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Judgment
N.V. Balasubramanian, J.—This tax case reference raises an interesting question on the interpretation of Section 244(lA) of the Income Tax
Act, 1961, (hereinafter to be referred to as ""the Act"").
The assessee is a company. The original assessment for the assessment year 1974-75 was completed on August 29, 1977, and the order of
assessment was the subject-matter of appeal before the first appellate authority and the Appellate Tribunal. The order of the Appellate Tribunal
was passed on January 14, 1980, and the Income Tax Officer gave effect to the order of the Appellate Tribunal on February 16, 1981, and the
order resulted in refund computed as under :
(Rs.) (Rs.)
Total income as per revision order dated 14-1-1980 28,07,900
Tax payable including surcharge 17,58,477
Tax collected 17,92,925
34,488
Interest u/s 139(8) payable 48,288
Interest collected 49,293 1,065
Interest u/s 215 21,731
Interest collected 32,819 12,153
Total refund 46,601
Interest u/s 244 from 1-5-1980 to 31-1-1981 4,193
Total amount refunded 50,794
The order of the Income Tax Officer passed on February 16, 1981, was subsequently revised by the Income Tax Officer u/s 154 of the Act on
April 6, 1981. Though that order does not find a place in the typed set of papers, it is found from the statement of the case that the interest
collected u/s 215 of the Act was refunded as no interest u/s 215 was chargeable in the assessee''s case. The Income Tax Officer in the order
passed on April 6, 1981, allowed interest u/s 244(1A) on Rs. 46,601 and computed the interest as under : Interest on Rs. 21,731 from January
18, 1978, amounted to Rs. 18,441 and on Rs. 21,731 from May 1, 1980, to January 31, 1981, amounted to Rs. 1,953 totalling in all Rs. 20,934.
The Inspecting Assistant Commissioner also waived interest u/s 139(8) of the Act by an order dated April 21, 1981.
The assessee filed an appeal against the order passed by the Income Tax Officer dated February 16, 1981, refusing to grant interest on interest.
The main contention of the assessee was that the Income Tax Officer should not have levied any interest under Sections 215 and 139(8) of the Act
and the Income Tax Officer should be directed to allow interest u/s 244(1A) on the refund of Rs. 46,601 from January 18, 1978 to February 19,
1981, and also on the amount of refund due out of the interest levied and collected under Sections 215 and 139(8) of the Act. The interest due
was worked out by the assessee at Rs. 42,885 and after deducting the interest already granted of a sum of Rs. 24,537, the assessee prayed for
additional interest of Rs. 18,298. The Commissioner accepted the contention urged on behalf of the assessee and he held that the assessee was
entitled to interest on the interest levied under Sections 215 and 139(8) of the Act as the interest was not payable by the assessee.
The Tribunal on an appeal by the Revenue upheld the view of the Commissioner of Income Tax (Appeals) and held that the assessee was
entitled to interest u/s 244(1A) in respect, of the interest collected under Sections 139(8) and 215 and refunded under the provisions of Act. The
Appellate Tribunal, at the instance of the Revenue, has stated a case and referred the following questions of law for our consideration :
Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that interest u/s 244(1A) should be
granted even in respect of the refund of interest levied under Sections 139(8) and 215 of the Income Tax Act, 1961 ?
Whether the Appellate Tribunal is right in holding that interest u/s 244(1A) should be allowed on the refund of Rs. 48,228 being interest u/s
139(8) even though the refund was granted within a week''s time from the date of waiver of the interest by the Inspecting Assistant Commissioner
?
Whether the interpretation of the provisions of Section 244(1A) of the Appellate Tribunal is sustainable in law ?
The questions involve interpretation of Section 244(1A) of the Act and the said Section in so far as it is material for the purpose of the case
reads as under :
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 asses-see 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.
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 first step is to determine what is the amount of refund due to the assessee u/s 244(1) of the Act Section 244(1) refers to Section 240
and u/s 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. u/s 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 ; 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 u/s 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.
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(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.
In the view we have taken, it is not necessary to consider the various judgments relied on by counsel for the parties, viz., (i) Cibatul Ltd. Vs.
Inspecting Assistant Commissioner of Income Tax, ; (ii) Pranlal Chimanlal Thakore Vs. Union of India and Others, ; (iii) Commissioner of Income
Tax, Hyderabad Vs. Chittor Electric Supply Corporation and another, ; (iv) Cyanamid India Ltd. Vs. K.N. Anantharama Ayyar and others, and
(v) Pratibha Processors and others Vs. Union of India and others, .
The Kerala High Court while construing the provisions of Section 244(1) of the Act in the case of Commissioner of Income Tax Vs. Ambat
Echukutty Menon, , held that whenever refund of any amount becomes due to the assessee, the assessee is entitled to interest u/s 244 of the Act.
The Kerala High Court held that if the interest collected u/s 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 each amount, the assessee is entitled to interest on the interest refunded u/s 244 of the Act.
Though the decision of the Kerala High Court arose u/s 244(1), the principle would equally apply to the interpretation of Section 244(1A) of the
Act.
The Madhya Pradesh High Court in the case of CIT v. Sardar Balwant Singh Gujral held that the liability to pay interest is on the amount of
refund due and the assessee would be entitled to interest on the amount of refund due which includes interest paid under Sections 139(8) and 215
of the Act. We are in complete agreement with the views expressed by the Kerala High Court and the Madhya Pradesh High Court. We find no
infirmity in the order of the Appellate Tribunal in holding that the expression ""amount"" in Section 244(1A) would include the amount of interest
levied and paid under Sections 139(8) and 215 of the Act and collected in pursuance of an order of assessment which was refunded.
Accordingly, we answer the various questions of law referred to us in the affirmative and against the Revenue. However, in the circumstances
of the case, there will be no order as to costs.