Whether taxpayer eligible for Interest under section 244A(1) on refund of excess self-assessment tax paid than tax due?

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Whether taxpayer eligible for Interest under section 244A(1) on refund of excess self-assessment tax paid than tax due?

Short overview :

Under clause (b) of section 244A(1) assessee was entitled to interest on refund payable on account of self-assessment tax paid being in excess of tax due, for the date of payment of self-assessment tax up to date of granting of refund by revenue authorities as per law applicable for assessment year 2010-11.

AO, did not grant any interest on refund due to the assessee on account of self assessment tax paid in excess than tax due by the assessee. The relevant assessment year was assessment year 2010-11. The interest on refund so quantified under section 244A by CIT(A) in its appellate order was Rs. 65,04,559 payable to the assessee on refund due to the assessee arising out of self assessment tax paid in excess than tax due by the assessee. Question which had arisen in this appeal for adjudication was as to whether the assessee, based on the facts and circumstances of the case, was entitled for interest under section 244A on the refund payable to the assessee arising out of self assessment tax paid in excess than the tax due by the assessee.

The CIT(A) has held that clause (b) of sub-section (1) of section 244A is applicable in the instant case. There was no dispute between rival parties that refund had become due to the assessee owing to excess self assessment tax paid by the assessee. It could be seen that specific provision was inserted vide clause (aa) to section 244A(1) to deal with interest on refunds arising out of excess self assessment tax paid under section 140A. The said clause (aa) was added to sub-section (1) of section 244A by Finance Act, 2016 with effect from 1-6-2010. The issue was highly contentious. Presently, it was not brought to notice by both the rival parties any judgment of Supreme Court directly on this issue. This Tribunal was bound by decision of Bombay High Court being jurisdictional High Court and following the decision of Bombay High Court in the case of Stock Holding Corporation Limited, assessee would be entitled for interest on refund arising out of excess self assessment tax in accordance with and as provided vide clause (b) of sub-section (1) of section 244A as it was then prevailing for the impugned assessment year. Tribunal thus sustained decision of CIT(A). Revenue failed in this appeal.

Decision: In assessee’s favour.

Followed: Stock Holding Corporation of India Ltd. v. CIT (2015) 373 ITR 282 (Bom) : 2015 TaxPub(DT0 372 (Bom-HC).

Relied: CIT v. Vijaya Bank reported in (2011) 338 ITR 489 (Karn) : 2012 TaxPub(DT) 343 (Karn-HC) and CIT v. Sutlej Industries Ltd. (2010) 325 ITR 331 (Del) : 2010 TaxPub(DT) 1670 (Del-HC).

Referred: Engineers India Limited v. CIT reported in (2017) 397 ITR 16 (SC) : 2017 TaxPub(DT) 3880 (SC)CIT v. Engineers India Limited (2015) 373 ITR 377 (Del) : 2015 TaxPub(DT) 720 (Del-HC)CIT v. Sutlej Industries Limited (2010) 325 ITR 331 (Delhi) : 2010 TaxPub(DT) 1670 (Del-HC)Sutlej Industries Limited v. CIT reported in (2016) 67 taxmann.com 76 (Delhi) : 2016 TaxPub(DT) 325 (Del-HC)CIT v. Rajaratna Mills Limited reported in (2016) 241 Taxman 313 (SC) : 2016 TaxPub(DT) 3693 (SC)Stock Holding Corporation of India Limited v. CIT reported in (2015) 373 ITR 282 (Bom) : 2015 TaxPub(DT) 372 (Bom-HC)CIT v. Gujarat Flouro Chemicals 2013 (296) ELT 433(SC): (2013) 358 ITR 291 (SC) : 2014 TaxPub(DT) 1540 (SC)CIT v. Cholamandalam Investment & Finance Company Limited reported in (2007) 294 ITR 438 (Mad) : 2007 TaxPub(DT) 1291 (Mad-HC), judgment dated 6-6-2007CIT v. Gujarat Flouro Chemicals 2013 (296) ELT 433(SC): (2013) 358 ITR 291 (SC) : 2014 TaxPub(DT) 1540 (SC)Sutlej Industries Limited v. CIT reported in (2016) 67 taxmann.com 76 (Delhi) : 2016 TaxPub(DT) 325 (Del-HC),CIT v. Rajratna Mills Limited (2016) 72 taxmann.com121 (SC) : 2016 TaxPub(DT) 3693 (SC)  in SLP(C) No. 12195 of 2016 and Supreme Court dismissed SLP in Cholamndalam Investment & Finance Company Limited on 3-12-2009 in Special Leave Petition (SLP) No. 16877/2008.

IN THE ITAT, MUMBAI BENCH

MAHAVIR SINGH, J.M. & RAMIT KOCHAR, A.M.

Dy.CIT v. Savita Oil Technologies Ltd.

I.T.A. No. 7620/Mum/2016

24 April, 2019

Revenue by: D.G Pansari, Departmental Representative

Assessee by: Shiv Prakash

ORDER

Ramit Kochar, A.M.

This appeal, filed by Revenue, being ITA No. 7620/Mum/2016, is directed against appellate Order, dt. 16-9-2016 passed by learned Commissioner (Appeals)-50, Mumbai (hereinafter called “the Commissioner (Appeals)”) in Appeal No. Commissioner (Appeals)-50/IT-248/2015-16, for assessment year(AY) 2010-11, the appellate proceedings had arisen before learned Commissioner (Appeals) from the Order, dt. 29-6-2015 passed by learned assessing officer (hereinafter called “the assessing officer”) giving effect to the appellate order of learned Commissioner (Appeals) in Appeal No. Commissioner (Appeals)-50/IT-631/2013-14 for assessment year 2010-11.

  1. The grounds of appeal raised by Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under :–

“(1) “On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in directing the assessing officer to grant interest under section 244A, without appreciating the fact that the same is beyond the preview of the provisions enshrined in the Income Tax Act.”

(2) “On the facts and circumstances of the case and in law, the learned Commissioner (Appeals) erred in holding that the assessee is eligible to receive interest under section 244A relying on the submissions made by the appellant without calculating the interest, if any, payable as per the provisions of the Income Tax Act”

The appellant prays that the order of the Commissioner (Appeals) on the above grounds be set aside and that of the assessing officer be restored.

The appellant craves leave to amend or alter any ground and/or add new grounds which may be necessary.”

  1. A question which has arisen in this appeal for our adjudication is as to whether the assessee based on the facts and circumstances of the case is entitled for interest under section 244A of the Income Tax Act,1961 (hereinafter called “the Act”) on the refund payable to the assessee arising out of self assessment tax paid in excess than the tax due by the assessee The interest on refund so quantified under section 244A of the 1961 Act by learned Commissioner (Appeals) in its appellate Order, dt. 16-9-2016at page 1 is Rs. 65,04,559 payable to the assessee on refund due to the assessee arising out of self assessment tax paid in excess than tax due by the assessee. The assessing officer, however, did not granted any interest on refund due to the assessee on account of self assessment tax paid in excess than tax due by the assessee. The relevant assessment year before us is assessment year 2010-11, while section 244A of the 1961 Act was brought into statute by Direct Tax Laws (Amendment) Act, 1989, with effect from 1-4-1989. As we will see later in this order, the issue is contentious as Courts have interpreted this issue differently, so much so Hon’ble Supreme Court has set aside the matter to Hon’ble Delhi High Court in the case of Engineers India Limited v. CIT reported in (2017) 397 ITR 16 (SC) : 2017 TaxPub(DT) 3880 (SC) to be decided by larger Bench as Hon’ble Delhi High Court has taken a view in favour of Revenue in the case of CIT v. Engineers India Limitedreported in (2015) 373 ITR 377 (Del) : 2015 TaxPub(DT) 720 (Del-HC) as against its earlier decision in the case of CIT v. Sutlej Industries Limited (2010) 325 ITR 331 (Delhi) : 2010 TaxPub(DT) 1670 (Del-HC) wherein view in favour of the tax-payer was taken by Hon’ble Delhi High Court. The Hon’ble Delhi High Court in the later case of Sutlej Industries Limited v. CIT reported in (2016) 67 taxmann.com 76 (Delhi) : 2016 TaxPub(DT) 325 (Del-HC)  noted the conflicting decisions of its own court and referred the matter to Larger Bench of three judges to be constituted by Hon’ble Chief Justice of Delhi High Court. Further, in the case of CIT v. Rajaratna Mills Limited reported in (2016) 241 Taxman 313 (SC) : 2016 TaxPub(DT) 3693 (SC), the Hon’ble Supreme Court has admitted Special leave Petition (SLP). The Hon’ble Bombay High Court in the case of Stock Holding Corporation of India Limited v. CIT reported in (2015) 373 ITR 282 (Bom) : 2015 TaxPub(DT) 372 (Bom-HC)) has decided this issue in favour of the tax-payer by holding that interest on refund will be payable under section 244A(1)(b) of the 1961 Act on refund arising out of excess self assessment tax paid under section 140A of the 1961 Act which shall be payable from the date of payment of self assessment tax till the date of grant of refund to the taxpayer. We are bound by the decision of Hon’ble jurisdictional High Court which we will Respectfully follow as we will see later in this order and relief to the assessee will be granted vide this order. Incidentally Hon’ble Delhi High Court decided this issue in favour of Revenue in the case of CIT v. Engineers India Limited (supra) after duly considering the decision of Hon’ble Bombay High Court in the case of Stock Holding Corporation Limited (supra) and took a view in favour of Revenue by holding that Hon’ble Bombay High Court did not notice the clarification given by Hon’ble Apex Court in the case of CIT v. Gujarat Flouro Chemicals 2013 (296) ELT 433(SC): (2013) 358 ITR 291 (SC) : 2014 TaxPub(DT) 1540 (SC).

3.2 The brief facts of the case are that the assessee has filed its return of income with Revenue on 24-9-2010, declaring total income of Rs. 102,50,48,112. The return of income was processed by Revenue on 5-3-2012 under section 143(1) of the Act determining refund due to assessee of Rs. 1,09,84,740. The case was selected for framing scrutiny assessment under section 143(3) read with section 143(2) of the 1961 Act. The assessee revised its return of income declaring total income of Rs. 102,56,82,471. The assessing officer framed assessment under section 143(3) vide Order, dt. 30-3-2013 assessing total income at Rs. 109,31,57,263 under normal provisions of the 1961 Act while book profit was computed under section 115JB at Rs. 130,76,03,940. The income was later revised by the assessing officer to Rs. 108,07,80,966 to correct mistakes apparent from records under section 154 of the 1961 Act vide Order, dt. 10-6-2014. The assessee had filed an appeal with learned Commissioner (Appeals) challenging additions made by the assessing officer while framing scrutiny assessment and learned Commissioner (Appeals) was pleased to grant relief to the assessee vide appellate Order, dt. 28-2-2015in Appeal No. Commissioner (Appeals)-50/IT-631/2013-14. The assessing officer was pleased to pass an Order, dt. 29-6-2015giving effect to the appellate Order, dt. 28-2-2015 passed by learned Commissioner (Appeals), wherein the income computed was Rs. 1,01,85,84,082 after taking into effect relief granted by learned Commissioner (Appeals). The assessee was granted further refund of Rs. 1,70,84,640 vide Order, dt. 29-6-2015. Thus, the total refund which stood granted to the assessee was Rs. 2,80,69,376 (Rs. 1,09,84,740 vide order under section 143(1) and Rs. 1,70,84,640 vide Order, dt. 29-6-2015 giving appeal effect to learned Commissioner (Appeals) appellate Order, dt. 28-2-2015. No interest under section 244A of the Act was allowed to the assessee by the assessing officer while granting aforesaid refunds aggregating to Rs. 2,80,69,376 to the assessee, while learned Commissioner (Appeals) has held in favour of the assessee and interest under section 244A was granted vide clause (b) to sub-section 1 to section 244A of the 1961 Act.

  1. The non granting of the interest under section 244A of the 1961 Act on the aforesaid refund arising out of self assessment tax paid in excess of tax due was challenged by assessee before learned Commissioner (Appeals). The working of the gross demand of taxes, payment of taxes by the assessee and refund due to the assessee are detailed hereunder :–

(In Rs.)

TDS (A) 9,29,646
Advance tax (B) 28,85,00,000
Self Assessment Tax (C) 6,38,21,500
Taxes Paid (Gross) (D) = (A)+(B)+(C) 35,32,51,146
Gross demand as per Order, dt. 29-6-2015 (E) 32,51,81,770
Amount by which Taxes Paid (Gross) exceeds Gross demand as per Order, dt. 29-6-2015 (F)=(D)-(E) 2,80,69,376
Refund already granted to the appellant under section 143(1) on (G) 1,09,84,736
Excess Tax paid net of refund already issued (F)-(G) 1,70,84,640

4.2 The learned Commissioner (Appeals) was pleased to allow interest under section 244A(1)(b) of the 1961 Act on refund granted to the assessee, vide appellate Order, dt. 16-9-2016 passed by learned Commissioner (Appeals), by holding as under :–

“5.1 Ordinarily, interest is payable to the assessee on amount refunded. Payment of such refund is governed by section 244A of the Act. For this purpose, the cases where refund becomes due have been divided into two categories :–

Category 1 : These are cases 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 being under section 199, during the financial year. They are covered by clause (a) of section 244A.

Category 2 : These are cases which do not fall under category 1. They are covered by (b) which is the residual clause.

5.2 In cases under category 1, interest under section 244A is payable if and only if it is not covered by the proviso to clause (a) of section 244A. In category 2 cases, however, interest is payable in all cases.

The present case is not covered by clause (a) because aggregate of payments made through the modes of payments mentioned in that clause was less than the tax liabilities determined. Therefore, it is covered by clause (b) which is the residual clause.

5.4 In cases covered by clause (b) interest is payable for each month or part of the month comprised in the period or periods from the day or, as the case may be, dates of payment of the tax or penalty to the day on which the refund is granted. Therefore, the appellant is entitled to receive interest under section 244A. The assessing officer is directed to grant interest under section 244A as under :–

(i) interest on Rs. 1,09,84,736 for the period from date of payment of Self Assessment Tax to the date of intimation under section 143(1) and

(ii) interest on Rs, 1,70,84,640 for the period from date of payment of Self Assessment Tax to 29-6-2015.”

Thus, the learned Commissioner (Appeals) held that clause (b) to sub-section 1 to section 244A of the 1961 Act is applicable in the instant case and hence the assessee is entitled for interest on the refund due to assessee on excess of self assessment tax paid over the tax due from the assessee, as detailed above.

  1. The Revenue being aggrieved by the appellate Order, dt. 16-9-2016passed by learned Commissioner (Appeals) and has filed an appeal before the tribunal. It is contended by learned Departmental Representative that interest is not allowable to the assessee under section 244A of the 1961 Act on refund due out of self assessment tax paid by the assessee. While on the other hand the learned Counsel for the assessee has contended before the Bench that the assessee is entitled for interest under section 244A on refund due to the assessee and amendment in 244A by insertion of clause (aa) to 244A(1) was by Finance Act 2016, with effect from 1-6-2016.
  2. We have considered rival contentions and perused the material on record. We have observed that the assessee has filed its return of income with Revenue on 24-9-2010, declaring total income of Rs. 102,50,48,112. The return of income was processed by Revenue on 5-3-2012 under section 143(1) of the Act determining refund due to assessee of Rs. 1,09,84,740. The case was selected for framing scrutiny assessment under section 143(3) read with section 143(2) of the 1961 Act. The assessee revised its return of income declaring total income of Rs. 102,56,82,471. The assessing officer framed assessment under section 143(3) vide Order, dt. 30-3-2013assessing total income at Rs. 109,31,57,263 under normal provisions of the 1961 Act while book profits were computed under section 115JB of Rs. 130,76,03,940. The income was later revised by the assessing officer to Rs. 108,07,80,966 to correct mistakes apparent from records under section 154 of the 1961 Act vide Order, dt. 10-6-2014. The assessee had filed an appeal with learned Commissioner (Appeals) challenging additions made by the assessing officer while framing scrutiny assessment and learned Commissioner (Appeals) was pleased to grant relief to the assessee vide appellate Order, dt. 28-2-2015 in Appeal No. Commissioner (Appeals)-50/IT-631/2013-14. The assessing officer was pleased to pass an Order, dt. 29-6-2015 giving effect to the appellate Order, dt. 28-2-2015 passed by learned Commissioner (Appeals), wherein the income determined by the assessing officer was Rs. 1,01,85,84,082 after taking into effect relief granted by learned Commissioner (Appeals). The assessee was granted further refund of Rs. 1,70,84,640 vide Order, dt. 29-6-2015. Thus, the total refund which stood granted to the assessee was Rs. 2,80,69,376 (Rs. 1,09,84,740 vide order under section 143(1) and Rs. 1,70,84,640 vide Order, dt. 29-6-2015). No interest under section 244A of the Act was allowed to the assessee by the assessing officer while granting aforesaid refunds aggregating to Rs. 2,80,69,376 to the assessee. The details of the total taxes payable by the assessee, the taxes paid by the assessee and refund due to the assessee are as under :–
TDS (A) 9,29,646
Advance tax (B) 28,85,00,000
Self Assessment Tax (C) 6,38,21,500
Taxes Paid (Gross) (D) = (A)+(B)+(C) 35,32,51,146
Gross demand as per Order, dt. 29-6-2015 (E) 32,51,81,770
Amount by which Taxes Paid (Gross) exceeds Gross demand as per Order, dt. 29-6-2015 (F)=(D)-(E) 2,80,69,376
Refund already granted to the appellant under section 143(1) on (G) 1,09,84,736
Excess Tax paid net of refund already issued (F)-(G) 1,70,84,640

6.2 Thus, as can be seen from above chart that the assessee has paid an self assessment tax of Rs. 6,38,21,500, while the total refund due to the assessee was Rs. 2,80,69,376 (Rs. 1,09,84,740 vide order under section 143(1) and Rs. 1,70,84,640 vide Order, dt. 29-6-2015) and hence it could be said that the refund has fallen due to the assessee mainly on account of self assessment tax which was paid by the assessee. There is no dispute between rival parties that refund has become due to the assessee owing to excess self assessment tax paid by the assessee.

6.3 At this stage, it is important to refer to the provisions of section 244A as it appeared in the statute for assessment year 2010-11 which is relevant, which is reproduced hereunder :–

“Interest on refunds.–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 (one-half 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 (sub-section (1) of section 115WE or) 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.

(2) If the proceedings resulting in the refund are delayed for reasons attributable to the assessee, whether wholly or in part, the period of the delay so attributable to him shall be excluded from the period for which interest is payable, and where any question arises as to the period to be excluded, it shall be decided by the Chief Commissioner or Commissioner whose decision thereon shall be final.

(3) Where, as a result of an order under (sub-section (3) of section 115WE or section 115WF or section 115WG or) (sub-section (3) of section 143 or section 144 or) section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount on which interest was payable under sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced, the assessing officer shall serve on the assessee a notice of demand in the prescribed form specifying the amount of the excess interest paid and requiring him to pay such amount; and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly.

(4) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1-4-1989, and subsequent assessment years 🙂

(Provided that in respect of assessment of fringe benefits, the provisions of this sub-section shall have effect as if for the figures “1989”, the figures “2006” had been substituted.)”

6.4 We have also observed that there is an amendment in section 244A of the 1961 Act by Finance Act 2016 with effect from 1-6-2016 and the amended section 244A is reproduced hereunder :–

(Interest on refunds.–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.

((1A) In a case where a refund arises as a result of giving effect to an order under section 250 or section 254 or section 260 or section 262 or section 263 or section 264, wholly or partly, otherwise than by making a fresh assessment or reassessment, the assessee shall be entitled to receive, in addition to the interest payable under sub-section (1), an additional interest on such amount of refund calculated at the rate of three per cent per annum, for the period beginning from the date following the date of expiry of the time allowed under sub-section (5) of section 153 to the date on which the refund is granted.)

(2) If the proceedings resulting in the refund are delayed for reasons attributable to the assessee, whether wholly or in part, the period of the delay so attributable to him shall be excluded from the period for which interest is payable (under sub-sections (1) or (1A)), and where any question arises as to the period to be excluded, it shall be decided by the Principal Chief Commissioner or) Chief Commissioner or Principal Commissioner or) Commissioner whose decision thereon shall be final.

(3) Where, as a result of an order under (sub-section (3) of section 115WE or section 115WF or section 115WG or) (sub-section (3) of section 143 or section 144 or) section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount on which interest was payable under sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced, the assessing officer shall serve on the assessee a notice of demand in the prescribed form specifying the amount of the excess interest paid and requiring him to pay such amount; and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly.

(4) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1-4-1989, and subsequent assessment years :–

Provided that in respect of assessment of fringe benefits, the provisions of this sub-section shall have effect as if for the figures “1989”, the figures “2006” had been substituted.)”

6.5 Thus, it could be seen that specific provision is inserted vide clause(aa) to section 244A(1) to deal with interest on refunds arising out of excess self assessment tax paid under section 140A of the 1961 Act. The said clause (aa) is added to sub-section 1 to section 244A by Finance Act, 2016 with effect from 1-6-2016.

6.6 We have observed that Hon’ble Delhi High Court has in CIT v. Sutlej Industries Limited reported in (2010) 325 ITR 331 (Delhi) : 2010 TaxPub(DT) 1670 (Del-HC) vide judgment dated 15-3-2010 has held that interest on refund arising out self assessment tax paid under section 140A in excess of tax due shall be governed by clause (b) to sub-section (1) to section 244A of the 1961 Act and shall be payable from the date of payment of self assessment tax till the date of grant of refund. The Hon’ble Delhi High Court relied upon decision of Hon’ble Madras High Court in the case of CIT v. Cholamandalam Investment & Finance Company Limited reported in (2007) 294 ITR 438 (Mad) : 2007 TaxPub(DT) 1291 (Mad-HC), judgment dated 6-6-2007 to decide the issue in favour of tax-payer, wherein Hon’ble Delhi High Court held as under :–

“This appeal was admitted on the following substantial question of law :–

“Whether section 244(1)(b) read with Explanation thereto excludes payment of interest on refund of self-Assessment Tax ?”

  1. Since it is a pure question of law, the learned counsel for the parties advanced arguments finally. They wanted sometime to file the written synopsis of their submissions as well, for which one week time was granted.
  2. For answering the aforesaid question following brief facts are adumbrated :–

(a) The respondent-assessee had for the assessment year 1998-99, in addition to TDS and advance tax, also paid self-assessment tax under section 140A of the Income Tax Act, 1961 (in short ‘the Act’).

(b) On 24-4-2002 an order was framed under section 250/143(3) of the Act whereby a refund of Rs. 66,90,474, earlier paid as self-assessment tax by the assessee, was made. The respondent-assessee claimed interest on the amount refunded which was not allowed by the assessing officer.

(c) The respondent-assessee carried the matter in appeal before the Commissioner of Income Tax (Appeals) (Commissioner (Appeals)) claiming interest on the entire amount of refund including the amount paid on self-assessment. The Commissioner (Appeals) vide Order, dt. 9-7-2003 found that the plea of the respondent-assessee was not tenable and consequently confirmed the order of the assessing officer.

(d) Vide the impugned Order, dt. 29-10-2004 the Income Tax Appellate Tribunal (in short ‘the Tribunal’) allowed the appeal of the assessee and set aside the order of the Commissioner (Appeals) relying upon the decision of the Supreme Court in the case of Modi Industries Ltd. v. CIT (1995) 216 ITR 759 (SC) : 1995 TaxPub(DT) 1362 (SC). The Tribunal, consequently, held that the respondent-assessee would be entitled to interest on refund relating to payment under section 140A also from the date of payment till the date of granting the refund.

(e) Aggrieved by the impugned Order, dt. 29-10-2004 rendered by the Tribunal, the Revenue has preferred the present appeal.

  1. Before the insertion of section 244A as a composite section by the Direct Tax Laws (Amendment) Act, 1987, the liability to pay interest on refund of pre-paid taxes was contained in section 214 read with section 244(1A) of the Act, which read as follows:–

“Section 214(1) : The Central Government shall pay simple interest at fifteen per cent per annum on the amount by which the aggregate sum of any instalments of advance tax paid during any financial year in which they are payable under sections 207 to 213 exceeds the amount of the assessed tax from the 1st day of April next following the said financial year to the date of the regular assessment for the assessment year immediately following the said financial year, and where any such instalment is paid after the expiry of the financial year, during which it is payable by reason of the provisions of section 213, interest as aforesaid shall also be payable on that instalment from the date of its payment to the date of regular assessment :–

Provided that in respect of any amount refunded on a provisional assessment under section 141A, no interest shall be paid for any period after the date of such provisional assessment.

(1A) Where as a result of an order under section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount on which interest was payable under sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced, the assessing officer shall serve on the assessee, a notice of demand in the prescribed form specifying the amount of the excess interest payable and requiring him to pay such amount; and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly. (2) On any portion of such amount which is refunded under this Chapter, interest shall be payable only up to the date on which the refund was made.

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Section 244(1): Where a refund is due to the assessee in pursuance of an order referred to in section 240 and the assessing officer does not grant the refund within a period of three months from the end of the month in which such order is passed, the Central Government shall pay to the assessee simple interest at fifteen per cent per annum on the amount of refund due from the date immediately following the expiry of the period of three months aforesaid to the date on which the refund is granted.

(1A) Where the whole or any part of the refund referred to in sub-section (1) is due to the assessee, as a result of any amount having been paid by him after the 31-3-1975, in pursuance of any order of assessment or penalty and such amount or any part thereof having been found in appeal or other proceeding under this Act to be in excess of the amount which such assessee is liable to pay as tax or penalty, as the case may be, under this Act, the Central Government shall pay to such assessee simple interest at the rate specified in sub-section (1) on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund is granted:”

  1. The Supreme Court had occasion to interpret the provisions of the sections aforementioned in the case of Modi Industries Ltd.(supra). The Supreme Court in that case held that the assessee was entitled to interest under the aforesaid sections on refund of pre-paid taxes (advance tax, TDS etc.) from the first day of the assessment year and in the case of self-assessment tax from the date of payment of self-assessment tax till the date of grant of refund. The Supreme Court concluded as under:–

“(i) Up to 31-3-1975, interest under section 214 is payable from the first day of April of the relevant assessment year to the date of the first assessment order. The amount on which the interest is to be paid is the amount of advance tax paid in excess of the tax payable by the assessee as calculated in the regular assessment (the first assessment order). The amount on which interest was payable did not vary due to the reduction or enhancement of tax as a result of any subsequent proceeding. But with effect from 1-4-1985 while the period for which interest was payable remained constant, the amount on which the interest was payable, varied with the variation in the quantum of refund as a result of any subsequent orders.

(ii) If any tax is paid pursuant to an assessment order after 31-3-1975 (which will include tax deducted at source and advance tax to the extent the same has been retained and treated by the Income Tax Officer as payment of tax in discharge of the assessee’s tax liability in the assessment order), becomes refundable wholly or in part as a result of any appellate or other order passed, the Central Government will have to pay the assessee interest on the refundable amount under section 244(1A). For the purpose of this section, the amount of advance payment of tax and the amount of tax deducted at source must be treated as payment of income-tax pursuant to an order of assessment on and from the date when these amounts were set off against the tax demand raised in the assessment order, in other words the date of the assessment order.

(iii) With effect from 1-4-1985, interest payable under section 214 will increase or decrease in accordance with the variation in the quantum of the excess payment of tax brought about by orders passed subsequent to the regular assessment as mentioned in sub-section (1A).”

  1. The provisions of section 244A read as follows :–

“(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 one-half 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 sub-section (1) of section 115WE or 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….”

  1. Vide Circular No. 549, dt. 31-10-1989the Central Board of Direct Taxes (CBDT) explained the rationale of sections 214, 243 and 244. The said Circular No. 549reads as follows :–

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

11.3 These provisions, apart from being complicated, left certain gaps for which interest was not paid by the Department to the assessee for money remaining with the Government. To remove this inequity, as also to simplify the provisions in this regard, the Amending Act, 1987, has inserted a new section 244A in the Income Tax Act, applicable from the assessment year 1989-90 and onwards which contains all the provisions for payment of interest by the Department for delay in the grant of refunds. The rate of interest has been increased from the earlier 15 per cent per annum to 1.5 per cent per month or part of a month comprised in the period of delay in the grant of refund. The Amending Act, 1987, has also amended sections 214, 243 and 244 to provide that the provisions of these sections shall not apply to the assessment year 1989-90 or any subsequent assessment years.”

  1. In the case of Sandvik Asia Ltd. v. CIT (2006) 280 ITR 643 (SC) : 2006 TaxPub(DT) 1272 (SC), the Supreme Court held as under :–

“In view of the expressed provisions of the Income Tax 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,….”

  1. In the case of CIT v. Cholamandalam Investment & Finance Co. Ltd. (2007) 294 ITR 438 (Mad) : 2007 TaxPub(DT) 1291 (Mad-HC), the Madras High Court dealt with the question of whether the assessee is entitled to interest under section 244A as per clause (1)(b) of that section, when the refund arises on account of payment of self-assessment tax. The Madras High Court observed as under :–

“6. Even though the short title to section 140A reads as self-assessment, the charging phrase employed in section 140A namely “Where any tax is payable on the basis of any return required to be furnished under section 115WD or section 115WH or section 139 or section 142 or section 148 or section 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 section 115WJ, which deals with advance tax in respect of fringe benefits; or

(ii) the tax collected at source under section 206C; or

(iii) any tax paid by way of advance tax or any tax treated as paid under section 199, which deals with credit for tax deducted, which are provided under section 244A(1)(a)

  1. The proviso to section 244A(1)(a) makes it clear that (i) 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 section 115WJ in respect of fringe benefits; (ii) tax collected at source under section 206C; and (iii) advance tax or any tax treated as paid under section 199. But, with respect to other tax as per section 244A(1)(b), the interest shall be payable even if the amount is less than 10 per cent of the tax as determined under section 143(1) or on the regular assessment, because there is no proviso to section 244A(1)(b) as provided under section 244A(1)(a).”

The Madras High Court further observed :–

“It is also trite law that wherever the assessee is entitled to refund, there is a statutory liability on the Revenue to pay the interest on such refund on general principles to pay the interest on sums wrongfully retained (reference Sandvik Asia Ltd.).”

  1. The Supreme Court dismissed the Special Leave Petition (SLP) No. 16877/2008filed by the Revenue against the decision in Cholamandalam Investment & Finance Co. Ltd.’s case (supra), vide Order, dt. 3-12-2009. The Supreme Court has also, recently, in the case of CIT v. H.E.G. Ltd. (Civil Appeal No. 8176/2009, Civil Appeal No. 8177 and 8187/2009, S.L.P. (C) No. 34268/2009 (CC 10437/2009)vide its Order, dt. 3-12-2009), held that the expression “refund of any amount” would include interest under section 244A (on refund of tax deducted at source) to which the assessee was lawfully entitled but had been wrongly withheld by the Department.
  2. On an analysis of section 244A of the Act it is seen that where “refund of any amount” becomes due to the assessee, the assessee is entitled to simple interest thereon. The mode and manner of calculating such interest is laid down in clauses (a) and (b) of sub-section (1) of the said section. Where the refund is out of pre-paid taxes, interest is calculated in terms of section 244A(1)(a) of the Act. Where the refund is of taxes paid other than pre-paid taxes covered in clause (a), the computation of interest is for the period prescribed in clause (b), sub-section (1) of the said section. In Cholamandalam Investment & Finance Co. Ltd.’s case (supra), it was held that even though the short title to section 140A reads as self-assessment, the charging phrase employed in section 140A, namely, “where any tax is payable on the basis of any return required to be furnished under section 115WD or 115WH or section 139 or section 142 or section 148 or section 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 section 115WJ, which deals with advance tax in respect of fringe benefits; or (ii) the tax collected at source under section 206C; or (iii) any tax paid by way of advance tax or any tax treated as paid under section 199, which deals with credit for tax deducted, which are provided under section 244A(1)(a).
  3. The tax due on the returned income has to be paid by way of tax deducted at source (section 199), advance tax (section 209) or by way of self-assessment tax (section 140A). In addition, where the assessment is completed at an income higher than the returned income, the tax payable by the assessee is specified in the notice of demand issued under section 456(Sic. 156) of the Act. Where there is a shortfall in payment on tax vis-a-visthe tax finally due on the assessed income, the assessee is liable to pay interest under section 234B of the Act. Conversely, where the revenue makes a high-pitched assessment which is subsequently reduced/modified in appeal, any payment of taxes made, which are subsequently refunded as a consequence of relief obtained in appeals, etc., are monies legitimately belonging to the taxpayers and wrongly withheld by the Government. This is based on the principle that if the revenue had, in the first instance, made correct assessment of the tax liability of the assessee, the assessee would not have been deprived by the use of money. In such a situation, where pre-paid taxes are in excess of the assessed tax, the assessee is entitled to refund of such tax along with interest thereon.
  4. Where an assessee out of abundant caution pays self-assessment whilst staking a claim in the return, which claim is accepted, resulting in refund of self-assessment tax, the assessee should be equally entitled to interest thereon.
  5. Section 244A was inserted in the statute as a measure of rationalization to ensure that the assessee is duly compensated by the Government, by way of payment of interest for monies legitimately belonging to the assessee and wrongfully retained by the Government, without any gaps.
  6. Therefore, in our view where the self-assessment tax paid by the assessee under section 140A is refunded, the assessee should be, on principle, entitled to interest thereon since the self-assessment tax falls within the expression “refund of any amount”. The computation of interest on self-assessment tax has to be in terms of section 244A(1)(b), i.e., from the date of payment of such amount up to the date on which refund is actually granted. We find support for this conclusion from the decision of the Madras High Court in Cholamandalam Investment & Finance Co. Ltd.’s case (supra), the SLP against which order was dismissed by the Supreme Court. Even otherwise, it is trite law that wherever the assessee is entitled to refund, there is statutory liability on the Revenue to pay the interest on such refund on general principles to pay the interest on sums wrongfully retained (Sandvik Asia Ltd’scase (supra)).
  7. In view of the discussion above, we answer the question of law in favour of the assessee and against the revenue. The present appeal is accordingly dismissed.”

The Hon’ble Delhi High Court noted in aforesaid decision in the case of Sutlej Industries Limited (2010) 325 ITR 331 (Delhi) : 2010 TaxPub(DT) 1670 (Del-HC) that SLP filed by Revenue against the decision of Hon’ble Madras High Court in the case of Cholamandlam Investment & Finance Company Limited (supra) stood dismissed by Hon’ble Supreme Court in Special Leave Petition (SLP) No. 16877/2008 vide Orders, dt. 3-12-2009.

6.7. Hon’ble Karnataka High Court also decided the identical issue in favour of tax-payer in the case of CIT v. Vijaya Bank reported in (2011) 338 ITR 489 (Kar) : 2012 TaxPub(DT) 343 (Karn-HC), by holding that refund out of excess self assessment tax shall fall under clause (b) to sub-section 1 to section 244A of the 1961 Act, by holding as under :–

“6. Section 244A provides for interest on refunds which reads as under :–

“244A. Interest on refunds.-(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 one-half 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 sub-section (1) of section 115WE or 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.”

The aforesaid provision makes it clear, where any amount becomes due to the assessee under the Act by way of refund, the assessee is entitled to receive the said amount of refund with simple interest thereon. How the interest is to be calculated and the rate of interest is provided in the clauses (a) and (b). In calculating the interest payable, the section provides for different dates from which the interest is to be calculated.

  1. Clause (a) deals with refund in respect of the following categories of the taxes :–

(i) the tax paid under section 115W which deals with advances tax in respect of fringe benefits;

(ii) the tax collected at source under section 206C which is called as tax deducted at source under section 206C;

(iii) tax paid by way of advance tax;

(iv) tax treated as paid under section 199 which is known as tax deducted at source by the creditor of the assessee.

  1. In all these cases, if the amount of tax paid is in excess of the tax liability of the assessee and consequently the assessee is entitled to refund of excess tax paid, the same is refundable with interest at 1½ per cent for every month. The interest payable on the tax to be refunded is to be calculated from the first day of April of the assessment year to the date on which the refund is paid. In other words, irrespective of the date of payment of these taxes, insofar as payment of interest is concerned, it is to be calculated from a future date namely the first day of April of the assessment year. The proviso to this provision exempts payment of interest if the amount of refund is less than 10 per cent of the tax determined under sub-section (1) of section 115WE or sub-section (1) of section 143 or on regular assessment.
  2. Insofar as clause (b) is concerned, it applies to a case which is not covered under clause (a). The interest is payable from the date of payment of tax. An Explanation is added to this clause defines the meaning of the word ‘date of payment of tax or penalty’ in the aforesaid clause to mean, the date on and from which the amount of tax specified in the notice of demand issued under section 156 is paid in excess of such payment. Therefore, if tax is paid in pursuance of a notice of demand issued under section 156 of the Act, and if that tax or any portion of that tax is ordered to be refunded, the said amount is refundable with interest from the date of such payment. In other words, the interest payable on such amount is not to be calculated from the First of April of the assessment year as provided in clause (a). It is in this background, we have to see if any tax is paid which does not fall under these categories, from what date the interest is payable on such excess payment of tax.
  3. The learned counsel for the revenue submitted that if the case does not fall under any of these clauses, then there is no liability to pay tax at all. If at all tax is to be paid, it is from the date of the determination of the tax liability, i.e., the passing of the assessment order, on which date, the tax paid is adjusted towards the tax liability. This problem did confront the Department. Therefore, they have issued a Circular No. 549, dt. 31-10-1989. After referring to the salient features of the said section in detail at Paragraph 11.3, it is stated as under :–

“These provisions, apart from being complicated, left certain gaps for which interest was not paid by the Department to the assessee for money remaining with the Government. To remove this inequity, as also to simplify the provisions in this regard, the Amending Act, 1987, has inserted a new section 244A in the Income Tax Act, applicable from the assessment year 1989-90 and onwards which contains all the provisions for payment of interest by the Department for delay in the grant of refunds. The rate of interest has been increased from the earlier 15 per cent per annum to 1.5 per cent per month or part of a month comprised in the period of delay in the grant of refund. The Amending Act, 1987, has also amended section 214, 243 and 244 to provide that the provisions of these sections shall not apply to the assessment year 1989-90 or any subsequent assessment years.”

  1. Therefore, the object behind insertion of section 244A as understood by the Department is that, an assessee is entitled to payment of interest for money remaining with the Government which would be ordered to be refunded. Therefore, if that is the object behind the insertion of section 244A, the contention of the revenue that if the case does not fall under either of the clauses in section 244A, no interest is payable, is without any substance.
  2. Clauses (a) and (b) specifically refer to the instances where interest is paid under the Act. It is not exhaustive. It is possible, in a given case, that after the expiry of the financial year, the assessee may pay tax either along with the self-assessment return or even before the return is filed. If ultimately the said payment is found to be in excess and the Department chooses to refund the said amount, then the question would be, from what date interest is payable since interest is payable on such refunds under section 244A. In the absence of an express proviso as contained in clause (a), it cannot be said that the interest is payable from the 1st of April of the assessment year. At the same time, as the said payment of tax was not made in pursuance of a notice of demand issued under section 156, Explanation to clause (b) has no application. In such cases, as the opening words of clause (b) specifically referred to ‘as in any other case’, the interest is payable from the dates of payment of the tax. As clause (b) expressly provides in any other case the payment of tax subsequent to the First day of April of the assessment year, either before or along with filing of the return would squarely fall under clause (b) and therefore, when the said amount is ordered to be refunded the interest is to be calculated from the date of such payment of tax. Having regard to the scheme of section 244A, and the circular issued by the Board which shows how the Department has understood the section coupled with the fact that the principle underlying the said section is that, any excess payment of tax paid by the assessee is not only to be refunded but it has to be refunded with interest, if the case of the assessee does not fall under clause (a) or the Explanation to clause (b), the excess tax paid shall be refunded with interest from the date of payment of such tax.
  3. In the instant case, it is not in dispute that the assessee has paid a sum of Rs. 15.5 crores on 29-6-2002, even before the date of filing of the returns. It is that amount which is ordered to be refunded as excess payment. Though the occasion to order for refund arose after the assessment order in which the payment of tax was adjusted towards the tax liability, the case does not fall under clause (a) or Explanation to clause (b). The said excess payment is to be refunded with interest from the date of payment of such tax, that is from 29-6-2002, till the date of refund. This is precisely what the Appellate Commissioner as well as the Tribunal has said. It is in accordance with law. No illegality nor any case for interference is made out. The substantial question of law is answered in favour of the assessee and against the revenue. Appeal stands dismissed. No costs.”

6.8 We have observed that Hon’ble Bombay High Court in the case of Stock Holding Corporation of India Ltd. v. CIT reported in(2015) 373 ITR 282 (Bom) : 2015 TaxPub(DT) 372 (Bom-HC) vide Judgment, dt. 17-11-2014has taken a view that refund arising out of excess self assessment tax paid by the tax-payer shall be entitled for interest as provided under clause (b) to sub- section (1) to section 244A of the 1961 Act. The Hon’ble Bombay High Court took support of the decision of Hon’ble Karnataka High Court in the case of CIT v. Vijay Bank (supra) and decision of Hon’ble Delhi High Court in the case of CIT v. Sutlej Industries Limited (2010) 325 ITR 331 (Delhi) : 2010 TaxPub(DT) 1670 (Del-HC) to decide the issue in favour of the tax-payer, by holding as under :–

“7. We have considered the rival submissions. On a bare analysis of section 244A(1) of the Act it is clear that amount paid by the petitioner as tax on self assessment would not stand covered by section 244A(1)(a) of the Act. This is so as it is neither the payment of tax by way of advance tax or by way of tax deducted at source. Thus tax paid on self assessment would fall under section 244A(1)(b) of the Act, i.e. a residuary clause covering refunds of amount not falling under section 244A(1) of the Act. The revenue contends that in the absence of tax on self assessment finding mention in section 244A(1)(a) of the Act, no interest is payable under section 244A(1) of the Act and section 244A(1)(b) of the Act would have no application. This contention is opposed to the meaning of the provision disclosed even on a bare reading. If the tax paid is not covered by clause (a) of section 244A(1), it falls within clause (b), which is a residuary clause. Besides, this contention stands negatived by the CBDT Circular bearing No. 549 dated 31-10-1989 wherein reference is made to section 244A and para 11.4 thereof reads as under :–

11.4 The provisions of the new section 244A are as under :–

(i) Sub-section (1) provides that where in pursuance of any order passed under this Act, refund of any amount becomes due to the assessee then–

(a) if the refund is out of any advance tax paid or tax deducted at source during the financial year immediately preceding the assessment year, interest shall be payable for the period starting from the 1st April of the assessment year and on the date of grant of the refund. No interest shall, however, be payable, if the amount of refund is less than 10 per cent of the tax determined on regular assessment;

(b) if the refund is out of any tax, other than advance tax or tax deducted at source or penalty, interest shall be payable for the period starting from the date of payment of such tax or penalty and ending on the date of the grant of the refund. (Refer to example III in para 11.8).”

The inferences to be drawn from the Board’s circular is clear that if refund is out of any tax other than out of advance-tax or tax deducted at source, interest shall be payable from the date of payment of tax and ending on the date of the grant of refund. It is to be noted that nowhere does the CBDT even remotely suggest that interest is not payable by the Department on self-assessment tax. Moreover, the amount paid under section 140A of the Act on self assessment is an amount payable as and by way of the tax after noticing that there is likely to be shortfall in the taxes already paid. Thus this payment is considered to be a tax under the aforesaid provision.

  1. The contention of revenue is that no interest at all is payable to the petitioner under section 244A(1)(a) and (b) of the Act unless the amounts have been paid as tax. It would not cover cases where the payment is gratuitous as is evident from the fact that the petitioner in its computation after paying tax on self assessment of Rs. 2.60 crores seeks a refund of Rs. 47 lacs. According to him it has to be refund of amounts paid as tax. We find that section 244A(1) of the Act commences with the word “when refund of any amount becomes due to the assessee under this Act…”. Sub-clause (b) thereof commences with the words “in any other case….”. The words used in section 244A(1) of the Act are clear inasmuch as it provides that refund of any amount that become due to any assessee under the Act will entitle the assessee to interest. In any case in the present facts, the amount on which the refund is being claimed was originally paid as tax on self-assessment under section 140A of the Act and evidence of the same in the form of challan was enclosed to the Return of Income. In fact when the assessing officer passed the Assessment Order on 31-12-1996, he accepted the entire amount paid as tax on self assessment as a payment of tax. One more feature to be noticed is that when any refund becomes due to an assessee out of tax paid, it becomes so only after holding that it is not the tax payable. Thus we find no substance in the first objection of the revenue that the amount paid as tax on self assessment is not tax and therefore no interest can be granted on refund of such amounts which are not tax.
  2. The next objection of the Revenue is that the decision of the Apex Court in Tata Chemicals Ltd.(supra) is inapplicable to the present facts. The case before the Apex Court in Tata Chemicals Ltd.(supra) arose as the quantum of tax deducted by it consequent to the order passed by the assessing officer directing it to deduct tax on amounts being remitted abroad, it was found in appeal that the payments made were in the nature of reimbursement and therefore not a part of income of the party to whom it is being remitted for the purposes of deduction of tax at source. Therefore Tata Chemicals sought refund of the amount paid in excess along with interest thereof. This the Supreme Court granted while making the following observations with regard to the liability to pay interest :–

‘A “tax refund” is a refund of taxes when the tax liability is less than the tax paid. As per the old section an assessee was entitled for payment of interest on the amount of taxes refunded pursuant to an order passed under the Act, including the order passed in an appeal. In the present fact scenario, the deductor/assessee had paid taxes pursuant to a special order passed by the assessing officer/Income Tax Officer. In the appeal filed against the said order the assessee has succeeded and a direction is issued by the appellate authority to refund the tax paid. The amount paid by the resident/deductor was retained by the Government till a direction was issued by the appellate authority to refund the same. When the said amount is refunded it should carry interest in the matter of course. As held by the Courts while awarding interest, it is a kind of compensation of use and retention of the money collected unauthorizedly by the Department. When the collection is illegal, there is corresponding obligation on the revenue to refund such amount with interest in as much as they have retained and enjoyed the money deposited. Even the Department has understood the object behind insertion of section 244A, as that, an assessee is entitled to payment of interest for money remaining with the Government which would be refunded. There is no reason to restrict the same to an assessee only without extending the similar benefit to a resident/deductor who has deducted tax at source and deposited the same before remitting the amount payable to a non-resident/foreign company.

Providing for payment of interest in case of refund of amounts paid as tax or deemed tax or advance tax is a method now statutorily adopted by fiscal legislation to ensure that the aforesaid amount of tax which has been duly paid in prescribed time and provisions in that behalf form part of the recovery machinery provided in a taxing Statute. Refund due and payable to the assessee is debt-owed and payable by the Revenue. The Government, there being no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, cannot shrug off its apparent obligation to reimburse the deductors lawful monies with the accrued interest for the period of undue retention of such monies. The State having received the money without right, and having retained and used it, is bound to make the party good, just as an individual would be under like circumstances. The obligation to refund money received and retained without right implies and carries with it the right to interest. Whenever money has been received by a party which ex aequo et bono ought to be refunded, the right to interest follows, as a matter of course.

In the present case, it is not in doubt that the payment of tax made by resident/depositor is in excess and the department chooses to refund the excess payment of tax to the depositor. We have held the interest requires to be paid on such refunds. The catechize is from what date interest is payable, since the present case does not fall either under clause (a) or (b) of section 244A of the Act. In the absence of an express provision as contained in clause (a), it cannot be said that the interest is payable from the 1st of April of the assessment year. Simultaneously, since the said payment is not made pursuant to a notice issued under section 156 of the Act, Explanation to clause (b) has no application. In such cases, as the opening words of clause (b) specifically referred to “as in any other case”, the interest is payable from the date of payment of tax. The sequel of our discussion is the resident/deductor is entitled not only the refund of tax deposited under section 195(2) of the Act, but has to be refunded with interest from the date of payment of such tax.’

From the aforesaid observations of the Apex Court in Tata Chemicals, it would be clear that the requirement to pay interest arises whenever an amount is refunded to an assessee as it is a kind of compensation for use and retention of money collected by the revenue.

  1. The only distinction being made in the present facts and those of Apex Court decision in Tata Chemicals is that the amount paid as tax on self assessment was paid voluntarily in the present case while in the case of Tata Chemicals Ltd.(supra) the tax was deducted at a higher rate in view of the order passed by the authority under the Act. We are unable to appreciate this distinction. This is for the reason that when an assessee pays tax either as Advance tax or on self assessment, it is paid to discharge an obligation under the Act. Not complying with the obligation under the Act visits consequences to an assessee just as non compliance of orders passed by authorities under the Act would. Thus there is no voluntary payment of tax on self assessment as contended by the revenue.
  2. The further submission of Mr. Pinto that in view of the Explanation to section 244A(1)(b)of the Act the same would apply only when the amounts are paid consequent to a notice issued under section 156 of the Act. Not otherwise. This very submission was advanced by the revenue before the Apex Court in the case of Tata Chemicals Ltd.(supra). In fact, the first Appellate Authority in the case of Tata Chemicals Ltd.(supra) had rejected the petitioner’s claim for interest on the ground that in view of the Explanation appended to section 244A(b) of the Act, refund of any amount under the aforesaid provision could only be in respect of refund of excess payment made under section 156 of the Act. The aforesaid interpretation was negatived in the second appeal by the Tribunal as well as by the High Court and the Apex Court.
  3. Similarly, the next contention urged on behalf of the revenue that the payment of interest should only be made from the date of notice under section 156 of the Act is issued to the petitioner in terms of Explanation to section 244A(1)(b) of the Act cannot be accepted for two reasons. Firstly, as held by the Supreme Court in Tata Chemi

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