Commissioner of Income Tax vs Hansa Agencies Pvt. Ltd.

Ashok Bhan, J.—At the instance of the Revenue, Income Tax Appellate Tribunal, Amritsar (hereinafter referred to as "the Tribunal"), in exercise of its powers u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), has referred the following question of law to this court for its opinion :

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in upholding the Commissioner of Income Tax (Appeals) order that the assessee is entitled to interest u/s 244(1A) of the Income Tax Act on the amount of Rs. 65,281 being preassessment tax paid and found in excess of regular demand after giving effect to the appellate order ?"

Shortly stated, the facts relevant to the controversy in this reference petition are ;

For the assessment year 1976-77, relevant to the accounting period from October 1, 1974, to September 30, 1975, the assessee had paid a sum of Rs. 4,44,145 as advance tax. Rs. 91,755 were paid as self-assessment tax. The total of both these amounts comes to Rs. 5,35,900. The Income Tax Officer framed the regular assessment u/s 143(3) of the Act on August 30, 1976. The net income was determined at Rs. 8,13,688, on which the tax payable was determined at Rs. 5,55,342. After deducting the advance tax and the self-assessment tax already paid from the total determined demand of tax, the assessee was directed to make the payment of the balance amount of Rs. 19,442. The assessee paid the balance amount of Rs. 19,442 on December 2, 1976.

Against the order of assessment, the assessee filed an appeal, which was partly accepted by the Commissioner of Income Tax (Appeals) on December 8, 1978. The Commissioner of Income Tax (Appeals) reduced the total taxable income by Rs. 1,24,135. While giving effect to the appellate order, the Income Tax Officer refunded the sum of Rs. 84,724. Instead of allowing interest on the total refundable amount of Rs. 84,724 u/s 244(1A) of the Act, the Income Tax Officer ordered payment of interest of Rs. 4,666 only as interest on Rs. 19,442, which had been deposited by the assessee on a demand created after the framing of the regular assessment.

On April 25, 1980, the assessee made an application u/s 154 of the Act, demanding to revise the refund order and claimed interest on the total refundable amount of Rs. 84,724 from April 1, 1976, till the date of refund, after excluding the interest already paid on Rs. 19,442. The Income Tax Officer rejected the claim of the assessee against which an appeal was filed by the assessee before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) accepted the appeal. It was held by the first appellate authority that the assessee was entitled to interest on the balance amount of Rs. 65,281 as well u/s 244(1A) of the Act from April 1, 1976, till the date of refund. This order of the Commissioner of Income Tax (Appeals) was upheld by the Tribunal. On a petition filed by the Revenue u/s 256(1) of the Act, the Tribunal has referred the question of law, reproduced in the earlier part of the judgment, to this court for its opinion.

There is no appearance on behalf of the respondent.

Mr. B. S. Gupta, senior advocate, appearing for the Revenue, fairly concedes that the question referred to this court has to be answered in the affirmative, i.e., against the Revenue and in favour of the assessee, but with certain modifications, in view of the judgment of the Supreme Court in Modi Industries Limited, Modinagar and Others Vs. Commissioner of Income Tax, Delhi and Another, .

First modification sought by Mr. Gupta is that in order to bring the order of the Tribunal in conformity with the judgment of the Supreme Court in Modi Industries Limited, Modinagar and Others Vs. Commissioner of Income Tax, Delhi and Another, , the interest has to be paid not from April 1, 1976, but from the date of the order of assessment, i.e., August 30, 1976. The second modification which Mr, Gupta seeks is that the interest has to be made payable under the second proviso to Section 244(1A) of the Act, after the expiry of a period of one month from the date of the passing of the order in appeal.

Section 244(1A) of the Act reads as under :

"244. (1A) Where the whole or any part of the refund referred to in Sub-section (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-section (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 instalments, such interest shall be payable on the amount of each such instalment or any part of such instalment, which was in excess, from the date on which such instalment 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-section (1) shall be payable to him in respect of the amount so found to be in excess."

In Modi Industries Limited, Modinagar and Others Vs. Commissioner of Income Tax, Delhi and Another, , their Lordships had exhaustively dealt with the points relating to the payment of interest under Sections 214 and 244(1A) of the Act. After narrating the legislative history and discussing the various judgments rendered by different High Courts of the country, their Lordships laid down the following three propositions (refer to page 808) ;

"(i) Up to March 31, 1975, interest u/s 214 is payable from the first day of April of the relevant assessment year to the date of the first assessment order. The amount on which the interest is to be paid is the amount of advance tax paid in excess of the tax payable by the assessee as calculated in the regular assessment (the first assessment order). The amount on which interest was payable did not vary due to the reduction or enhancement of tax as a result of any subsequent proceeding. But with effect from April 1, 1985, while the period for which interest was payable remained constant, the amount on which the interest was payable, varied with the variation in the quantum of refund as a result of any subsequent orders.

(ii) If any tax is paid pursuant to an assessment order after March 31, 1975 (which will include tax deducted at source and advance tax to the extent the same has been retained and treated by the Income Tax Officer as payment of tax in the discharge of the assessee''s tax liability in the assessment order), becomes refundable wholly or in part as a result of any appellate or other order passed, the Central Government will have to pay the assessee interest on the refundable amount u/s 244(1A). For the purpose of this section, the amount of advance payment of tax and the amount of tax deducted at source must be treated as payment of Income Tax pursuant to an order or assessment on and from the date when these amounts were set off against the tax demand raised in the assessment order, in other words, the date of the assessment order.

(iii) With effect from April 1, 1985, interest payable u/s 214 will increase or decrease in accordance with the variation in the quantum of the excess payment of tax brought about by orders passed subsequent to the regular assessment as mentioned in Sub-section (1A)." We are concerned with the second conclusion arrived at by their Lordships. As per this conclusion, the assessee would be entitled to interest u/s 244(1A) of the Act on the sum of Rs. 65,281 as well as has been held by the Tribunal but the interest has to be paid from August 30, 1976, when the original assessment was framed under this Sub-section. Further, in view of the second proviso to Section 244(1A) of the Act, the assessee would not be entitled to interest for a period of one month from the date of the passing of the order in appeal.

Following the law laid down by their Lordships of the Supreme Court in Modi Industries Limited, Modinagar and Others Vs. Commissioner of Income Tax, Delhi and Another, , the question referred to us is answered in the affirmative, i.e., in favour of the assessee and against the Revenue with the modifications indicated above. No costs.