Wipro Limited Vs JCIT (Karnataka High Court)
Karnataka High Court allowed the additional 3% interest on the delayed Income Tax Refund to Wipro ( Petitioner) from the Deputy Commissioner of Income Tax (DCIT) (Respondent).
The Petitioner approached the Writ Court to challenge the order in which the Respondent, DCIT, denied additional 3 percent interest on the allegedly delayed refund of amount related to Assessment Year 2008-09 and the Respondent denied its application filed under section 244A(1A) (“the Income Tax Act”).
The Petitioner argued that under section 115JB of the Income Tax Act, the assesse’s right to interest under section 244A(1A) is designed to restore parity to the situation where the Revenue imposes interest on late tax payments under section 234B.
The Revenue argued that Section 240 contemplates refund only after completion of the exercise mandated by the appellate order; where the assessment is set aside and a fresh assessment is ordered, the question of granting interest at once would not arise until after the amount to be refunded is determined, which occurs after the fresh assessment or reassessment is completed in term.
The Hon’ble Justice Krishna S. Dixit’s single judge bench allowed the Assesse to file a new claim for extra interest at the rate of 3% per year for the period covered by section 153(5) r/w section 244A(1A) of the Income Tax Act within eight weeks. The Respondents are served with a Writ of Mandamus directing them to compute the interest due to date and pay it to the Assesse within eight weeks.
FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT
The tone for this judgment may be set bny quoting what Richard Brinsley Sheridan, an acclaimed Irish dramatist of 18th century, on being asked by his tailor for at least the interest of his bill had retorted:
“It is not my interest to pay the principal, nor my principle to pay the interest”.
2. Petitioner Assessee inter alia engaged in the business of manufacture of computer software & providing IT enabled services, is knocking at the doors of Writ Court for assailing the order dated 29.03.2019, a copy whereof is at Annexure-A whereby the second respondent-DCIT having negatived its application dated 22.03.2019 filed u/s 244A(1A) of the Income Tax Act, 1961 (hereafter ‘1961 Act’) has denied additional 3% interest on the allegedly delayed refund of amount relatable to Assessment Year 2008-09.
3. The second respondent having contexted Section 244A(1A) of the Act has styled the operative portion of the impugned order as under:
“In this case, the Hon’ble ITAT, Bengaluru has remitted back the issue of Transfer Pricing to the AO for fresh assessment/re-assessment as per Para No. 5 & 6 of the ITAT order. Further, fresh approval has been taken from the Hon’ble Prl. CIT- 7, Bengaluru for reference to the Transfer Pricing Officer and the same has been referred. The TPO re-computed the adjustments, based on the directions of Hon’ble ITAT, and TP order was passed on 31.10.2017.
As this is the case of fresh assessment/re-assessment, an additional interest u/s 244A(1A) will not be applicable in this case.”
4. After service of notice, the respondents having entered appearance through their Panel Counsel resisted the writ petition making submission in justification of the impugned order and the reasons on which it has been structured.
5. FACTS IN BRIEF:
(a) Petitioner’s return of income for the Assessment Year 2008-09 declaring a total income of Rs.588,08,04,584/-having been selected for scrutiny u/s 143(2) of the Act, a reference was made to the Transfer Pricing Officer (hereafter ‘TPO’) qua the international transactions; the TPO in exercise of power u/s 92C(A) carried out an aggregate adjustment of Rs.10,54,52,192/-; the first respondent-Joint Commissioner of Income Tax (hereafter ‘JCIT’) had proposed a Draft Assessment Order dated 28.12.2011 u/s 143(3) r/w 144C(1), to which petitioner filed his Objections before the Dispute Resolution Panel (hereafter ‘DRP’); in terms of DRP order dated 17.09.2012, the JCIT assessed the income at Rs.2389,89,57,307/- against the original amount of Rs.588,08,04,584/- supra.
(b) Both the Assessee and the Revenue having appealed against the above, the Income Tax Appellate Tribunal (hereafter ‘ITAT’) passed the order dated 4.1.2017 u/s 254 of the Act partly favouring the Assessee and remitted the case to TPO with a direction for re-computation of the Transfer Pricing Adjustment (hereafter ‘TPA’); accordingly, the TPO re-computed the said adjustment in terms of direction of ITAT; the JCIT to give effect to the ITAT order, on 28.12.2017 determined the total income of the Assessee at Rs.693,88,05,177/- and the tax payable thereon was determined at Rs.206,69,34,730/-; however, the tax on book profit was higher at Rs.316,85,23,810/-; the above calculations eventually resulted in a refund of Rs.1057,45,30,057/- which included interest payable u/s 244A amounting to Rs.267,54,62,251/-.
(c) The files of the Assessee were transferred to another Assessing Officer i.e., second respondent-DCIT before whom Rectification Application dated 18.01.2018 was moved u/s 154; on a similar application being moved, the TPO made rectification of the adjustment u/s 92C(A) of the Act; since the Rectification Application dated 18.01.2018 was still pending, further Rectification Applications were also filed, followed by their summarization vide letters dated 17.05.2018 & 22.03.2019; the second respondent having considered the same, passed the impugned order u/s 154 enhancing the refund to Rs.1380,13,00,740/- which included an interest amount of Rs.397,56,39,522/-; the Assessee grieves against denial of 3% addl. interest envisaged u/s 244A(1A) for the period between 28.12.2017 i.e., date of ITAT order and 4.5.2019 i.e., the date on which refund was finally granted; this period being seventeen months, the Assessee quantifies the interest amount at Rs.58.65 crore.
6. SUBMISSIONS CANVASSED ON BEHALF OF THE ASSESSEE:
(a) Section 153(2A) of the Act prior to 2016 amendment encompassed within itself the power to make fresh Assessment Order in terms of orders made in appeal; if recomputation was required for giving effect to these appellate orders, no time limit was prescribed since that was covered by Section 153(6); however, a significant change was brought in by amendment vide Finance Act, 2016 that contemplates two scenarios viz., (i) making of fresh assessment orders pursuant to appellate orders that have set aside or cancelled the assessment, under subsection (3) of section 153, & (ii) giving effect to appellate orders other than those covered by fresh assessment orders in terms of sub-section (5) of section 153; the 2016 Act amended section 244A by introducing sub-section (1A) providing for the grant of additional interest in cases falling u/s 153(5).
(b) The orders of the kind made u/s 244A(1A) can be classified into two categories viz. (i) the ones where a fresh assessment/re-assessment needs to be made, & (ii) the others where only effect is to be given to the appellate orders straightway sans any fresh assessment/re-assessment; the direction of the ITAT to the TPO to recompute the transfer pricing adjustment would not fall within the later category; even otherwise, effect had to be given expeditiously to rest of the ITAT order which has attained finality, regardless of contemplated transfer pricing assessment;
(c) After all the transfer pricing adjustment would account for a refund of a paltry sum of Rs.3.88 crore compared to refund of Rs.978/- crore; to hold up the entire refund of such a huge amount on the pretext of deciding a small issue of TPA, offends the sense of fairness & proportionality; the transfer pricing adjustment actually was not determinative of the refund inasmuch as the tax amount was paid based on book profit, as provided u/s 115JB; the entitlement of the assessee for interest u/s 244A(1A) is intended to bring parity in the converse situation where the Revenue levies interest on delayed payment of taxes as provided u/s 234B.
So arguing, learned Senior Counsel appearing for the assessee seeks allowing of the Writ Petition.
7. SUBMISSIONS MADE ON BEHALF OF REVENUE:
(a) A plain reading of the provisions of section 244A(1A) makes it clear that an assessee is entitled to an additional interest only in cases where there is no requirement of fresh assessment or re-assessment in terms of appellate orders; assessment or re-assessment cannot by their very nature be done in piecemeal or in a truncated way; the total income of an assessee can be determined only after the fresh assessment or re-assessment is accomplished, consistently with section 4 of the Act r/w the extant CBDT Explanatory Notes dated 20.1.2017; an argument to the contrary amounts to asking the AO to undertake the exercise even after he becomes functus officio and therefore is unsustainable.
(b) Section 240 contemplates refund, only after the accomplishment of the exercise mandated under the appellate order; where the assessment is set aside and a fresh assessment is directed, the question of granting interest at once would not arise till after the ascertainment of amount to be refunded, and that happens after the fresh assessment/re-assessment is done in terms of the ITAT order; the time limit of three months prescribed in Section 153(5) for passing ‘giving effect to’ orders is applicable only in cases where no fresh assessment or re-assessment is contemplated under the appellate orders; since the matter was remitted to the TPO for fresh assessment/re-assessment, case of the petitioner does not fit into section 244A(1A);
(c) Section 240 provides that the refund on appeal would arise where an order in appeal on assessment is set aside or cancelled with a direction to undertake a fresh assessment/re-assessment and such a direction is accomplished; although, section 153(5) prescribes a time limit of three months for giving effect to the orders passed under any of the provisions i.e., Ss.250, 254, 260, 262, 263 or 264 of the Act by the Assessing Officer; however, an exception is carved out in cases where a fresh assessment/re-assessment is contemplated; the provisions of section 153(5) and section 244A(1A) employ the expression “wholly or partly” to mean a fresh assessment/re-assessment to be made “wholly or partly” and that the said expression does not qualify “the order to give effect to the order on appeal”; the matter having been remitted to the TPO and to the AO for a de novo consideration though in certain aspects, the assessee is not entitled to the grant of addl. interest u/s 244A(1A), till after consideration takes place.
(d) The ITAT order is made by following the earlier order in the appeal of the assessee for the Assessment Years 2003-04 & 2004-05; accordingly, the matter has been remitted to the TPO to undertake a fresh exercise in terms of directions given in the earlier order; this exercise warrants a judicious approach since the matter merits re-examination of the issue in the light of the orders of the Tribunal and therefore, the case of the petitioner fits into second Proviso to section 153(5) of the Act, which makes a period of nine months availing to the AO.
So contending, learned Panel Counsel for the Revenue seeks dismissal of Writ Petition.
8. Both the counsel for the Assessee and the Sr. Panel Counsel for the Revenue have filed their Written Submissions and have pressed into service a catena of decisions, relevant of which have been adverted to; having heard the learned counsel for the parties and having perused the Petition Papers, this Court is inclined to grant indulgence in the matter as under and for the following reasons:
I. Some legal principles & morals which are to animate levy of tax and refund of un-taxable:
(i) A great Indian poet Kalidasa (500 CE) in his epic poem “Raghuvamsham” (1-18) states: “The King Dilip collects from his subjects only 1/6th of their income as tax for the welfare of State, indeed like the sun taking earthly water drops, only to indemnify her with multiples of rain-drops…” Chanakya in his acclaimed work “Arthashastr” advises the Rulers: “Collect taxes from the citizens as honeybees collect nectar from the flowers, gently and without inflicting pain…”;
(ii) A renowned jurist of yester-decades late Mr. Nani Palkhivala, in the concluding paragraph of Preface to the Eighth Edition of “The Law and Practice of Income Tax” said “Every Government has a right to levy taxes. But no Government has the right, in the process of extracting tax, to cause misery and harassment to the taxpayer and the gnawing feeling that he is made the victim of palpable injustice.”; the function of the Assessing Officer is to administer the statute with solicitude for the Public Exchequer with an inbuilt idea of fairness to tax payers; this view finds expression in the decision of the Apex Court in ACIT vs. Rajesh Jhaveri Stock Brokers P. Ltd. (2007) 291 ITR 500 (SC).
(iii) Walton J. had observed in Vestey v. Inland Revenue Commissioners [1979] Ch 177 (197 – 198) “I conceive it to be in the national interest, in the interest not only of all individual tax payers – which includes most of the nation – but also in the interests of the Revenue authorities themselves, that the tax system should be fair… One should be taxed by law, and not be untaxed by concession … A tax system which enshrines obvious injustices is brought into disrepute with all tax-payers accordingly, whereas one in which injustices, when discovered, are put right (and with retrospective effect when necessary) will command respect and support…”.
(iv) A Welfare State like ours is constitutionally expected to be fair & reasonable in dealing with the subjects and it must avoid any harassment to the assessee public, without causing any loss to the Exchequer (see Nokia Corporation v. Director of Income-tax [2007] 292 ITR 22 (Delhi HC); the State as constitutionally ordained, needs to conduct itself as a virtuous litigant and should meet honest claims; this view finds resonance in the decision of the Apex Court in State of U.P. v. Manohar [2005] 2 SCC 126; the maxim actus curiae neminem gravabit, i.e., an act of court shall prejudice none, is equally applicable to the quasi-judicial functions of Tax Authorities, as well.
(v) Article 265 of the Constitution of India mandates that no tax shall be levied or collected except by authority of law; if a tax has been paid in excess of the tax specified, the same has to be refunded; in Tata Chemicals 363 ITR 658 (SC), the Apex Court reasoned out why State should pay interest for holding tax payers’ money; a “tax refund” is a refund of taxes when the tax liability is less than the tax paid; when the said amount is refunded, it should carry interest as a matter of course, since it is a kind of recompense for the ‘unauthorized use or retention’ of money; refund due & payable to an assessee is a debt owed; Parliament has enacted this principle in Section 244A of the 1961 Act; in Aluminium Corporation of India Ltd. v UOI 1978 (2) ELT 452 (SC) the Apex Court observed that a good government involves not only diligent collection of taxes, but also ready refunds of excess levies.
II. As to meaning of “assessment”; difference between “assessment” & “assessment order”
(i) The DCIT has stated in the impugned order “… As this is the case of fresh assessment/re-assessment, an additional interest u/s. 244A(1A) will not be applicable … “; much has been argued on behalf of the assessee that his is not a case of fresh assessment/re-assessment, and therefore the impugned order is liable to be voided, whereas the Revenue has contended to the contrary; therefore, it becomes necessary to discuss these concepts. While juxtaposing contextual construction qua literal interpretation of statutes, Justice Krishna Iyer in CIT vs. ARAVIND REDDY, AIR 1980 SC 96 observed:
“The significance of a word of a plural semantic shades may, in a given text depend on the pressure of the context or other indicia. Absent such compelling mutation of sense, the speech of the lay is also the language of the law …”;
Keeping inter alia the above observation in mind, one has to ascertain the meaning of the above terms.
(ii) The 1961 Act has a Dictionary Clause in Sec.2;
Section 2(9) merely states that the assessment includes reassessment; this does not throw much light on the debated questions; in Sir Rajendranath Mukerjee v. CIT, (1934) 2 ITR 71 (PC), it has been held under the erstwhile Income Tax Act, 1922 that the word ‘assessment’ is not confined to the definite act of making an order of assessment; in C.A. Abraham v. ITO [1961] 41 ITR 425 (SC), in the context of section 44 of 1922 Act (similar to section 189 of the 1961 Act), it has been held that the term ‘assessment’ employed therein not only referred to computation of income but included the procedure for declaration & imposition of tax liability and the machinery for enforcement thereof;
(iii) It is pertinent to refer to what the Hon’ble Supreme Court observed in Auto & Metal Engineers v. Union of India [1998] 229 ITR 399 (SC):
“7. In the Act the provisions regarding procedure for assessment are contained in Chapter XIV (sections 139 to 158). Under the said provisions, the process of assessment involves (i) filing of the return of income u/s. 139 or u/s. 142 in response to a notice issued u/s. 142(1); (ii) inquiry by the Assessing Officer in accordance with the provisions of sections 142 and 143; (iii) making of the order of assessment by the Assessing Officer u/s. 143(3) or section 144; and (iv) issuing of the notice of demand u/s. 156 on the basis of the order of assessment. The process of assessment, thus, commences with the filing of the return or where the return is not filed by the issuance by the Assessing Officer of notice to file the return u/s. 142(1) and it culminates with the issuance of the notice of demand u/s. 156. The making of the order of assessment is, therefore, an integral part of the process of assessment…”
(iv) In CIT v. Purshottamdas T. Patel [1994] 209 ITR 52 (Guj), the Hon’ble High Court of Gujarat has observed that section 153 requires that the assessment should be completed within the prescribed time limit and unless the total income is ascertained & tax payable is determined, the process of assessment cannot be said to be complete; it also held that an ‘order of assessment’ is an order in writing whereby the total income of the assessee is assessed and the tax payable by him is determined; thus, the passing of an assessment order is only an integral part of the process of assessment and therefore, the word ‘assessment’ cannot be confined to the act of making an order of assessment; there is a certain legal difference between the terms ‘assessment’ & ‘assessment order’; it can be stated that the use of the word ‘assessment’ would mean the whole process of determination of income and the same should not be restricted to a mere passing of an assessment order.
III. As to meaning of the term ‘setting aside or cancelling an assessment’
(i) Ordinarily, when an assessment is set aside or cancelled, a fresh assessment follows; a perusal of the following sections reveals that making of a fresh assessment invariably precedes setting aside or cancelling an assessment:
