ITAT, Cochin

DCIT vs State Bank of Travancore

ITA NOS. 13, 14, 25 (Coch.) of 2002 1187, 1189 and 1191 (COCH.) of 2004 Assessment Years 1989-90 to 1991-92, 1995-96, 1997-98 and 2001-02

N. Barathvaja Sankar and Riyaz S. Padvekar, JJ

21 July 2006

V. Sreekumar for the Appellant
K. Srinivasan and C. Naresh for the Respondent

Order

Riyaz S. Padvekar, Judicial Member. -The Revenue has filed these six appeals challenging the impugned orders of the Commissioner of Income-tax (Appeals)-I, Trivandrum for the assessment years 1989-90 to 1991-92, 1995-96, 1997-98 and 2001-02. The issues arising for our consi-deration in these appeals are common, hence, these appeals were heard together and now being disposed of by this common order for the sake of convenience.

2. The first issue which arises for our consideration and which is common in all the appeals is whether the assessee is entitled under section 244A of the Act interest on due interest on the refund if there is a delay in giving the refund to the assessee.

3. We have heard the Ld. Sr. Departmental Representative Shri V. Sreekumar for the revenue and the ld. Authorised Representatives Shri K. Srinivasan and Shri C. Naresh for the assessee. The Ld. D.R. submitted that the CIT (Appeals) erred in directing the Assessing Officer to grant interest on the entire amount that became refundable to the assessee without making any distinction between the tax and interest component of the refund. It was further submitted that the Legislature has envisaged payment of interest on excess tax collected deducted at source, advance-tax payment and other payment and that payment of tax already made is a pre-requisite for granting interest on the excess payment. He further argued that in the case of Kurumber Betta Estate v. ITO [2002] 257 ITR 3281 (Ker.), the Jurisdictional High Court has given a clear finding that section 244A would come into action only in the event of excess amount of tax, penalty, tax collected at source or paid as advance-tax, or treated as paid under section 199. The liability of the revenue to pay interest under section 244A is only towards the excess amount of tax or penalty, demanded or collected by it in discharge of the liability of an assessee. He further submitted that in the case of Kurumber Betta Estate (supra), the Hon'ble High Court has held that in the tax jurisprudence, there is no concept of equity and hence, the revenue cannot be directed to pay the interest in equity when there is no clear provision under the Income-tax. He further submitted that if the intention of the Legislature was to provide interest on interest then it would not have used the expression "simple interest" in section 244A nor would it have omitted interest from the purview of clause (b) of sub-section (1) of section 244A and the said clause only refers to tax and interest and laid down the manner for computation of interest under section 244A. Hence, he submitted that the CIT (Appeals) was not at all justified in directing the Assessing Officer to grant interest on the interest due on the amount of tax to be refunded. The ld. D.R. relied on the following precedents :

(i) Sandvik Asia Ltd. v. CIT [2004] 267 ITR 781 (Bom.).

(ii) Kurumber Betta Estate v. ITO [2002] 257 ITR 3282 (Ker.).

4. On the other hand, the ld. A.R. submitted that as far as the case of the assessee bank is concerned, section 244A is applicable as the said section was brought on the statute book from the assessment year 1989-90. He further submitted that there is a change in the wording in section 244A and the Legislature has used the words "refund of any amount becomes due to the assessee" and in section 244 the words used were "a refund is due to the assessee". He further submitted that section 240 is not applicable to the assessee on the facts. Moreover, in section 244A, the Legislature has not given the reference of section 240 which was earlier therein section 244 which ceased to apply from the assessment year 1989-90. He, therefore, submitted that "any amount due" includes the interest unauthorisedly withheld by the Department which otherwise the assessee is eligible to get as per provisions of law within the time-limit framed and the assessee can use that money. Interest due on the amount of tax refundable is also refund within the meaning of section 244A and CIT (Appeals) has rightly granted the same. The ld. A.R. further submitted that the decision of the Bombay High Court in the case of Sandvik Asia Ltd. (supra) has been reversed by the Supreme Court vide judgment dated 27-1-2006 and in the said judgment, the Supreme Court has held that if there is a delay in getting the refund then the assessee is entitled to interest on the interest due on the amount of tax. He further submitted that in the case of Sandvik Asia Ltd. (supra), the Supreme Court has examined the provisions of sections 214, 237 and 244, but the words used in section 244A are much more wider than the words used in section 244. He, therefore, submitted that the CIT(Appeals) has rightly directed the Assessing Officer to work out the interest on the amount of the tax as well as interest and grant the same to the assessee. The ld. A.R. relied on the following precedents :

(i) Sandvik Asia Ltd. v. CIT [2006] 280 ITR 6431 (SC)

(ii) CIT v. Narendra Doshi [2002] 254 ITR 6062 (SC)

(iii) D.J. Works v. Dy. CIT [1992[ 195 ITR 2273 (Guj.)

5. We have heard the rival submissions of the parties. We have also carefully considered the facts relating to this issue as per material placed before us. We have also considered the written submissions filed by the Ld. D.R as well as the Ld. A.R. In this case, it is not disputed that for all the assessment years in question, section 244A is applicable. The CBDT has explained the scope and effect of section 244A in Circular No. 549 dated 31-10-1989 as under :

"Payment of interest by the department for delay in grant of refund due to the assessee: 11.1 The old provisions regarding payment of interest by the Department. The old provisions in the Income-tax Act, which provided for payment of interest by the Department on refunds due to the assessee, were contained in the following sections of the Act.

(i) Section 214, relating to payment of interest to the assessee on the excess amount paid as advance tax.

(ii) Section 243, relating to payment of interest to the assessee for delay in granting the refund after a claim for refund was made or after the refund was determined.

(iii) Section 244, relating to payment of interest to the assessee for delay in granting refund as a result of appeal, etc.

11.2 The 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."

6. Section 244A which is brought on the statute book with effect from assessment year 1989-90 reads as under :

"244A. (1) Where refund of any amount becomes due to the assessee under this Act, he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely:

(a) where the refund is out of any tax collected at source under section 206C or paid by way of advance tax or treated as paid under section 199, during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of one and 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 143 or on regular assessment;

(b) in any other case, such interest shall be calculated at the rate of one and 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 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 1st day of April, 1989, and subsequent assessment years."

Earlier, the provisions for granting interest on the amount refundable to the assessee were contained in sections 240, 243 and 244 of the Act. As sections 240 and 244 have ceased to apply from the assessment year 1989-90, it is not necessary for examining the provisions of the said section, but some discussion may be required for interpreting the issue in the light of the provisions of section 244A.

7. The decision in the case of Narendra Doshi (supra) had approved the legal principles laid down by the Gujarat High Court in the cases of D.J. Works (supra) and Chimanlal S. Patel v. CIT [1994] 210 ITR 4191 as the revenue has not challenged the decision of Gujarat High Court in respect of the payment of interest on interest due to the assessee. Now, in the recent judgment in the case of Sandvik Asia Ltd. (supra) wherein assessment years 1977-78, 1978-79, 1981-82 and 1982-83 are involved, the Hon'ble Supreme Court has examined the provisions of sections 214, 237, 240, 243, 244 and relevant case law on the issue and held as under :

"In view of the express 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, on the interest amount which becomes due under section 214(1). Section 214(1) itself recognizes in principle the liability to pay interest on the amount of tax paid in excess of the amount of assessed tax and which is retained by the Government. Interest on the excess amount is payable at the rate specified therein from the first day of the year of assessment to the date of regular assessment. Once the interest becomes due, it takes the same colour as the excess amount of tax which is refundable on regular assessment. The Supreme Court in Modi Industries [1995] 216 ITR 759 has clarified that advance tax has to be treated as paid pursuant to an order of assessment and hence interest is payable thereon but under section 244.

Interest is payable on the amount to be refunded under section 244(1) within three months from the decision of the appellate or other authority specified in section 240. The expression "amount" in the earlier part of section 244(1A) refers not only to the tax but also to the interest; it is a neutral expression and it cannot be limited to the tax paid in pursuance of the order of assessment.

Even assuming that there is no provision for payment of compensation, compensation for delay is required to be paid as the Act itself recognizes in principle the liability of the Department to pay interest when excess tax was retained and the same principle should be extended to cases where interest was retained.

Narendra Doshi's case [2002] 254 ITR 606 was clearly a decision on the merits albeit proceeding on the assumption that there was no provision in the Act granting interest on unpaid interest.

There is no question of the delay being "justifiable", and even if the Revenue takes an erroneous view of the law, that cannot mean that the withholding of monies is "justifiable" or "not wrongful". There is no exception to the principle for an allegedly "justifiable" withholding. When the claims of the authority are found to be unsustainable or erroneous by the courts it follows that the authority has acted wrongfully in the sense of not in accordance with law and compensation to the party deprived must follow :

Section 240 which was inserted by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989, will not apply to assessment years prior to that date. Section 240 clearly lays down that what is relevant is whether any amount has become due to an assessee, and further that the phrase "any amount" will also encompass interest.

For the assessment year 1977-78 for which the assessee had paid advance tax, the assessee was granted refund of tax on the basis of assessment order and was asked to pay additional tax after rectification. The Commissioner (Appeals) gave substantial relief and the assessee received refund only of the excess amount paid as advance tax. The assessee was not granted interest on the amounts refundable. For the assessment year 1978-79 the assessee was granted refund of tax on the basis of the assessment order but no interest was paid on the refund. After the Commissioner (Appeals) gave substantial relief the assessee received refund only of the excess amount paid as advance tax. But no interest was granted. For the assessment year 1981-82 the assessee was granted refund as well as interest on the amount under section 214. After the Commissioner (Appeals) granted substantial relief the assessee was allowed interest only under section 214 but no interest was granted under sections 214(1A) and 244(1A). For the assessment year 1982-83, the assessee paid further tax on assessment; but the Commissioner (Appeals) gave substantial relief and the assessee received refund of the excess tax paid but no interest was granted under section 214 or section 244. Pursuant to the order of the Supreme Court the Department granted interest up to March 27, 1998 but the Department refused interest on interest. The assessee filed writ petitions in the High Court challenging the orders; but the High Court dismissed the petitions. On appeal to the Supreme Court:

Held accordingly, reversing the decision of the High Court, that the assessee was entitled to interest on the amounts of interest paid under section 214 and/or section 244, and that the Department was bound to grant interest which had accrued for those periods. But since counsel, for the assessee conceded that interest on interest should be paid from March 31, 1986 to March 27, 1998, the Supreme Court granted interest for this period by way of compensation, which was to be at nine per cent." (Head Notes)

8. As far as the provisions of section 244A are concerned, the Legislature has used the words "where the refund of any amount becomes due to the assessee under this Act". It means that refund does not only consist of "tax" refundable to the assessee, but also interest due on the said "tax" which has become payable by virtue of the provisions of this Act to the assessee and which is not paid and there is a delay in payment of the said interest that will constitute the refund. The Act has conferred a right on the assessee to claim the interest on the amount of the "tax" which is refundable to him which is paid in excess of the demand and the statute has also prescribed the time-limit for payment of the tax as well as interest due on the said tax. In our opinion, the term "refund" used in section 244A comprised of the element of "tax" and also "interest due" on that particular amount of tax which has been delayed by the Department. It is true that in the cases of Sandvik Asia Ltd. (supra), Narendra Doshi (supra), D.J. Works (supra), the old sections 214, 243, 244 were under consideration, but it makes no difference for applying the principles laid down in said decision to section 244A as it is substituted for sections 214, 243 and 244. After considering the language used by the Legislature in section 244A, the Legislature has enlarged the provision by giving clear benefits to the assessee. We, are therefore, of the opinion that the principles applicable to the earlier provisions; in respect of the payment of interest by the Department on the delayed amount of tax refundable and interest due thereon are also applicable to section 244A of the Act.

9. The ld. Departmental Representative has relied on the decision of Jurisdictional High Court in the case of Kurumber Betta Estate (supra). In the said decision, the Hon'ble High Court has relied on the judgment of the Supreme Court in the case of Modi Industries Ltd. v. CIT [1995] 216 ITR 7591 and observed that it is an accepted proposition in tax jurisprudence that tax laws know no equity. There cannot be a direction to the Revenue to pay interest in equity, when there is no such provision in the Income-tax Act. The decision in the case of Modi Industries Ltd. (supra) has been considered by the Hon'ble Supreme Court in the recent decision in the case of Sandvik Asia Ltd. (supra) and has observed as under :

"The High Court in its judgment has referred to the provisions of section 244(1A) and the decision of this court in Modi Industries Ltd. v. CIT [1995] 216 ITR 759 extracted two paragraphs from this court's judgment holding that there can be no question of paying interest under both sections 214(1A) and 244(1A) of the Act simultaneously, and further that there is no right to receive interest except as provided by the statute. The decision in Modi Industries Ltd.'s case [1995] 216 ITR 759 (SC), has no bearing whatsoever on the issue in hand as the issue in that case was the correct meaning of the phrase "regular assessment" and as a consequence under which provision an assessee was entitled to interest for the period up to the date of regular assessment and thereafter. The matter of what was due to it in terms of the decision in Modi Industries Ltd.'s case [1995] 216 ITR 759 (SC) is over, concluded, no longer in dispute and was agreed/accepted on March 27, 1998 when the second respondent gave effect to the previous order of this court dated April 30,1997. The working of the respondents itself conclusively shows, further the interest received is admittedly in accordance with the Act. The decision in Modi Industries Ltd.'s case [1995] 216 ITR 759 (SC), in our view, has no bearing whatsoever on the matter in hand. The main issue now is whether an assessee is entitled to be compensated by the Revenue for the delay in paying to the assessee's amounts admitted due to it?"

10. We find that in the case of Kurumber Betta Estate (supra), the decision of the Supreme Court in the case of Narendra Doshi (supra) was not brought to the notice of the Jurisdictional High Court which is, in our opinion, directly on the issue before us. Further, the decision in the case of Narendra Doshi (supra) is by the larger Bench of the Supreme Court. We, therefore, respectfully following the principles laid down by the Hon'ble Supreme Court in the case of Narendra Doshi (supra) and the recent decision of the Supreme Court in the case of Sandvik Asia Ltd. (supra), hold that the CIT (Appeals) has rightly directed the Assessing Officer to pay interest to the assessee on the amount of interest on the tax refundable which was delayed by the Department. We find no infirmity in the order of the CIT (Appeals). We, therefore, confirm the order of the CIT (Appeals) on this issue.

Paras 11 to 14. These paras are not reproduced here as they involve in minor issues.

15. In the result, all the appeals of the revenue stand dismissed.