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Judgment
G.T. Nanavati, J.—The petitioner in Spl. C. A. No. 6274 of 1985, is Cibatul Limited.
For the assessment was year 1976-77, the Income Tax Officer, by an order dated October 16, 1976, passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), computed the total income of the petitioner at Rs. 92,54,730 and tax thereon was assessed at Rs. 53,44,670. The petitioner had paid Rs. 67,77,554 as advance tax and tax deducted at source was Rs. 909. Therefore, the sum refundable was worked out at Rs. 14,33,856. Earlier, by an order dated May 29, 1976, passed u/s 141A of the Act, the Income Tax Officer had actually refunded Rs. 18,97,404. As the amount actually refunded was more, the Income Tax Officer raised a demand for Rs. 4,63,548. On the refundable sum of Rs. 14,33,856, the petitioner was granted Rs. 14,339 as interest u/s 214 of the Act. The net sum payable by the petitioner was determined at Rs. 4,49,209. Against the order of assessment dated October 16, 1976, the petitioner preferred an appeal to the Commissioner of Income Tax (Appeals). It was partly allowed. Giving effect to the order of the Commissioner of Income Tax, the Income Tax Officer revised the income of the petitioner by reducing it from Rs. 92,54,730 to Rs. 90,47,200 and granted Rs. 33,124 as interest u/s 244(1A). As the petitioner was not granted all the reliefs which he wanted, he preferred an appeal to the Income Tax Appellate Tribunal. The Tribunal, by its order dated August 19, 1980, granted some more reliefs and in pursuance thereof, the Income Tax Officer passed a consequential order on November 26, 1981, determining the revised total income of the petitioner at Rs. 81,33,650. He also granted refund of Income Tax of Rs. 5,27,575.
As no interest was granted on the said sum, the petitioner made an application to the Income Tax Officer on June 7, 1982. It was rejected on the ground that the refund was not in respect of tax paid after regular assessment, but was relatable to tax paid by way of advance tax and, therefore, section 244(1A) was not attracted. The petitioner, therefore, preferred an appeal to the Commissioner of Income Tax (Appeals). In the appeal, it was contended that the petitioner was entitled to interest u/s 244(1A) at least on Rs. 3,43,699 that being the amount paid on demand by the Income Tax Officer after regular assessment. The Commissioner of Income Tax (Appeals) accepted this contention and partly allowed the appeal. By then the assessment jurisdiction got vested in the Inspecting Assistant Commissioner and, therefore, instead of the Income Tax Officer passing a consequential order, the Inspecting Assistant Commissioner, the respondent, passed an order on November 13, 1984. The interest granted was Rs. 1,69,858.
The Department was aggrieved by the order of the Tribunal passed on August 19, 1980, and, therefore, got a reference made to this court. In that reference, being I. T. R. No. 350 of 1981, the Department succeeded. Therefore, the Inspecting Assistant Commissioner, on September 19, 1985, passed a consequential order (exhibit ''K'') fixing the revised total income at Rs. 91,04,377. He also passed an order in these terms : "Withdraw interest granted u/s 244(1A), if any". He then issued a notice of demand u/s 156 (exhibit ''L'') specifying Rs. 7,63,376, including the aforesaid interest amount of Rs. 33,124 and Rs. 1,69,658 as payable by the petitioner. The order dated September 19, 1985, exhibit ''K'', and the notice of demand dated October 7, 1985, exhibit ''L'', are challenged in the petition.
What is submitted by learned counsel for the petitioner is that there is no provision in the Act whereby interest paid u/s 244(1A) can be withdrawn even if, in further appeal or other proceedings under the Act, it is found that the amount of tax paid by the assessee in pursuance of an order of assessment was not in excess of the amount which the assessee was liable to pay under the Act or that excess paid by him was less then what was determined earlier. As the amount of interest payable u/s 244(1A) is not made refundable, the Assessing Officer does not have any power to withdraw the same. Therefore, the order passed by the Inspecting Assistant Commissioner and the demand notice issued by him in this case are without any authority of law and illegal.
Similar contention raised by Ahmedabad New Cotton Mills Company Limited, respondent In I. T. A. No. 3 of 1992, has been accepted by the Income Tax Appellate Tribunal, Ahmedabad. The Department, therefore, wanted the Tribunal to raise the following question and refer the same to this court :
"Whether the Appellate Tribunal is right in law and on acts in holding that the Income Tax Officer was not justified in withdrawing the interest granted earlier by him u/s 244(1A) of the Income Tax Act ?"
As the Tribunal declined to refer that question to this court, the Revenue has filed Income Tax Application No. 3 of 1992, u/s 256(2) of the Act. The amount of interest paid to the Ahmedabad New Cotton Mills Company Limited and sought to be withdrawn in Rs. 3,297.
As the question involved in Special Civil Application No. 6274 of 1985 and Income Tax Application No. 3 of 1992 is the same the Bench issuing "rule" on the application directed that it be heard with the Special Civil Application. As the learned advocates desired that both be disposed of together, we are disposing of both by this common judgment.
What is submitted by learned counsel for the assessee is that section 244(1A) deals with a situation where, as a result of an assessment order, the assessee is required to pay tax, which is subsequently found in any appeal or other proceeding under the Act to be in excess of the amount which the assessee is liable to pay as tax under the Act. In such as situation, the Central Government is required to pay to such assessee interest on the amount so found to be in excess. The interest becomes payable from the date on which such amount was paid to the date on which the refund is granted. We are not referring to the proviso to section 244(1A), as that is not necessary for the purpose of these cases, Sub-section (1A) was inserted in section 244 by the Taxation Laws (Amendment) Act, 1975, with effect from October 1, 1975. It is submitted that this provision came to be inserted in the Act as the Legislature felt the necessity of making such a provision. It was also aware of section 139(8)(b)(ii), section 244(1A) and section 215(3)(ii), as they stood before they were amended with effect from April 1, 1985. Yet, while inserting sub-section (1A) in section 244, the Legislature did not think it desirable to make a similar provision in section 244 also. Presumably, that was for the purpose of inducing the assessees to pay the assessed tax immediately.
It was submitted by learned counsel for the Revenue that liability to pay interest u/s 244(1A) does not arise till an order is passed in final appeal or proceeding and, as a result thereof, it is found that the assessee has paid more than the tax payable under the Act. Therefore, interest paid to the assessee u/s 244(1A) pending final determination become refundable to the Government, if, as a result of the final order, it is found that the same or any part thereof was not payable to the assessee. It was, therefore, open to the Assessing Officer to recover the same u/s 244(1A), or u/s 143 or 158 of the Act.
If we turn to section 244(1A), a bare reading of the same would make it clear that it provides for grant of interest to the assessee on the excess amount of tax paid by him. It does not provide for withdrawal of interest already granted, even when the order as a result of which interest had become payable to him is subsequently reversed or modified. Where the Legislature intended to withdraw or reduce the amount of interest already granted, a specific provision to that effect has been made. Moreover, the Act is a fixing statute and unless it contains a provision making such interest refundable, the authorities under the Act cannot withdraw the interest paid to the assessee u/s 244(1A) even if, as a result of subsequent modification of the assessment order, it can be said that the assessee had paid more than the tax payable under the Act. At the relevant time, there was no provision empowering the Assessing Officer to withdraw or reduce the interest granted u/s 244(1A). Another aspect to be considered is that, u/s 244(1A), the Government is required to pay interest to the assessee even though further appeal or proceeding is contemplated or taken by the Department. If the Legislature had a final determination of appeal or proceeding in mind, it would have expressed itself in a manner which would have brought out its intention clearly. The Legislature has made the Central Government liable to pay interest on the amount found to be in excess as a result of an order passed in appeal or other proceedings even where further appeal or proceedings could be resorted to. If it had intended otherwise, it would have certainly made a provision for stay or postponement of such liability during pendency of further appeal or other proceeding. Therefore, the contention raised by learned counsel for the Revenue in this behalf cannot be accepted.
It is also difficult to appreciate how the interest paid u/s 244(1A) would become refundable u/s 143 as it stood at the relevant time.
Even u/s 156 of the Act, the interest paid u/s 244(1A) cannot be ordered to be refunded. That section provides that when any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under the Act, the Assessing Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable. The order which is contemplated by that section is the order which the Assessing Officer is competent to pass under the Act. As pointed out earlier, there was no provision in the Act which authorised an Assessing Officer to pass an order directing the assessee to refund interest paid to him u/s 244(1A). Therefore, even under this section, the impugned action cannot be justified.
Possibly realising this difficulty and also for making the law more complete and clear, the Legislature has now inserted section 244A in the Act with effect from April 1, 1989. For the assessment year commencing from April 1, 1989, and subsequent assessment years, the said provision is now applicable. That is also indicative of the fact that the Legislature, realising the necessity of such a provision in the absence of which interest paid u/s 244(1A) could not be recovered, has now made an appropriate provision. One more thing that is required to be stated is that the learned advocate appearing for the assessee made a statement at the Bar that, except in these two cases, the Department had not tried to recover interest payable u/s 244(1A) from any assessee, even through such interest was paid to a large number of assessees.
In the result, Special Civil Application No. 6274 of 1985 is allowed. Rule is made absolute accordingly with no order as to costs. The impugned order, exhibit ''K'', and the demand notice, exhibit ''L'', in so far as they relate to the interest amount of Rs. 2,02,782 and in so far as they try to withdraw the benefit granted to the petitioner u/s 244(1A) are quashed and set aside.
In Income Tax Application No. 3 of 1992, rule is charged with no order as to costs.