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From the Courts »
 Reliance Communications Ltd vs. DDIT (ITAT Mumbai)
  Sushila Devi vs. CIT (Delhi High Court)
 Ashok Prapann Sharma vs. CIT (Supreme Court)a
  Vatsala Shenoy vs. JCIT (Supreme Court)
  Vatsala Shenoy vs. JCIT (Supreme Court)
 M.K.Overseas Pvt. Ltd. Vs. Pr.Commissioner Of Income Tax-06
 Arshia Ahmed Qureshi Vs. Pr. Commissioner Of Income Tax-21
 CHAUDHARY SKIN TRADING COMPANY Vs. PR. COMMISSIONER OF INCOME TAX-21
  Sushila Devi vs. CIT (Delhi High Court)
  Vatsala Shenoy vs. JCIT (Supreme Court)
 Deputy Director Of Income Tax Vs. Virage Logic International

INDIA TRADE PROMOTION ORGANISATION Vs. COMMISSIONER OF INCOME TAX
September, 16th 2013
$~21&8.
*       IN THE HIGH COURT OF DELHI AT NEW DELHI
+       INCOME TAX APPEAL NOS. 167/2012 & 168/2012


                                        Date of decision: 6th September, 2013


        INDIA TRADE PROMOTION ORGANISATION
                                                               ..... Appellant
                               Through Mr. Ajay Vohra, Ms. Kavita Jha &
                               Ms. Bhoomika Choudhury, Advocates.

                               versus

        COMMISSIONER OF INCOME TAX
                                                             ..... Respondent
                               Through Mr. Abishek Maratha, Sr. Standing
                               Counsel.

        CORAM:
        HON'BLE MR. JUSTICE SANJIV KHANNA
        HON'BLE MR. JUSTICE SANJEEV SACHDEVA

SANJIV KHANNA, J. (ORAL):

        These appeals by India Trade Promotion Organisation under

Section 260A of the Income Tax Act, 1961 (Act, for short) relate to

Assessment Years 1989-90 and 1990-91. By order dated 22nd August,

2013, the following substantial questions of law were framed in these

two appeals:

                 Whether the Income Tax Appellate Tribunal
                 was    right    in    denying interest of
                 Rs.1,60,30,495/-, which it is claimed was
                 payable alongwith the refund?

ITA Nos. 167/2012 & 168/2012                                       Page 1 of 17
                 Whether the Income Tax Appellate Tribunal
                 was right in denying interest of Rs.41,11,644/-,
                 which it is claimed was payable alongwith the
                 refund?


2.      Facts relevant for adjudication of the present appeals may be

noticed in brief.


ASSESSMENT YEAR 1989-90

(a)     At the outset, we record that there was an earlier round of

litigation resulting in order of the Income Tax Appellate Tribunal

(tribunal, for short) dated 22nd June, 2007 wherein it was held that the

appellant was entitled to interest under Section 244A of the Act, it

being a substantive right and the same cannot be denied on the basis of

a letter written to Government of India, Central Board of Direct Taxes.

We observe and record that the said order dated 22nd June, 2007 has

attained finality and has not been challenged by the Revenue. Thus,

we are required to proceed on the basis that the appellant is entitled to

interest under Section 244A of the Act and the issue raised in the

question of law framed above relates to quantification of interest

payable under Section 244A of the Act. We further clarify that we

have not examined the effect of the letter written by the appellant to the

Government of India, Central Board of Direct Taxes and whether in

view of the said letter no interest was payable.


ITA Nos. 167/2012 & 168/2012                                        Page 2 of 17
      (b)       After the order of the tribunal dated 22nd June, 2007, an amount

      of Rs.1,60,30,495/- was paid by the respondent vide order dated 11th

      June, 2008. The contention of the appellant is that they are entitled to

      interest on this amount of Rs.1,60,30,495/- from the date it was due

      and payable. In order to appreciate the contention, we would like to

      refer to the following:

      (i)       Pursuant to the assessment order/appellate order, the appellant

                became entitled to refund of taxes paid of Rs.2,06,52,845/-.

      (ii)      On 28th March, 1995, Rs.1,70,01,266/- was refunded.

      (iii)     Rs.36,51,579/- was refunded on 1st June, 1999.

      (iv)      Rs.1,42,04,705/- had accrued as interest under Section 244A on

                Rs.2,06,52,845/- upto 28th March, 1995 when part payment of

                Rs.1,70,01,266/- was made.

      (v)       Interest of Rs.18,25,790/- had accrued on balance amount of

                Rs.36,51,579/- from 29th March, 1995 till 1st June, 1999.

      (vi)      Thus in all, interest of Rs.1,60,30,495/- had accrued and payable
                but was not paid when the two refunds were issued.
                (Rs.1,42,04,705/- had accrued and should have been paid on 28th
                March, 1995 and Rs.18,25,790/- had accrued and should have
                been paid on 31st May, 1999).
      (vii) The interest of Rs.1,60,30,495/- was paid on 11th June, 2008.




(c)         The appellant claims that they are entitled to interest on this amount,

            i.e., on Rs.1,42,04,705/- with effect from 1st April, 1995 to 31st may,

      ITA Nos. 167/2012 & 168/2012                                       Page 3 of 17
      2008 upto the date of refund of Rs.1,42,04,705/- and interest on

      Rs.18,25,790/- from 1st June, 1999 upto the date of refund. Interest

      on the said amounts is payable under Section 244A of the Act.

(d)       The contention of the Revenue is that this would amount to

payment of interest on interest and this is forbidden and should not be

paid.

ASSESSMENT YEAR 1990-91

(a)       In this year also the question whether the appellant was entitled

to interest under Section 244A of the Act was decided in the first round

by the tribunal vide order dated 22nd June, 2007.           We need not,

therefore, decide the question whether the appellant was entitled to

interest because a letter was written by them to the Central Board of

Direct Taxes. The said order has become final and, therefore, we are

not required to go into the said issue and examine on merits whether or

not this order dated 22nd June, 2007 passed by the tribunal was

justified.      The question raised in the present appeal relates to

quantification of interest payable under Section 244A and not whether

the interest was justified or should be denied on account of the said

letter.

(b)       On the basis of assessment proceedings, the appellant became

          entitled to refund of Rs.53,01,570/-.

(i)       On 28th March, 1995, Rs.38,12,810/- was refunded.

ITA Nos. 167/2012 & 168/2012                                     Page 4 of 17
(ii)    On 31st March, 1997, Rs.10,87,686/- was refunded.

(iii)   On 19th March, 1999, Rs.4,01,074/- was refunded.

(iv)    The appellant became entitled to interest under Section 244A of

        Rs.36,58,084/- upto 28th March, 1995. This interest is calculated

        on Rs.53,01,570/-.

(v)     Interest of Rs.3,57,302/- upto 31st March, 1997 on amount of

        Rs.14,88,760/- (Rs.53,01,570/- minus Rs.38,12,810/-).

(vi)    Interest of Rs.96,258/- on Rs.4,01,074/- from 19th March, 1999

        upto date of refund on balance amount of Rs.4,01,074/-.

3.      The appellant claims that it is entitled to interest on

Rs.36,58,084/- from 1st April, 1995 upto the date of refund/payment.

Rs.3,57,302/- from 1st April, 1997 upto the date of refund/payment and

Rs.96,258/- from 1st June, 1999 upto the date of refund/payment.

Interest, it is claimed, is payable under Section 244A of the Act.

4.      The contention of the Revenue is that this would amount to

paying interest on interest and this would be contrary to Section 244A

of the Act.

DECISION

5.      At the outset, we note that there is no dispute and debate on the

initial interest, which is payable and should have been paid by the

Revenue when they made the refund of the taxes. The dispute has

arisen as the Revenue did not pay along with the refund of taxes, the

ITA Nos. 167/2012 & 168/2012                                    Page 5 of 17
interest which had accrued and had become due and payable on the tax

amount refundable. The Revenue, therefore, had made part payment of

the refund by not including the interest element.

6.      Secondly, it should be clarified that the interest payable on the

refund stands quantified on the date when the refund was

issued/granted by the respondent. The quantum or the calculation of

interest does not and has not undergone a change or modification.

Interest has not accrued or is not payable by the Revenue after they

have made payment of the refund as interest payable under Section

244A stopped running on the said day and became quantified and an

amount due and payable. In other words, it became a part of the

capital or principal amount due and payable.

7.      The question really is in case the Revenue does not make

payment         of     interest   element, which   had accrued and had

become payable on the date when the tax amount is refunded,

whether they would be liable to pay interest under Section 244A on the

said amount. One can casually or loosely call it as interest on

interest but in reality payment of interest on the said amount

occurs because of non-payment of the total amount refundable,

which is due and payable to the assessee, inter alia, consisting of

the tax, which had to be refunded and the interest accrued on

the delayed refund of the tax. It is not uncommon and in the

ITA Nos. 167/2012 & 168/2012                                   Page 6 of 17
commercial world and even in civil suits while computing interest

under Section 34 of the Code of Civil Procedure, 1908 the principal

amount and the interest due are added and treated as the primary

amount in the decree drawn. Interest becomes due and payable on this

primary amount.            In other words, interest stands capitalised.       We

further note that it is not a case of compounding of interest as

understood except once, i.e., on the date when it is quantified, i.e.,

when part refund payment is made by the Revenue. Therefore, it will

be wrong to call it and treat it as compounding of interest.

8.      It will be now relevant to refer to the provisions of the Act

relating to refund and examine whether under the Act, interest is

payable.      Section 244A with effect from 1st April, 1989 reads as

under:-

                  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

ITA Nos. 167/2012 & 168/2012                                         Page 7 of 17
                 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
ITA Nos. 167/2012 & 168/2012                                          Page 8 of 17
                 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:

                 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.

9.      The words used in the Section 244A are where refund of any

amount becomes due and payable to the assessee under the Act, the

assessee shall be entitled to receive in addition to the said amount

simple interest calculated in the manner stipulated. The Legislature

has not used the words tax paid or the principal amount of tax

paid. The words used by the Legislature are any amount and said

amount. The words are, therefore, much wider and broader than the tax

amount, which is to be refunded. The words any amount would include

within its scope and ambit the interest element, which has accrued and is

payable on the date of the refund. Thus, when the Revenue does not






ITA Nos. 167/2012 & 168/2012                                          Page 9 of 17
pay full amount of refund but part amount is paid, they will be liable to

pay interest on the balance outstanding amount.                 The balance

outstanding amount may consist of the tax paid or the interest, which is

payable till the payment of the part amount and interest payable on the

principal amount, which remained outstanding thereafter.

10.     The Delhi High Court in the case of Commissioner of Income

Tax versus Goodyear India Limited, 2001 (249) ITR 527 (Delhi) had

occasion to examine the earlier provisions of refund under Sections

240 and 244 of the Act and had observed as under:-


                  Section 244 deals with interest on refund
                 where no claim is needed. Sub-section (2), inter
                 alia, provides that 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 the stipulated time,
                 the Central Government is required to pay
                 simple interest at the stipulated rate. Section
                 240 deals with refund on appeal, etc. This
                 provision clearly lays down that where as a
                 result of any order passed in appeal or other
                 proceedings under this Act, refund of any
                 amount becomes due to the assessee, the
                 Assessing Officer shall, except as otherwise
                 provided in this Act, refund the amount to the
                 assessed without his having to make any claim
                 in that behalf. The crucial expressions in
                 Section 240 are "any amount which becomes
                 due to the assessee as a result of any order
                 passed in any appeal or other proceedings under
                 the Act" and the "amount becomes due to the
                 assessee". Section 244 refers to the liability
                 fastened on the Central Government in case of
                 failure to grant refund within the stipulated time

ITA Nos. 167/2012 & 168/2012                                          Page 10 of 17
                 in a case where refund is due to the assessee in
                 pursuance of an order referred to in Section
                 240. A combined reading of both the provisions
                 makes the position crystal clear that it is any
                 amount which becomes due to the assessee and
                 not     necessarily    the     tax    component.
                 Undisputedly, a sum of Rs. 1,90,499 which
                 qualifies for interest became payable to the
                 assessee on the basis of an order passed under
                 Section 240 of the Act. Merely because this
                 was inclusive of an amount which was payable
                 under Section 214 of the Act, that would not
                 make the position any different. It is an amount
                 which became due to the assessee on the basis
                 of the appellate order. Therefore, the assessee
                 was entitled to interest in terms of Section 244
                 of the Act. A similar view has been taken by
                 the Gujarat High Court in D. J. Works v.
                 Deputy CIT [1992]195 ITR 227and Chiman Lal
                 S. Patel v. CIT [1994]210 ITR 419 though with
                 different conclusions. Above being the position,
                 we answer the question in the affirmative, in
                 favor of the assessee and against the Revenue.

11.     In R.K. Jain and Sons versus Commissioner of Income Tax,

2005 (142) Taxman 445 (Delhi) reference was made to several

judgments passed by Gujarat High Court and decision of the Supreme

Court in CIT versus Narender Doshi, (2002) 245 ITR 606 and it was

held that interest should be awarded on the interest component of the

unpaid refund.          Recently in Motor and General Finance Limited

versus Commissioner of Income Tax and other cases reported in

[2010] 320 ITR 88 (Delhi) reference was made to the decision of the

Supreme Court in Sandvik Asia Limited versus CIT, [2006] 280 ITR

643 (SC) and Narendra Doshi (supra) and it was observed as under:-

ITA Nos. 167/2012 & 168/2012                                        Page 11 of 17
                 20. It is, thus, manifest that at both the
                 stages, namely, while passing intimation under
                 Section 143(1)(a) of the Act, refund along with
                 interest under Section 244A was given of the
                 excess TDS and advance tax. Again, after the
                 orders of the Tribunal were passed and the
                 refund became payable as a consequence
                 thereof, the excess amount of tax was refunded
                 along with interest payable thereupon under
                 Section 244A of the Act. Thus, the calculations
                 are not disputed, as observed by the Tribunal
                 also.

                 21. When the refund of tax becomes payable
                 as a result of orders passed in appeal or other
                 proceedings under the Act, this refund is to be
                 given along with interest, which is to be
                 calculated as per Section 244 of the Act. If that
                 interest is paid along with the excess tax, no
                 further payment is to be made. It is only when
                 the excess amount of tax is refunded but the
                 interest is not refunded along therewith, the
                 retention of interest amount would become
                 unjustified and interest on interest would also
                 become payable. The reason is simple. It is the
                 tax which was paid in excess by the assessee
                 which became refundable. The assessee would
                 be compensated by paying interest thereupon. It
                 is only when the interest is not refunded along
                 with excess tax that the withholding of the said
                 interest becomes unjustified and it becomes an
                 amount due to the assessee on which the
                 assessee can claim further interest. Such a
                 situation has not happened in the present case
                 as the amount of interest is calculated and
                 refunded along with the refundable tax
                 amount.

12.     Same view has been taken by Punjab and Haryana High Court in

Roadmaster Industries of India Private Limited versus Commissioner

of Income Tax and Another, [2010] 329 ITR 69 (P&H) and Gujarat

ITA Nos. 167/2012 & 168/2012                                         Page 12 of 17
High Court in Commissioner of Income Tax versus Hynoup Food

and Oil Industries Limited, [2010] 320 ITR 365 (Guj.) and Gujarat

Flourochemicals Limited versus Commissioner of Income Tax and

Others, [2008] 300 ITR 328 (Guj.).        The said cases refer to the

principle of compensation when money, which is due and payable and

refundable, is not paid.

13.     Madhya Pradesh High Court had the occasion to deal with the

similar issue in their decision in Commissioner of Income Tax versus

HEG Limited, [2009] 310 ITR 341 (MP). The facts of the said case

may be noticed. The assessee became entitled to refund along with

interest under Section 244A. Referring to Section 240 of the Act, the

High Court observed that the term used was refund of any amount

becomes due to the assessee. The same words were also used in

Section 244A. Reference was made to the decision of the Delhi High

Court in Goodyear India Limited (supra) and decisions of the Supreme

Court in Narender Doshi (supra) and Sandvik Asia Limited (supra).

Decision of the Madras High Court in CIT versus Needle Industries

Private Limited, [1998] 233 ITR 370 (Mad) reflected upon and it was

held that the words or the phrase any amount would include the

amount refundable plus the interest due and payable on the tax amount

refunded. Thus, in view of the express provisions of Section 244A,

interest was directed to be paid by the Revenue.

ITA Nos. 167/2012 & 168/2012                                Page 13 of 17
14.     Matter was taken by the Revenue before the Supreme Court in

the case of HEG Limited and the SLP was granted and civil appeal

was registered. The Supreme Court thereupon answered the question

against the Revenue in the following words:-

                        Therefore, this is not a case where the
                 assessee is claiming compound interest or
                 interest on interest as is sought to be made out
                 in the civil appeals filed by the Department.

                        The next question which we are required
                 to answer is ­ what is the meaning of the words
                 refund of any amount becomes due to the
                 assessee in Section 244A? In the present case,
                 as stated above, there are two components of
                 the tax paid by the assessee for which the
                 assessee was granted refund, namely TDS of
                 Rs.45,73,528 and tax paid after original
                 assessment of Rs.1,71,00,320. The Department
                 contends that the words any amount will not
                 include the interest which accrued to the
                 respondent for not refunding Rs.45,73,528 for
                 57 months. We see no merit in this argument.
                 The interest component will partake of the
                 character of the amount due under Section
                 244A.      It becomes an integral part of
                 Rs.45,73,528 which is not paid for 57 months
                 after the said amount became due and payable.
                 As can be seen from the facts narrated above,
                 this is the case of short payment by the
                 Department and it is in this way that the
                 assessee claims interest under Section 244A of
                 the Income-Tax Act. Therefore, on both the
                 afore-stated grounds, we are of the view that
                 the assessee was entitled to interest for 57
                 months on Rs.45,73,528/-.        The principal
                 amount of Rs.45,73,528 has been paid on
                 December 31, 1997 but net of interest which, as
                 stated above, partook of the character of
                 amount due under Section 244A.

ITA Nos. 167/2012 & 168/2012                                        Page 14 of 17
15.     A reading of the aforesaid passage from the decision of the

Supreme Court in HEG Limited (supra) indicates that it would be

incorrect and improper to regard payment of interest when part

payment is made as interest on interest. What has been elucidated and

clarified by the Supreme Court is that when refund order is issued, the

same should include the interest payable on the amount, which is

refunded. If the refund does not include interest due and payable on

the amount refunded, the Revenue would be liable to pay interest on

the shortfall. This does not amount to payment of interest on interest.

An example will clarify the situation and help us to understand what is

due and payable under Section 244A of the Act. Suppose Revenue is

liable to refund Rs.1 lac to an assessee with effect from 1 st April, 2010,

the said amount is refunded along with interest due and payable under

Section 244A on 31st March, 2013, then no further interest is payable.

However, if only Rs.1 lac is refunded by the Revenue on 31st March,

2013 and the interest accrued on Rs.1 lac under Section 244A is not

refunded, the Revenue would be liable to pay interest on the amount

due and payable but not refunded. Interest will not be due and payable

on the amount refunded but only on the amount which remains unpaid,

i.e, the interest element, which should have been refunded but is not

paid. In another situation where part payment is made, Section 244A

ITA Nos. 167/2012 & 168/2012                                     Page 15 of 17
would be still applicable in the same manner.             For example, if

Rs.60,000/- was paid on 31st March, 2013, Revenue would be liable to

pay interest on Rs.1 lac from 1st April, 2010 till 31st March, 2013 and

thereafter on Rs.40,000/-. Further, interest payable on Rs.60,000/-,

which stands paid, will be quantified on 31st March, 2013 and on this

amount, i.e., interest amount quantified, Revenue would be liable to

pay interest under Section 244A till payment is made.

16.     The aforesaid manner of computation is not only applicable to

cases where Revenue has to pay interest on refund, but is equally

applied when an assessee is in default and interest is payable under

Section 220(2) of the Act. Interest payable under Section 234B and

234C become part of the demand notice issued under Section 156 and

it is on this amount, i.e., the tax payable plus interest payable under

Sections 234B and 234C that interest under Section 220(2) is

calculated from the date mentioned in the notice of demand till the date

of actual payment.             Under Explanation to Section 140A(1), it is

stipulated where the amount paid by an assessee under self-assessment

falls short of the aggregate amount of tax and interest aforesaid, the

amount paid shall first be adjusted towards the interest payable and the

balance, if any, shall be adjusted towards the tax payable.              The

interpretation given by us follows the same principle, when Revenue

defaults and makes part payment of the amount refundable.                The

ITA Nos. 167/2012 & 168/2012                                     Page 16 of 17
aforesaid        interpretation   also   ensures   that   the   Assessing

Officer/Revenue refund the entire amount, which is due and payable,

including interest payable under Section 244A. It discourages part

payment. There is no other provision under the Act under which an

Assessing Officer/Revenue can be made liable to pay interest when

part payment is made and the entire amount, which is refundable is not

paid to the assessee. Otherwise the Assessing Officer/Revenue can

refund the principal amount and not pay the interest component under

Section 244A for an unlimited period with impunity and without any

sanction, which would amount to granting premium to a non-

compliance of law. In the present case, the interest component was

withheld for the period ranging between 9 to 13 years.

17.     In view of the aforesaid discussion, we answer the questions of

law in favour of the appellant and against the Revenue. The appeals

are disposed of. No costs.



                                          SANJIV KHANNA, J.



                                          SANJEEV SACHDEVA, J.
        SEPTEMBER 06, 2013
        VKR




ITA Nos. 167/2012 & 168/2012                                    Page 17 of 17

 
 
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