C.I.T.JALANDHAR vs. M/S P.K.INDUSTRIES JDR.

The present reference has been sent by the Income-tax Appellate Tribunal, Amritsar vide order dated 23.9.1983 passed in RA No.55/ASR/1983 for the opinion of this Court on the following questions of law which have arisen out of order passed in ITA No.747/ASR/1981 and Cross-objections No.85/ASR/1981 for the assessment year 1977-78 :- “(i) Whether on the facts and in the circumstances of the case, the ITAT is correct in returning a finding that the issue raised is not debatable? (ii) Whether on the facts and in the circumstances of the case, the Appellate Tribunal is correct in upholding the finding of CIT(A) that the assessee is entitled to interest u/s 244 (1A) of the Income Tax Act? (iii) Whether on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the assessee is entitled to receive interest u/s 214 of the Income Tax Act from the prescribed date to the actual date on which refund was ordered?”

The assessee had made payment of advance income tax under Section 210 of the Income Tax Act (hereinafter referred to as the “Act”) when the assessment was made. Further after the return had been filed, a further amount of Rs.47,856/- was required to be paid by way of tax. Out of this sum, Rs.15,000/- was paid. The assessee having felt aggrieved, appealed against the assessment made, whereby the Income Tax Officer had made a considerable addition. As a result of the appellate order, assessment made by the Income Tax Officer was slashed and the total income was reduced to the extent that the assessee became entitled to claim a refund of a part of the advance tax paid by him under Section 210 of the Act. The assessee made a claim that the interest on the excess amount of advance tax paid by him be allowed to him. The ITO turned down his claim both u/s 214 as well as u/s 244(1A) of the Act.

The assessee felt aggrieved against the said order, filed an appeal before the CIT(A), Jalandhar. The CIT(A), Jalandhar vide order dated 23.9.1981 held that the assessee was entitled to claim interest from the date of passing of the regular assessment order made upto the date of payment of refund under Section 244(1A) and directed the ITO to revise the assessment. However, the plea of the assessee for allowing interest under Section 214 was declined.

Not satisfied with the order of the CIT(A), Jalandhar, the assessee further filed an appeal before the Tribunal. The revenue also filed cross-objections before the Tribunal. The assessee was in appeal against the findings of the CIT(A), Jalandhar in respect of his claim for interest from the date of payment of the advance upto the date of assessment, whereas the case of the revenue in the cross-objections was against the admission of the claim of the assessee for interest from the date of assessment upto the date of refund made. The Tribunal vide its order dated 24.3.1983 accepted the appeal filed by the assessee and the cross-objections filed by the revenue were dismissed.

We have heard Mr. Sanjiv Bansal, Advocate, learned counsel for the revenue and perused the record.

At the outset, it is relevant to mention that question No.1 has not been pressed by the counsel for the revenue. As regards question No.2, it has been pointed out that the said question has to be answered in favour of the assessee and against the revenue in view of the judgement of the Supreme Court reported as Sandvik Asia Ltd. v. Commissioner of Income-Tax and others (2006) 280 ITR 643 (SC) wherein it has been held as under:- “The Government is liable to pay interest, at the rate applicable to the excess amount refundable 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.”

The said judgement has also been followed by the Bombay High Court in the case of Godrej and Boyce Manufacturing Co. Ltd. v. P.K. Gupta, Commissioner of Income-Tax and others (2006) 284 ITR 85 (Bom). Following the above judgements, question No.2 is answered against the revenue and in favour of the assessee.

We also find that question No.3 as raised by the revenue has to be answered against the revenue and in favour of the assessee in view of the judgement of the Apex Court reported as Modi Industries Ltd. and others v. Commissioner of Income-Tax and another (1995) 216 ITR 759 (SC). The conclusions drawn up by the Hon'ble Apex Court in the said judgement are reproduced hereinafter below: “(i) Up to March 31, 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 April 1, 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 the assessment order after March 31, 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 April 1, 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). Accordingly, we approve the view taken by the Bombay, Allahabad, Andhra Pradesh, Patna and Delhi High Courts to the extent their views accord with the view taken herein.“

The Calcutta High Court has also followed the judgement of the Hon'ble Apex Court in Modi Industries case (supra) and in the case of Simplex Concrete Piles (India) Ltd. v. Commissioner of Income-Tax and others (2006) 286 ITR 518 (Cal).

We are in respectful agreement with the above said judgements. Thus, question No.3 is answered against the revenue and in favour of the assessee.

Thus, the questions referred to above are answered accordingly. (RAKESH KUMAR GARG) JUDGE March 3, 2008 (SATISH KUMAR MITTAL) ps