2011 (9) TMI 244 - HC - Income Tax

Section 244A interest calculation must consider actual payment dates not complete calendar months per Section 3(35)

Gujarat HC held that the definition of 'month' in Section 3(35) of the General Clauses Act cannot be applied to Section 244A(1) for calculating interest ... Interest u/s 244A - Adjustment of refund due with tax due - meaning and scope of term 'month' - Interest for the period from the date refund due upto the date when adjustment made - Held that:- Definition contained in Section 3(35) of the General Clauses Act defining the term 'month' cannot be adopted for the purpose of sub-section (1) of Section 244A of the Act. - If the contention of the assessee in the present case is accepted, in a case where the assessee pays tax on 31st January and is granted refund on 1st February of the same year, shall also be entitled to interest for two full months. This would be so because the assessee contends that for the purpose of sub-section (1) of Section 244A the term 'month' should be understood as British Calender month and since Rule 119(A) of the Rules provides for ignoring a fraction of month and granting interest for the full month instead - Tribunal committed error in holding that the assessee would be entitled to interest for both the months in entirety irrespective of dates when the tax was paid and refunded /adjusted - Decided in favor of revenue. Issues Involved:1. Entitlement to interest under Section 244A of the Income Tax Act, 1961.2. Calculation of interest for the period when tax was paid and when the refund was adjusted.3. Interpretation of the term 'month' in the context of Section 244A.Issue-wise Detailed Analysis:1. Entitlement to Interest under Section 244A of the Income Tax Act, 1961:The respondent assessee claimed interest under Section 244A for the tax paid, which was later found refundable but adjusted against other dues. The assessee argued that they were entitled to receive interest for the entire months when the tax was paid and when it was adjusted, regardless of any period remaining in such months. The unpaid interest claimed amounted to Rs. 21,40,420/-. The Assessing Officer rejected this claim, and the CIT (Appeals) upheld this decision, interpreting that the assessee could claim interest for a full month only for one of the two unfinished months. However, the Tribunal reversed this decision, stating that under Section 244A and Rule 119A, the assessee was entitled to interest for the entire month when the payment/adjustment was made.2. Calculation of Interest for the Period When Tax was Paid and When the Refund was Adjusted:The central controversy was whether the assessee was entitled to interest for both the months when the tax was paid and when the tax refundable was adjusted, irrespective of the period between these events. The Tribunal held that interest should be calculated for every month or part of a month from the date of payment to the date of refund, as per Section 244A(1)(b) and Rule 119A. The Tribunal's interpretation was that any fraction of a month should be deemed a full month, thus entitling the assessee to interest for both months.3. Interpretation of the Term 'Month' in the Context of Section 244A:The Revenue argued that the term 'month' should be construed in a manner that grants interest only for one of the two months in entirety, not both. They contended that the term 'month' should mean a period of 30 days. The assessee, however, argued that the term 'month' should be interpreted as per the British calendar month, as defined in the General Clauses Act, entitling them to interest for the whole of both months. The court examined various definitions and interpretations of the term 'month' from different legal dictionaries and previous court decisions. The court concluded that adopting the British calendar month definition would lead to anomalous situations, such as granting interest for two full months even if the tax was paid on the last day of one month and refunded on the first day of the next month.Judgment:The court held that the Tribunal erred in granting interest for both months in their entirety. The term 'month' in Section 244A should be interpreted as a period of 30 days, not as per the British calendar month. Therefore, the assessee is not entitled to interest for both months in full. The judgment of the Tribunal was set aside, and the question was answered in favor of the Revenue and against the assessee.