Case Law Details

Case Name : CIT Vs Syndicate Bank (Karnataka High Court)
Appeal Number : ITA No. 582 of 2013
Date of Judgement/Order : 07/10/2020
Related Assessment Year : 1987-88
Courts : All High Courts (6110) Karnataka High Court (315)

CIT Vs Syndicate Bank (Karnataka High Court)

Conclusion: When an order of refund was issued, the same should include interest payable on the amount, which was refunded. If the refund did not include interest due payable on the amount refunded, the revenue would be liable to pay interest on the short fall. This did not amount to payment of interest on interest.

Held:  Revenue held that interest on delayed refund interest could not be granted since there was no specific provision in the Act for payment of interest on the amount of interest and Department had not wrongly retained the refund amount. It was held that when an order of refund was issued, the same should include interest payable on the amount, which was refunded. If the refund did not include interest due payable on the amount refunded, the revenue would be liable to pay interest on the short fall. This did not amount to payment of interest on interest.  It was pertinent to mention here that if the interest had to be computed after 01.04.1989, the same had to be computed in accordance with Section 244A only and assessee was entitled to interest in terms of Section 244A of the Act only.

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 1987-88. The appeal was admitted by a bench of this Court vide order dated 10.10.2014 on the following substantial questions of law:

(i) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in dismissing the appeal preferred by Revenue by not appreciating the fact that interest on delayed refund interest cannot be granted since there is no specific provision in the Act for payment of interest on the amount of interest and in not considering the fact that the Department has not wrongly retained the refund amount?

(ii) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in relying upon the case of CIT v Sandvik Asia Ltd. (SC) wherein interest is not granted when it is due and granted subsequently?

2. Facts leading to filing of the appeal briefly stated are that the assessee is a Nationalized Commercial Bank. The assessee filed return of income for Assessment Year 1984-85 on 29.06.1984 declaring a total loss of Rs.2.29 Crores. The assessee filed the return for the Assessment Year 1987-88 on 26.06.1987 and declared a total loss of Rs.6.9 Crores. The assessments were completed on 21.03.1986 and 30.01.1989, by which total income of the assessee for Assessment Years 1984-85 and 1987-88 was determined at Rs.30.68 Crores and 42.44 Crores. The assessee filed appeal against the order passed by the Assessing Officer and while giving effect to appellate order, the interest was granted on excess tax paid.

Thereupon, the assessee filed an application under Section 154 of the Act on 24.10.2005 and sought interest, which according to the assessee became due on account of giving effect to the orders passed by the appellate authority. The Assessing Officer, by an order dated 19.12.2005 rejected the applications under Section 154 of the Act. The assessee thereupon approached the Commissioner of Income Tax (Appeals) who by an order dated 26.03.2007 dismissed the appeal on the ground that no appeal lies under Section 246A of the Act against non payment of interest. The assessee thereupon approached the Income Tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’ for short). The Tribunal by an order dated 27.06.2008 by placing reliance on the decision of the Supreme Court in ‘SANDVIK ASIA LIMITED VS. CIT’, 280 ITR 643 (SC) held that CIT had the authority to consider the claim of the assessee and remitted the matter to the Commissioner of Income Tax (Appeals), who by an order dated 08.01.2010 directed the assessing authority to consider the claim of the assessee for determination of the amount refundable including interest while giving effect to the orders passed by the appellate authority. Being aggrieved, the revenue filed an appeal before the Income Tax Appellate Tribunal, which by an order dated 12.07.2013 has dismissed the appeal. In the aforesaid factual background, this appeal has been filed.

3. Learned counsel for the revenue submitted that there is no provision in the Act to pay interest on interest. However, the aforesaid crucial aspect of the matter has neither been appreciated by the Commissioner of Income Tax (Appeals) as well as the Income Tax Appellate Tribunal. It is further submitted that even Section 243(1) of the Act also does not provide for grant of interest on interest and the same only deals with interest on delayed payment. It is also urged that even Section 244(1) of the Act does not provide for interest on interest and the decision of the Supreme Court in SANDVIK ASIA LTD. Vs. COMMISSIONER OF INCOME-TAX AND OTHERS’ (2006) 280 ITR 643 (SC) is not an authority for proposition that interest on interest is payable. It is pointed out that in the aforesaid decision, a petition under Article 226 of the Constitution of India was filed and in the aforesaid petition, the Court had awarded the amount to the assessee by way of compensation as there was a delay in payment of the amount which was due to the assessee. It is also pointed out that the decision in the case of SANDVIK, supra, has been considered by the Supreme Court in ‘COMMISSIONER OF INCOME-TAX, GUJARAT Vs. GUJARAT FLOURO CHEMICALS’ (2014) 42 TAXMANN.COM 1 (SC) and our attention has been invited to paragraphs 6, 7 and 8 of the aforesaid decision and it has been pointed out that in the said decision, the Supreme Court has held that refund of certain amount was directed by the Supreme Court in the case of SANDVIK, supra, which was paid by way of compensation and not on interest on interest. It is also pointed out that the aforesaid decision has been followed by Delhi High Court in ‘COMMISSIONER OF INCOME-TAX Vs. INDIAN FARMER FERTILIZER CO-OPERATIVE’ (2016) 71 TAXMANN.COM 37 (DELHI) and by High Court of Kerala in ‘JOSEPH KORAH Vs. INCOME TAX OFFICER’ (2015) 229 TAXMAN 0331 (KERALA). Lastly, it is urged that in the absence of any statutory provisions on delayed interest, the assessee is not entitled to interest on delayed payment. In this connection, reference has been made to the decision of the Supreme Court in ‘UNION OF INDIA & ORS. Vs. ORIENT ENTERPRISES ETC.’ (1998) 146 CTR 546.

4. On the other hand, learned counsel for the assessee submitted that in SANDVIK ASIA LIMITED supra, it has been held that the Act recognizes the principle that a person should only be taxed in accordance with law and hence, where excess amounts of tax are collected from an assessee or any amounts are wrongfully withheld from the assessee without any authority of law, the revenue must compensate the assessee. Learned counsel for the assessee has also invited the attention of this court to a three judge bench decision of the Supreme Court in ‘COMMISSIONER OF INCOME TAX VS. NARENDRA DOSHI’, 254 ITR 606 and has submitted that the decisions of Gujarat High Court in ‘D.J.WORKS vs. DEPUTY CIT’, (1992) 195 ITR 227, which was followed by the same High Court in ‘CHIMANLAL S PATEL VS. CIT’, (1994) 210 ITR 419, wherein it has been held that the revenue is liable to pay interest on the amount of interest, which had to be paid to the assessee but had unjustifiably failed to do so, has not been challenged by the revenue and therefore, the question of law framed in the case of NARENDRA DOSHI supra has been answered in favour of the assessee. Our attention has also been invited to another three judge bench decision of the Supreme Court in ‘COMMISSIONER OF INCOME TAX VS. H.E.G LTD’, (2010) 324 ITR 331 (SC) and has submitted that the interest component partakes the character of amount due under Section 244A of the Act. Reference has also been made to the decision of the Delhi High Court in ‘INDIA TRADE PROMOTION ORGANISATION VS. COMMISSIONER OF INCOME-TAX’, (2013) 38 TAXMANN.COM 233 (DELHI). Our attention has also been invited to paragraph 8 of the order in GUJARAT FLUORO supra and it has been submitted that Section 244A of the Act has been inserted, which provides for interest on refunds under various contingencies and it is only the interest provided under the statute which may be claimed by the assessee and no other interest on such statutory interest. It is also urged that GUJARAT FLUORO supra only clarifies the decision of the Supreme Court in SANDVIK ASIA LTD. Reference has also been made to Circular No.549 dated 31.10.1989 and reliance has been placed on decision of the Supreme Court in ‘UNION OF INDIA VS. TATA CHEMICALS LTD.’, (2014) 363 ITR 658 (SC).

5. By way of rejoinder, the learned counsel for the revenue submitted that sub-section 244-A of the Act was inserted with effect from 1.4.1989, whereas, in the instant appeal, the assessment pertains to the assessment years 1984-85 and 1987-88. Therefore, the decision relied upon by the counsel for the assessee in the case of HEG Ltd. (supra) and Narendra Joshi (supra) do no apply to the factual situation of the case as the aforesaid case deals with Section 244-A of the Act and it is not applicable to the case of the assessee. It is further submitted that computation which has been handed over to us by the learned counsel for the assessee does not apply to the factual situation of the case as the aforesaid computation has been made by taking into account Section 244-A(i) of the Act. It is not applicable to the case of the assessee. It is also submitted that the Division Bench of the Gujarat High Court in the case of Gujarat Flora Chemicals –v-Commissioner of Income Tax (377 ITR 307) has directed refund of the amount by way of compensation in exercising the powers under Article 226 of the Constitution of India. The learned counsel for the Revenue further submitted that in the case of Tata Chemicals (supra), the Hon’ble Supreme Court was dealing with the interest on refund and not interest on interest. Therefore, the aforesaid decision has no application to the facts of the case.

6. We have considered the submissions made by learned counsel for the parties and have perused the record. Previously, the interest was payable to an assessee under Section 214, 243 and 244 of the Act. However, by Direct Tax Laws (Amendment) Act, 1987, Section 244A was inserted with effect from 01.04.1989 and was made applicable for Assessment Year 1989-90 onwards. The Central Board of Direct Taxes issued Circular No.549 dated 31.10.1989. The relevant paragraph of the Circular, reads as under:

11.2 Insertion of a new Section 244A in lieu of Section 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 of which refund was granted. The rate of interest under all the three sections was 15 per cent annum.

Section 244A of the Act reads as under:

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.

7. Thus, the language of the Section is precise, clear and unambiguous. Sub-Section (1) of Section 244 A speaks of interest on refund of the amounts due to an assessee under the Act. The assessee is entitled for the said amount of refund with interest thereon as calculated in accordance with clause (a) and (b) of sub-Section (1) of Section 244A. In calculating the interest payable, the section provides for different dates from which the interest is to be calculated.

8. A three Judge Bench of the Supreme Court in NARENDRA DOSHI supra upheld the decisions rendered by Gujarat High Court, which held that the revenue is liable to pay interest on the amount of interest and upheld the order of the High Court, which had answered the substantial question of law framed in favour of the assessee. Thereafter, a three judge bench of the Supreme Court in H.E.G. Ltd. supra while dealing with the expression ‘refund of any amount becomes due to the assessee’, held that the interest component will partake the character of amount due under Section 244A of the Act. When an order of refund is issued, the same should include interest payable on the amount, which is refunded. If the refund does not include interest due payable on the amount refunded, the revenue would be liable to pay interest on the short fall. This does not amount to payment of interest on interest. In view of aforesaid enunciation of law by a three judge bench of the Supreme Court, which is binding on us, it is not necessary for us to deal with the decision of the Supreme Court in SANDVIK ASIA LIMITED which has been rendered by a two judge bench of the Supreme Court and which has been subsequently clarified in GUJARAT FLUORO CHEMICALS supra. It is pertinent to mention here that if the interest has to be computed after 01.04.1989, the same has to be computed in accordance with Section 244A of the Act only and the assessee is entitled to interest in terms of Section 244A of the Act only.

In view of preceding analysis, the substantial questions of law are answered in the aforesaid terms. In the result, we do not find any merit in this appeal, the same fails and is hereby dismissed.

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