$~21&8.
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ INCOME TAX APPEAL NOS. 167/2012 & 168/2012
Date of decision: 6th September, 2013
INDIA TRADE PROMOTION ORGANISATION
..... Appellant
Through Mr. Ajay Vohra, Ms. Kavita Jha &
Ms. Bhoomika Choudhury, Advocates.
versus
COMMISSIONER OF INCOME TAX
..... Respondent
Through Mr. Abishek Maratha, Sr. Standing
Counsel.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
SANJIV KHANNA, J. (ORAL):
These appeals by India Trade Promotion Organisation under
Section 260A of the Income Tax Act, 1961 (Act, for short) relate to
Assessment Years 1989-90 and 1990-91. By order dated 22nd August,
2013, the following substantial questions of law were framed in these
two appeals:
Whether the Income Tax Appellate Tribunal
was right in denying interest of
Rs.1,60,30,495/-, which it is claimed was
payable alongwith the refund?
ITA Nos. 167/2012 & 168/2012 Page 1 of 17
Whether the Income Tax Appellate Tribunal
was right in denying interest of Rs.41,11,644/-,
which it is claimed was payable alongwith the
refund?
2. Facts relevant for adjudication of the present appeals may be
noticed in brief.
ASSESSMENT YEAR 1989-90
(a) At the outset, we record that there was an earlier round of
litigation resulting in order of the Income Tax Appellate Tribunal
(tribunal, for short) dated 22nd June, 2007 wherein it was held that the
appellant was entitled to interest under Section 244A of the Act, it
being a substantive right and the same cannot be denied on the basis of
a letter written to Government of India, Central Board of Direct Taxes.
We observe and record that the said order dated 22nd June, 2007 has
attained finality and has not been challenged by the Revenue. Thus,
we are required to proceed on the basis that the appellant is entitled to
interest under Section 244A of the Act and the issue raised in the
question of law framed above relates to quantification of interest
payable under Section 244A of the Act. We further clarify that we
have not examined the effect of the letter written by the appellant to the
Government of India, Central Board of Direct Taxes and whether in
view of the said letter no interest was payable.
ITA Nos. 167/2012 & 168/2012 Page 2 of 17
(b) After the order of the tribunal dated 22nd June, 2007, an amount
of Rs.1,60,30,495/- was paid by the respondent vide order dated 11th
June, 2008. The contention of the appellant is that they are entitled to
interest on this amount of Rs.1,60,30,495/- from the date it was due
and payable. In order to appreciate the contention, we would like to
refer to the following:
(i) Pursuant to the assessment order/appellate order, the appellant
became entitled to refund of taxes paid of Rs.2,06,52,845/-.
(ii) On 28th March, 1995, Rs.1,70,01,266/- was refunded.
(iii) Rs.36,51,579/- was refunded on 1st June, 1999.
(iv) Rs.1,42,04,705/- had accrued as interest under Section 244A on
Rs.2,06,52,845/- upto 28th March, 1995 when part payment of
Rs.1,70,01,266/- was made.
(v) Interest of Rs.18,25,790/- had accrued on balance amount of
Rs.36,51,579/- from 29th March, 1995 till 1st June, 1999.
(vi) Thus in all, interest of Rs.1,60,30,495/- had accrued and payable
but was not paid when the two refunds were issued.
(Rs.1,42,04,705/- had accrued and should have been paid on 28th
March, 1995 and Rs.18,25,790/- had accrued and should have
been paid on 31st May, 1999).
(vii) The interest of Rs.1,60,30,495/- was paid on 11th June, 2008.
(c) The appellant claims that they are entitled to interest on this amount,
i.e., on Rs.1,42,04,705/- with effect from 1st April, 1995 to 31st may,
ITA Nos. 167/2012 & 168/2012 Page 3 of 17
2008 upto the date of refund of Rs.1,42,04,705/- and interest on
Rs.18,25,790/- from 1st June, 1999 upto the date of refund. Interest
on the said amounts is payable under Section 244A of the Act.
(d) The contention of the Revenue is that this would amount to
payment of interest on interest and this is forbidden and should not be
paid.
ASSESSMENT YEAR 1990-91
(a) In this year also the question whether the appellant was entitled
to interest under Section 244A of the Act was decided in the first round
by the tribunal vide order dated 22nd June, 2007. We need not,
therefore, decide the question whether the appellant was entitled to
interest because a letter was written by them to the Central Board of
Direct Taxes. The said order has become final and, therefore, we are
not required to go into the said issue and examine on merits whether or
not this order dated 22nd June, 2007 passed by the tribunal was
justified. The question raised in the present appeal relates to
quantification of interest payable under Section 244A and not whether
the interest was justified or should be denied on account of the said
letter.
(b) On the basis of assessment proceedings, the appellant became
entitled to refund of Rs.53,01,570/-.
(i) On 28th March, 1995, Rs.38,12,810/- was refunded.
ITA Nos. 167/2012 & 168/2012 Page 4 of 17
(ii) On 31st March, 1997, Rs.10,87,686/- was refunded.
(iii) On 19th March, 1999, Rs.4,01,074/- was refunded.
(iv) The appellant became entitled to interest under Section 244A of
Rs.36,58,084/- upto 28th March, 1995. This interest is calculated
on Rs.53,01,570/-.
(v) Interest of Rs.3,57,302/- upto 31st March, 1997 on amount of
Rs.14,88,760/- (Rs.53,01,570/- minus Rs.38,12,810/-).
(vi) Interest of Rs.96,258/- on Rs.4,01,074/- from 19th March, 1999
upto date of refund on balance amount of Rs.4,01,074/-.
3. The appellant claims that it is entitled to interest on
Rs.36,58,084/- from 1st April, 1995 upto the date of refund/payment.
Rs.3,57,302/- from 1st April, 1997 upto the date of refund/payment and
Rs.96,258/- from 1st June, 1999 upto the date of refund/payment.
Interest, it is claimed, is payable under Section 244A of the Act.
4. The contention of the Revenue is that this would amount to
paying interest on interest and this would be contrary to Section 244A
of the Act.
DECISION
5. At the outset, we note that there is no dispute and debate on the
initial interest, which is payable and should have been paid by the
Revenue when they made the refund of the taxes. The dispute has
arisen as the Revenue did not pay along with the refund of taxes, the
ITA Nos. 167/2012 & 168/2012 Page 5 of 17
interest which had accrued and had become due and payable on the tax
amount refundable. The Revenue, therefore, had made part payment of
the refund by not including the interest element.
6. Secondly, it should be clarified that the interest payable on the
refund stands quantified on the date when the refund was
issued/granted by the respondent. The quantum or the calculation of
interest does not and has not undergone a change or modification.
Interest has not accrued or is not payable by the Revenue after they
have made payment of the refund as interest payable under Section
244A stopped running on the said day and became quantified and an
amount due and payable. In other words, it became a part of the
capital or principal amount due and payable.
7. The question really is in case the Revenue does not make
payment of interest element, which had accrued and had
become payable on the date when the tax amount is refunded,
whether they would be liable to pay interest under Section 244A on the
said amount. One can casually or loosely call it as interest on
interest but in reality payment of interest on the said amount
occurs because of non-payment of the total amount refundable,
which is due and payable to the assessee, inter alia, consisting of
the tax, which had to be refunded and the interest accrued on
the delayed refund of the tax. It is not uncommon and in the
ITA Nos. 167/2012 & 168/2012 Page 6 of 17
commercial world and even in civil suits while computing interest
under Section 34 of the Code of Civil Procedure, 1908 the principal
amount and the interest due are added and treated as the primary
amount in the decree drawn. Interest becomes due and payable on this
primary amount. In other words, interest stands capitalised. We
further note that it is not a case of compounding of interest as
understood except once, i.e., on the date when it is quantified, i.e.,
when part refund payment is made by the Revenue. Therefore, it will
be wrong to call it and treat it as compounding of interest.
8. It will be now relevant to refer to the provisions of the Act
relating to refund and examine whether under the Act, interest is
payable. Section 244A with effect from 1st April, 1989 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:-
(a) where the refund is out of any tax paid
under section 115WJ or collected at source
under section 206C or paid by way of advance
tax or treated as paid under section 199, during
the financial year immediately preceding the
assessment year, such interest shall be
calculated at the rate of one-half per cent for
every month or part of a month comprised in
ITA Nos. 167/2012 & 168/2012 Page 7 of 17
the period from the 1st day of April of the
assessment year to the date on which the refund
is granted:
Provided that no interest shall be payable if the
amount of refund is less than ten per cent of the
tax as determined under sub-section (1) of
section 115WE or sub-section (1) of section
143 or on regular assessment;
(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.
(2) If the proceedings resulting in the refund are
delayed for reasons attributable to the assessee,
whether wholly or in part, the period of the
delay so attributable to him shall be excluded
from the period for which interest is payable,
and where any question arises as to the period
to be excluded, it shall be decided by the Chief
Commissioner or Commissioner whose
decision thereon shall be final.
(3) Where, as a result of an order under sub-
section (3) of section 115WE or section 115WF
or section 115WG or sub-section (3) of section
143 or section 144 or section 147 or 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 section
245D, the amount on which interest was
ITA Nos. 167/2012 & 168/2012 Page 8 of 17
payable under sub-section (1) has been
increased or reduced, as the case may be, the
interest shall be increased or reduced
accordingly, and in a case where the interest is
reduced, the Assessing Officer shall serve on
the assessee a notice of demand in the
prescribed form specifying the amount of the
excess interest paid and requiring him to pay
such amount; and such notice of demand shall
be deemed to be a notice under section 156 and
the provisions of this Act shall apply
accordingly.
(4) The provisions of this section shall apply in
respect of assessments for the assessment year
commencing on the 1st day of April, 1989, and
subsequent assessment years:
Provided that in respect of assessment of fringe
benefits, the provisions of this sub-section shall
have effect as if for the figures 1989, the
figures 2006 had been substituted.
9. The words used in the Section 244A are where refund of any
amount becomes due and payable to the assessee under the Act, the
assessee shall be entitled to receive in addition to the said amount
simple interest calculated in the manner stipulated. The Legislature
has not used the words tax paid or the principal amount of tax
paid. The words used by the Legislature are any amount and said
amount. The words are, therefore, much wider and broader than the tax
amount, which is to be refunded. The words any amount would include
within its scope and ambit the interest element, which has accrued and is
payable on the date of the refund. Thus, when the Revenue does not
ITA Nos. 167/2012 & 168/2012 Page 9 of 17
pay full amount of refund but part amount is paid, they will be liable to
pay interest on the balance outstanding amount. The balance
outstanding amount may consist of the tax paid or the interest, which is
payable till the payment of the part amount and interest payable on the
principal amount, which remained outstanding thereafter.
10. The Delhi High Court in the case of Commissioner of Income
Tax versus Goodyear India Limited, 2001 (249) ITR 527 (Delhi) had
occasion to examine the earlier provisions of refund under Sections
240 and 244 of the Act and had observed as under:-
Section 244 deals with interest on refund
where no claim is needed. Sub-section (2), inter
alia, provides that where a refund is due to the
assessee, "in pursuance of an order referred to
in Section 240" and the Assessing Officer does
not grant the refund within the stipulated time,
the Central Government is required to pay
simple interest at the stipulated rate. Section
240 deals with refund on appeal, etc. This
provision clearly lays down that where as a
result of any order passed in appeal or other
proceedings 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
assessed without his having to make any claim
in that behalf. The crucial expressions in
Section 240 are "any amount which becomes
due to the assessee as a result of any order
passed in any appeal or other proceedings under
the Act" and the "amount becomes due to the
assessee". Section 244 refers to the liability
fastened on the Central Government in case of
failure to grant refund within the stipulated time
ITA Nos. 167/2012 & 168/2012 Page 10 of 17
in a case where refund is due to the assessee in
pursuance of an order referred to in Section
240. A combined reading of both the provisions
makes the position crystal clear that it is any
amount which becomes due to the assessee and
not necessarily the tax component.
Undisputedly, a sum of Rs. 1,90,499 which
qualifies for interest became payable to the
assessee on the basis of an order passed under
Section 240 of the Act. Merely because this
was inclusive of an amount which was payable
under Section 214 of the Act, that would not
make the position any different. It is an amount
which became due to the assessee on the basis
of the appellate order. Therefore, the assessee
was entitled to interest in terms of Section 244
of the Act. A similar view has been taken by
the Gujarat High Court in D. J. Works v.
Deputy CIT [1992]195 ITR 227and Chiman Lal
S. Patel v. CIT [1994]210 ITR 419 though with
different conclusions. Above being the position,
we answer the question in the affirmative, in
favor of the assessee and against the Revenue.
11. In R.K. Jain and Sons versus Commissioner of Income Tax,
2005 (142) Taxman 445 (Delhi) reference was made to several
judgments passed by Gujarat High Court and decision of the Supreme
Court in CIT versus Narender Doshi, (2002) 245 ITR 606 and it was
held that interest should be awarded on the interest component of the
unpaid refund. Recently in Motor and General Finance Limited
versus Commissioner of Income Tax and other cases reported in
[2010] 320 ITR 88 (Delhi) reference was made to the decision of the
Supreme Court in Sandvik Asia Limited versus CIT, [2006] 280 ITR
643 (SC) and Narendra Doshi (supra) and it was observed as under:-
ITA Nos. 167/2012 & 168/2012 Page 11 of 17
20. 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 244A 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 244A of the Act. Thus, the calculations
are not disputed, as observed by the Tribunal
also.
21. When the refund of tax becomes payable
as a result of orders passed in appeal or other
proceedings under the Act, this refund is to be
given along with interest, which is to be
calculated as per Section 244 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 and
refunded along with the refundable tax
amount.
12. Same view has been taken by Punjab and Haryana High Court in
Roadmaster Industries of India Private Limited versus Commissioner
of Income Tax and Another, [2010] 329 ITR 69 (P&H) and Gujarat
ITA Nos. 167/2012 & 168/2012 Page 12 of 17
High Court in Commissioner of Income Tax versus Hynoup Food
and Oil Industries Limited, [2010] 320 ITR 365 (Guj.) and Gujarat
Flourochemicals Limited versus Commissioner of Income Tax and
Others, [2008] 300 ITR 328 (Guj.). The said cases refer to the
principle of compensation when money, which is due and payable and
refundable, is not paid.
13. Madhya Pradesh High Court had the occasion to deal with the
similar issue in their decision in Commissioner of Income Tax versus
HEG Limited, [2009] 310 ITR 341 (MP). The facts of the said case
may be noticed. The assessee became entitled to refund along with
interest under Section 244A. Referring to Section 240 of the Act, the
High Court observed that the term used was refund of any amount
becomes due to the assessee. The same words were also used in
Section 244A. Reference was made to the decision of the Delhi High
Court in Goodyear India Limited (supra) and decisions of the Supreme
Court in Narender Doshi (supra) and Sandvik Asia Limited (supra).
Decision of the Madras High Court in CIT versus Needle Industries
Private Limited, [1998] 233 ITR 370 (Mad) reflected upon and it was
held that the words or the phrase any amount would include the
amount refundable plus the interest due and payable on the tax amount
refunded. Thus, in view of the express provisions of Section 244A,
interest was directed to be paid by the Revenue.
ITA Nos. 167/2012 & 168/2012 Page 13 of 17
14. Matter was taken by the Revenue before the Supreme Court in
the case of HEG Limited and the SLP was granted and civil appeal
was registered. The Supreme Court thereupon answered the question
against the Revenue in the following words:-
Therefore, this is not a case where the
assessee is claiming compound interest or
interest on interest as is sought to be made out
in the civil appeals filed by the Department.
The next question which we are required
to answer is what is the meaning of the words
refund of any amount becomes due to the
assessee in Section 244A? In the present case,
as stated above, there are two components of
the tax paid by the assessee for which the
assessee was granted refund, namely TDS of
Rs.45,73,528 and tax paid after original
assessment of Rs.1,71,00,320. The Department
contends that the words any amount will not
include the interest which accrued to the
respondent for not refunding Rs.45,73,528 for
57 months. We see no merit in this argument.
The interest component will partake of the
character of the amount due under Section
244A. It becomes an integral part of
Rs.45,73,528 which is not paid for 57 months
after the said amount became due and payable.
As can be seen from the facts narrated above,
this is the case of short payment by the
Department and it is in this way that the
assessee claims interest under Section 244A of
the Income-Tax Act. Therefore, on both the
afore-stated grounds, we are of the view that
the assessee was entitled to interest for 57
months on Rs.45,73,528/-. The principal
amount of Rs.45,73,528 has been paid on
December 31, 1997 but net of interest which, as
stated above, partook of the character of
amount due under Section 244A.
ITA Nos. 167/2012 & 168/2012 Page 14 of 17
15. A reading of the aforesaid passage from the decision of the
Supreme Court in HEG Limited (supra) indicates that it would be
incorrect and improper to regard payment of interest when part
payment is made as interest on interest. What has been elucidated and
clarified by the Supreme Court is that when refund order is issued, the
same should include the interest payable on the amount, which is
refunded. If the refund does not include interest due and payable on
the amount refunded, the Revenue would be liable to pay interest on
the shortfall. This does not amount to payment of interest on interest.
An example will clarify the situation and help us to understand what is
due and payable under Section 244A of the Act. Suppose Revenue is
liable to refund Rs.1 lac to an assessee with effect from 1 st April, 2010,
the said amount is refunded along with interest due and payable under
Section 244A on 31st March, 2013, then no further interest is payable.
However, if only Rs.1 lac is refunded by the Revenue on 31st March,
2013 and the interest accrued on Rs.1 lac under Section 244A is not
refunded, the Revenue would be liable to pay interest on the amount
due and payable but not refunded. Interest will not be due and payable
on the amount refunded but only on the amount which remains unpaid,
i.e, the interest element, which should have been refunded but is not
paid. In another situation where part payment is made, Section 244A
ITA Nos. 167/2012 & 168/2012 Page 15 of 17
would be still applicable in the same manner. For example, if
Rs.60,000/- was paid on 31st March, 2013, Revenue would be liable to
pay interest on Rs.1 lac from 1st April, 2010 till 31st March, 2013 and
thereafter on Rs.40,000/-. Further, interest payable on Rs.60,000/-,
which stands paid, will be quantified on 31st March, 2013 and on this
amount, i.e., interest amount quantified, Revenue would be liable to
pay interest under Section 244A till payment is made.
16. The aforesaid manner of computation is not only applicable to
cases where Revenue has to pay interest on refund, but is equally
applied when an assessee is in default and interest is payable under
Section 220(2) of the Act. Interest payable under Section 234B and
234C become part of the demand notice issued under Section 156 and
it is on this amount, i.e., the tax payable plus interest payable under
Sections 234B and 234C that interest under Section 220(2) is
calculated from the date mentioned in the notice of demand till the date
of actual payment. Under Explanation to Section 140A(1), it is
stipulated where the amount paid by an assessee under self-assessment
falls short of the aggregate amount of tax and interest aforesaid, the
amount paid shall first be adjusted towards the interest payable and the
balance, if any, shall be adjusted towards the tax payable. The
interpretation given by us follows the same principle, when Revenue
defaults and makes part payment of the amount refundable. The
ITA Nos. 167/2012 & 168/2012 Page 16 of 17
aforesaid interpretation also ensures that the Assessing
Officer/Revenue refund the entire amount, which is due and payable,
including interest payable under Section 244A. It discourages part
payment. There is no other provision under the Act under which an
Assessing Officer/Revenue can be made liable to pay interest when
part payment is made and the entire amount, which is refundable is not
paid to the assessee. Otherwise the Assessing Officer/Revenue can
refund the principal amount and not pay the interest component under
Section 244A for an unlimited period with impunity and without any
sanction, which would amount to granting premium to a non-
compliance of law. In the present case, the interest component was
withheld for the period ranging between 9 to 13 years.
17. In view of the aforesaid discussion, we answer the questions of
law in favour of the appellant and against the Revenue. The appeals
are disposed of. No costs.
SANJIV KHANNA, J.
SANJEEV SACHDEVA, J.
SEPTEMBER 06, 2013
VKR
ITA Nos. 167/2012 & 168/2012 Page 17 of 17
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