Case Law Details
ACIT Vs Shri Nachimuthu Palaniswamy (ITAT Chennai)
The Income Tax Appellate Tribunal (ITAT) in Chennai recently passed a judgment in favor of the assessee, Shri Nachimuthu Palaniswamy, affirming his right to interest on tax refund under Section 244A of the IT Act. The decision emphasizes the principles of fairness and equity, shedding light on the interpretation and implementation of this section in taxation proceedings.
Analysis:- The crux of the case revolved around the question of whether the assessee was eligible for interest on self-assessment taxes paid, as per the amendment to Section 244A of the IT Act introduced by the Finance Act 2016. The revenue department contended that the amendment, effective from June 1, 2016, did not have retrospective effect, thereby disqualifying the assessee from claiming interest on refunds determined prior to that date.
In a counter-argument, the CIT(A) cited various rulings, including those from the Madras High Court, supporting the assessee’s entitlement to interest on the refund of self-assessment tax. The CIT(A) also referred to the explanatory memorandum to the Finance Act, 2016, which emphasized the principles of ‘fairness and equity’ behind the amendment to Section 244A. As such, the CIT(A) directed the Assessing Officer to grant interest to the assessee, sparking the appeal by the revenue department.
The ITAT, upon hearing the appeal, found no fault in the CIT(A)’s order, stating that it followed the binding judicial precedent and the rationale behind the amendment made by the Finance Act, 2016.
Conclusion:- The ruling of the ITAT Chennai, affirming the assessee’s right to interest on tax refund under Section 244A, stands as a precedent-setting case that underscores the principles of fairness and equity in tax law.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
1. Aforesaid appeal by Revenue for Assessment Year (AY) 2010-11 arises out of the order of learned Commissioner of Income Tax (Appeals)-18, Chennai [CIT(A)] dated 19-09-2022 in the matter of rectification order passed by the Ld. Assessing Officer [AO] u/s.154 of the Act on 24-11-2021. The grounds raised by the Revenue read as under:
1. The order of the Id. Commissioner of I.T. (Appeals) is erroneous on facts of the case and in law.
2. The learned CIT(A) erred in directing the Assessing Officer to grant interest u/s. 244A of the IT Act, on self assessment Taxes paid by the assessee without appreciating that the amendment to section 244A of the IT Act was inserted by the Finance Act 2016, w.e.f 1 .6.2016 only, as such the assessee is not eligible for any 244A interest on the refunds on self-assessment taxes, determined prior to 1.6.2016.
3. The learned CIT(A) ought to have appreciated that the insertion of clause “aa” to section 244A of the IT Act was with effect from 1.6.2016 only and not having any retrospective effect and therefore the refunds determined in the year 2015, arising out of self assessment taxes shall not be liable for grant of interest u/s. 244A of the IT Act.”
As is evident, the sole issue in the appeal is computation of interest u/s 244A. Having heard rival submissions and after perusal of case records, the appeal is disposed-off as under.
2. Upon perusal of order passed u/s.154, it could be seen that an assessment was framed against the assessee u/s.153A r.w.s 143(3) of the Act on 31-03-2015. The same resulted into refund of Rs.1002.26 The order was rectified on 08.09.2015 revising the refund to Rs.1002.95 Lacs. After adjusting outstanding demands, refund of Rs.562.67 Lacs was issued to the assessee. Another rectification order was passed u/s 154 on 20.02.2018 which resulted into additional refund of Rs.39.41 Lacs. The assessee filed another rectification on 24.08.2021 demanding refund u/s 244A relying on the provisions of Sec. 244(1)(aa) of the Act. However, Ld. AO rejected the same on the ground that the above provision was inserted by the Finance Act, 2016 w.e.f. 01-07-2016 and therefore, assessee was not eligible for further interest.
3. The Ld. CIT(A) held the issue in assessee’s favour as under: –
6.4 I have considered the submissions of the appellant. There are various decisions allowing interest on the refund of self assessment tax as indicated in the submission of the appellant extracted supra. Further, the Hon’ble Madras High court in the case of Cholamandalam Investments and Finance Co Ltd (294 ITR 438) has held as under:
“Even though the short title to s.140A reads as self-assessment, the charging phrase employed in s.140A, namely, “where any tax is payable on the basis of any return required to be furnished under s.1 15WD or s.1 15WH or s. 139 or s. 142 or s. 148 or s. 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 s.1 15WJ, which deals with advance tax in respect of fringe benefits; or (ii) the tax collected at source under s. 206C; or (iii) any tax paid by way of advance tax or any tax treated as paid under s. 199, which deals with credit for tax deducted, which are provided under s. 244A(1 )(a).
5.3. Proviso to s. 244A(1)(a) makes it clear that 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 s. 115WJ in respect of fringe benefits; (ii) tax collected at source under s. 206C; and (iii) advance tax or any tax treated as paid under s. 199. But, with respect to other tax as per s. 244A(1 )(b), the interest shall be payable even if the amount is less than 10 per cent of the tax as determined under s. 143(1) or on regular assessment, because there is no proviso to s. 244A(l)(b) as provided under s. 244A(l)(a).
5.4. That apart, the law is well-settled that even for the refund of tax paid under s. 140A on self-assessment, the assessee is entitled to interest as held by this Court in CIT vs. Ashok Leyland Ltd. (2002) 254 ITR 641 (Mad).
5.5. It is also trite law that wherever the assessee is entitled to refund, there is a statutory liability on the Revenue to pay interest on such refund on general principles to pay interest on sums wrongfully retained.
5.6. We are also strengthened by the decision of the apex Court for the above view taken in Sandvik Asia Ltd. vs. CIT (2006) 200 CTR (SC) 505: (2006) 280 ITR 643 (SC), wherein it is held as follows: “In view of the express provisions of the IT 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.” The Hon’ble Madras High Court while rendering the above decision relied on the decision of the Hon’ble Supreme Court in the case of Sandvik Asia Ltd. (280 ITR 643). To maintain judicial discipline, I have to follow the decision of the jurisdictional Madras High Court which is binding.
6.5 Further I find that the Memorandum explaining the provisions of Finance Act, 2016 relating to the amendment of section 244A reads as under:
“In the interest of fairness and equity, it is further provided that an assessee shall be eligible to interest on refund of self-assessment tax for the period beginning from the date of payment of tax or filing of return, whichever is later, to the date on which the refund is granted. For the purpose of determining the order of adjustment of payments received against the taxes due, the prepaid taxes i.e. the TDS, TCS and advance tax shall be adjusted first. “
The amendment was therefore brought in the statute only in the interest of fairness and equity. All things considered, I hold that the appellant is entitled to interest u/ s 244A on the refund of self assessment tax paid u/s 140A from the date of payment till the date of grant of refund. The Assessing Officer is thus directed to grant interest accordingly. The grounds raised are allowed.”
Aggrieved, the Revenue is in further appeal before us.
4. Evidently the adjudication of Ld. CIT(A) follows binding judicial precedent of jurisdictional High Court. The Ld. CIT(A) has also considered the rationale of amendment made by Finance Act, 2016. Clearly, the amendment has been carried out in the interest of fairness and equity. The same provide that the assessee shall be eligible to interest on refund of self-assessment tax for the period beginning from the date of payment of tax or filing of return, whichever is later, to the date on which the refund is granted. No contrary decision has been shown to us. Therefore, no fault could be found in the impugned order.
5. The appeal stands dismissed.
Order pronounced on 16th May, 2023.
