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Income Tax Appellate Tribunal, CIRCUIT BENCH AT MANGALORE
Before: SHRI INTURI RAMA RAO & SHRI SUDHANSHU SRIVASTAVA
to 1194/Bang/2016 Page 2 of 9 2. Since common issues are involved in all these appeals we proceed to dispose of the same by this consolidated order for the sake of convenience.
The revenue raised the following identical grounds of appeal:
4. The issue involved in all these appeals is whether the assessee is entitled to interest u/s 244A(2) [hereinafter referred to as 'the Act' for short] on the amount of refund adjusted against tax dues on which became refundable to the assessee consequent upon appellate orders passed subsequently. In nutshell, the AO was of the opinion that the assessee was not entitled to interest on amount of interest granted u/s 244A(1) of the Act which is adjusted against the amounts due on regular assessment. to 1194/Bang/2016 Page 3 of 9 According to the AO, provisions of the IT Act do not provide for payment of interest on interest. It is the contention of the assessee-bank that when part refund was given to the assessee, the same should be appropriated towards interest payable to the and consequently interest should be paid on the principal amount due by the revenue authorities. The contention of the assessee is based on the ratio of the decision of the Hon’ble Supreme Court in the case of Sandvik Asia Ltd Vs. CIT (280 ITR 643) wherein the Hon’ble Supreme Court held as follows:
“38. The facts and the law referred to in paragraph (supra) 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 of this Court. In the instant case, the appellant’s money had been unjustifiably 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 30-4-1997. Interest on delayed payment of refund was not paid to the appellant on 27-3-1981 and 30-4-1986 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 principle amount of tax payable remain outstanding and they are entitled to charge interest till the entire outstanding is paid. But when it comes to granting of interest on refund of taxes, the refunds are first adjusted towards the taxes and then the balance towards interest. Hence as per the stand that the Department takes they are liable to pay interest only up to the date of refund of tax while they take the benefit of assessees funds by delaying the payment of interest on refunds without incurring any further liability to pay interest. This stand taken by the respondents is discriminatory in nature and thereby causing great prejudice to the 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 that as has happened in the instant case. It is a case of the appellant as set out above in to 1194/Bang/2016 Page 4 of 9 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 periods ranging up to 17 years without any compensation whatsoever from the Department. Such actions and consequences, in our opinion, seriously affected the administration of justice and the rule of law.”
This decision of the Hon’ble Supreme Court was reviewed by the Hon’ble Supreme Court in the case of CIT vs. Gujarat Fluoro Chemicals (358 ITR 291) wherein the Hon’ble Supreme Court observed that the decision in Sandvik Asia Ltd (supra) was not not on the basis of plain provisions of statute but on the basis that revenue is obliged to pay interest on interest in the event of its failure to refund interest payable within a statutory period. It was further held that the decision of the Hon’ble Supreme Court in the case of Sandvik Asia Ltd (supra) is not for the proposition that the assessee is entitled for interest on interest on refund. It also observed that the assessee is entitled only for interest provided under the statute. The decision in the case of Sandvik Asia Ltd (supra) was followed by the Hon’ble Delhi High Court in the case of India Trade Promotion Organisation vs. CIT (361 ITR 646) and several High Courts. Even in the present case, the CIT(A) allowed the appeal following the ratio laid down by the Hon’ble Supreme Court in the case of CIT Vs. H.E.G.Ltd.(324 ITR 331) which in turn is based on the decision in Sandvik Asia Ltd (supra) and the Hon’ble Delhi High Court in the case of India Trade Promotion Organisation (supra). Subsequently, the Hon’ble Delhi High Court in the case of CIT vs. Indian Farmer Fertilizer to 1194/Bang/2016 Page 5 of 9 Co-Operative (374 ITR 56) had overruled its own decision in India Trade Promotion Organisation (supra) in the following words:
In Sandvik Asia Ltd. (supra), the Court admittedly was dealing with facts prior to the insertion of Section 244A. Therefore, it would be inappropriate for this Court to consider that judgment now as binding authority. More importantly, Sandvik Asia Ltd. (supra) was explained by the larger Bench i.e. three Judge Bench decision in Gujarat Fluoro Chemicals (supra) where the Supreme Court categorically held that the only amount which an assessee aggrieved by delayed payment can legitimately claim under the statute is interest and that "no other interest on such statutory interest" is payable. This ruling, in the opinion of this Court, rendered by a larger Bench, would have to be followed as opposed to the ratio in HEG Ltd. (supra) where the Supreme Court had expressed a contrary opinion by indicating that the interest component towards the delayed payment of the tax refund would partake of the character of the 'amount of due' under Section 244 A. In other words, HEG Ltd. (supra) seems to suggest that there would be dues on bar, refund and delayed interest. Clearly, that view has not been approved in Gujarat Fluoro Chemicals (supra). It was urged during the hearing that India Trade Promotion Organisation (supra) has become final since the revenue's appeal was withdrawn. This Court is of the opinion that such detail notwithstanding, the law declared in Gujarat Fluoro Chemicals (supra) is binding and permits no deviation.
In the light of the above decision, it is held that the impugned order to the extent it directs payment of any sum over and above interest payable under Section 244A(1) to the assessee, cannot be upheld. Accordingly, the matter is remitted to the AO for orders. In the circumstances of the case, the question of law framed is answered in favour of the revenue and against the assessee in the above terms. The appeal is partly allowed.
The ratio that can be culled out from the later judgments of the Hon’ble Supreme Court in the case of Gujarat Fluoro Chemicals (supra) is that the assessee is entitled for interest which is provided under statute only implying that the assessee is not entitled to interest on interest once granted u/s 244A of the Act. to 1194/Bang/2016 Page 6 of 9 There is no quarrel on the principle enunciated by the Hon’ble Supreme Court in the case of Gujarat Fluoro Chemicals (supra).
The Hon'ble Supreme Court in that case has not delved into the issue whether where refund issued includes the amount of interest granted u/s 244A is adjusted against regular tax due. Whether refund due which includes interest granted is adjusted against regular tax due, it loses the character of interest and partake character of regular tax. The Hon’ble Punjab & Haryana High Court in the case of CIT v. Leader Engg. Works (178 ITR 529) held that the advance tax paid loses its identity the moment it was adjusted towards the tax liability created under the regular assessment and took the shape of payment of tax in pursuance of order of assessment.
The Hon'ble Supreme Court in the case of Modi Industries Ltd. Vs. CIT (216 ITR 548) upheld the above principle by holding that the amount of advance tax and tax deducted at source must be treated as payment of income-tax pursuant to order of assessment as and when these amounts were set off against demands raised against assessment order i.e. from the date of assessment order. The relevant para is extracted below:
“If any tax is paid pursuant to an assessment order after 31-3- 1975 (which will include tax deducted at source and advance tax to the extent the same has been retained and treated by the ITO 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 to 1194/Bang/2016 Page 7 of 9 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.” The Hon’ble High Court of Kerala in the case of CIT vs. G.B.Transports (158 ITR 548) held as under:
There are three stages in the imposition of a tax. First is the declaration of the liability, next is the assessment and lastly comes the method of recovery. The Act enacts the charge and provides for the entire machinery for levy and collection of tax. Section 143 is a machinery section under which the ITO makes an assessment of the total income and determines the tax due. To enable the assessing authority to make the assessment, the assessee is obliged to file a return under section 139 of the Act. The next step is the assessment. In the case of an assessee who has paid advance tax, the sum payable by the assessee or refundable to him is determined with reference to the advance tax paid only at that stage. The ITO has to give credit to the amount paid as advance tax and make a demand, if such payment is deficit. In that case, the assessee is to pay interest. In case there is excess payment, the excess is refundable to the assessee and the excess carries interest as provided in section 214. Once that process is over by an order under section 143, the amount paid as advance tax changes its character as advance tax and partakes the character of tax paid as per demand. What is credited is treated as tax paid. In subsequent assessment order, as a result of modification in appeal, the ITO determines the sum pay able by the assessee ok. refundable to him only with reference to the amount of tax collected or treated as paid and not with reference to the amount of advance tax which has been already adjusted or refunded. Even where the original assessment is set aside and fresh assessment is made in pursuance of an order in appeal, the ITO in the consequential order determines the sum refundable to the assessee with reference to the amount of tax determined and the tax credited and collected. Therefore, the question of excess of advance tax over the tax determined on assessment cannot arise at that subsequent stage. For this reason also, we have to construe the term 'regular assessment' in section 214 as connoting the original assessment.
to 1194/Bang/2016 Page 8 of 9 Applying the same principle to the facts of the present case, where refunds are due which includes amount of interest granted u/s 244A is adjusted or set off against the demand determined pursuant to the assessment order, same should be treated as payment of regular tax thereby falling within clause (ii) of section 244A of the Act. Clause (b) of sub-section (1) of section 244A of the Act 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 :—
(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. ”
Inthe light of the above settled position of law, the grant of interest on the amount due does not amount to interest on interest. Though the reasons adopted by the CIT(A) cannot be upheld in view of the subsequent decision of the Hon’ble Supreme Court in the case of Gujarat Fluoro Chemicals (supra), we uphold the order of the CIT(A) on the above reasoning given by us. to 1194/Bang/2016 Page 9 of 9 In the result, the appeals filed by the revenue are dismissed.