CIT PATIALA V. THE BHUPINDRA FLOUR MILLS P.LT

ITR/89/1999

AI Insights

The case revolves around the entitlement of the assessee, M/s Bhupindra Flour Mills (P) Limited, to receive interest under Section 244(1A) of the Income Tax Act on the refund of interest that was charged under Section 217(1)(a) but later refunded. The Income Tax Appellate Tribunal, Amritsar, had earlier upheld the decision of the Commissioner of Income Tax (Appeals) allowing the interest, which the revenue contested. The High Court examined precedents from various High Courts and the Supreme Court, which supported the assessee's claim for interest on the refunded interest. The court's decision emphasized that the term 'tax' in the context of Section 244(1A) includes interest, thereby entitling the assessee to interest on the refunded amount.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 720543 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 24-07-2014
• Assessment Year: misc
• Other Referred Cases: CIT vs. Ambat Echukutty Manon, CIT vs. Sardar Balwant Singh Gujral, Commissioner of Income Tax vs. Needle Industries Pvt. Limited, CIT vs. Narendera Doshi, D.J.Works vs. Deputy CIT, Chimanlal S.Patel vs. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: G S HOODA
• Keywords: Advance tax; Assessment Year; Income Tax; Interest on interest; Refund of Interest
• Section: 154; 215; 220(2); 240; 244(1A); 139(8); 217(1)(a)

Judgement Text

"ITR No.89 of 1999 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITR No.89 of 1999 Date of decision: 24.7.2014 The Commissioner of Income Tax , Patiala ……Applicant Vs. M/s Bhupindra Flour Mills (P) Limited, Bathinda …..Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MR. JUSTICE JASPAL SINGH Present: Mr. G.S.Hooda, Advocate for the appellant. None of the respondent. Ajay Kumar Mittal,J. 1. At the instance of the revenue, the following question of law has been referred for the opinion of this Court by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (in short, “the Tribunal') for the assessment year 1982-83 arising out of its order dated 28.7.1998, Annexure 'C' passed in ITA No.241(ASR)/1992:- “Whether on the facts and in the circumstances of the case, the ITAT was right in law in upholding the decision of the CIT(A) allowing interest under section 244(1A) on the amount of interest charged under section 217(1)(a)? 2. A few facts relevant for the decision of the controversy involved as available on record and narrated in the reference may be noticed. The assessee is a limited company. It derives income from running a flour mill and ice factory. The assessee did not submit estimate of advance tax. The Assessing officer charged interest under section 217(1)(a) of the Act to the tune of ` 1,68,639/- which was later on deleted in appeal and the amount was refunded to the assessee. However, no interest under section 244(1A) of the Act was allowed to the assessee on this refund. The 1 GURBAX SINGH 2014.08.26 10:10 I attest to the accuracy and integrity of this document High Court Chandigarh ITR No.89 of 1999 assessee filed an application under Section 154 of the Act claiming interest under Section 244(1A) on the amount so refunded which was rejected by the Assessing Officer vide order dated 25.2.1985, Annexure 'A' on the ground that Section 244(1A) of the Act was applicable to tax and penalty only and section 2(43) of the Act defines tax as “income tax chargeable under the provisions of Income Tax Act” and did not include interest. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) vide order dated 24.12.1991, Annexure 'B' agreed with the Assessing officer so far as the provisions of section 244(1A) and section 2(43) of the Act which did not include interest. However, he allowed interest under section 244(1A) of the Act in view of the decisions of Kerala High Court in CIT vs. Ambat Echukutty Manon, (1988)173 ITR 581 and Madhya Pradesh High Court in CIT vs. Sardar Balwant Singh Gujral, (1990) 86 CTR (MP) 64. The revenue filed appeal before the Tribunal. The Tribunal upheld the decision of the CIT(A) and dismissed the appeal vide order dated 28.7.1998, Annexure 'C'. Hence the present reference at the instance of the the revenue. 3. Learned counsel for the revenue submitted that the Tribunal had erred in awarding interest under Section 244(1A) of the Act on the refund of interest to the assessee. According to the learned counsel, interest on interest charged from the assessee under Section 217(1)(a) of the Act which was later on refunded was not admissible as tax defined under section 2(43) of the Act does not include interest. 4. After hearing learned counsel for revenue, we do not find any merit in his contentions. 5. The core question that arises for consideration in the present reference relates to whether the revenue is liable to pay interest under 2 GURBAX SINGH 2014.08.26 10:10 I attest to the accuracy and integrity of this document High Court Chandigarh ITR No.89 of 1999 Section 244(1A) of the Act on the amount of interest which has been charged by it under Section 217(1)(a) of the Act but was refunded to the assessee on appeal later on. 6. While considering similar issue of payment of interest under Section 244 of the Act, the Kerala High Court in Ambat Echukutty Manon's case (supra) observed as under:- “4. It is common ground that the amount collected by the Revenue also included interest levied and collected under Section 220 of the Act. The amounts became refundable to the assessee as a result of the order passed by the Supreme Court. The refund of the amounts was made to the assessee in consequence of such an order passed by the court. That was done under Section 240 of the Act. It cannot be disputed that Income Tax, Penalty and interest collected became refundable to the assessee. Whenever refund of any amount becomes due to the assessee and it is not granted within a particular period, Section 244 mandates payment of interest. Section 240 of the Income Tax Act is a general section which envisages refund of any amount that becomes due to the assessee. It will take within its fold even interest levied and collected under Section 220(2) of the Act. Section 244(1) makes a reference to Section 240 and states that when a refund is due to the assessee in pursuance of an order referred to under Section 240, interest shall be paid to the assessee by the Central Government at a certain percentage. There is no express or implied prohibition in Section 244 of the Act that interest shall not be paid on interest collected under Section 220(2) of the Act. If the interest collected under Section 220(2) of the Act also becomes refundable along with other amounts on the passing of an order in appeal and Section 240 envisages refund of such amount, the interest refunded is also eligible to interest under Section 244 of the Act. The Appellate Tribunal was justified in holding, on a reference to sections 220(2), 240 and 244 of the Act, that refund of the interest collected under Section 220(2) is an 3 GURBAX SINGH 2014.08.26 10:10 I attest to the accuracy and integrity of this document High Court Chandigarh ITR No.89 of 1999 amount coming within the purview of Section 240 and so eligible for the interest contemplated by Section 244(1) of the Act.” 7. The Madhya Pradesh High Court in Sardar Balwant Singh Gujral's case (supra) had decided that assessee was entitled to interest on the amount of refund due. It was noticed as under:- “Section 240 of the Act provided that 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 ITO shall, except as otherwise provided in this Act, refund the amount to the assessee without his having to make any claim in refund the amount to the assessee without his having to make any claim in that behalf. Sub section (1) of section 244 of the Act further provides that where a refund is due to the assessee in pursuance of an order referred to in section 240 and the ITO 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 on the amount of refund due at the specified rate. The liability to pay interest is therefore, on the amount of refund due. In instant case, the Tribunal has found that the amount of refund due was ` 40,033. Under the circumstances, the Tribunal was justified in directing the ITO to allow interest on the entire amount of ` 40,033/-.” 8. The Madras High Court in Commissioner of Income Tax vs. Needle Industries Pvt. Limited, (1998) 233 ITR 370 (Mad.) following the aforesaid decisions of Kerala and Madhya Pradesh High Courts, recorded as under:- “7. The simple arithmetic involved in granting the interest is wrapped up in an involved language employed in Section 244 (1A) of the Act. A fair reading of the Section would suggest that there are three steps that should be undertaken to determine the amount on which interest is to be granted. The 4 GURBAX SINGH 2014.08.26 10:10 I attest to the accuracy and integrity of this document High Court Chandigarh ITR No.89 of 1999 first step is to determine what is the amount of refund due to the assessee under Section 244(1) of the Act Section 244(1) refers to Section 240 and under Section 240 of the Act, where, as a result of any order passed in appeal or other proceedings, refund of any amount becomes due to the assessee, the Income- tax Officer is required to refund the amount to the assessee without his having to make any claim in that behalf. Under Section 240 of the'Act, the assessee is not required to file an application for refund and where as a result of the order of the appellate authority refund of any amount becomes due to the assessee, the Income-tax Officer is required to refund the money. It is significant to notice that Section 240 of the Act uses the expression \"refund of any amount\". The amount of refund would comprehend not only tax and penalty but also interest and the first step is to ascertain the figure of the amount to be refunded. The next step is to determine what is the amount that was paid by the assessee after March 31, 1975, in pursuance of any order of assessment or penalty. The amount paid by the assessee in pursuance of an order of assessment or penalty would include not only the tax and penalty but also the interest. Then, the third step would be to find out what is the excess of the amount that was paid by the assessee in excess of the tax or penalty payable under the Act, and on the said excess, the Central Government shall pay interest at the rate specified in Sub-section (1) of Section 244. The difficulty has arisen because in the third stage, the officer is required to find out what is the amount, which is liable to be paid by the assessee as tax or penalty and because of the use of the expression, \"tax or penalty\" in the latter part of the Section 244 (1A), the contention of the Revenue was that the same meaning should be ascribed to the expression \"amount of refund\" used in the earlier part of Section 244(1A) of the Act. We are unable to agree. There can be no dispute that the interest paid under Sections 139(8) and 215 of the Act was paid in pursuance of an order of assessment. The interest levied may be a statutory levy 5 GURBAX SINGH 2014.08.26 10:10 I attest to the accuracy and integrity of this document High Court Chandigarh ITR No.89 of 1999 ; it may arise automatically once the default occurs, but still the interest was paid in pursuance of the order of assessment The calculation of interest under Section 139(8) or Section 215 depends upon the date on which the return was furnished or the date of completion of assessment. Though these amounts paid by the assessee are statutory levies, they were paid by the assessee in pursuance of the order of assessment. 8. Further, the expression, \"amount\" in the earlier part of the Section 244(1A) would refer to not only the tax but also the interest and the expression \"amount\" is a neutral expression and it cannot be limited to the tax paid in pursuance of the order of assessment. We are of the opinion that the expression \"tax or penalty\" found in the later part of the Section 244(1A) would not qualify or restrict the scope of the expression \"amount\" found in the earlier part to mean only \"tax or penalty\". As already seen, the function of the later part of Section 244(1A) of the Act is to find out the excess of the amount which the assessee paid by way of tax or penalty and that is the reason the expression \"tax or penalty\" has been employed. However, to determine the amount on which the Revenue is liable to pay interest, Section 244(1A) gives emphasis on the amount paid by the assessee in pursuance of the order of assessment and the amount, in our opinion, cannot be limited to the amount of tax or penalty, but would encompass the amount of interest paid by the assessee. The clear intention of Parliament is that the right to interest will compensate the assessee for the excess payment during the intervening period when the assessee did not have the benefit of use of such money paid in whatsoever character. In addition, if a literal meaning is given to the expression, \"tax\" found in the later part of Section 244(1A) of the Act, it will create an anomalous situation resulting in exclusion of the concept of the interest. In our opinion, the word \"tax\" in the later part of Section 244(1A) has to be construed in the light of the expression \"amount\" found in the earlier part of Section 244 6 GURBAX SINGH 2014.08.26 10:10 I attest to the accuracy and integrity of this document High Court Chandigarh ITR No.89 of 1999 (1A) of the Act to include the amount of interest paid by the assessee. Therefore, in the context of Section 244(1A) of the Act, the expression \"tax\", in our opinion, would include interest also and the definition of tax in Section 2(43) meaning \"income-tax\" cannot be applied in the context of Section 244 (1A) of the Act. Consequently, the interest paid in pursuance of the order of assessment has to be regarded as forming part of income-tax or an adjunct to income-tax. The result would be that the assessee is entitled to interest on the interest refunded also. As a matter of fact, in the subsequent order of rectification, the Income-tax Officer has granted interest on the refunded interest which clearly shows the right thinking of the Department in accepting the position that the assessee would be entitled to interest on the interest refunded. The view of the Appellate Tribunal that the assessee would be entitled to interest on the refunded amount of interest levied under Sections 139(8) and 215 of the Act is legally sustainable in law.” 9. The Apex Court in CIT vs. Narendera Doshi, (2002) 254 ITR 606 while impliedly approving Gujarat High Court judgments in D.J.Works vs. Deputy CIT, (1992) 195 ITR 227 and Chimanlal S.Patel vs. CIT (1994) 210 ITR 419 had held that the revenue is liable to pay interest on the amount of interest which it should have paid to the assessee but has unjustifiably failed to do so. 10. In view of the above, the question of law referred is answered against the revenue and in favour of the assessee. 11. The reference stands disposed of accordingly. (Ajay Kumar Mittal) Judge July 24, 2014 (Jaspal Singh) ‘gs’ Judge 7 GURBAX SINGH 2014.08.26 10:10 I attest to the accuracy and integrity of this document High Court Chandigarh "