Commissioner of Income Tax vs Sundaram Clayton Ltd.

S. Ratnavel Pandian, Offg. C.J.

The Revenue having failed to obtain a stated case u/s 256(1) of the Income Tax Act, 1961 (hereinafter refereed to as the ""Act""), has filed these

petitions u/s 18 of the Companies (Profits) Surtax Act, 1964, read with section 256(2) of the Income Tax Act, seeking a direction form this court

for reference on the following question of law :

Whether, on the facts and in the circumstances of the case, and having regard to the second proviso to section 244(1A), the Appellate Tribunal

was right in law in holding that the order of the Income Tax Officer granting interest u/s 18 of the Surtax Act read with section 244(1A) of the

Income Tax Act are not prejudicial to the interest of the Revenue and on that ground setting aside the order of the Commissioner of Income Tax ?

The facts of the case are as follows :

The assessee (respondent) is assessed under the provisions of the Companies (Profits) surtax Act, 1964. For the assessment years 1971-72,

1972-73 and 1973-74, the assessee became entitled to refund of tax as a result of revision of assessments consequent to the reliefs obtained in the

computation of income under the Income Tax Act. The Surtax Officer granted the refund with interest worked out from the date of payment of tax

to the date of refund. Subsequently, however, the Commissioner of Income Tax acting u/s 263 of the Act considered that payment of interest to

the assessee was erroneous in law and hence prejudicial to the interests of the Revenue. The Commissioner considered the provisions of section

244(1) and 244(1A) of the Act and held that in the light of the proviso to section 244(1A), the assessee will not get any interest if the refunds were

made within one month from the date of the order giving rise to the refund. According to the Commissioner, the provisions of section 244(1) and

244(1A) should be given a harmonious construction and if so construed, it should be taken that any refund made within a period of one month will

not carry any interest. In this view, the Commissioner directed the Surtax Officer to withdraw the interest paid for the assessment years 1971-72

and 1972-73 and reduced the interest payable in respect of the assessment year 1973-74.

On appeal by the assessee, the Tribunal took the view that section 244(1A) is an independent provision which has to be construed on its own

language. The Tribunal held that the refund was not under the provisions of the Companies (Profits) Surtax Act as a consequence of which the

revision of the Income Tax assessments would fall with within the term ""the proceedings"" in section 244(1A) and under the proviso, what is

excluded from payment of interest only when the refunds are belated, beyond one month from the date of the order giving rise to the refund. In

other words, according to he Tribunal, the assessee would be entitled to interest from the date of the payment of tax to the date of refund and from

that period, one month will be deducted. In this view, the Tribunal set aside the order of the Commissioner and restored the order of the Surtax

Officer for all the three years. It is as against this, the Revenue has filed these petitions for a reference on the question of law set out above.

The Tribunal while dismissing the applications u/s 256(1) has referred to Circular No. 209, dated January 11, 1977, issued by the C. Vs.

MATHUKUTTY v. COMMISSIONER OF Income Tax, KERALA., , which has also expressed the view that the non-payment of interest is

restricted to one month and the assessee would be entitled to interest with refund whether it is made within one month or beyond the date of the

order giving rise to the refund. According to the Tribunal, in view of this circular, no referable question of law arose from its order.

There was some discussion before this court as to whether the circular is binding on the revisional authority or not on the analogy of the

appellate authorities on whom the circular is not binding. We are not expressing any view on this aspect as we are inclined to accept the

construction placed by the Tribunal on section 244(1a). Learned counsel for the Revenue laid great stress on the second proviso to section

244(1A) reading :

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 appeal

or other proceedings.

Which, according to it, indicates that the liability payment of interest would arise only when the refund is delayed beyond the period of one

month from the date of the order giving rise to the refund. We are not inclined to accept this construction of the proviso placed by learned counsel

for the Revenue A comparison of section 244(1) and section 244(1A) would clearly bring out the different between the two sections. u/s 244(1),

the interest is to be paid on the amount OFFG refund due from the date immediately following the expiry of the period of three months, whereas,

u/s 244(1), proviso, no interest shall be payable for a period of one month from the date of he passing of he order. This later provision clearly

indicates that Parliament in its wisdom intended to give the benefit of interest to the assessee from the date of payment of tax except for a period of

one month. Even accepting for a moment that the provisions can be read either way, it is well-settled that a construction which is favorable to the

taxpayer will have to be taken. Only in this context, the circular of the Board is relevant.

We are of the view that the construction placed by the Tribunal on section 244(1A) is correct on the clear language of the provision. Hence, we

are inclined to direct the Tribunal to state a case on the question of law raised by the Revenue. These tax case petitions are, accordingly, dismissed

with costs. Counsel''s fee Rs. 250 (one set).