2011 (9) TMI 21 - HC - Income Tax

High Court rules Section 234D not applicable without refunds under Section 143(1)

The Director of Income Tax (International Taxation) -I Versus M/s. Delta Air Lines Inc.

The High Court upheld the ITAT's decision, ruling that Section 234D of the Income Tax Act was not applicable to the case as no refunds were granted under ... Interest u/s.234D - Retrospective application or not - Section 234D is attracted only when the refunds granted to the assessee under Section 143(1) of the Act becomes refundable to the Revenue on regular assessment - Held that:- refund was not granted to the assessee under Section 143(1) of the Act - the refund was not granted even under the assessment order passed under Section 143(3) read with Section 147 of the Act, but the same was granted pursuant to the orders passed by the CIT (A) - Therefore, the decision of the ITAT in holding that in the facts of the present case, Section 234D is not applicable cannot be faulted. Issues:- Interpretation of Section 234D of the Income Tax Act regarding the retrospective application of interest.- Applicability of Article 8 of the Double Taxation Avoidance Agreement (DTAA) between India and USA.- Assessment orders under Section 143(3) r/w 147 of the Income Tax Act disallowing benefits to the assessee.- Levying of interest under Sections 234A, 234B, and 234D of the Income Tax Act by the assessing officer.- Challenge to the levy of interest under Section 234D by the assessee before the CIT(A).- CIT(A) ruling that Section 234D is not attracted due to no refund granted under Section 143(1) of the Act.- Appeal by the revenue challenging the CIT(A) order before the ITAT.- Tribunal dismissing the revenue's appeal based on the Special Bench decision in the case of ITO V/s. Ekta Promoters (P) Ltd.- Revenue filing present appeals against the ITAT order.- Argument by the revenue that assessments made under Section 147 should be regarded as regular assessments for the purpose of Section 234D.- High Court's decision upholding the ITAT's order based on the grounds that Section 234D is not applicable to the present case due to no refunds granted under Section 143(1) of the Act.Analysis:1. The High Court of Bombay heard appeals related to assessment years 1992-93 to 1998-99 concerning the interpretation of Section 234D of the Income Tax Act. The main question was whether Section 234D applies retrospectively to proceedings of earlier assessment years pending as of 01-06-2003. The appeals involved disallowance of benefits under Article 8 of the DTAA, assessment orders disallowing benefits to the assessee, and the levying of interest under Sections 234A, 234B, and 234D by the assessing officer.2. The CIT(A) allowed the assessee's appeals, stating that the assessee was entitled to DTAA benefits, but the ITAT set aside this decision and restored the assessing officer's orders. The assessing officer, while giving effect to the ITAT's order, levied interest under Section 234D in addition to other sections. The assessee challenged this levy before the CIT(A), who ruled that Section 234D did not apply due to no refund granted under Section 143(1) of the Act.3. The CIT(A) also relied on the Special Bench decision in the case of ITO V/s. Ekta Promoters (P) Ltd., stating that since Section 234D was introduced after 1st June 2003, it would not apply to assessments before that date. The ITAT dismissed the revenue's appeals based on this decision. The revenue then filed the present appeals, arguing that assessments under Section 147 should be considered regular assessments for Section 234D purposes.4. The High Court upheld the ITAT's decision, emphasizing that Section 234D only applies when refunds granted under Section 143(1) become refundable to the Revenue on regular assessment. Since no refunds were granted under Section 143(1) in these cases, Section 234D was not applicable. The Court clarified that the decision was based on the specific facts of the case and did not address the retrospective application of Section 234D, leaving that question open for future consideration.