THE COMMISSIONER OF INCOME TAX vs. M/S.KERALA CHEMICALS & PROTEINS

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ITA/1692/2009HC KeralaKLHC01026453200915 January 2010Bench: HONOURABLE MR.JUSTICE V.K.MOHANAN,HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR7 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the Tribunal's finding that Section 234D is applicable only from assessment year 2004-05 onwards is incorrect. The Court reasoned that Section 234D was introduced by the Finance Act, 2003, with effect from June 1, 2003, and this provision on interest applies to all cases of refund granted under Section 143(1), with interest being leviable only from June 1, 2003. Therefore, interest could be demanded only for the period from June 1, 2003, to January 22, 2004, which was the period considered by the Assessing Officer. The Court found no justification for the Commissioner to give retrospective operation to Section 234D from the date of refund. The Court also noted that the Tribunal had granted an unsolicited relief by deciding on the applicability of Section 234D from assessment year 2004-05, which was not the subject of the Commissioner's revision. The Court vacated the Tribunal's finding on the effective date but upheld the Assessing Officer's levy of interest from June 1, 2003.

What were the facts?

For the assessment year 1999-2000, the assessee, M/s Kerala Chemicals & Proteins Ltd., claimed and received a refund of over Rs. 47 lakhs via an intimation under Section 143(1) on June 28, 2000. Subsequently, a regular assessment under Section 143(3) was completed on January 22, 2004. This assessment revealed that the refund granted was irregular, as the entire amount was ultimately payable as tax. The Assessing Officer demanded interest under Section 234D on the excess refund from June 1, 2003, the date Section 234D came into force. The Commissioner, under Section 263, held that interest was payable from the date of refund (June 28, 2000) until the regular assessment date (January 22, 2004). The Tribunal, however, ruled that Section 234D was applicable only from assessment year 2004-05 onwards, absolving the assessee of interest liability.

What were the issues?

1. Whether the Tribunal was justified in holding that Section 234D of the Income Tax Act, 1961, providing for interest on excess refund, is applicable only from assessment year 2004-05 onwards. 2. Whether the Commissioner of Income Tax, in exercise of powers under Section 263, could direct the levy of interest under Section 234D from the date of refund (June 28, 2000) to the date of regular assessment (January 22, 2004), when Section 234D came into force on June 1, 2003. Assessee's Contention: The assessee, through its counsel, argued that Section 234D is applicable only from assessment year 2004-05 onwards, as held by the Tribunal. The assessee did not contest its liability for interest from June 1, 2003, onwards as levied in the regular assessment. Revenue's Contention: The revenue, through its counsel, contended that Section 234D is applicable from its effective date of introduction, June 1, 2003, and that the Commissioner was justified in directing interest to be levied from the date of refund. The revenue relied on the Notes on Clauses for the scope of the provision.

Which sections of the Income-tax Act were involved?

Section 143,Section 234D,Section 263

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN FRIDAY, THE 15TH JANUARY 2010 / 25TH POUSHA 1931 ITA.No. 1692 of 2009() ---------------------- ITA.581/COCH/2008 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/RESPONDENT ---------------------------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): APPELLANT ------------------------ M/S KERALA CHEMICALS & PROTEINS LTD., PANAMPILLY NAGAR, KOCHI-36. ADV. SRI.JOSEPH KODIANTHARA FOR R1 SRI.TERRY V.JAMES FOR R1 THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 15/01/2010 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

C.R. C .N. RAMACHANDRAN NAIR & V.K. MOHANAN, JJ. -------------------------------------------- I.T. A. No.1692 OF 2009 -------------------------------------------- Dated this the 15th day of January, 2010 JUDGMENT Ramachandran Nair, J. The question raised is whether the Tribunal was justified in holding that the assessee is not liable to pay interest under Section 234D on excess refund granted while sending intimation under Section 143(1) of the Act for the assessment year 1999-2000. We have heard senior counsel appearing for the appellant-revenue and senior counsel Sri. Joseph Markose appearing for the respondent-assessee. 2. During the previous year relevant for the assessment year 1999-2000 the assessee had remitted substantial amount of advance tax. However, in the return filed the assessee claimed refund of over Rs. 47 lakhs which was granted after processing the return and while sending intimation under Section 143(1) of the Act. This was done on 28.6.2000. However, the assessee's case was taken up for regular assessment under Section 143(3) of the Act and the assessing officer

2 completed the assessment on 22.1.2004 wherein it was found that refund granted while sending intimation was irregular inasmuch as the entire amount refunded was payable as tax finally assessed. The tax demanded on regular assessment is also stated to be paid later. While issuing regular assessment under Section 143(3) the assessing officer demanded interest under Section 234D on the refund amount granted on 28.6.2000 but from 1.6.2003 the date on which Section 234D came into force. However, the Commissioner of Income tax in exercise of powers under Section 263 of the Act found that interest is payable under Section 234D from the date of refund, that is 28.6.2000, till date of regular assessment, that is 22.1.2004. When the assessee filed appeal, the Tribunal held that Section 234D providing for interest will apply only from the assessment year 2004-05 onwards and so much so, the assessee is not liable to pay interest at all, even though the assessee did not contest it's liability for interest from 1.6.2003 onwards levied in the regular assessment passed under Section 143(3) of the Act. In the first place we are of the view that the levy of interest with effect from 1.6.2003 which was not the subject matter of revision before the Commissioner under Section 263 could not have been the subject of

3 decision by the Tribunal. In other words, the Tribunal has granted an unsolicited relief to the assessee, which, in our view, is not within the powers of the Tribunal. In any case, in view of our finding on the effective date of operation of Section 234D stated hereunder, there is no need to consider whether Tribunal could have granted the relief that was not subject matter of appeal. 3. Section 234D, the scope of which is in issue, is extracted hereunder for easy reference: 234D. Interest on excess refund. (1) Subject to the other provisions of this Act, where any refund is granted to the assessee under sub-section (1) of Section 143, and-- (a) no refund is due on regular assessment; or (b) the amount refunded under sub-section (1) of section 143 exceeds the amount refundable on regular assessment, the assessee shall be liable to pay simple interest at the rate of one-half per cent on the whole or the excess amount so refunded, for every month or part of a month comprised in the period from the date of grant of refund to the date of such regular assessment. ............................................... Senior counsel for the revenue referred to Notes on Clauses wherein

4 the scope of the new provision is explained. However, since there is no dispute as to the scope of the Section and the issue is only as to the effective date from which interest could be levied on the assessee we do not find anything useful in the Notes on Clauses. Admittedly section 234D was introduced by Finance Act 2003 with effect from 1.6.2003. In our view this provision on interest is not introduced with reference to any assessment year, which is obvious from the fact that it is not effective from the beginning of the financial year. On the other hand, this provision on interest will apply to all cases of refund granted under Section 143(1) but interest could be levied only with effect from 1.6.2003. Even though refund in this case was granted while sending intimation under Section 143(1) on 28.6.2000 and regular assessment under Section 143(3) was completed converting the refund to demand of tax on 22.1.2004, interest could be demanded only for the period from 1.6.2003 till 22.1.2004 which is what is done by the assessing officer. We do not find any justification for the Commissioner to give any retrospectivity to Section 234D which is what he has done by directing the assessing officer to revise the assessment levying interest from the date of refund. In fact Commissioner has no authority to give

5 retrospective operation to a substantive provision of law providing for interest. Revenue has no answer to our query as to whether interest under Section 234D could be levied in cases of regular assessment completed under Section 143(3) prior to 1.6.2003 leading to demand of refunded amount as tax determined on regular assessment. We are therefore of the view that the Commissioner's order under Section 263 was rightly found to be untenable by the Tribunal. However, we vacate the finding of the Tribunal that Section 234D is applicable only from the assessment year 2004-05 onwards. The view taken by the assessing officer that Section applies from 1.6.2003 is the correct position. Appeal is dismissed, but by restoring the ;assessment with demand of interest levied under Section 234D with effect from 1.6.2003. (C.N.RAMACHANDRAN NAIR) Judge. (V.K. MOHANAN) Judge. kk

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