Case Law Details
Alternate Citation- [2011] 16 taxmann.com 291 (Guj.)
Issue Before the Court- Whether in facts and in circumstances of the case the Appellate Tribunal was right in law in reversing the orders passed by the CIT (Appeals) and thereby holding that the assessee was entitled to interest under Section 244A of the Act for both the months when the tax was paid and when the tax refundable was adjusted irrespective of the period between such events?”
Facts of the Case
The respondent assessee had lodged its claim of interest under Section 244A of the Income Tax Act, 1961 (‘the Act’, for short) towards the tax paid which was later on found refundable but adjusted against other dues of the assessee. In short, the stand of the assessee was that under Section 244A of the Act, the asssessee was entitled to receive interest for the whole of the month of payment of tax as well as the month when the same was adjusted regardless of any period or periods remaining in such months. According to the calculation of the assessee, such unpaid interest came to Rs.21,40,420/. Since Assessing Officer did not accept assessee’s claim, the assessee carried the matter in appeal before the CIT (Appeals).
CIT (Appeals) adverting to the provisions contained under Section 244A of the Act, formed an opinion that the words used are “part of a month” and not “parts of months”. He was therefore of the opinion that the assessee can claim interest for full month only for one of the two unfinished months and not for both the months. The CIT (Appeals) therefore by order dated 26th March, 2004 dismissed the assessee’s appeal and confirmed the order of the Assessing Officer.
The assessee thereupon by filing an application under section 154 of the Act sought rectification of the order of the CIT (Appeals). Such application also came to be dismissed by an order dated 11.11.2003. The assessee thereupon approached the Tribunal. The Tribunal by impugned judgment reversed the orders passed by the Revenue Authorities and allowed assessee’s appeal. The Tribunal in addition to referring provisions contained under Section 244A of the Act also placed reliance on the provisions contained in Rule 1 19A of the Income Tax Rules, 1961 (‘Rules’ for short). The Tribunal held and observed as under:
“Thus, in terms of Section 244A(1)(b) and Rule 1 19A of the Rules, the period for when the interest on refund is calculated is the period between the date of payment of such tax or penalty up to the date on which the refund is granted. The Section 244A(1) in its clause (b), provides that where refund is out of tax other than advance tax or tax treated as paid under section 199 or tax collected at source, the interest is to be paid at the rates as prescribed from time to time, for every month or part of a month comprised in the period starting from the date of payment of such tax or penalty up to the date on which the refund is granted. It is also clarified by way of an Explanation that “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 is paid in excess of such demand. According to Sec.244A, as operative for and from assessment year 198990, the rate of interest to be granted on refunds as per the provisions of this Section for every month or part of month comprised in the period for which interest is to be granted. The Rule 119A of the I.T. Rules, 1962 makes it very clear, particularly clause (b) states that where the interest is to be calculated for every month or part of month comprised in a period, any fraction of a month shall be deemed to be a full month and the interest shall be calculated accordingly. In view of the above provisions, which are very clear, the assessee is entitled for the interest on refund, in which month the payment/adjustment is made. Taking example from chart of the assessee, in assessment year 199394 a refund was adjusted as on 31031997, the Assessing Officer should have allowed interest for the month of March, 1997 in full in view of the Rule 119A of the I.T. Rules, 1962. Accordingly, the assessee is entitled for interest on refund for the month in which payment is made. Accordingly, we allow the claim of the assessee and this appeal of the assessee is allowed.”
It is this judgment which the Revenue has challenged in the present Tax Appeal before Honorable Gujarat High Court.
Held by High Court
21.0 Before dealing with the rival contentions it would be useful to take note of statutory provisions applicable. Since the adjustment of the tax previously paid occurred during the period of March, 1997 to November, 2000, we would be taking note of statutory provisions as applicable during the said period.
22.0 Relevant provisions of Section 244A(1)(a) of the Act at the relevant point of time read 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 [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 [onehalf per cent] for every month or part of a month comprised in the period from the 1st day of April of the assessment year to the date on which the refund is granted.
Provided that no interest shall be payable if the amount of refund is less than ten per cent of the tax as determined [under [subsection (1) of section 115WE or] subsection (1) of section 143 or] on regular assessment;”
23.0 Section 245 of the Act pertains to set off of refund against tax remaining payable and provides inter alia that when a refund is found due to any person the officers mentioned in the said section may in lieu of payment of refund set off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under this Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this section.
24.0 Rule 119(A) of the said Rules applicable at the relevant time read as under:‑
“ 119A. In calculating the interest payable by the assessee or the interest payable by the Central Government to the assessee under any provision Act,
(a) where interest is to be calculated on annual basis, the period for which such interest is to be calculated shall be rounded off to a whole month or months and for this purpose any fraction of a month shall be ignored; and the period so rounded off shall be deemed to be the period in respect of which the interest is to be calculated;
(b) where the interest is to be calculated for every month or part of a month comprised in a period, any fraction of a month shall be deemed to be a full month and the interest shall be so calculated;
(c) the amount of tax, penalty or other sum in respect of which such interest is to be calculated shall be rounded off to the nearest multiple of one hundred rupees and for this purpose any fraction of one hundred rupees shall be ignored and the amount so rounded off shall be deemed to be the amount in respect of which the interest is to be calculated.”
25.0 Section 3(35) of General Clauses Act reads as under,
“3(35) “month” shall mean a month reckoned according to the British calender;”
26.0 From the above statutory provisions, it can be seen that Section 244A provides for payment of interest where refund of any amount becomes due to the assessee under the said Act. In such a case the assessee is entitled to receive in addition to the refund amount, simple interest at the prescribed rate. Clause (b) of section (1) of Section 244A of the Act in particular provides that such interest shall be calculated at the rate of onehalf 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. In the other words, interest at the prescribed rate is to be paid to the assessee on the refund of tax paid for every month or part of a month comprised in the period from the date of payment of the tax to the date on which refund is granted.
27.0 Rule 119(A) of the said Rules further clarifies that in calculating the interest payable by the Government to the assessee under any provision of the act where interest is to be calculated for every month or part of a month comprised in a period, every fraction of month shall be deemed to be full month and the interest so calculated.
28.0 By reading of Section (1) of Section 244A of the Act with Rule 119(A) of the said Rules would bring about situation when an assesseee who has paid the tax and such tax is to be refunded, the assessee is to be paid interest at the prescribed rate for every month or part of a month comprising the period from the date of payment of the tax to the date on which the refund is granted. If such period is a fraction of a month, the same shall be deemed to be a full month and the interest shall be calculated for the entire month accordingly. In other words while calculating the period for grant of interest, if there is any fraction of a month, such fraction shall be ignored and instead, the assessee shall be paid interest for the full month.
29.0 So much is clearly emerging from the plain language used in the statutory provisions noticed by us. The case of the assessee however is that the word ‘month’ should be considered as per British Calender as defined in Section 3(35) of the General Clauses Act and accordingly if there is a fraction of a month on either side of the events i.e. payment of tax or refund thereof, both fractions should be considered as full months and for both months the assessee must be held entitled to receive interest.
30.0 First and foremost it is not in dispute that term month has not been defined in the Act. Ordinarily, therefore, the definition of term month contained in General Clause Act would be a useful guide in the present case also. However, Section 3 of the General Clauses Act which is a definition section itself starts with rider i.e. “In this Act, in all Central Acts and Regulations made after the commencement of this Act, unless there is anything repugnant in the subject or context……….. ” Therefore if there is anything repugnant in Section 244A of the Act, the definition contained in Section 3(35) of the General Clauses Act would not be useful. We may also note that the decisions sought to be relied on by learned counsel for the respondents with respect to applicability or otherwise of the definition of the term ‘month’ contained in Section 3(35) of the General Clause Act was examined in the background of the provisions contained in Section 271(1) (a) of the Act.
31.0 Word ‘month’ is described in Webster’s Third New International Dictionary (unabridged) as a measure of time corresponding or nearly corresponding to the period of time moon’s revolution or as one of the twelve portions into which the year is divided in the Gregorian calender as also a period of time about the length of a lunar month but not necessarily coinciding with a calender month. The same dictionary also explains term ‘calender month’ as one of the months as named in the ‘calender’ or the period from a day of one month to the corresponding day of the next month if such exists or if not to the last day of the next month.
32.0 In ‘Judicial Officer’s Law Lexicon’ by Justice C.K.Thakker term calender month is explained as under:
“A period of time consisting of 30 days in April, June, September and November; of 31 days in the remainder of the months, except February, which consists of 28 days, except in leapyear, when the intercalary day is added, making 29 days.
33.0 In Judicial Dictionary by Aiyar’s, the term ‘calender month’ is described as a legal and technical term in computation the time by calender months, the time must be reckoned by looking at calender and by not computing test.
34.0 Black’ s Law Dictionary describes the term ‘month’ as one of the twelve periods of time in which the calender is divided, any time period approximating 30 days.
35.0 In Law. Lexicon by T.P.Mukherjee [5th Edition], it is stated “the word ‘month’ would in its ordinary acceptance, mean a ‘calender month’ and not a ‘lunar month’.
36.0 What is to be ascertained in the present case is as to which definition of term ‘month’ shall have to be adopted for Section 244A(1) of the Act. In other words the question is, should the definition of term “month” be adopted from General Clauses Act, or not. This exercise shall have to be done on the basis of relevant statutory provisions and the intention of the legislature to provide interest to the asssessee whose tax paid is found refundable at a later date.
37.0 To our mind the words appearing in subsection (1) of Section 244A “comprised in a period” are significant. In clause (b) of section 244A(1) it is provided that the interest shall be calculated at the prescribed rate for every month or of part of a month comprised in the period from the date the tax is paid to the date on which refund is granted. Similarly, in Rule 119(A) of the Rules, in clause thereof, it is provided that every month or part of a month comprised in a period, fraction of a month shall be deemed to be a full month. Therefore, in order to ascertain for how many months assessee would be entitled to receive interest, the number of months comprised in the period shall have to be found out. In this context, the term ‘month’ in our opinion, must be given the ordinary sense of the term i.e. 30 days of period and not the British calender month as defined under Section 3(35) of the General Clauses Act.
38.0 We are of the opinion that the definition contained in Section 3(35) of the General Clauses Act defining the term ‘month’ cannot be adopted for the purpose of subsection (1) of Section 244A of the Act. Such importation of the definition would lead to anomalous situation. For example, the assessee who pays tax on 1st January of a particular year and is granted refund on 28th of February of the same year, would be entitled to receive interest for two months. If the contention of the assessee in the present case is accepted, in a case where the assessee pays tax on 31st January and is granted refund on 1st February of the same year, shall also be entitled to interest for two full months. This would be so because the assessee contends that for the purpose of subsection (1) of Section 244A the term ‘month’ should be understood as British Calender month and since Rule 119(A) of the Rules provides for ignoring a fraction of month and granting interest for the full month instead, the assessee in the second example given above should receive interest for month of January as well as for the month of February. To our mind such interpretation would only lead to anomalous situation and should therefore be avoided.
39.0 As already noted earlier, various decisions cited before us adopting the definition of term month contained in section 3(35) of the Act were rendered in the background of penal provisions contained in Section 271(1)(a) of the Act. The said provision prescribes penalty for nonfiling or late filing of returns and the penalty is to be calculated on every month of such default. Under this background various Courts were of the opinion that the term ‘month’ must be understood as defined under Section 3(35) of the General Clauses Act. The Courts were of the opinion that there is nothing repugnant in Section 271 (1)(a) of the Act so as to reject the applicability thereof. In the present case, however, we find that there are inbuilt indications why the term month must not be understood as British calender month. Any other interpretation as already observed would lead to anomalous situation.
40.0 Before closing we may also notice the decision of the Bombay High Court in the case of Incometax CommissionerLTU vs. ASIAN PAINTS Ltd. reported in [2011] 12 taxmann.com 484 (Bom.) which was arising in the background of controversy whether the tax calculated by an authorized agent of the Central Government would be sufficient to complete the tax payment or whether any delay on the part of such authorized agent to credit such amount to the account of Central Government would be relevant factor for calculating interest under Section 244A of the Act. It was the case wherein the assessee deposited a cheque for the amount of tax demanded with authorized agent of Central Government on 29th December, 2003 and account of assessee was debited to that extent on 30th December, 2003 but credited to the Central Government account only on 1st January, 2004. The question was can the tax be said to have been paid on 30th December or on 1st January. Of course after holding that the tax was paid on 31st December 2003, the High Court further went out to observe that as per the Rule 1 19(A)(b) of the said Rules, upon refund, the assessee had to be granted interest for the entire period of December, 2003. We cannot, however, read such observation as the ratio of the decision of the Court. What was the controversy and what was decided by the Court was the actual date of payment of the tax i.e. 30th December, 2003 when the assessee’s account was debited and not 1st January, 2004 when such amount was credited to the account of the Central Government. Any further observation regarding the eligibility of the assessee to receive interest for full month of December, 2003 must, therefore, be understood as passing remarks. This issue was not be debated before the Bench and the observations made hereinabove cannot be understood as ratio of the decision.
41.0 In the result we are of the opinion that Tribunal committed error in holding that the assessee would be entitled to interest for both the months in entirety irrespective of dates when the tax was paid and refunded /adjusted. We answer the question in favour of the Revenue and against assessee. The judgment of the Tribunal is set aside.
Conclusion- High Court held that If the contention of the assessee in the present case is accepted, in a case where the assessee pays tax on 31st January and is granted refund on 1st February of the same year, shall also be entitled to interest for two full months. This would be so because the assessee contends that for the purpose of sub-section (1) of Section 244A the term ‘month’ should be understood as British Calender month and since Rule 119(A) of the Rules provides for ignoring a fraction of month and granting interest for the full month instead, the assessee in the example given above should receive interest for month of January as well as for the month of February. Such interpretation would only lead to anomalous situation and should therefore be avoided.
