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1244. Scope of sub-section (1A) inserted by Taxation Laws (Amendment) Act, 1975 explained – Instructions for giving appeal effects promptly

1. Section 244(1) provides that where a refund is due to the assessee as a result of any order passed in appeal, or other proceedings under the Act and the refund is not granted within a period of three months from the end of the month in which such order is passed, the assessee will be entitled to receive simple interest at 12 per cent per annum on the amount of the refund due from the date immediately following the expiry of the aforesaid period of three months to the date on which the refund  is granted.

2. Taxation Laws (Amendment) Act, 1975 has inserted a new sub-section (1A) in section 244 with effect from October 1, 1975 providing that where any amount has been paid by the assessee in pursuance of any order of assessment or penalty and the assessee becomes entitled to a refund in respect of such amount or any part thereof, as a result of an appellate order or other proceed­ings under the Act, the Central Government shall pay interest on the amount so refundable from the date on which the disputed amount was originally paid to the date on which the refund is granted. This provision will be applicable only if the refund is arising out of orders in appeal or other proceedings passed on or after October 1, 1975 and the payment has been made after March 31, 1975. No interest will, however, be payable for a period of one month from the date of the order passed in appeal or other proceedings. In other words, where the refund is granted within one month of the date of the order giving rise to the refund,interest will be payable from the date of payment to the date of such order and where  the refund is delayed for more than a month from the date of the order giving rise to the refund, interest will be payable for the period from the date of the payment to the date of granting the refund as reduced by one month.

3. Where the amount of tax or penalty has been paid in instal­ments, interest will be calculated on the amount of each such instalment or any part thereof, which is found to be in excess in appeal or other proceedings from the date on which such instal­ment was paid to the date on which the refund is granted. Howev­er, where interest is payable under the new sub-section (1A), no interest will be paid under sub-section (1) of section 244.

4. In this connection , it may also be noted that in view of the provisions in rule 119A effective from January 1, 1975, the period for which interest is to be calculated is rounded off to whole month and for this purpose any fraction of a month is ignored. Besides this, the amount of tax, penalty, etc., in respect of which interest is to be calculated, will be  rounded off to the nearest multiple of one hundred rupees and for this purpose any fraction of one hundred rupees shall be ignored.

5. In view of the fact that in cases falling for consideration under section 244(1A) interest will have to be paid by the Cen­tral Government after one month itself from the date of the appellate or other order, it is of paramount importance to ensure that appellate, revisionary or other orders are received in time and given effect to with extraordinary promptness ensuring that  in any case they are given effect to within a month of the date of the order.

6. The above provisions of the Act may be specifically brought to the notice of all the officers working in your charge.

Circular : No. 209 [F. No. 212/485/76-(A-II)], dated 11-1-1977.


7.EXPLAINED IN – Citing reference to para 5 of the above circular, the Tribu­nal observed as follows in K.C.P. Ltd. v. ACIT [1990] 34 ITD 1 (Hyd.) (SB) :

8. In view of these standing instructions, it is quite possible that the Income-tax Officer had only carried out the mandate of section 244(1A) even though he had not stated so in the order, which had only referred to section 214 while granting the inter­est. The assessee had specifically pointed out in the reply dated 16-3-1989 to the show-cause notice to the Commissioner that if the interest admissible to the assessee under section 244(1A) is taken into account there was no question of any loss to the revenue. It is well settled that an order should not only be erroneous but also be prejudicial to the revenue before it can be interfered with under section 263 of the Act. In the present case, the question whether the order is in fact prejudicial to the revenue has escaped the attention of the Commissioner partic­ularly with reference to the claim that the assessee was entitled to the interest granted even though under a different section of the Act. In these circumstances, we deem it fit to set aside the order of the Commissioner and remit the matter back to his file for reconsideration of the issue in the light of our above obser­vations and in accordance with law.” (p. 4)


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July 2024