RAJASHEKHAR SWAMINATHAN IYER,MUMBAI vs. DCIT 8(3), MUMBAI

3 Rajashekhar Swaminathan The various courts & the CBDT Circular clearly says that soon after order is passed the refund should be granted within a reasonable period, and in the case of delay the assessee should be compensated with interest u/s 244 on the refundable amount. In other words various High Courts have interpreted that if an assessee is deprived of the use of [rinds which are refundable in law, the AO is duty bound to compensate for such loss by granting interest u/s 244. In the case of Trustees of H.E.H. Nizam's Religious Fund Trust (15 CTR 239), Hon'ble Andhra High Court observed that if the amount is not refunded within stipulated time, interest has to be paid under sec. 244 of the Act. Interest on refund is a substantive right of the assessee & statutory obligation of the AO Clause (b) of sub section (1) of sec. 244A opens with the words "in any other case" that means in any other case than the amount paid under clause (a) of sec. 244A. Circular No. 549, dt. 31st Oct. 1989, clarified the purpose and object of introducing section 244A of the Act to replace sections 214, 243 and 244 of the Act as providing for payment of interest by the Department for delay in grant of refunds since there were some lacunae in the earlier provisions with regards to non-payment of interest by the Government to the assessee for money remaining with the Government. Interest is a kind of compensation for use and retention of money collected unauthorized by the Department a general right exists in the State to retain any tax collected for its purpose, and a corresponding obligation exists to refund to individuals any sum paid to them as taxes which are found to have been wrongfully exacted or are believed to be, for any reason, inequitable. The statutory obligation to refund carries with it the right to interest also. This is true in the case of assessee under the Act when the collection is illegal, there is a corresponding obligation on the Revenue to refund such amount with interest inasmuch as it had retained and enjoyed the money deposited.

4 Rajashekhar Swaminathan Even the department understood the object behind insertion of section 244A,as that am assessee is entitled to payment of interest for money remaining with the Government which would be refunded.”

3.2. Ld. CIT(A) considered the submissions of the assessee but did not accept the same on the ground that in the present case the amount of refund determined was as Rs.10,39,710/- u/s 143(1), which was less than 10% of gross tax that Rs.1,49,11,408/-, and therefore, the claim of the assessee was not accepted. In view of the clear provisions of section 244A (1)(a) of the Act. 3.3. We have considered the submissions made by the Ld. Counsel and the Ld. DR before us. The Ld. Counsel has fairly accepted that in case amount of refund is less than 10% of the gross tax as determined in sub-section 143(1), then, no interest is payable to the assessee. But, the assessee submits that undisputedly, no refund should be payable up to the date of determination of tax u/s 143(1). But, if the amount payable to the assessee is withheld by the department beyond that date and that too without any reasons attributable on the part of the assessee, then amount of refund should be granted to the assessee for the period during which amount is withheld by the department beyond the date of passing of order u/s 143(1). In support of his arguments, he placed reliance inter alia upon the judgment of Hon’ble Madras High Court in the case of CIT v. Cholamandalam Investment and Finance Co. Ltd. 294 ITR 438 (Mad) and of Delhi High Court in case of Court on its Own Motion vs. UOI and others in writ petition (C)

5 Rajashekhar Swaminathan 2659/2012 dated 14.03.2013. No contrary judgment was brought to our notice by the Ld. DR. 3.4. We have carefully considered the submissions made by both sides and facts of this case brought before us. It is noted that the provisions of the Act has been drafted in such a manner that assessee is obliged to pay tax through various channels viz: i. Tax deducted/collected at source ii. Advance Tax and Self Assessment Tax etc. 3.4. The provisions with regard to deduction of tax at source by the payers are quite stringent. The payers are bound to deduct the tax at source from the payments made to the payees irrespective of the facts whether any amount of tax would be payable by the payee on its income or not. Further, it is very difficult to estimate the exact amount of taxable income in view of uncertainties in life and business coupled with complex provisions of law and various deductions and exemptions as may be available to an assessee, and therefore, assessee is at times required to pay advance tax purely on estimate basis. Under these circumstances, the assessee under stringent provisions of the law ends up in paying more amounts of tax then he is liable to pay in a particular assessment year. On the top of that, there is no provision under the income tax law which permits an assessee to set off the extra amount of tax paid by an assessee in a particular year against the amount payable in the subsequent year at the time of filing of return for subsequent year. Under these circumstances, the revenue is expected and obliged under the 6 Rajashekhar Swaminathan law to return the excess amount collected from the assessee as per the earliest occasion while framing order/intimation u/s 143(1). The state is not expected to enjoy unjust enrichment at the cost of the tax payers. Article 265 of Constitution of India clearly says that no tax can be collected except with the authority of law. Under these circumstances, various courts have time and again issued strict instructions and guidance to the revenue authorities to refund the amount of excess tax collected from the assessee on its earlier convenience. It is further noted that the Central Board of Directs Taxes had also come out with various instruction to avoid undue hardship to the tax payers. 3.5. Hon’ble Delhi High Court in case of Court on its Own Motion Vs. UOI and Others in W.P,(C) 2659/2012 dated 14.03.2013 issued writ of Mandamus for necessary action by the Income Tax Department, for payment of interest u/s 244A of the Income Tax Act 1961, especially when the assessee is not at fault. Subsequent to the above decision, the CBDT came out with instruction No.7/2013 on the subject of payment of interest u/s 244A Act when assessee is not at fault. 3.6. In the case of Sandvik Asia Ltd. vs CIT 280 ITR 643, Hon’ble Supreme Court held as follows: "In view of the express provisions of the Income Tax Act, 1961, an assessee is entitled to compensation by way of interest for the delay in the payment of amounts lawfully due to the assessee which are withheld wrongly and contrary to law.” 3.7. Hon’ble Gauhati High Court in the case of Jwala Prasad Sikaria ( 175 ITR 535 ) has gone to the extent of observing that the assessee is entitled to payment of interest on refund due 7 Rajashekhar Swaminathan to assessee for delay on the part of revenue even if there is no statutory provision in this regard. 3.8. In the matter of UOI vs Tata Chemicals (363 ITR 658) the Hon’ble Supreme Court has elucidated and clarified the philosophy behind granting interest and held that 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 amount of tax which has been duly paid in prescribed time and provisions in that behalf forms part of the recovery machinery provided in taxing statute. Refund due and payable to the assessee is a debt owed and payable by the Revenue. 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 ae quo et bono ought to be refunded, the right to interest follows, as a matter of course interest is a kind of compensation for use and retention of money collected unauthorisedly by the Department. A general right exists in the state to retain any tax collected for its purpose, and a corresponding obligation exists to refund to individuals any sum paid by them as taxes which are found to have been wrongfully extracted or are believed to be, for any reason, inequitable. The statutory obligation to refund carries with it the right to interest also. It was finally held that when the collection is illegal, there is a corresponding obligation on the Revenue to refund such amount with interest in as much as it had retained and enjoyed the money deposited. 3.9. In view of facts of this case and clear guidance and instruction given by the courts time to time, we find that there was no proper justification on the part of the revenue to 8 Rajashekhar Swaminathan withhold the amount of refund beyond the date of issuance of intimation/order u/s 143(1). We can appreciate that upto the date of passing order/intimation u/s 143(1), no interest shall be payable by the department to the assessee because of clear provisions of law on the statute in this regard, but for the period of delay in issuing the refund after the date of passing of the order u/s 143(1), the assessee is entitled for interest and revenue is liable to pay it to the assessee. Thus, we direct the AO to grant the interest u/s 244A for the period falling between the date of passing of order u/s 143(1) and actual date of granting of refund, at the rate of interest as would have been applicable if the refund amount would have been for an amount more than 10% of the gross tax. Thus, the appeal of the assessee is allowed in terms of our directions as contained above.

Order pronounced in the open court on 27th July, 2016. (Joginder Singh) (Ashwani Taneja) "या"यक सद"य / JUDICIAL MEMBER लेखा सद"य / ACCOUNTANT MEMBER मुंबई Mumbai; "दनांक Dated: 27/07 /2016 ctàxÄ? P.S/."न.स.