Loading judgment…
Facts
The Revenue filed an appeal against the CIT(A)'s order for AY 1992-93, which condoned a 39-day delay. The core issue arose from the Assessing Officer's computation of interest under Section 244A, where the assessee claimed entitlement to interest on unpaid interest, especially concerning a delayed refund of TDS credit of Rs. 14,07,89,560/-. The CIT(A) allowed the assessee's appeal, holding that interest on unpaid interest was due.
Held
The Tribunal affirmed the CIT(A)'s decision, ruling that when a full refund is not paid but only a partial amount is disbursed, the assessee is entitled to interest under Section 244A on the remaining outstanding amount. It emphasized that this is not a claim for compound interest but for interest on an integral part of the 'amount due'. The Tribunal relied on previous decisions, including the Supreme Court's pronouncements in *Tata Chemicals Ltd.* and *H.E.G. Ltd.*, to dismiss the Revenue's appeal.
Key Issues
Whether the assessee is entitled to interest on unpaid interest when only a part of the refund is initially made, and the correct method for computing interest under Section 244A of the Income Tax Act.
Sections Cited
154, 251, 254, 143(3), 244A, 140A(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH, KOLKATA
Before: SHRI RAJESH KUMAR & SHRI PRADIP KUMAR CHOUBEY
O R D E R
Per Rajesh Kumar, AM :
This is an appeal filed by the revenue against the order dated 26.09.2017, passed by the ld. CIT(A)-22, Kolkata, for the assessment year 1992-93.
2. At the outset, we observe that there is a delay of 39 days in filing the appeal by the revenue for which the condonation petition has been filed. After perusing the contents of condonation petition, we are inclined to condone the delay and admit the appeal for adjudication. 3. The only issue raised by the revenue in the various grounds of appeal is against the order of the ld. CIT(A) holding that the assessee is entitled to interest on unpaid interest whereas there is no provisions as per the Income Tax Act to charge the interest on unpaid interest on the assessee as well as nowhere the powers give rights to the Assessing Officer to give interest on unpaid interest to the assessee.
2 4. Facts in brief are that the Assessing Officer passed the order u/s.154/251/254/143(3) of the Act vide order dated 21.11.2011 wherein the ld. Assessing Officer held that the interest u/s.244A of the Act calculated and allowed for a period mentioning from 01.03.1993 to 27.03.2007 instead of period from 01.01.1993 to 27.03.1997. Accordingly, a suo moto rectification u/s.154 of the Act was undertaken by issuing notice u/s.154 of the Act to the assessee. The assessee appeared before the Assessing Officer and case was discussed and finally the said order was passed. The Assessing Officer determined the refund to be payable to the assessee at Rs.4,77,21,440/-.
In the appellate proceedings, the assessee challenged the order passed by the Assessing Officer on the ground that the assessee is entitled to interest on unpaid interest. It was the submission before the ld.CIT(A) that the Assessing Officer has grossly erred while computing the interest u/s.244A of the Act in the impugned assessment year by submitting that the Assessing Officer computed the interest on unpaid interest vide order dated 21.11.2011 of Rs.1,68,94,740/- for a period from 01.04.1993 to 21.11.2011. The ld.AO submitted before the ld. CIT(A) that the interest of Rs.1,68,94,740/- arose on delayed adjustment of refund of Rs.14,07,89,560/- representing TDS credit. Thus, it was submitted that the Assessing Officer has grossly erred in separately computing interest on unpaid interest of Rs.1,68,94,740/- ignoring the decision of the Hon’ble Supreme Court in the case of H.E.G. Ltd., reported in 324 ITR 331. Accordingly to the assessee the interest on unpaid interest becomes his 3 part of the refund and the interest has to be computed accordingly. The ld CIY(A) after considering the contention of the assessee, allowed the appeal of the assessee by observing and holding as under :- 04. DECISION 1. I have carefully examined the impugned order u/s. 154/251/254/251/251/143(3) of the IT Act 1961, dated 21.11.2011 passed by the Ld. AO, and the submissions of the appellant- company. The only issue in the present appeal is the manner of calculation of interest u/s. 244A of the IT Act. This issue has been already decided be me in assessee's own case for the AY 2009-10 in Appeal No. 166/CIT(A)-22/Kol/15-16, being decided simultaneously. The Ld. AO is directed to follow the method of calculation of interest u/s. 244A as per the said order and draw up a fresh computation of interest u/s. 244A while giving effect to this order. More particularly, the Ld. AO Officer is to compute interest u/s. 244A on the tax refund from 1st April of the assessment year up to the date on which the refund is granted or issued by way of adjustment. The amount of refund granted/ issued by way of adjustment would then be reduced from the amount so arrived as refundable as above comprising of tax refund and interest. The adjustment would be first against the interest allowed u/s. 244A till date to the appellant and if any balance amount is left to be adjusted, the same would be adjusted against the principal refundable amount. The amount remaining after such adjustment would consequently comprise of principal refundable amount and interest u/s. 244A would be admissible to the appellant thereon in accordance with the provisions till the date it is granted and any subsequent adjustments would be carried out in the same manner as above.
Thus when the full amount of refund due is not paid but a part amount is paid, the assessee is entitled to interest u/s. 244A on the balance outstanding amount which partake the character of 'amount due' under the provisions of section 244A of the IT Act. The above method of calculation of interest u/s. 244A of the IT Act, which is to be followed by the Ld. AO Officer, is elaborated by an illustration as below: Rs. Tax Refundable for AY 1992-93 A 100 Add: Interest u/s. 244A [say @1% from 1st April, B 12 1992 to 31 March, 1993 i.e. for 12 months] Refundable C=(A+B) 112 Less: Refund issued/ adjustment on 31 March, 1993 D Balance Refundable E = (C-D)
4 3. In the above example, the interest of Rs. 12 arrived in (B) above is to be considered having been issued and included in the refund amount of Rs. 90 worked out in (D) above. The amount of Rs. 22 in (E) would be construed as 'amount due' under section 244A of the Act and interest thereon u/s. 244A would be computed on the entire amount due till it is granted. Any further adjustment before the refund is granted is to be calculated in the same manner. As a result, the appeal filed by the appellant is treated as “allowed”.
At the outset, we observe that the issue is squarely covered by the decision of the coordinate bench of the Tribunal in assessee’s own case in dated 02.06.2017, wherein the coordinate bench of the Tribunal after relying on the decision of the Hon’ble Supreme Court in the case of Tata Chemicals Ltd., reported in [2014] 43 taxmann.com 240 (SC), has held that the assessee is entitled for interest on unpaid interest by observing in para 6 & 6.1 as under :- 6. We find that the case laws relied upon hereinabove are very well founded and supports the case of the assessee. We find that the impugned dispute before us is squarely addressed by the co- ordinate bench of Mumbai Tribunal in the case of Union Bank of India vs ACIT reported in (2016) 72 taxmann.com 348 (Mumbai Trib) dated 11.8.2016 which had duly considered the aforesaid decisions and had held as under:- 3.4 We have gone through the facts of this case and submissions made by both sides, provisions of law as well as judgments placed before us. It is noted that the only issue to be decided by us is that while granting the refund in pursuance to the appeal effect order, whether the amount of refund granted carlier should be adjusted first against the interest component of the earlier refund and thereafter the balance amount should be adjusted against the principal component of tax in the refund granted earlier order OR vice-versa as has been done by the AO. It is noted that this issue is not coming for the first time before the Tribunal as the same has arisen for A.Ys. 1988-89, 2001-02 & 2005-06. Copies of the orders were placed before us and it was contended by the Ld. Counsel that the Tribunal had already decided this issue in favour of the assessee therefore, before proceeding further we find it appropriate to first reproduce and discuss the reasoning given by the Tribunal in earlier years. The relevant part of order dated 23.06.2014 is reproduced hereunder for the sake of ready reference:
5 4……………. 5……………. 6…………….. 3.5 From the perusal of the above, it is noted by us that the Tribunal has relied upon the judgment of Hon'ble Delhi High Court in the case of India Trade Promotion Organization (supra), wherein it was inter-alia held that in a situation where only part amount is refunded by the department, then payment of interest on the balance amount due from the department to the assessee, on a particular date, does not amount to payment of interest on interest. Their lordships, taking support from the judgment of Hon'ble Supreme Court in the case of CIT v. HEG Lad. [2010] 324 ITR 331/189 Taxman 335, observed as under: 14. Matter wax token 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 2444. 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 2441 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."
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 6 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 1st 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 Rx. I 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, ie, the interest element, which should have been refunded but is not paid. In another situation where part payment is made, Section 244A 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 he quantified on 31st March, 2013 and on this amount, ie., interest amount quantified. Revenue would be liable to pay interest under Section 244A till payment is made... 3.6 The facts of the case before us are similar in the sense that here also only part amount was refunded in the first phase by the department and when the balance amount was paid by the department in the second phase, the assessee was entitled for interest on the balance amount of refund due. Thus, from the aforesaid observations of Hon'ble Delhi High Court, we can say that it is not a case of payment of interest on interest. Thus, in view of these facts and aforesaid judgments, Ld Counsel contended that Ld. CIT (A) had wrongly applied the judgment of Hon'ble Supreme Court in the case of Gujarat Fluoro Chemicals (supra), since it was not applicable on the facts of this case. 3.7 Further, it was also held by Hon'ble High Court that the department ought to follow the same procedure and rules while collecting tax and while issued refunds. We have gone through the provisions of section 140A(1); explanation to the aforesaid section provides as under: "Explanation - Where the amount paid by the assessee under this sub-section falls short of the aggregate of the tax and interest as aforesaid, the amount so paid shall first be adjusted 7 towards the interest payable as aforesaid and the balance, if any, shall be adjusted towards the tax payable." 3.8 Thus, from the perusal of the above, it is clear that where the amount of tax demanded is paid by the assessee then it shall first be adjusted towards interest payable and balance if any whatever tax payable. Now, if we go through section 2444, we find that no specific provision has been brought on the statute with respect to adjustment of refund issued earlier for computing the amount of interest payable by the revenue to the assessee on the amount of refund due to the assessee. Thus, the law is silent on this issue. Under these circumstances, fairness and justice demands that same principle should be applied while granting the refund as has been applied while collecting amount of tax. The revenue is not expected to follow double standards while dealing with the tax payers. The fundamental principle of fiscal legislation in any civilized society should be that the state should treat its citizens (i.e. tax payers in this case) with the same respect, honesty and fairness as it expects from its citizens It is further noted by us that Hon'ble Delhi High Court has already decided this issue in clear words which has been followed by the Tribunal in assessee's own case in the earlier years. It is further noted by us that assessee is not asking for payment for interest on interest. It is simply requesting for proper method of adjustment of refund and for following the same method which was followed by the department while making collection of taxes. Under these circumstances, we find that judgment of Hon'ble Supreme Court in the case of Gujarat Fluoro Chemicals (supra) is not applicable on the facts of the case before us and thus Ld. CIT (A) committed an error in not following the decisions of the Tribunal of earlier years in assessee's own case as well as judgment of Hon'ble High Court in the case of India Trade Promotion Organisation (supra). 3.9 Before parting with, we are reminded of a recent judgment of Hon'ble Supreme Court in the case of Union of India v. Tata Chemicals Ltd. [2014] 363 ITR 658/822 Taxman 225/43 taxmann.com 240 wherein Hon'ble Supreme Court has discussed at length about moral and legal obligation of the department to refund the amount of tax collected from the tax payers which was more than the amount actually due as per law, along with interest. Some of the useful observations are reproduced hereunder for the sake of better clarity in deciding the issue before us: 137. 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 8 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." 3.10 It is noted from the observations of the Hon'ble Supreme Court that it has been observed that whatever money has been received by the department, it ought to be refunded ex aequo et bono. It is a Latin phrase which means 'what is just and fair' or 'according to equity and good conscience. Something to be decided ex aequo et bono is something that is to be decided by principles of what is fair and just. A decision-maker who is authorized to decide ex aequo et bono is not bound by legal rules but may take account of what is just and fair. Thus, if we decide the issue before us ex aequo et bono, then it would be decided