entitled for interest u/s 244A on refund due to the assessee and amendment in 244A by insertion of clause (aa) to 244A(1) was by Finance Act 2016, w.e.f. 01.06.2016.
6. We have considered rival contentions and perused the material on record. We have observed that the assessee has filed its return of income with Revenue on 24.09.2010 , declaring total income of Rs. 102,50,48,112/- . The return of income was processed by Revenue on 05.03.2012 u/s. 143(1) of the Act determining refund due to assessee of Rs. 1,09,84,740/-. The case was selected for framing scrutiny assessment u/s 143(3) read with Section 143(2) of the 1961 Act. The assessee revised its return of income declaring total income of Rs. 102,56,82,471/-. The AO framed assessment u/s 143(3) vide order dated 30.03.2013 assessing total income at Rs. 109,31,57,263/- under normal provisions of the 1961 Act while book profits were computed u/s 115JB of Rs. 130,76,03,940/- . The income was later revised by the AO to Rs. 108,07,80,966/- to correct mistakes apparent from records u/s 154 of the 1961 Act vide order dated 10.06.2014. The assessee had filed an appeal with learned CIT(A) challenging additions made by the AO while framing scrutiny assessment and learned CIT(A) was pleased to grant relief to the assessee vide appellate order dated 28.02.2015 in Appeal No. CIT(A)-50/IT-631/2013-14 . The AO was pleased to pass an order dated 29.06.2015 giving effect to the appellate order dated 28.02.2015 passed by learned CIT(A), wherein the income determined by the AO was Rs. 1,01,85,84,082/- after taking into effect relief granted by learned CIT(A). The assessee was granted further refund of Rs. 1,70,84,640/- vide order dated 29.06.2015. Thus, the total refund which stood granted to the assessee was Rs. 2,80,69,376/- ( Rs. 1,09,84,740/- vide order u/s 143(1) and Rs. 1,70,84,640/- vide order dated 29.06.2015) . No interest u/s. 244A of the Act was allowed to the assessee by the AO while granting aforesaid refunds aggregating to Rs. 2,80,69,376/- to the assessee. The details of the total taxes payable by the assessee, the taxes paid by the assessee and refund due to the assessee are as under:
( In Rs.)
| TDS | (A) | 9,29,646 |
| Advance tax | (B) | 28,85,00,000 |
| Self Assessment Tax | (A) | 6,38,21,500 |
| Taxes Paid (Gross) | (C) = (A)+(B)+(C) |
35,32,51,146 |
| Gross demand as per order dated 29. 06. 2015 | (D) | 32,51,81,770 |
| Amount by which Taxes Paid (Gross) exceeds Gross demand as per order dated 29.06. 2015 | (F)=(D)-(E) | 2,80,69,376 |
| Refund already granted to the appellant u/s 143(1) on | (G) | 1,09,84,736 |
| Excess Tax paid net of refund already issued | (F)-(G) | 1,70,84,640 |
6.2 Thus , as can be seen from above chart that the assessee has paid an self assessment tax of Rs. 6,38,21,500/- , while the total refund due to the assessee was Rs. 2,80,69,376/- ( Rs. 1,09,84,740/- vide order u/s 143(1) and Rs. 1,70,84,640/- vide order dated 29.06.2015) and hence it could be said that the refund has fallen due to the assessee mainly on account of self assessment tax which was paid by the assesssee.There is no dispute between rival parties that refund has become due to the assessee owing to excess self assessment tax paid by the assessee.
6.3 At this stage , it is important to refer to the provisions of Section 244A as it appeared in the statute for AY 2010-11 which is relevant, which is reproduced here under:
“Interest on refunds.
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.
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 under section 156 is paid in excess of such demand.
(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 [sub-section (3) of section 115WE or section 115WF or section 115WG or] [sub-section (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 :]
[Provided that in respect of assessment of fringe benefits, the provisions of this sub-section shall have effect as if for the figures “1989”, the figures “2006” had been substituted.]”.
6.4 We have also observed that there is an amendment in Section 244A of the 1961 Act by Finance Act 2016 w.e.f. 01.06.2016 and the amended Section 244A is reproduced here under:
[Interest on refunds.
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 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);
(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:
Provided that no interest under clause (a) or clause (aa) 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 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.
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 under section 156 is paid in excess of such demand.
[ (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. ]
(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 [under sub-sections (1) or (1A)], and where any question arises as to the period to be excluded, it shall be decided by the Principal Chief Commissioner or] Chief Commissioner or Principal Commissioner or] Commissioner whose decision thereon shall be final.
(3) Where, as a result of an order under [sub-section (3) of section 115WE or section 115WF or section 115WG or] [sub-section (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 :]
Provided that in respect of assessment of fringe benefits, the provisions of this sub-section shall have effect as if for the figures “1989”, the figures “2006” had been substituted.]”
6.5 Thus, it could be seen that specific provision is inserted vide clause(aa) to Section 244A(1) to deal with interest on refunds arising out of excess self assessment tax paid u/s 140A of the 1961 Act. The said clause (aa) is added to sub-section 1 to Section 244A by Finance Act, 2016 w.e.f. 01.06.2016.
6.6 We have observed that Hon’ble Delhi High Court has in CIT v. Sutlej Industries Limited reported in (2010) 325 ITR 331(Delhi) vide judgment dated 15.03.2010 has held that interest on refund arising out self assessment tax paid u/s 140A in excess of tax due shall be governed by clause (b) to sub-section (1) to Section 244A of the 1961 Act and shall be payable from the date of payment of self assessment tax till the date of grant of refund. The Hon’ble Delhi High Court relied upon decision of Hon’ble Madras High Court in the case of CIT v. Cholamandalam Investment & Finance Company Limited reported in (2007) 294 ITR 438(Mad.) , judgment dated 06.06.2007 to decide the issue in favour of tax-payer, wherein Hon’ble Delhi High Court held as under:
“This appeal was admitted on the following substantial question of law:
“Whether section 244(1)(b ) read with Explanation thereto excludes payment of interest on refund of self-Assessment Tax ?”
2. Since it is a pure question of law, the learned counsel for the parties advanced arguments finally. They wanted sometime to file the written synopsis of their submissions as well, for which one week time was granted.
3. For answering the aforesaid question following brief facts are adumbrated :
(a)The respondent-assessee had for the assessment year 1998-99, in addition to TDS and advance tax, also paid self-assessment tax under section 140A of the Income-tax Act, 1961 (in short ‘the Act’).
(b)On 24-4-2002 an order was framed under section 250/143(3) of the Act whereby a refund of Rs. 66,90,474, earlier paid as self-assessment tax by the assessee, was made. The respondent-assessee claimed interest on the amount refunded which was not allowed by the Assessing Officer.
(c)The respondent-assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals) [CIT(A)] claiming interest on the entire amount of refund including the amount paid on self-assessment. The CIT(A) vide order dated 9-7-2003 found that the plea of the respondent-assessee was not tenable and consequently confirmed the order of the Assessing Officer.
(d) Vide the impugned order dated 29-10-2004 the Income-tax Appellate Tribunal (in short ‘the Tribunal’) allowed the appeal of the assessee and set aside the order of the CIT(A) relying upon the decision of the Supreme Court in the case of Modi Industries Ltd. v. CIT[1995] 216 ITR 759 . The Tribunal, consequently, held that the respondent-assessee would be entitled to interest on refund relating to payment under section 140A also from the date of payment till the date of granting the refund.
(e)Aggrieved by the impugned order dated 29-10-2004 rendered by the Tribunal, the Revenue has preferred the present appeal.
4. Before the insertion of section 244A as a composite section by the Direct Tax Laws (Amendment) Act, 1987, the liability to pay interest on refund of pre-paid taxes was contained in section 214 read with section 244(1A) of the Act, which read as follows:—
“Section 214(1): The Central Government shall pay simple interest at fifteen per cent per annum on the amount by which the aggregate sum of any instalments of advance tax paid during any financial year in which they are payable under sections 207 to 213 exceeds the amount of the assessed tax from the 1st day of April next following the said financial year to the date of the regular assessment for the assessment year immediately following the said financial year, and where any such instalment is paid after the expiry of the financial year, during which it is payable by reason of the provisions of section 213, interest as aforesaid shall also be payable on that instalment from the date of its payment to the date of regular assessment :
Provided that in respect of any amount refunded on a provisional assessment under section 141A, no interest shall be paid for any period after the date of such provisional assessment.
(1A) Where as a result of an order under 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 payable 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.
(2) On any portion of such amount which is refunded under this Chapter, interest shall be payable only up to the date on which the refund was made.
** ** **
Section 244(1): Where a refund is due to the assessee in pursuance of an order referred to in section 240 and the Assessing Officer does not grant the refund within a period of three months from the end of the month in which such order is passed, the Central Government shall pay to the assessee simple interest at fifteen per cent per annum on the amount of refund due from the date immediately following the expiry of the period of three months aforesaid to the date on which the refund is granted.
(1A) Where the whole or any part of the refund referred to in sub-section (1) is due to the assessee, as a result of any amount having been paid by him after the 31st day of March, 1975, in pursuance of any order of assessment or penalty and such amount or any part thereof having been found in appeal or other proceeding under this Act to be in excess of the amount which such assessee is liable to pay as tax or penalty, as the case may be, under this Act, the Central Government shall pay to such assessee simple interest at the rate specified in sub-section (1) on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund is granted:”
5. The Supreme Court had occasion to interpret the provisions of the sections aforementioned in the case of Modi Industries Ltd. (supra). The Supreme Court in that case held that the assessee was entitled to interest under the aforesaid sections on refund of pre-paid taxes (advance tax, TDS etc.) from the first day of the assessment year and in the case of self-assessment tax from the date of payment of self-assessment tax till the date of grant of refund. The Supreme Court concluded as under:—
“(i )Up to March 31, 1975, interest under section 214 is payable from the first day of April of the relevant assessment year to the date of the first assessment order. The amount on which the interest is to be paid is the amount of advance tax paid in excess of the tax payable by the assessee as calculated in the regular assessment (the first assessment order). The amount on which interest was payable did not vary due to the reduction or enhancement of tax as a result of any subsequent proceeding. But with effect from April 1, 1985 while the period for which interest was payable remained constant, the amount on which the interest was payable, varied with the variation in the quantum of refund as a result of any subsequent orders.
(ii)If any tax is paid pursuant to an assessment order after March 31, 1975 (which will include tax deducted at source and advance tax to the extent the same has been retained and treated by the Income-tax Officer as payment of tax in discharge of the assessee’s tax liability in the assessment order), becomes refundable wholly or in part as a result of any appellate or other order passed, the Central Government will have to pay the assessee interest on the refundable amount under section 244(1A). For the purpose of this section, the amount of advance payment of tax and the amount of tax deducted at source must be treated as payment of income-tax pursuant to an order of assessment on and from the date when these amounts were set off against the tax demand raised in the assessment order, in other words the date of the assessment order.
(iii)With effect from April 1, 1985, interest payable under section 214 will increase or decrease in accordance with the variation in the quantum of the excess payment of tax brought about by orders passed subsequent to the regular assessment as mentioned in sub-section (1A).”
6. The provisions of section 244A read as follows:
“(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.
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 under section 156 is paid in excess of such demand. . . .”
7. Vide Circular No. 549, dated 31st October, 1989 the Central Board of Direct Taxes (CBDT) explained the rationale of sections 214, 243 and 244. The said Circular No. 549 reads as follows:—
“11.2 Insertion of a new section 244A in lieu of sections 214, 243 and 244.—Under the provisions of section 214, interest was payable to the assessee on any excess advance tax paid by him in a financial year from the 1st day of April next following the said financial year to the date of regular assessment. In case the refund was not granted within three months from the end of the month in which the regular assessment was completed, section 243 provided for further payment of interest. Under section 244, interest was payable to the assessee for delay in payment of refund as a result of an order passed in appeal, etc., from the date following after the expiry of three months from the end of the month in which such order was passed to the date on which refund was granted. The rate of interest under all the three sections was 15 per cent per annum.
11.3 These provisions, apart from being complicated, left certain gaps for which interest was not paid by the Department to the assessee for money remaining with the Government. To remove this inequity, as also to simplify the provisions in this regard, the Amending Act, 1987, has inserted a new section 244A in the Income-tax Act, applicable from the assessment year 1989-90 and onwards which contains all the provisions for payment of interest by the Department for delay in the grant of refunds. The rate of interest has been increased from the earlier 15 per cent per annum to 1.5 per cent per month or part of a month comprised in the period of delay in the grant of refund. The Amending Act, 1987, has also amended sections 214, 243 and 244 to provide that the provisions of these sections shall not apply to the assessment year 1989-90 or any subsequent assessment years.”
8. In the case of Sandvik Asia Ltd. v. CIT[2006] 280 ITR 643 , the Supreme Court held as under:—
“In view of the expressed provisions of the Income-tax Act, 1961, an assessee is entitled to compensation by way of interest for the delay in the payment of amounts lawfully due to the assessee which are withheld wrongly and contrary to law.
The Government is liable to pay interest, at the rate applicable to the excess amount refunded to the assessee,. . . .”
9. In the case of CIT v. Cholamandalam Investment & Finance Co. Ltd.[2007] 294 ITR 438 , the Madras High Court dealt with the question of whether the assessee is entitled to interest under section 244A as per clause (1)(b) of that section, when the refund arises on account of payment of self-assessment tax. The Madras High Court observed as under:
“6. Even though the short title to section 140A reads as self-assessment, the charging phraseemployed in section 140A namely “Where any tax is payable on the basis of any return required to be furnished under section 115WD or section 115WH or section 139 or section 142 or section 148 or section 153A, as the case may be; the assessee shall be liable to pay such tax together with interest payable under any provision of this Act for any delay in furnishing the return”, makes it clear that there is no difference between :
(i )the tax paid under section 115WJ, which deals with advance tax in respect of fringe benefits; or
(ii )the tax collected at source under section 206C; or
(iii)any tax paid by way of advance tax or any tax treated as paid under section 199, which deals with credit for tax deducted, which are provided under section 244A(1)(a)
7. The proviso to section 244A(1)(a) makes it clear that (i) no interest shall be payable if the amount of refund is less than 10 per cent on regular assessment with regard to the refund of advance tax paid under section 115WJ in respect of fringe benefits; (ii) tax collected at source under section 206C; and (iii) advance tax or any tax treated as paid under section 199. But, with respect to other tax as per section 244A(1)(b), the interest shall be payable even if the amount is less than 10 per cent of the tax as determined under section 143(1) or on the regular assessment, because there is no proviso to section 244A(1)(b) as provided under section 244A(1)(a).”
The Madras High Court further observed:—
“It is also trite law that wherever the assessee is entitled to refund, there is a statutory liability on the Revenue to pay the interest on such refund on general principles to pay the interest on sums wrongfully retained (reference Sandvik Asia Ltd.).”
10. The Supreme Court dismissed the Special Leave Petition (SLP) No. 16877/2008 filed by the Revenue against the decision in Cholamandalam Investment & Finance Co. Ltd.’s case (supra ), vide order dated 3-12-2009. The Supreme Court has also, recently, in the case of CIT v. H.E.G. Ltd. [Civil Appeal No. 8176/2009, Civil Appeal No. 8177 and 8187/2009, S.L.P. (C) No. 34268/2009 (CC 10437/2009) vide its order dated 3-12-2009], held that the expression “refund of any amount” would include interest under section 244A (on refund of tax deducted at source) to which the assessee was lawfully entitled but had been wrongly withheld by the Department.
11. On an analysis of section 244A of the Act it is seen that where “refund of any amount” becomes due to the assessee, the assessee is entitled to simple interest thereon. The mode and manner of calculating such interest is laid down in clauses (a) and (b) of sub-section (1) of the said section. Where the refund is out of pre-paid taxes, interest is calculated in terms of section 244A(1)(a) of the Act. Where the refund is of taxes paid other than pre-paid taxes covered in clause (a), the computation of interest is for the period prescribed in clause (b), sub-section (1) of the said section. In Cholamandalam Investment & Finance Co. Ltd.’s case (supra), it was held that even though the short title to section 140A reads as self-assessment, the charging phrase employed in section 140A, namely, “where any tax is payable on the basis of any return required to be furnished under section 115WD or 115WH or section 139 or section 142 or section 148 or section 153A, as the case may be, the assessee shall be liable to pay such tax together with interest payable under any provision of this Act for any delay in furnishing the return”, makes it clear that there is no difference between: (i) the tax paid under section 115WJ, which deals with advance tax in respect of fringe benefits; or (ii) the tax collected at source under section 206C; or (iii) any tax paid by way of advance tax or any tax treated as paid under section 199, which deals with credit for tax deducted, which are provided under section 244A(1)(a).
12. The tax due on the returned income has to be paid by way of tax deducted at source (section 199), advance tax (section 209) or by way of self-assessment tax (section 140A). In addition, where the assessment is completed at an income higher than the returned income, the tax payable by the assessee is specified in the notice of demand issued under section 456(Sic. 156) of the Act. Where there is a shortfall in payment on tax vis-a-vis the tax finally due on the assessed income, the assessee is liable to pay interest under section 234B of the Act. Conversely, where the revenue makes a high-pitched assessment which is subsequently reduced/modified in appeal, any payment of taxes made, which are subsequently refunded as a consequence of relief obtained in appeals, etc., are monies legitimately belonging to the taxpayers and wrongly withheld by the Government. This is based on the principle that if the revenue had, in the first instance, made correct assessment of the tax liability of the assessee, the assessee would not have been deprived by the use of money. In such a situation, where pre-paid taxes are in excess of the assessed tax, the assessee is entitled to refund of such tax along with interest thereon.
13. Where an assessee out of abundant caution pays self-assessment whilst staking a claim in the return, which claim is accepted, resulting in refund of self-assessment tax, the assessee should be equally entitled to interest thereon.
14. Section 244A was inserted in the statute as a measure of rationalization to ensure that the assessee is duly compensated by the Government, by way of payment of interest for monies legitimately belonging to the assessee and wrongfully retained by the Government, without any gaps.
15. Therefore, in our view where the self-assessment tax paid by the assessee under section 140A is refunded, the assessee should be, on principle, entitled to interest thereon since the self-assessment tax falls within the expression “refund of any amount”. The computation of interest on self-assessment tax has to be in terms of section 244A(1)(b), i.e., from the date of payment of such amount up to the date on which refund is actually granted. We find support for this conclusion from the decision of the Madras High Court in Cholamandalam Investment & Finance Co. Ltd.’s case (supra), the SLP against which order was dismissed by the Supreme Court. Even otherwise, it is trite law that wherever the assessee is entitled to refund, there is statutory liability on the Revenue to pay the interest on such refund on general principles to pay the interest on sums wrongfully retained [Sandvik Asia Ltd’s case (supra)].
16. In view of the discussion above, we answer the question of law in favour of the assessee and against the revenue. The present appeal is accordingly dismissed.”
The Hon’ble Delhi High Court noted in aforesaid decision in the case of Sutlej Industries Limited(2010) 325 ITR 331(Delhi) that SLP filed by Revenue against the decision of Hon’ble Madras High Court in the case of Cholamandlam Investment & Finance Company Limited(supra) stood dismissed by Hon’ble Supreme Court in Special Leave Petition (SLP) No. 16877/2008 vide orders dated 03.12.2009.
6.7. Hon’ble Karnataka High Court also decided the identical issue in favour of tax-payer in the case of CIT v. Vijaya Bank reported in (2011) 338 ITR 489(Karn.), by holding that refund out of excess self assessment tax shall fall under clause (b) to sub-section 1 to Section 244A of the 1961 Act , by holding as under:
“6. Section 244A provides for interest on refunds which reads as under:
“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 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.
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 under section 156 is paid in excess of such demand.”
The aforesaid provision makes it clear, where any amount becomes due to the assessee under the Act by way of refund, the assessee is entitled to receive the said amount of refund with simple interest thereon. How the interest is to be calculated and the rate of interest is provided in the clauses (a) and (b). In calculating the interest payable, the section provides for different dates from which the interest is to be calculated.
7. Clause (a ) deals with refund in respect of the following categories of the taxes :
(i) the tax paid under section 115W which deals with advances tax in respect of fringe benefits;
(ii) the tax collected at source under section 206C which is called as tax deducted at source under section 206C;
(iii) tax paid by way of advance tax;
(iv) tax treated as paid under section 199 which is known as tax deducted at source by the creditor of the assessee.
8. In all these cases, if the amount of tax paid is in excess of the tax liability of the assessee and consequently the assessee is entitled to refund of excess tax paid, the same is refundable with interest at 1½ per cent for every month. The interest payable on the tax to be refunded is to be calculated from the first day of April of the assessment year to the date on which the refund is paid. In other words, irrespective of the date of payment of these taxes, insofar as payment of interest is concerned, it is to be calculated from a future date namely the first day of April of the assessment year. The proviso to this provision exempts payment of interest if the amount of refund is less than 10 per cent of the tax determined under sub-section (1) of section 115WE or sub-section (1) of section 143 or on regular assessment.
9. Insofar as clause (b ) is concerned, it applies to a case which is not covered under clause (a). The interest is payable from the date of payment of tax. An Explanation is added to this clause defines the meaning of the word ‘date of payment of tax or penalty’ in the aforesaid clause to mean, the date on and from which the amount of tax specified in the notice of demand issued under section 156 is paid in excess of such payment. Therefore, if tax is paid in pursuance of a notice of demand issued under section 156 of the Act, and if that tax or any portion of that tax is ordered to be refunded, the said amount is refundable with interest from the date of such payment. In other words, the interest payable on such amount is not to be calculated from the First of April of the assessment year as provided in clause (a). It is in this background, we have to see if any tax is paid which does not fall under these categories, from what date the interest is payable on such excess payment of tax.
10. The learned counsel for the revenue submitted that if the case does not fall under any of these clauses, then there is no liability to pay tax at all. If at all tax is to be paid, it is from the date of the determination of the tax liability, i.e., the passing of the assessment order, on which date, the tax paid is adjusted towards the tax liability. This problem did confront the Department. Therefore, they have issued a Circular No. 549, dated 31-10-1989. After referring to the salient features of the said section in detail at Paragraph 11.3, it is stated as under :
“These provisions, apart from being complicated, left certain gaps for which interest was not paid by the Department to the assessee for money remaining with the Government. To remove this inequity, as also to simplify the provisions in this regard, the Amending Act, 1987, has inserted a new section 244A in the Income-tax Act, applicable from the assessment year 1989-90 and onwards which contains all the provisions for payment of interest by the Department for delay in the grant of refunds. The rate of interest has been increased from the earlier 15 per cent per annum to 1.5 per cent per month or part of a month comprised in the period of delay in the grant of refund. The Amending Act, 1987, has also amended section 214, 243 and 244 to provide that the provisions of these sections shall not apply to the assessment year 1989-90 or any subsequent assessment years.”
11. Therefore, the object behind insertion of section 244A as understood by the Department is that, an assessee is entitled to payment of interest for money remaining with the Government which would be ordered to be refunded. Therefore, if that is the object behind the insertion of section 244A, the contention of the revenue that if thecase does not fall under either of the clauses in section 244A, no interest is payable, is without any substance.
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 1st 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.”
6.8 We have observed that Hon’ble Bombay High Court in the case of Stock Holding Corporation Of India Ltd. v. CIT reported in (2015) 373 ITR 282(Bom.) vide judgment dated 17.11.2014 has taken a view that refund arising out of excess self assessment tax paid by the tax-payer shall be entitled for interest as provided under clause (b) to sub- section (1) to Section 244A of the 1961 Act. The Hon’ble Bombay High Court took support of the decision of Hon’ble Karnataka High Court in the case of CIT v. Vijay Bank (supra) and decision of Hon’ble Delhi High Court in the case of CIT v. Sutlej Industries Limited(2010) 325 ITR 331(Delhi) to decide the issue in favour of the tax-payer, by holding as under:
“7. We have considered the rival submissions. On a bare analysis of Section 244A(1) of the Act it is clear that amount paid by the petitioner as tax on self assessment would not stand covered by Section 244A(1)(a) of the Act. This is so as it is neither the payment of tax by way of advance tax or by way of tax deducted at source. Thus tax paid on self assessment would fall under Section 244A(1)(b) of the Act, i.e. a residuary clause covering refunds of amount not falling under Section 244A(1) of the Act. The revenue contends that in the absence of tax on self assessment finding mention in Section 244A(1)(a) of the Act, no interest is payable under Section 244A(1) of the Act and Section 244A(1)(b) of the Act would have no application. This contention is opposed to the meaning of the provision disclosed even on a bare reading. If the tax paid is not covered by clause (a) of Section 244A(1), it falls within clause (b), which is a residuary clause. Besides, this contention stands negatived by the CBDT Circular bearing No.549 dated 31 October 1989 wherein reference is made to Section 244A and para 11.4 thereof reads as under :—
11.4 The provisions of the new section 244A are as under:—
(i) Sub-section (1) provides that where in pursuance of any order passed under this Act, refund of any amount becomes due to the assessee then—
(a) if the refund is out of any advance tax paid or tax deducted at source during the financial year immediately preceding the assessment year, interest shall be payable for the period starting from the 1st April of the assessment year and on the date of grant of the refund. No interest shall, however, be payable, if the amount of refund is less than 10 per cent of the tax determined on regular assessment;
(b) if the refund is out of any tax, other than advance tax or tax deducted at source or penalty, interest shall be payable for the period starting from the date of payment of such tax or penalty and ending on the date of the grant of the refund. (Refer to example III in para 11.8).” (Emphasis supplied)
The inferences to be drawn from the Board’s circular is clear that if refund is out of any tax other than out of advance-tax or tax deducted at source, interest shall be payable from the date of payment of tax and ending on the date of the grant of refund. It is to be noted that nowhere does the CBDT even remotely suggest that interest is not payable bythe Department on self-assessment tax. Moreover, the amount paid under Section 140A of the Act on self assessment is an amount payable as and by way of the tax after noticing that there is likely to be shortfall in the taxes already paid. Thus this payment is considered to be a tax under the aforesaid provision.
8. The contention of revenue is that no interest at all is payable to the petitioner under Section 244A(1)(a) and (b) of the Act unless the amounts have been paid as tax. It would not cover cases where the payment is gratuitous as is evident from the fact that the petitioner in its computation after paying tax on self assessment of Rs.2.60 crores seeks a refund of Rs.47 lacs. According to him it has to be refund of amounts paid as tax. We find that Section 244A(1) of the Act commences with the word “when refund of any amount becomes due to the assessee under this Act…”. Sub-clause (b) thereof commences with the words “in any other case….”. The words used in Section 244A(1) of the Act are clear inasmuch as it provides that refund of any amount that become due to any assessee under the Act will entitle the assessee to interest. In any case in the present facts, the amount on which the refund is being claimed was originally paid as tax on self-assessment under Section 140A of the Act and evidence of the same in the form of challan was enclosed to the Return of Income. In fact when the Assessing Officer passed the Assessment Order on 31 December 1996, he accepted the entire amount paid as tax on self assessment as a payment of tax. One more feature to be noticed is that when any refund becomes due to an assessee out of tax paid, it becomes so only after holding that it is not the tax payable. Thus we find no substance in the first objection of the revenue that the amount paid as tax on self assessment is not tax and therefore no interest can be granted on refund of such amounts which are not tax.
9. The next objection of the Revenue is that the decision of the Apex Court in Tata Chemicals Ltd. (supra) is inapplicable to the present facts. The case before the Apex Court in Tata Chemicals Ltd. (supra) arose as the quantum of tax deducted by it consequent to the order passed by the Assessing Officer directing it to deduct tax on amounts being remitted abroad, it was found in appeal that the payments made were in the nature of reimbursement and therefore not a part of income of the party to whom it is being remitted for the purposes of deduction of tax at source. Therefore Tata Chemicals sought refund of the amount paid in excess along with interest thereof. This the Supreme Court granted while making the following observations with regard to the liability to pay interest :
A “tax refund” is a refund of taxes when the tax liability is less than the tax paid. As per the old section an assessee was entitled for payment of interest on the amount of taxes refunded pursuant to an order passed under the Act, including the order passed in an appeal. In the present fact scenario, the deductor/assessee had paid taxes pursuant to a special order passed by the assessing officer/Income Tax Officer. In the appeal filed against the said order the assessee has succeeded and a direction is issued by the appellate authority to refund the tax paid. The amount paid by the resident/ deductor was retained by the Government till a direction was issued by the appellate authority to refund the same. When the said amount is refunded it should carry interest in the matter of course. As held by the Courts while awarding interest, it is a kind of compensation of use and retention of the money collected unauthorizedly by the Department. When the collection is illegal, there is corresponding obligation on the revenue to refund such amount with interest in as much as they have retained and enjoyed the money deposited. Even the Department has understood the object behind insertion of Section 244A, as that, an assessee is entitled to payment of interest for money remaining with the Government which would be refunded. There is no reason to restrict the same to an assessee only without extending the similar benefit to a resident/ deductor who has deducted tax at source and deposited the same before remitting the amount payable to a non-resident/ foreign company.
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 aequo et bono ought to be refunded, the right to interest follows, as a matter of course.
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.’ (Emphasis supplied).
From the aforesaid observations of the Apex Court in Tata Chemicals, it would be clear that the requirement to pay interest arises whenever an amount is refunded to an assessee as it is a kind of compensation for use and retention of money collected by the revenue.
10. The only distinction being made in the present facts and those of Apex Court decision in Tata Chemicals is that the amount paid as tax on self assessment was paid voluntarily in the present case while in the case of Tata Chemicals Ltd. (supra) the tax was deducted at a higher rate in view of the order passed by the authority under the Act. We are unable to appreciate this distinction. This is for the reason that when an assessee pays tax either as Advance tax or on self assessment, it is paid to discharge an obligation under the Act. Not complying with the obligation under the Act visits consequences to an assessee just as non compliance of orders passed by authorities under the Act would. Thus there is no voluntary payment of tax on self assessment as contended by the revenue.
11. The further submission of Mr. Pinto that in view of the Explanation to Section 244A(1)(b)of the Act the same would apply only when the amounts are paid consequent to a notice issued under Section 156 of the Act. Not otherwise. This very submission was advanced by the revenue before the Apex Court in the case of Tata Chemicals Ltd.(supra). In fact, the first Appellate Authority in the case of Tata Chemicals Ltd.(supra) had rejected the petitioner’s claim for interest on the ground that in view of the Explanation appended to Section 244A(b) of the Act, refund of any amount under the aforesaid provision could only be in respect of refund of excess payment made under Section 156 of the Act. The aforesaid interpretation was negatived in the second
appeal by the Tribunal as well as by the High Court and the Apex Court.
12. Similarly, the next contention urged on behalf of the revenue that the payment of interest should only be made from the date of notice under Section 156 of the Act is issued to the petitioner in terms of Explanation to Section 244A(1)(b) of the Act cannot be accepted for two reasons. Firstly, as held by the Supreme Court in Tata Chemicals Ltd.(supra), the Explanation would have effect only where payments of tax have been made pursuant to notice under Section 156 of the Act. In this case, the payment has not been made pursuant to any notice of demand but prior to the filing of the return of income in accordance with Section 140A of the Act. Secondly, the provisions of Section 244A(1) (b) very clearly mandate that the revenue would pay interest on the amount refunded for the period commencing from the date the payment of tax is made to the revenue upto the date when refund is granted to the revenue. Thus, the submission of Mr. Pinto that the interest is payable not from the date of payment but from the date of demand notice under Section 156 of the Act cannot be accepted as otherwise the legislation would have so provided in Section 244A 1(b) of the Act,rather then having provided from the date of payment of the tax.
13. We find support for our view from the decisions rendered by Karnataka High Court in CIT v. Vijaya Bank [2011] 338 ITR 489/201 Taxman 371/12 taxmann.com 485 and Delhi High Court in CIT v. Sutlej Industries Ltd. [2010] 325 ITR 331/190 Taxman 136 (Delhi). In both cases in identical circumstances it was held that interest is payable from the date of payment of the tax on self assessment to the date of refund of the amounts under Section 244A of the Act.
14. Accordingly, for all the aforesaid reasons, we set aside the impugned order dated 28 September 1999. We direct the Assessing Officer to compute the interest payable from the date of payment on self-assessment tax i.e. 31 August 1994 till the date of refund i.e. 24 October 1998. The revenue is directed to compute the interest due to the petitioner and pay the same within six weeks from today.”
6.9 However Later, the Hon’ble Delhi High Court in the case of CIT v. Engineers India Limited reported in (2015) 373 ITR 377(Delhi) vide judgment dated 26.02.2015 took a view in favour of Revenue by not following its own decision in the case of CIT v. Sutlej Industries Limited(2010) 325 ITR 331(Delhi). The Hon’ble Delhi High Court duly considered the decision of Hon’ble Madras High Court in the case of CIT v. Cholamandalam Investment & Finance Limited(supra) but chose to take view in favour of Revenue. Hon’ble Delhi High Court was fully aware that SLP filed by Revenue against decision in the case of Cholamandalam Investment & Finance Limited(supra) was dismissed by Hon’ble Supreme Court , as this fact is duly recorded in judgement of Hon’ble Delhi High Court in the case of Sutlej Industries Limited(2010) 325 ITR 331(Delhi) at para 10. The Hon’ble Delhi High Court in Engineers India Limited(supra) also chose not to follow decision of Hon’ble Bombay High Court in the case of Stock Holding Corporation Limited(supra) and took a view in favour of Revenue by holding that Hon’ble Bombay High Court did not notice the clarification given by Hon’ble Apex Court in the case of CIT v. Gujarat Flouro Chemicals 2013 (296) ELT 433(SC): (2013) 358 ITR 291(SC). The decision of Hon’ble Delhi High Court in the case of Engineers India Limited(supra) is reproduced here under:
“14. Section 244A of Income Tax Act which is at the core of this dispute, as it stands after amendment by Finance Act, 2005 w.e.f. 01.04.2006, to the extent relevant, reads as under:
“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 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 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 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 under section 156 is paid in excess of such demand.
(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.
** **
(Emphasis Supplied)
15. In Sandvik Asia Ltd. (supra), the issue for consideration and determination by the Supreme Court was as to whether the assessee is entitled to be compensated by the Revenue for delay in payment of the amount due to the assessee. Since there was an inordinate delay in that case on the part of the Revenue in refunding the amount, the court held that the assessee was entitled to be adequately compensated by way of interest for the delay in payment of the amount “lawfully due to the assessee which are withheld wrongly and contrary to the law”.
16. The question as to whether assessee is entitled to interest under Section 244A, when the refund is against payment of selfassessment tax, had arisen before the Madras High Court in the case of CIT v. Cholamandalam Investment & Finance Co. Ltd. [2007] 294 ITR 438/[2008] 166 Taxman 132. The argument in that case revolved around the question as to whether interest would be admissible under clause (1)(a) or clause (1)(b) of Section 244A, this in the context of the distinction on account of the additional requirement in the former clause to the effect that the amount refundable must be more than 10% of the tax determined. The Madras High Court decided the issue in favour of grant of interest to the assessee under the latter clause and, thus, free from the aforesaid restriction. Referring to the judgment of Supreme Court in Sandvik Asia Ltd. (supra), it was
observed that —
“wherever the assessee is entitled to refund, there is a statutory liability on the Revenue to pay the interest on such refund on general principles to pay the interest on sums wrongfully retained.”
17. In Sutlej Industries Ltd.(supra), the question of law related to interpretation of Section 244(1)(b) read with the explanation appended thereto. The issue was whether the said clause excludes payment of interest on refund of self-assessment tax. Relying upon the afore-quoted observations of Supreme Court in the case of Sandvik Asia Ltd. (supra) and finding support from the view taken by Madras High Court in CIT v. Cholamandalam Investment & Finance Co. Ltd. (supra), a Division Bench of this court, inter alia, observed that —
‘the tax due on the returned income has to be paid by way of tax deducted at source (section 199), advance tax (section 209) or by way of self-assessment tax (section 140A). In addition, where the assessment is completed at an income higher than the returned income, the tax payable by the assessee is specified in the notice of demand issued under section 156 of the Act. Where there is a shortfall in payment of tax vis-à-vis the tax finally due on the assessed income, the assessee is liable to pay interest under section 234B of the Act. Conversely, where the Revenue makes a high-pitched assessment which is subsequently reduced/modified in appeal, any payment of taxes made, which are subsequently refunded as a consequence of relief obtained in appeals etc., are monies legitimately belonging to the taxpayers and wrongly withheld by the Government. This is based on the principle that if the Revenue had, in the first instance, made correct assessment of the tax liability of the assessee, the assessee would not have been deprived by the use of money. In such a situation, where pre-paid taxes are in excess of the assessed tax, the assessee is entitled to refund of such tax along with interest thereon.
Where an assessee out of abundant caution pays selfassessment whilst staking a claim in the return, which claim is accepted, resulting in refund of self-assessment tax, the assessee should be equally entitled to interest thereon.
Section 244A was inserted in the statute as a measure of rationalization to ensure that the assessee is duly compensated by the Government, by way of payment of interest for monies legitimately belonging to the assessee and wrongfully retained by the Government, without any gaps.
Therefore, in our view where the self-assessment tax paid by the assessee under section 140A is refunded, the assessee should be, on principle entitled to interest thereon since the selfassessment tax falls within the expression “refund of any amount.’
18. Noticeably, in the case of Sutlej Industries Ltd.(supra), the assessee had paid self-assessment tax under Section 140A, in addition to TDS (Tax Deducted at Source) and advance tax. The assessment order was framed under Section 250 read with Section 143(3) whereby refund of Rs. 66,90,474/- was granted as claimed in return from out of the amount earlier paid as selfassessment tax.
19. Doubting the correctness or otherwise the decision in the case of Sandvik Asia Ltd. (supra), a Bench of two Hon’ble Judges of Supreme Court in the case of Gujarat Fluoro Chemicals (supra) had referred the matter for consideration and authoritative pronouncement to a Larger Bench. Clarifying the observations in Sandvik Asia Ltd. (supra) and the legal position, the Larger Bench (three Hon’ble Judges) ruled thus —
“6. In our considered view, the aforesaid judgment has been misquoted and misinterpreted by the assessee and also by the Revenue. They are of the view that in Sandvik case (supra) this Court had directed the Revenue to pay interest on the statutory interest in case of delay in the payment. In other words, the interpretation placed is that the Revenue is obliged to pay an interest on interest in the event of its failure to refund the interest payable within the statutory period.
7. As we have already noticed, in Sandvik case (supra) this Court was considering the issue whether an assessee who is made to wait for refund of interest for decades be compensated for the great prejudice caused to it due to the delay in its payment after the lapse of statutory period. In the facts of that case, this Court had come to the conclusion that there was an inordinate delay on the part of the Revenue in refunding certain amount which included the statutory interest and therefore, directed the Revenue to pay compensation for the same not an interest on interest.
8. Further it is brought to our notice that the Legislature by the Act No. 4 of 1988 (w.e.f. 1-4-1989) has inserted Section 244A to the Act which provides for interest on refunds under various contingencies. We clarify that it is only that interest provided for under the statute whichmay be claimed by an assessee from the Revenue and no other interest on such statutory interest.”
(Emphasis Supplied)
20. The question before the Supreme Court in the case of Tata Chemicals Ltd. (supra) mainly was as to whether the deductor of TDS is also entitled to interest on refund of excess deduction or erroneous deduction of tax at source under Section 195 of the Income Tax Act. The observations of the Supreme Court, to the extent relevant here, may be quoted verbatim as under:-
“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. … 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. …
31. … A general right (sic duty) exists in the State to refund any tax collected for its purpose, and a corresponding right exists to refund to individuals any sum paid by them as taxes which are found to have been wrongfully exacted or are believed to be, for any reason, inequitable. The statutory obligation to refund carried with it the right to interest also. This is true in the case of the assessee under the Act.
37. A “tax refund” is a refund of taxes when the tax liability is less than the tax paid. As per the old section an assessee was entitled for payment of interest on the amount of taxes refunded pursuant to an order passed under the Act, including the order passed in an appeal. … When the collection is illegal, there is corresponding obligation on the Revenue to refund such amount with interest inasmuch as they have retained and enjoyed the money deposited. … There is no reason to restrict the same to an assessee only without extending the similar benefit to a resident/deductor who has deducted tax at source and deposited the same before remitting the amount payable to a non-resident/foreign company.
38. 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 debtowed 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)
21. A similar issue arose before the High Court of Bombay in the case of Stock Holding Corpr. of India Ltd. (supra). The ITAT in that case had held that no interest was payable under Section 244A(1)(b) on refund of excess amount paid as tax on selfassessment under Section 140A. The assessee had filed the return for assessment year 1994-1995 declaring income of Rs. 13.12 Crores on which tax payable was computed at Rs. 6.79 Crores. Some amount had been earlier paid as advance tax and TDS credit was also claimed. To make good the shortage, the assessee paid Rs. 2.60 Crores by way of tax on selfassessment. The AO determined the income at Rs. 1.27 Crores and, thus, raised a further demand of Rs. 1.76 Crores by way of notice under Section 156. It appears that refund was due to the assessee for the assessment year 1995-1996 and the demand by notice under Section 156 for the assessment year 1994-1995 was set off against such refund for the subsequent year. The assessee, in the meanwhile, had brought a challenge to the assessment for the period 1994-1995 before CIT (Appeals) where a refund of Rs. 2 Crores was granted though interest of Rs. 18.24 Lacs from out of the amount paid as self-assessment was declined. A similar view was taken by the Tribunal in second layer of appeal.
22. The High Court of Bombay, inter alia, held that the amount paid as self-assessment tax would fall under the residuary clause of Section 244A(1)(b) since it is neither payment of tax by way of advance tax nor by way of tax deducted at source. The court rejected the contentions of the Revenue that payment by way of self-assessment was gratuitous and, therefore, “not tax” and consequently, would not attract interest. Noticing, inter alia, the afore-quoted observations of the Supreme Court in the case of Tata Chemicals Ltd. (supra), the assessee was held entitled to interest against refund from out of self-assessment tax even when paid voluntarily, and not on account of deduction (as in the case of Tata Chemicals Ltd. (supra) at a higher rate in terms of the order passed by the tax authority, on the reasoning that when an assessee pays tax, either as advance tax or on selfassessment, it is paid “to discharge an obligation under the Act” and there is “no voluntary payment of tax on self-assessment” since non-compliance with the obligations under the Act visits consequences to an assessee just as non-compliance of orders passed by the authorities under the Act would.
23. Noticeably, the Bombay High Court did not take note of the clarification given by Supreme Court in Gujarat Fluoro Chemicals (supra).
24. In terms of the procedure for assessment as contained in Chapter XIV of the Income Tax Act, a person in receipt of income in respect of which he is assessable under the law is required to furnish a return under Section 139 in accordance, amongst others, with the provisions of Section 140. When tax is payable on the basis, inter alia, of such return furnished under Section 139, the assessee is liable to pay such tax (together with interest for delay, if any) after taking into account the amount of tax, if any already paid, the tax deducted or collected at source and relief of tax or deduction of tax (Section 199) if any claimed, etc. Thus, at the time of furnishing the return, the assessee is required to engage in an exercise of “self-assessment” under Section 140A and pay the balance liability (if any) on such computation.
25. There are detailed provisions relating to collection and recovery of tax in Chapter XVII of the Income Tax Act which include, in part-C the provisions for “advance payment of tax”. Section 207 declares generally the liability of the assessee to pay “in advance” the tax during the financial year in respect of the total income “which would be chargeable to tax for the assessment year immediately following”. The computation of advance tax on the “current income” for such purposes is carried out in accordance with Section 209, clause (a) of sub-section (1) whereof only needs to be noted as under:—
“where the calculation is made by the assessee for the purposes of payment of advance tax under sub-section (1) or sub-section (2) or sub-section (5) or sub-section (6) of section 210, he shall first estimate his current income and income-tax thereon shall be calculated at the rates in force in the financial year.” (Emphasis Supplied)
26. It may be added here that clauses (b) and (c) of sub-section (1) of Section 209 pertain to cases where the calculation is made (not by the assessee but) by the AO, while clause (d) pertains to the effect of tax deductible or collectible at source, which are not
relevant for present discussion.
27. For proper understanding of the method of computation of advance tax, it is necessary also to take into account the provision contained in Section 210, since it, inter alia, provides guidance to the assessee to calculate and pay the advance tax “of his own accord”
“210. Payment of advance tax by the assessee of his own accord or in pursuance of order of Assessing Officer.
(1) Every person who is liable to pay advance tax under section 208 (whether or not he has been previously assessed by way of regular assessment) shall, of his own accord, pay, on or before each of the due dates specified in section 211, the appropriate percentage, specified in that section, of the advance tax on his current income, calculated in the manner laid down in section 209.
(2) A person who pays any instalment or instalments of advance tax under subsection (1), may increase or reduce the amount of advance tax payable in the remaining instalment or instalments to accord with his estimate of his current income and the advance tax payable thereon, and make payment of the said amount in the remaining instalment or instalments accordingly.
(3) In the case of a person who has been already assessed by way of regular assessment in respect of the total income of any previous year, the Assessing Officer, if he is of opinion that such person is liable to pay advance tax, may, at any time during the financial year but not later than the last day of February, by order in writing require such person to pay advance tax calculated in the manner laid down in section 209, and issue to such person a notice of demand under section 156 specifying the instalment or instalments in which such tax is to be paid.
(4) If, after the making of an order by the Assessing Officer under sub-section (3) and at any time before the 1st day of March, a return of income is furnished by the assessee under section 139 or in response to a notice under sub- section (1) of section 142, or a regular assessment of the assessee is made in respect of a previous year later than that referred to in sub-section (3), the Assessing Officer may make an amended order and issue to such assessee a notice of demand under section 156 requiring the assessee to pay, on or before the due date or each of the due dates specified in section 211 falling after the date of the amended order, the appropriate percentage, specified in section 211, of the advance tax computed on the basis of the total income declared in such return or in respect of which the regular assessment aforesaid has been made.
(5) A person who is served with an order of the Assessing Officer under sub-section (3) or an amended order under sub-section (4) may, if in his estimation the advance tax payable on his current income would be less than the amount of the advance tax specified in such order or amended order, send an intimation in the prescribed form to the Assessing Officer to that effect and pay such advance tax as accords with his estimate, calculated in the manner laid down in section 209, at the appropriate percentage thereof specified in section 211, on or before the due date or each of the due dates specified in section 211 falling after the date of such intimation.
2
8
(6) A person who is served with an order of the Assessing Officer under subsection (3) or amended order under sub-section (4) shall, if in his estimation the advance tax payable on his current income would exceed the amount of advance tax specified in such order or amended order or intimated by him under sub-section (5), pay on or before the due date of the last instalment specified in section 211, the appropriate part or, as the case may be, the whole of such higher amount of advance tax as accords with his estimate, calculated in the manner laid down in section 209. ” (Emphasis Supplied)
28. It is clear from the bare reading of the above provisions that whether for purposes of computing the advance tax liability or for that matter the calculation of self-assessment tax, the assessee is given the liberty to make the estimation “of his own accord”. he Revenue expects proper declaration on the basis of which the liability would be eventually determined. After all, the necessary information or data is available first to the assessee. Since the advance tax is paid on quarterly basis, the assessee is in a position to revise the calculations as the financial year progresses. He may increase or decrease the amount to be paid as the quarterly instalment of advance tax corresponding to the increase or reduction of the income generated. A person who has already been assessed to income tax in the previous year(s) has the advantage of the benchmark of such earlier periods. The AO, on the other hand, is also given the authority by the law, by virtue of Section 210(3) or (4), to keep a tab on the payment(s) of advance tax having regard, inter alia, of the income reported in the preceding years and require deposit of the advance tax to the optimum extent. Notwithstanding this authority of the AO, for purposes of advance tax, the assessee retains his discretion to compute his taxable income and tax liability of his own estimation and, thus, may deposit the advance tax only to the extent he concedes, thereby ignoring the order of the AO as communicated in terms of Section 210(3) or (4).
29. Unlike the liability towards advance tax (Section 207), there is no specific provision in the Income Tax Act for guiding the assessee in computing his liability towards “self-assessment” (in terms of Section 140A). But since, in the scheme of things, the liability towards “advance tax” would come up ahead of the stage when the assessee is required to compute the tax payable finally with the return, described as self-assessment, it is clear that having paid the quarterly instalment of advance tax and reviewed the estimate of current income at each such stage, the assessee would be equipped with better information and data required to be taken into account for calculating “current income” and, thus, in a better position to arrive at a more accurate estimate and compute the tax liability when time comes for submitting the return under Section 139 and calculating the self assessment tax under Section 140A.
30. The declaration of the taxable income or tax liability in the return is subject to order of assessment required to be passed by the AO, amongst others, under Section 143. There is no finality given to the order of assessment at the hands of the AO. There are provisions for rectification, appeal, etc. There are also provisions for dealing with income that escapes assessment. When the liability is determined, whether in terms of the assessment order or in accordance with the order passed by the appellate authorities, or superior forums, if any tax, interest, penalty, fine etc. remain due to the Revenue, the AO is authorized by Section 156 to require the assessee to pay such sum by serving a notice (or revised notice) of demand. The notice of demand under Section 156, if issued before the assessment becomes final and binding, is subject to upward revision (or refund) in due course, in accordance with the assessment that comes to be finally made. The stage for refund comes when the assessment attains finality.
31. The liability of the Revenue to pay interest on refund of excess amount paid towards Income Tax Act by the assessee, in terms of Section 244A requires to be examined in above light. Concededly, the provisions contained in Section 115WJ (Advance tax in respect of fringe benefits), Section 199 (Credit for tax deducted), Section 206C (Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc.) or Section 207 (Liability for payment of advance tax) have no connection with the liability to pay self-assessment tax. Therefore, clause (a) of sub-section (1) of Section 244A would not apply to refund out of the amount paid as self-assessment tax. Clause (b), on the other hand, is residuary provision. It opens with the expression “in any other case”. Naturally, therefore, the liability of Revenue towards interest on refund from out of amount paid as selfassessment tax would fall under this clause.
32. Noticeably, for purposes of calculating the liability of the Revenue towards interest on the amount being refunded under Section 244A(1)(b), the beginning point is prescribed as the “date of payment of tax (or penalty)”. This expression is defined in the explanation appended to the clause to be indicative of the date of payment of the amount “specified” in the demand notice under Section 156. Thus, the legislation makes it clear that for the residuary clause, the amount paid by the assessee (from which refund is to be made) must have been deposited pursuant to demand notice issued by the assessing authority. To put it conversely, the clause would not apply, by virtue of the explanation, in case the excess amount (being refunded) has been paid by the assessee otherwise than in compliance with demand notice or voluntarily. This is the import and effect of the explanation if the language employed thereof is read, understood and construed in its natural and ordinary sense. Since the words used are clear, plain and unambiguous, there is no scope for beneficent construction since it would lead to re-legislation, which is impermissible.
33. The observations of the Supreme Court in Sandvik Asia Ltd. (supra) must be understood in the light of clarification given in the case of Gujarat Fluoro Chemicals (supra). There is no liability of the Revenue to pay tax on refund beyond the liability created by the statutory provisions. In the case of Tata Chemicals (supra), the collection of the tax (through deductor) was found to be illegal, thus giving rise to the liability to pay interest on the refunded amount.
34. We, thus, conclude that there cannot be a general rule that whenever a refund of income tax paid in excess is to be made, the Revenue must necessarily pay interest on the refunded amount. The letter and spirit of the law on the subject is that the party which committed the error in proper calculation (or delay in proper assessment) must bear the burden. If the excess amount is paid due to erroneous assessment by the Revenue, having exacted such burden wrongfully and inequitably on the assessee and having retained the excess amount thus received, the reimbursement must be accompanied by payment of interest at the statutorily prescribed rate. Conversely, if the assessee is to blamed for the miscalculation (or for delay or, for that matter, want of claim of refund), the Revenue does not owe any interest even if the excess payment of tax is liable to be refunded.
35. Having found the position of law as indicated above, we express, with respect, our inability to subscribe to, or follow, the view taken by the other Division Bench of this court in the case of Sutlej Industries Ltd. (supra).
36. Even otherwise, noticeably, in the case of Sutlej Industries Ltd. (supra), the question had been examined in the facts and circumstances indicative of “high-pitched assessment” made by the Revenue and the refund of the self-assessment tax resulting from a claim to such effect being made by the assessee in the return. In the case at hand, the Revenue had not made the excessive assessment so as to impel the deposit of self assessment tax in excess. The assessee did not make a claim for refund in the return. Such claim appears to have come later.
37. For the very same reasons as set out above, we are not inclined to endorse the view taken by Madras High Court in the case of Cholamandalam Investment & Finance Co. Ltd. (supra) wherein in our view, the proposition of law on the subject was expounded in too broad terms. As clarified by the Supreme Court in the case of Gujarat Fluoro Chemicals (supra), there is no general principle obliging the Revenue to pay interest on all sums wrongfully retained. It is trite that a fiscal statute is to be
construed strictly. The claim of interest on refund of income tax has to be pegged on the statutory clauses only.
38. For the foregoing reasons, we answer the substantial question of law mentioned in para 3 above accordingly in favour of the Revenue.
39. In absence of explanation as to how the assessee erred in calculation of self-assessment tax, there being no allegation that such excess deposit was pursuant to demand by the Revenue, the claim for interest on excess payment voluntarily made cannot be sustained. In the result, the appeal is allowed and the impugned order passed by ITAT directing the AO to pay interest to the assessee on the refunded amount is set aside.”
6.10 In another matter which later came up before Hon’ble Delhi High Court in Sutlej Industries Limited v.CIT reported in (2016) 67 taxmann.com 76(Delhi) on the same issue, the Hon’ble Delhi High Court took notice of conflicting decision of Division Benches of its Court in CIT v. Sutlej Industries Limited reported in (2010) 325 ITR 331(Delhi) and in the case of CIT v. Engineers India Limited(supra) and it was proposed to refer the matter to Larger Bench of three judges of Hon’ble Delhi High Court by holding as under:
“1. These appeals by the Assessee under Section 260A of the Income Tax Act, 1961 (‘Act’) are directed against the common order dated 10th March 2003 passed by the Income Tax Appellate Tribunal (ITAT’) in ITA Nos. 6199 and 6200/Del/1997 for the Assessment Years (‘AYs’) 1994- 95 and 1995-96 respectively.
2. In both the appeals, the questions of law already stand framed by the Court. As far as ITA No. 493 of 2003 is concerned, by the order dated 14th January 2004, the following question was framed:
“What would be the date for reckoning the interest on refund Under Section 244A(1)(b)?”
3. As far as ITA No. 120 of 2004 for the AY 1995-96 is concerned, by the order dated 14th September 2004, the following question was framed:
“For the purpose of calculating interest on refund under section 244A(1)(b) what would be the date from which the interest is to be awarded.”
4. However, after hearing learned counsel for the parties, the Court is of the view that for both the AYs, the questions that arises for consideration require to be reframed as under:
(i) Is the Assessee entitled to interest under Section 244A of the Act on the amount of self assessment tax paid, which as a result of an assessment, has become refundable to it under the Act?
(ii) If the answer to question (i) is in the affirmative, whether interest is to be paid fromthe date of payment of such self-assessment tax or from some other date?
5. From the side of the Assessee, reliance has been placed on the decision of a Division Bench (DB) of this Court in the Assessee’s own case for AY 1998-99 in CIT v. Sutlej Industries Ltd. [2010] 325 ITR 331/190 Taxman 136. Reliance is also placed on the decisions of in CIT v. Vijaya Bank [2011] 338 ITR 489/201 Taxman 371/12 taxmann.com 485 (Kar.), the Bombay High Court in Stock Holding Corpn. of India Ltd. v. N.C. Tewari, CIT [2015] 373 ITR 282/229 Taxman 512/53 taxmann.com 106, the Madras High Court in CIT v. Cholamandalam Investment & Finance Co. Ltd. [2007] 294 ITR 438/[2008] 166 Taxman 132, and Rajaratna Mills Ltd. v. CIT [2015] 64 taxmann.com 89 (Mad.) and the Punjab and Haryana High Court in CITv. Punjab Chemical & Corp. Protection Ltd. [2015] 231 Taxman 312/57 taxmann.com 283. Reference is also made to the background to the insertion of Section 244A in the Act, as well as to Circular No. 549 dated 31st October 1989 issued by the Central Board of Direct Taxes (‘CBDT’).
6. From the side of the Revenue, reliance is placed on the decision of the Supreme Court in CIT v. Gujarat Fluoro Chemicals [2014] 42 taxmann.com 1/222 Taxman 349/[2013] 358 ITR 291 and of the DB of this Court the CIT v. Engineers India Ltd. [2015] 373 ITR 377/232 Taxman 287/55 taxmann.com 1.
7. At must be noticed that the questions that arose for consideration both in Sutlej Industries Ltd. (supra) for AY 1998-99 and Engineers India Ltd. (supra) were identical to the issues that arise in the present appeals, viz., whether the Assessee is entitled to interest on refund of self assessment tax and further, if so, the date from which such interest would be payable? The said questions were answered in favour of the Assessee by a DB of this Court in Sutlej Industries Ltd. (supra) for AY 1998-99. However, in Engineers India Ltd. (supra) another DB of the same strength has answered the question against the Assessee and has distinguished the decision in Sutlej Industries Ltd. (supra).
8. It is urged on behalf of the Revenue that the judgment in Engineers India Ltd. (supra) being latter in point of time should be followed by this Court, particularly in view of the decision of the Supreme Court in Gujarat Fluoro Chemicals (supra) which was delivered by the larger Bench of the three learned Judges.
9. On closer examination, it transpires that the decision of this Court in Sutlej Industries Ltd. (supra) for AY 1998-99 was in also part of the batch of cases which were before the larger Bench of the Supreme Court in Gujarat Fluoro Chemicals (supra). A perusal of the order of the Supreme Court shows that it took note of the insertion of Section 244A in the Act with effect from 1st April 1989 and clarified that “it is only that interest provided for under the statute which may be claimed by an assessee from the Revenue and no other interest on such statutory interest”. The above clarification by the larger Bench of the Supreme Court does not answer the questions that arise either in the present cases or in the earlier case involving the same Assessee for AY 1998-99, viz. Sutlej Industries Ltd. (supra) one way or the other. The larger Bench of the Supreme Court in Gujarat Fluoro Chemicals (supra) remanded the matters which were placed before it to the concerned Benches for decision. It is noticed that the Revenue’s appeal in the Supreme Court against the decision of this Court in Sutlej Industries Ltd. (supra) for AY 1998-99 is still shown as pending. Consequently, the Court is of the view that the decision of the Supreme Court in Gujarat Fluoro Chemicals (supra) not having answered the questions that arise one way or the other cannot itself be the justification for distinguishing the earlier decision of the DB of this Court in Sutlej Industries Ltd. (supra) for AY 1998-99.
10. In the facts and circumstances of the case, the Court is of the view that the subsequent decision in Engineers India Ltd. (supra) by a DB of the same bench strength cannot co-exist with the decision in Sutlej Industries Ltd. (supra) and that there is a conflict brought about as a result of the two decisions which cannot be resolved except by referring it to a larger Bench of the three learned Judges of this Court.
11. Consequently, the questions re-framed by the Court by the present order as indicated in para 4 above, are referred for decision to a larger Bench of three learned Judges. The papers be placed before Hon’ble the Chief Justice for appropriate orders.”
6.11 The matter in the case of Engineers India Limited(supra) did not rest here. The tax-payer namely Engineers India Limited being aggrieved by the decision of Hon’ble Delhi High Court filed an SLP with Hon’ble Supreme Court, wherein Hon’ble Supreme Court after noticing that the Division Benches of the Hon’ble Delhi High Court has taken a divergent view on the same issue in Sutlej Industries Limited(2010) 325 ITR 331(Delhi) and further noticing that already Larger Bench of three judges is referred to be constituted by Hon’ble Delhi High Court in another case of Sutlej Industries Limited v. CIT reported in (2016) 67 taxmann.com 76(Delhi) granted leave and thereafter set aside and restored the matter to Hon’ble Delhi High Court to be decided by Larger Bench on this issue in Engineers India Limited v. CIT vide judgment dated 06.07.2017 reported in (2017) 397 ITR 16(SC), by holding as under:
“2. We have heard the learned counsel for the parties.
3. The issue pertains to grant of interest under Section 244A of the Income Tax Act which is decided by the High Court vide impugned judgment against the assessee. The impugned judgment of the High Court reveals that another judgment of the Coordinate Bench of the same High Court in the case of CIT v. Sutlej Industries Ltd. [2010] 325 ITR 331/190 Taxman 136 (Delhi) was cited wherein the view taken was that in such circumstances the assessee would be entitled to interest under Section 244A of the Income Tax Act on the refund of the self-assessment tax. The High Court further did not agree with the aforesaid view and made the following observation:
“35. Having found the position of law as indicated above, we express, with respect, our inability to subscribe to, or follow, the view taken by the other Division Bench of this court in the case of Commissioner of Income Tax v. Sutlej Industries Ltd.”
4. It is clear from the above that in the impugned judgment, the Bench has differed with the earlier view expressed by the Coordinate Bench. In the circumstances, the appropriate course of action was to refer the matter to the larger Bench and we fail to understand why it was not done.
5. We are informed that subsequently in the case of Sutlej Industries Ltd. v. CIT [2016] 67 taxmann.com 76 (Delhi) pending before the High Court, the High Court has referred the matter to a larger Bench. In these circumstances, we set aside the impugned judgment of the High Court and remand the appeal back to the High Court for its afresh decision along with ITA Nos. 493/2003 & 120/2004 by a larger Bench.
The appeal is disposed of accordingly.”
6.12 We have also observed that similar issue came up before Hon’ble Madras High Court in the case of Rajratna Mills Limited v. CIT reported in (2015) 64 taxmann.com 89(Madras), wherein Hon’ble Madras High Court was pleased to decide the issue in favour of the tax-payer by holding that in case of refund arising out of excess self assessment tax paid u/s 140A of the 1961 Act , the tax-payer shall be entitled for interest under clause (b) of sub-section 1 to Section 244A of the 1961 Act, by holding as under:
“11. Since the only question that arises for consideration, revolves around the entitlement of the appellant to interest under section 244A, it would be useful to extract sub-section (1) of section 244A which reads as follows:—
“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.
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 under section 156 is paid in excess of such demand.”
12. A careful look at sub-section (1) of section 244A would reveal that it has three parts. The first part deals with the entitlement of a person to interest whenever he is due to get a refund from the Department. The second part relates to the method of computation of such interest. There are two methods of computation of interest, one provided in clause (a) and another provided in clause (b). In the first method of computation, the liability of the Department to pay interest, starts only from the first day of April of the assessment year, if the liability to refund arises out of section 115 WJ or 206 or 199. The liability to pay interest commences from the date of payment of tax or penalty, under clause (b), in cases not covered by clause (a).
13. There is no dispute about the fact that the case of the appellant does not fall under section 115WJ or 206 or 199. Therefore, it would, naturally, fall under the residuary provision in clause (b) of clause 1 of section 244A.
14. Unfortunately, the Tribunal proceeded on the footing that since the refund to which the assessee was entitled had been paid before the completion of assessment, the assessee may not be entitled to interest under section 244A. The relevant portion of the order of the Tribunal reads as follows:—
“7. We have considered the rival contentions in the light of the material placed before us and the precedents relied upon. In this regard, we find that the learned CIT (A) had made the aforesaid decision in favour of the assessee placing reliance upon Hon’ble Jurisdictional High Court decision in CIT v. Needle Industries (P.) Ltd. (111 Taxman 679). It is contention of the Revenue that the decision relied on the CIT (A) is not applicable in this case, since the question considered in that case was whether interest paid under section 139(8) & 215 which becomes refundable could be considered as “amount paid in pursuance of any order of assessment or not as laid down in section 244(1A) since the amount refundable has been paid before completion of assessment. Further, the Revenue has contended that the assessee is not entitled to interest on this amount under section 244A(1)(a) also because the sum does not represent advance tax or TDS which are covered under that section. Similarly, it has been contended that the assessee’s case also does not fall under section 244A(1)(b) also since coupled with the section thereto the sum does not represent amount of tax specified in the notice of demand.”
15. But, as we have pointed out, the entitlement of a person to interest on the refund arises out of substantive part of sub-section (1) of section 244A. Clauses (a) and (b) relate only to the method of computation. The method of computation dealt with by clause (a) relates to specific cases of refund under certain provisions. Therefore, the starting point for calculation of the interest is fixed as 1st April in clause (a). Clause (b) is a residuary clause, as could be seen from the usage of the expression “in any other case”. Therefore, the starting point for the computation of interest under clause (b) is the date of payment. The provisions under section 244A do not distinguish the cases where payment is made on assessment under section 140A. The explanation to section 244A does not really talk about the entitlement or disentitlement. The explanation, which we have extracted above, would show that the expression “date of payment of tax or penalty” means the date on and from which the amount of taxes or penalty specified in the notice of demand issued under section 156 is paid in excess.
16. The above explanation does not give room for an interpretation that if a person has paid money otherwise than by way of demand under section 156, he is not entitled to interest on refund under section 244A. The explanation cannot, really, curtail the method of computation prescribed in clause (b) or the substantive part of section 244A. Therefore, the question of law is answered in favour of the assessee. The Tax Case Appeal is allowed. No costs. The connected miscellaneous petitions are closed.”
6.13 The Revenue filed SLP with Hon’ble Supreme Court challenging relief granted by Hon’ble Madras High Court in the case of Rajratna Mills Limited(supra) and Hon’ble Supreme Court was pleased to grant special leave to appeal on 11.07.2016 reported in CIT v. Rajratna Mills Limited (2016) 72 taxmann.com 121(SC) in SLP(C) No. 12195 of 2016. It is to be noted that earlier Hon’ble Supreme Court dismissed SLP in Cholamndalam Investment & Finance Company Limited on 03.12.2009 in Special Leave Petition (SLP) No. 16877/2008 on the similar issue.
6.14. Thus, as we have seen in preceding para’s of this order that the issue is highly contentious . Presently, it is not brought to our notice by both the rival parties any judgment of Hon’ble Supreme Court directly on this issue. We are bound by decision of Hon’ble Bombay High Court being jurisdictional High Court and Respectfully following the decision of Hon’ble Bombay High Court in the case of Stock Holding Corporation Limited(supra), we hold that the assessee will be entitled for interest on refund arising out of excess self assessment tax in accordance with and as provided vide clause(b) to sub-section(1) to Section 244A of the 1961 Act as it was then prevailing for the impugned assessment year. We uphold/sustain decision of learned CIT(A). Revenue fails in this appeal. We order accordingly.
7. Hence, in the Result appeal of the Revenue in ITA no. 7620/Mum/2016 for AY 2010-11 stand dismissed.
Order pronounced in the open court on 24.04.2019
