Commissioner of Income Tax vs Biswanath Pasari

This appeal is directed against an order dt. 15th Dec., 2000 passed by the learned Tribunal holding that an appeal lies against an order refusing to grant interest under s. 244(1A) of the I.T. Act (hereinafter referred to as the Act). Consequently, the learned Tribunal directed the AO to allow the amount of interest to the assessee in accordance with law. Aggrieved by the order of the learned Tribunal, the Revenue has come up in appeal.

Mr. Dutt, learned advocate appearing for the appellant submitted that the sole question for determination is whether an appeal lies against an order refusing to grant interest under s. 244(1A) of the Act. He drew out attention to s. 246 of the Act. The case before us relates to the asst. yr. 1986-87. He submitted that an order passed under s. 237 of the Act refusing to pass an order granting refund is appealable but an order refusing to grant interest under s. 244(1A) of the Act is not appealable. He contended that appeal is a statutory remedy. Unless the statute provides for such a remedy, an appeal cannot be entertained. He added that the learned Tribunal erred in proceeding on the basis that the judgment of the Madras High Court in the case of COMMISSIONER OF INCOME TAX Vs. T. V. SUNDARAM IYENGAR and SONS LTD., holding that such an appeal is maintainable and another judgment of the Bombay High Court in the case of Commissioner of Income Tax Vs. S.C. Shah, wherein an identical view was taken, were not disapproved by the Hon''ble Supreme Court in the case of Commissioner of Income Tax, Hyderabad Vs. Chittor Electric Supply Corporation and another, . He drew our attention to the judgment in the case of CIT vs. Chittoor Electric Supply Corporation & Anr. (supra). He read out the following para:

We must make it clear that what we have held herein is confined to a case where an appellate or other authority under the Act sets aside or cancels the assessment and directs a fresh assessment to be made, i.e., a situation contemplated by the subsequently inserted proviso [cl. (a)] to s. 240. We do not propose to express any opinion as to what would be the position where the situation is different. We may also mention that we have not referred to or taken into account sub-s. (1A) of s. 244--or, for that matter, the second proviso thereto upon which an argument can possibly be built up--for the reason that here the tax amount was paid prior to 1st Oct., 1975, and also because the applicability of that sub-section turns upon the language employed therein, viz., ''such amount or any part thereof having been found in appeal or other proceeding under this Act to be in excess of the amount which the assessee is liable to pay as tax...

He submitted that the Hon''ble Supreme Court had made it clear that their Lordships did not consider the question as regards s. 244(1A) of the Act. He, therefore, contended that the learned Tribunal was evidently mistaken in proceeding on the basis that the Hon''ble Supreme Court did not disapprove the views taken by the Madras High Court or the Bombay High Court whereas the fact is that the Hon''ble Supreme Court did not even consider the matter.

Mr. Dutt no doubt is correct in submitting that the question which cropped up for a decision before the Tribunal or before us was not considered by the apex Court. Therefore, the judgment in the case of CIT vs. Chittoor Electric Supply Corporation & Anr. (supra) is not an authority for the purpose of deciding the issue either way.

Briefly stated the facts and circumstances are as follows:

Aggrieved by an order of assessment passed under s. 143(3) of the Act the assessee preferred an appeal which was allowed by a judgment and order dt. 23rd March, 1994:

Since the matter regarding allowance of payment of commission is fully covered by the aforesaid appellate orders and since commission was paid to HAS for services rendered by them in the form of helping in procuring orders, I do not find any justification in the action of the AO in disallowing the same and accordingly the disallowing of Rs. 14,53,597 being the commission paid to HAS is disallowed.

Ground Nos. 3 and 4 were against the action of the AO in charging interest of Rs. 94,400 under s. 215 and Rs. 2.68 under s. 220(2). The appellant has denied its liability for such an interest. I find that after allowing aforesaid relief the appellant was left with no taxable income and hence both the aforesaid interest charged are deleted.

Based on the aforesaid order of the CIT(A) the AO once again exercised jurisdiction under s. 143(3) r/w s. 251 of the Act and passed an order granting refund but no order for payment of interest was passed nor did he advert to that question at all. It is not in dispute that interest in such a case is payable statutorily under s. 244(1A) which provides as follows:

(1A) Where the whole or any part of the refund referred to in sub-s. (1) is due to the assessee, as a result of any amount having been paid by him after the 31st day of March, 1975, in pursuance of any order of assessment or penalty and such amount or any part thereof having been found in appeal or other proceeding under this Act to be in excess of the amount which such assessee is liable to pay as tax or penalty, as the case may be, under this Act, the Central Government shall pay to such assessee simple interest at the rate specified in sub-s. (1) on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund is granted:

Provided that where the amount so found to be in excess was paid in installments, such interest shall be payable on the amount of each such installment or any part of such installment, which was in excess, from the date on which such installment was paid to the date on which the refund is granted:

Provided further that no interest under this sub-section shall be payable for a period of one month from the date of the passing of the order in appeal or other proceeding:

Provided also that where any interest is payable to an assessee under this sub-section no interest under sub-s. (1) shall be payable to him in respect of the amount so found to be in excess.

Aggrieved by the order omitting to grant interest the assessee preferred an appeal which was dismissed by an order dt. 29th March, 1996 by the CIT(A) holding that:

an appeal for claiming interest under s. 244(1A) of the Act is not entertainable in a case where the order giving the appeal effect itself is not being challenged on any ground. However, it is noted that the refund has not arisen as a result of giving of appeal effect. The refund results because of adjustment of certain earlier refunds in earlier years. In such circumstances, in my opinion, the ground of appeal is not acceptable.

It is against this order dt. 29th March, 1996 that an appeal was preferred by the assessee before the learned Tribunal which resulted in the impugned order directing the AO to allow interest in accordance with law.

We are unable to see how can it be said that the appeal preferred by the assessee which was dismissed by the order dt. 29th March, 1996 was not an appeal against an order passed under s. 143(3) of the Act. The AO could not have exercised jurisdiction except under s. 143(3) of the Act. Reference in this regard may be made to the judgment in the case of Kooka Sidhwa and Co., Calcutta Vs. The Commissioner of Income Tax, W.B., wherein the following view was taken:

In my judgment, the forms of the orders passed under s. 23(3) of the I.T. Act, 1922, are not exhaustive. The effect or substance of the order should be looked into to decide whether an appeal lies. The order passed by the ITO revising the assessment, made originally under the direction of the Tribunal, would partake the character of a fresh assessment order and would be no less an order as made under s. 23(3) of the Act within the ordinary acceptation of the term from which an appeal would lie to the AAC. A right of appeal is a creature of the statute conferred on the assessee by s. 30(1) of the Act. The said right, which is substantive, cannot be taken away unless it is expressly provided.

The order passed by the CIT(A) had virtually set aside the earlier order of assessment. Therefore, a fresh assessment was required to be made which the AO did and directed refund but omitted to pass an order directing payment of interest. Therefore, it was an order passed under s. 143(3) of the Act. It cannot be disputed that an appeal against an order passed under s. 143(3) is permissible. It is altogether a different matter that the entitlement to interest arises out of s. 244(1A) of the Act. A Civil Court may pass or refuse to pass an order for payment of pendente lite interest under s. 34 of the CPC. But it cannot be contended that the decree is one passed under s. 34 of the CPC. We are as such of the opinion that the learned CIT(A) fell into a grievous error in proceeding on the basis that it was an appeal against an order refusing to grant interest under s. 244(1A) of the Act. The appeal was an appeal against the order of assessment under s. 143(3) of the Act in which the AO omitted to grant interest which he should have done under s. 244(1A) of the Act. Therefore, the question which has been posed on behalf of the Revenue does not, in our opinion, arise in the facts and circumstances of the case.

In any event, the views taken by the Madras High Court and the Bombay High Court are, according to us, logical and reasonable. In the case of CIT vs. T.V. Sundaram Iyengar & Sons Ltd. (supra), the Madras High Court answered the question as follows:

Therefore, we are of the view that the interest on the refund is really a part of the refund and interest and refund are not two different things. When the ITO has passed the order under s. 154 of the Act without granting interest due to the assessee under s. 244(1A) of the Act, he has reduced the refund due to the assessee. We are not able to accept the view of the Karnataka High Court that cl. (f) of sub-s. (1) of s. 246 should be limited only to the case where the refund was granted earlier but was reduced by an order passed under s. 154 of the Act. Since we are of the view that the interest forms part of the refund and where the interest is not granted in an order passed under s. 154 of the Act, the order in substance and effect meant that the ITO has passed an order under s. 154 of the Act reducing the refund. The decision of the Madhya Pradesh High Court also proceeds on the basis that an order not granting refund is referable to s. 237 of the Act and since the interest forms part of the refund the order refusing to grant interest is relatable to s. 237 of the Act and it is appealable. Thirdly, where there is a total denial by the Revenue to grant interest on the refund due, on the basis of the decision of the Andhra Pradesh High Court, an appeal would lie to the next appellate authority. As already set out, the appeal provisions should be construed in a reasonable manner and viewed in any manner, we are of the view that the order of the ITO refusing to grant Interest due to the assessee is an appealable order under s. 246 of the Act.

We are in agreement with the views of the Madras High Court which also took into consideration the judgment of the Bombay High Court. For the aforesaid reasons, we are of the opinion that the appeal of the Revenue is altogether without any merit and is, therefore, dismissed. The question of law formulated above is answered in the affirmative and in favour of the assessee.