CIT, FARIDABAD V. M/S N.H.P.C. LTD. FARIDABAD

ITA/324/2009

AI Insights

The case revolves around the dispute concerning the chargeability of interest under Section 234D of the Income Tax Act, 1961, for the assessment year 2001-02. The assessee, M/s NHPC Limited, argued that interest should not be charged as Section 234D, which was introduced by the Finance Act, 2003 effective from June 1, 2003, postdated the processing of their tax return under Section 143(1). The Income Tax Appellate Tribunal and the Commissioner of Income Tax (Appeals) had earlier ruled in favor of the assessee, leading to the revenue's appeal in the High Court. The High Court, referencing various High Court judgments and the retrospective application of Section 234D as clarified by Explanation 2 added by the Finance Act, 2012, ruled in favor of the revenue.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 720561 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 24-09-2013
• Assessment Year: misc
• Other Referred Cases: CIT v. Kerala Chemicals and Proteins Limited, Commissioner of Income tax and another v. FANUC India Limited, CIT v. Infrastructure Development Finance Co. Limited, The Commissioner of Income Tax v. M/s Indian Oil Corporation Limited, Director of Income Tax v. Jacabs Civil Incorporated
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: P C GOYAL
• Assessee Lawyers: TEJINDER JOSHI
• Keywords: Interest under Section 234D; Refund; Regular assessment; Retrospective effect
• Section: 143(3); 154; 143(1); 260A; 234D

Judgement Text

"ITA No.324 of 2009 (O&M) 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 324 of 2009(O&M)- Date of decision: 24.9.2013 Commissioner of Income Tax, Faridabad -----Appellant Vs. M/s NHPC Limited, Sector 33, Faridabad ----Respondent CORAM:- HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON'BLE MR. JUSTICE JASPAL SINGH Present:- Mr.Tejinder K.Joshi, Advocate for the revenue. Mr.P.C.Goyal, Advocate for the assessee. Ajay Kumar Mittal,J. 1. The revenue has filed the present appeal under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 10.10.2008, Annexure III, passed by the Income Tax Appellate Tribunal, Delhi Bench 'G' New Delhi (in short, “the Tribunal”) in ITA No.2531/DEL/2007, for the assessment year 2001- 02, claiming following substantial question of law:- “Whether, on the facts and in the circumstances of the case, the learned ITAT is right in law in holding that the interest under section 234D was not chargeable for the year under appeal and such levy of interest is contrary to the law applicable for the year under consideration disregarding the facts that section 234D was inserted by the Finance Act, 2003 w.e.f 1.6.2003, as such, section 234D became operative from 1.6.2003 and interest under Section 234D is chargeable from 1.6.2003 onwards?” 2. Briefly, the facts necessary for adjudication of the Singh Gurbax 2013.11.11 18:24 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.324 of 2009 (O&M) 2 controversy involved, as narrated in the appeal, may be noticed. The assessee company filed its return of income on 30.10.2001 which was processed under section 143(1) on 31.3.2003. The assessment under Section 143(3) of the Act was completed on 12.3.2004 at a block profit of ` 6,42,11,01,188/- creating an additional demand of `18,32,11,838/-. The assessee company moved an application under section 154 of the Act for rectification on 22.9.2005 contending that interest under Section 234D was not chargeable as the return was processed under section 143(1) on 31.3.2003, whereas Section 234D became operative from 1.6.2003. The Assessing Officer vide order dated 27.1.2006, Annexure I rejected the application filed by the assessee. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 15.3.2007, Annexure II, the CIT(A) partly allowed the appeal, observing that the Assessing Officer was not justified in charging interest under Section 234D of the Act from 1.4.2003 to 31.5.2003 as the said section came into existence from 1.6.2003. Therefore, the interest for the period from 1.4.2003 to 31.5.2003 amounting to ` 6,82,315/- out of the amount of ` 40,93,888/- was deleted. The assessee and the revenue both filed appeals against the order passed by the CIT(A). Vide order dated 10.10.2008, Annexure III, the Tribunal dismissed the appeal of the revenue and allowed that of the assessee while observing that the appeal filed by the revenue could not be decided in the absence of approval of the Committee on Disputes (COD) as per the decision of the Apex Court in ONGC and Singh Gurbax 2013.11.11 18:24 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.324 of 2009 (O&M) 3 another v. Commissioner of Central Excise, 104 CTR SC 31. However, liberty was given to the revenue that if at a later stage, the department was able to obtain approval from COD, it may seek recalling of the order. With regard to the appeal filed by the assessee,it was held that interest under section 234D of the Act was not chargeable for the year under appeal. Aggrieved thereby, the revenue has filed the present appeal. 3. Learned counsel for the revenue submitted that in view of judgments of Kerala High Court in CIT v. Kerala Chemicals and Proteins Limited, (2010) 323 ITR 584, Karnataka High Court in Commissioner of Income tax and another v. FANUC India Limited, (2011) 57 DTR 340, Madras High Court in CIT v. Infrastructure Development Finance Co. Limited, (2012) 340 ITR 580 and Bombay High Court in The Commissioner of Income Tax v. M/s Indian Oil Corporation Limited, ITA No.2012 of 2011, decided on 12.9.2012, assessee was liable to pay the interest on the refund from 1.6.2003 to 12.3.2004 in view of the provisions of section 234D of the Act. It was argued that the assessee had filed the return on 30.10.2001 for the assessment year 2001-02 which was processed under Section 143(1) of the Act on 31.3.2003 and the regular assessment under Section 143 (3) was framed on 12.3.2004. It was submitted that in pursuance to processing of the return under Section 143(1) of the Act, the amount of ` 5,99,31,692/- was refunded to the assessee. However, on regular assessment, an additional demand of ` 18,32,11,838/- was created on which the assessee was liable to pay Singh Gurbax 2013.11.11 18:24 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.324 of 2009 (O&M) 4 interest under Section 234D from 1.6.2003 to 12.3.2004. Reliance was also placed on Explanation 2 to Section 234D of the Act which was inserted by Finance Act, 2012 and has been made effective retrospectively from 1.6.2003. 4. Learned counsel for the assessee besides supporting the impugned order relied upon judgment of Delhi High Court in Director of Income Tax v. Jacabs Civil Incorporated, (2011) 330 ITR 578. 5. After hearing learned counsel for the parties, we find merit in the submissions made by learned counsel for the revenue. 6. Section 234D of the Act was inserted by Finance Act, 2003 with effect from 1.6.2003. Section 234D of the Act as introduced on 1.6.2003 reads as under:- “234D. (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 [two-third] 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. (2) Where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of Singh Gurbax 2013.11.11 18:24 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.324 of 2009 (O&M) 5 section 245D, the amount of refund granted under sub- section (1) of section 143 is held to be correctly allowed, either in whole or in part, as the case may be, then, the interest chargeable, if any, under sub-section (1) shall be reduced accordingly. Explanation 1.—Where, in relation to an assessment year, an assessment is made for the first time under section 147 or section 153A, the assessment so made shall be regarded as a regular assessment for the purposes of this section. However, for two-third percent, rate of interest of one half percent was substituted by the Taxation Laws (Amendment) Act, 2003 with effect from 8.9.2003. 7. Explanation 2 was added by Finance Act 2012 effective from 1.6.2003 in the following terms:- “Explanation 2.—For the removal of doubts, it is hereby declared that the provisions of this section shall also apply to an assessment year commencing before the 1st day of June, 2003 if the proceeding in respect of such assessment year is completed after the said date.” 8. The aforesaid provision was interpreted by the Kerala, Karnataka, Madras and Bombay High Courts whereby it was held that where the regular assessment had been completed after 1.6.2003 and since Section 234D came into effect from 1.6.2003, therefore, interest could be charged for the assessment years falling prior to the introduction of the Section for the period commencing on 1.6.2003 till the date of regular assessment. 9. The Kerala High Court adjudicating similar issue in Kerala Chemicals and Proteins Limited's case (supra), had recorded Singh Gurbax 2013.11.11 18:24 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.324 of 2009 (O&M) 6 as under:- “Senior counsel for the Revenue referred to Notes on Clauses wherein 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 the Finance Act, 2003 with effect from June 1, 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 June 1, 2003. Even though refund in this case was granted while sending intimation under section 143 (1) on June 28, 2000, and regular assessment under section 143(3) was completed converting the refund to demand of tax on January 22, 2004, interest could be demanded only for the period from June 1, 2003 till January 22, 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 the Commissioner has no authority to give retrospective operation to a substantive provision of law providing for interest. The 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 June 1, 2003, leading to demand of refunded amount as tax determined on regular Singh Gurbax 2013.11.11 18:24 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.324 of 2009 (O&M) 7 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 June 6, 2003 is the correct position.” 10. In Infrastructure Development Finance Co.Limited's case (supra), Madras High Court had noticed as under:- “In the case on hand, though previously, the amount has been refunded to the assessee, the subsequent check made by the revenue, made it clear that the assessee is not entitled to get refund, which has necessitated the Revenue to claim refund. In this case, the assessment was completed only on March 30,. 2004, the date on which the order of assessment came to be passed. But, the amended provision of Section 234D came into force with effect from June 1, 2003. When once the regular assessment is completed after the amended provision of law came into operation, we have no hesitation to hold that the assessee is liable to pay interest on the refunded amount as contemplated under section 234D. It is not the year of assessment that falls for consideration in such circumstances but the date on which the regular assessment order has been passed. In the case on hand, though the assessment year is 2001-02, the regular assessment was made on March 30, 2004, by which time, the amended provision of law, having into operation on and from June 1, 2003, is in force. Therefore, the order passed by the Assessing Officer, levying interest on the amount of refund, is well within the parameters of law and the contra orders passed by the Commissioner of Income Tax (Appeals) and the Singh Gurbax 2013.11.11 18:24 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.324 of 2009 (O&M) 8 income Tax Appellate Tribunal, to the effect of ignoring this principle of law, are illegal and they are accordingly set aside.” 11. The Bombay High Court considering the effect of Explanation 2 to Section 234D of the Act inserted by Finance Act 2012 effective from 1.6.2013 in M/s Indian Oil Corporation Limited's case (supra) held as under:- “26. A statute could be retrospective in operation being expressly stated or by necessary implication. The case of the revenue is that Section 234D as introduced on Ist June, 2003 was retrospective in operation by necessary implication. However, as doubts were raised about its retrospectivity, the same was clarified by adding an explanation by Section 234D by Finance Act, 2012. Under the Act what is brought to tax is not the income of the assessee in the assessment year but the income of the assessee in the previous year. The liability to tax arises on account of the Finance Act which fixes the rate at which the tax is to be paid. The law to be applied is as existing on the Ist day of April of the previous year. In support, the counsel for the respondent relied upon the decision of the Supreme court in Karimthuravi Tea Estate Limited v. State of Kerala 60 ITR 262. Maharajah of Pithapurm v. CIT 13 ITR 221 (PC) and CIT v. Scindia Steam ASN 25/27 ITXA-2012-11 (final) doc. Navigation Co. Limited 42 ITR 539. The aforesaid decisions are not relevant for our purpose particularly, in view of the fact that explanation 2 to Section 234D of the Act as introduced by the Finance Act, 2012 being declaratory in nature would be retrospective. This amendment make it clear that it shall apply to assessment years even prior to 1.6.2003.” 12. Adverting to the judgment on which reliance has been placed Singh Gurbax 2013.11.11 18:24 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.324 of 2009 (O&M) 9 by learned counsel for the assessee, it may be noticed that the Delhi High Court in Jacabs Civil Incorporated's case (supra) had held that the provisions of section 234D will not be applicable to the assessment year prior to the year 2004-05. However, the effect of the said judgment stands obliterated by incorporation of Explanation 2 to Section 234D which has been made effective from 1.6.2003 and therefore, no benefit can be derived by the assessee. 13. In view of the above, the substantial question of law is answered in favour of the revenue and against the assessee. The appeal is allowed. (Ajay Kumar Mittal) Judge September 24, 2013 (Jaspal Singh) ‘gs’ Judge Singh Gurbax 2013.11.11 18:24 I attest to the accuracy and integrity of this document High Court Chandigarh "