M.G.F.INDIA LD. vs. COMMISSIONER OF INCOME TAX

A.K. SIKRI, J.

For orders, see ITA No. 35/2009.

A.K. SIKRI) JUDGE

(SIDDHARTH MRIDUL)

October 30, 2009 nsk

IN THE HIGH COURT OF DELHI AT NEW DELHI


ITA Nos. 35, 39, 27, 29, 32, 38; 31, 33, 37, 26, 28, 34, 36 and 30/2009

% Reserved on: October 06, 2009

Pronounced on : October 30, 2009

The Motor & General Finance Ltd.

MGF India Ltd.

Goodwill (India) Ltd.


MGM (India) Ltd.

Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N. Jha and Mr. B.K. Singh, Advocates

Commissioner of Income Tax-VI, New. Delhi

CORAM:

THE HON'BLE MR. JUSTICE A.K. SIKRI THE HON'BLE MR. JUSTICE SIDDHARTH MRIDUL

A.K. SIKRI, J.

These appeals are preferred by few assessees, including Motor & General Finance Ltd. and Goodwill India Ltd. The appeals also relate to different assessment years, but the question involved in all these appeals is singularly common, namely, whether on the facts and circumstances of the case the Income Tax Appellate Tribunal (hereinafter referred to as the 'Tribunal') was correct in law in holding that the appellant was not entitled to the interest by way of compensation to be calculated for "every month or part of the month" on the amounts of taxes paid from the date of actual


- The aforesaid application of the assessee was dismissed by the However, the CIT(A) allowed the application and directed payment of interest upon interest. In appeal preferred by the Revenue, the Tribunal has reversed the decision of the CIT(A) holding that no such interest is payable. - 6. Counsel for both the parties concede that the principles laid down in the decision of the Supreme Court in Sandvik Asia Ltd. (supra) would govern the outcome. It is the interpretation and effect of that judgment which is to be examined. - 7. Before adverting to the principle of law enunciated in the said judgment, it would be necessary to scan through the facts of that case on which the judgment of the Supreme Court is founded. - 8. For the assessment years 1977-78, 1978-79, 1981-82 and 1982-83, the appellant company was found to be entitled to refund of advance tax. On the amount consequently refunded, it claimed interest under Sections 214 and 244(1-A) of the Act. Some disputes arose in that regard but ultimately, the Supreme Court by its order dated 30.4.1997 directed the CIT to reconsider the matter in the light of Modi Industries Ltd. case, (1995) 6 SCC 396. Pursuant thereto, the assessing officer passed an order on 27.3.1998 paying certain amounts under Sections 214 and 244(1-A) of the Act by way of


It would, thus, be seen that in the said case the Court has a the general principle applicable to the income tax refunds also, namely, the assessee has to be compensated for ordinary delay in receiving monies properly due to it. Following observations in this behalf are made:-

11.

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"Learned counsel for the appellant says that it cannot be denied that it has been deprived of the use of its monies for periods ranging from 12 to 17 years. It also cannot be denied that such deprivation is solely due to the actions of the Revenue which have been held by this court to be contrary to the provisions of the Act, on general principles it ought to be compensated for such deprivation.

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In the impugned order, the Bombay High Court has held that no compensation is required to be paid since ..... there was a serious dispute between the parties, which was ultimately ordered to be paid pursuant to the order passed by this court on April 30, 1997. Undisputedly, the amount pursuant thereto was paid on March 27, 1998....

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The facts and the law referred to would clearly go to show that the appellant was undisputably entitled to interest under sections 214 and 244 of the Act as held by the various High Courts and also this court. In the instant case, the appellant's money had been unjustiably withheld by the department for 17 years without any rhyme or reason. The interest was paid only at the instance and the intervention of this Court in Civil Appeal No. 1887 of 1992 dated April 30, 1997. Interest on delayed payment of refund was not paid to the appellant on March 27, 1981 and April 30, 1986, due to the erroneous view that had been taken by the officials of the respondents. Interest on refund was granted to the appellant after a substantial lapse of time and hence it should be entitled to compensation for this period of delay. The High Court has failed to appreciate that while charging interest from the assessees, the Department first adjusts the amount paid towards interest so that the principal amount of tax payable remains tanding and they are entitled to charge interest till the

they take the benefit of the assessees funds by delaying payment of interest on refunds without incurring any furt liability to pay interest. This stand taken by the respondents is discriminatory in nature and thereby causing great prejudice to lakhs and lakhs of assessees. Very large number of assessees are adversely affected inasmuch as the Income Tax Department can now simply refuse to pay to the assessees amounts of interest lawfully and admittedly due to them as has happened in the instant case. It is a case of the appellant as set out above in the instant case for the assessment year 1978-79, it has been deprived of an amount of Rs.40 lakhs for no fault of its own and exclusively because of the admittedly unlawful actions of the Income Tax department for period ranging up to 17 years without any compensation whatsoever from the department. Such actions and consequences, in our opinion, seriously affect the administration of justice and the rule of law."

"The Gujarat High Court in D.J. Works, (1992) 195 ITR 227 and Chimanial S. Patel's case (1994) 210 ITR 419 had taken the view that even proceeded on the basis that there was no specific provision for payment of interest on amount of interest which had been wrongfully retained, the Act itself recognized in principle the liability of the Department to pay interest where excess tax was retained and the court held that the same principle should be extended to cases where interest was retained. The court held that once interest becomes due it takes the same colour as excess amounts of tax and they awarded interest thereon at the rates prescribed under the Act.

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The Madhya Pradesh High Court in an income tax reference ITr No. 5 of 1996 followed the Gujarat High Court decisions and answered in the affirmative and in favour of the assessee, a question as to whether the Tribunal was right in holding that interest was payable on delayed payments of interest. The question specifically refers to the Department's claim that the law allegedly does not provide for any such payment.


relating to refund of tax are contained in Sections 240, 243 ar

which are reproduced below:-

"240. Refund on appeal, etc. – Where, as a result of any order passed in appeal or other proceeding 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 assessee without his having to make any claim in that behalf:

Provided that where, by the order aforesaid, -

- (a) an assessment is set aside or cancelled and an order of fresh assessment is directed to be made, the refund, if any, shall become due only on the making of such fresh assessment; - (b) the assessment is annulled, the refund shall become due only of the amount, if any, of the tax paid in excess of the tax chargeable on the total income returned by the assessee."

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- 243. Interest on delayed refunds. (1) If the Income Tax Officer does not grant the refund, - - (a) in any case where the total income of the assessee does not consist solely of income from interest on securities or dividends, within three months from the end of the month in which the total income is determined under this Act, and - (b) in any other case, within three months from the end of the month in which the claim for refund is made under this Chapter,

the Central Government shall pay the assessee simple interest at twelve per cent per annum on the amount directed to be refunded from the date immediately following the expiry of the period of three months aforesaid to the date of the order granting the refund.

Explanation – If the delay in granting the refund within the period of three months aforesaid is attributable to the assessee, whether wholly or in part, the period of the delay attributable to him shall be excluded from the period for which interest is payable.

a refund is due to the assessee in pursuance of an orce referred to in Section 240 and the Income Tax Officer does not grant the refund within a period of three months from the end of the month in which such order is passed, the Central Government shall pay to the assessee simple interest at twelve-per cent per annum on the amount of refund due from the date immediately following the expiry of the period of three months aforesaid to the date on which the refund is granted.

(1-A) Where the whole or any part of the refund referred to in sub-section (1) is due to the assessee, as a result of any amount having been paid by him after the 31st day of March, 1975, in pursuance of any order of assessment or penalty and such amount or any part thereof having been found in appeal or other proceeding under this Act to be in excess of the amount which such assessee is liable to pay as tax or penalty, as the case may be, under this Act, the Central Government shall pay to such assessee simple interest at the rate specified in subsection (1) on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund is granted:

Provided that where the amount so found to be in excess was paid in instalments, such interest shall be payable on the amount of each such instalment or any part of such instalment, which was in excess, from the date on which such instalment was paid to the date on which the refund is granted:

Provided further that no interest under this sub-section shall be payable for a period of one month from the date of the passing of the order in appeal or other proceeding:

Provided also that where any interest is payable to an assessee under this sub-section, no interest under sub-section (1) shall be payable to him in respect of the amount so found to be in excess.

(2) Where a refund is withheld under the provisions of Section 241, the Central Government shall pay interest at the aforesaid rate on the amount of refund ultimately determined to be due as a result of the appeal or further proceeding for the period commencing after the expiry of three months from the end of the month in which the order referred to in Section 241 is passed to the date the refund is granted."

amount is not refunded within three months from the end of the month in which the total income is determined or within three months from the end of the months from the end of the month in which the claim for the refund is made under that chapter. Interest payable is @ 12% p.a. "from the date immediately following the expiry of the period of three months" aforesaid to the date of the order granting the refund.

- 15. No doubt, when the tax paid is more than what is due, as a result of certain additions etc. made by the AO and in appeal when those are deleted by the appellate authority, the refund of the excess amount is to be made along with interest, as envisaged under Section 243 of the Act. It is only when this interest is not refunded that the assessee would become entitled to the interest on the said interest as well. That was the factual position in Sandvik Asia (supra). In contradistinction, where the interest is paid along with the amount payable as refund, the question of payment of interest on interest does not arise. Present cases fall under this category. - 16. In the present case, the order of the Tribunal would demonstrate that it had taken into consideration various dates on which orders were passed by the successive authorities, including the order of refund. It has also taken into consideration the interest on the basis of those orders. Summary of interest allowed along with refund to the

Date of appellate order | Date of its receipts by CIT office/AO | Date of appeal effect/ refund | Principle amount of refund | Intt. u/s. 244A | refund 1 | 2 | 3 | 4 | 5 | 6 ITAT's order dt.31.05.2001 | Certain issues restored to AO to be decided afresh | 26.3.2003 | 25,62,505 | 2,88,489 | 28,50,994 CIT(A)'s order dt. 28.11.2003 | 28.1.2004 | 31.3.2004 | 95,95,156 | 19,59,445 | 1,15,54,601 ITAT's order dt.3.3.2006 | 15.5.2006 | 3.8.2006 | 1,37,33,468 | 1,14,06,380 | 2,51,39,848 ITAT's order dt.29.9.2006 | 18.12.2006 | 9.1.2007 | 57,99,446 | 55,50,122 | 1,13,49,768 3,16,90,575 | 1,92,04,436 | 5,08,95,211

Date of | Amount | Progressive | Period | Month | Rate of interest | Interest payable payment | amount 14.10.96 | 25,00,000 | 25,00,000 | 1.10.96 to | l l | 1% | 25,000 1 | 31,10.96 14.11.96 | 25,00,000 | 50,00,000 | 1.11.96 to | 1 | 1% | 50,000 30.11.96 | <u>. </u> 9.12.96 | 25,00,000 | 75,00,000 | 1.12.96 to | 4 | 1% | 3,00,000 J., | , , , , , , , , , | 31.3.97 17.3.97 | 30,00,000 | 1,30,00,000 | 1.4.97 to 30.5.97 | 2 | 1% | 2,60,000 29.3.97 | 25,00,000 | 1,40,00,000 | 1.6.97 to 30.6.97 | 1 | 1% | 1,40,000 9.5.97 | 10.00.000 | 1,50,00,000 | 1.7.97 to 31.7.97 | 1 | 1% | 1,50,000 9.7.97 | 10.00.000 | 1,60,00,000 | 1.8.97 to 31.8.97 | 1 | 1% | 1,60,000 8.8.97 | 10,00,000 | 1,70,00,000 | 1.9.97 to 30.9.97 | 1 | 1% | 1,70,000 21.8.97 | 10,00,000 | 1,90,00,000 | 1.10.97 to | 2 | 1% | 3,80,000 30.11.97 10.10.97 | 10.00,000 | 2,00,00,000 | 1.12.97 to 31.5.01 | 42 | 1% | 84,00,000 16.10.97 | 10,00,000 | 2,00,00,000 | 1.6.01 to 28.2.02 | 9 | 0.75% | 13,50,000 26.11.97 | 10,00,000 | 3,16,90,575 | 1.3.02 to 31.5.02 | 3 | 0.75% | 7.13.037 25.2.02 | 1,16,90,575 | 3,16,90,575 | 1.6.02 to 30.4.03 | 11 | 0.66% | 23,00,735 <u> </u> Less: Refund already issued on | <u> </u> 26.3.03/29.05.03 | , | ľ 25 42 505 | 1 | 1

On | d already issued 3.8.06 3.33,468 | ; | , 97,99,446 | 1.8.06 to 31.1.07 | 6 | 0.5% | 3,30,569 TOTAL | 1.92,04,436

It is clear from the above that the assessee had been paid the refund of the amounts collected/paid within the statutorily permissible periods.

- 17. On the other hand, in Sandvik Asia Ltd. (supra), only refund of excess tax had been given, but no interest on refund had been given to the assessee along with that. This interest was retained by the department for a period of 12 to 17 years in respect of various assessment orders. It was under these circumstances, the Court opined that withholding of interest was also unjustified as this had become part of the refund due to the assessee along with tax, interest on this amount was also payable. - 18. 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 244(a) 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 244(a) of the Act. Thus, the calculations are not

u . . . . . . . . . . . . . . . . . . .

given along with interest, which is to be calculated as per Secti 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

. jul.

and refunded along with the refundable tax amount.

(A.K. SIKRI) JUDGE