2014 (1) TMI 447 - HC - Income Tax

Interest on tax refund accrues daily; spread over assessment years; court rules for assessee against revenue.

The court held that interest on the refund due to the assessee accrues on a day-to-day basis from the date of payment of tax until the refund is granted. ... Interest on refund u/s 244(1A) - Held that:- Following Commissioner of Income-tax Vs. Govindarajulu Chetty (T.N.K.) [1987 (2) TMI 3 - SUPREME Court] - The liability to pay interest would arise when the compensation amount due to the assessee had not been paid, in each of the relevant years - The accrual of interest has to be spread over the years between the date of acquisition till it was actually paid - When a statute brings to charge certain income, its intention is to enforce the charge at the earliest point of time - If the income has accrued earlier and the assessee treats it as taxable during the year of accrual, it is not open to the revenue to treat it as an income in the year of receipt in a case where the assessee follows the mercantile basis of accounts, If such an option is given, the same income becomes taxable twice, once on the basis of accrual and another on the basis of receipt. The reading of Sections 237, 240 and 244(1A) casts a duty on the Assessing Officer to charge that much of tax which the assessee is liable to pay and mandates the refund of the excess amount along with interest - Decided in favour of assessee. Issues Involved:1. Accrual of interest under Section 244(1A) of the Income Tax Act.2. Taxability of interest on refund for respective assessment years.Issue-wise Detailed Analysis:1. Accrual of Interest under Section 244(1A):The primary issue was whether interest on the refund due to the assessee accrues on the date when the Appellate Tribunal passed the order or on any day anterior to the date of the Tribunal order. The Tribunal had held that interest accrues on the date of the Tribunal's order. The assessee argued that interest should accrue from the date of payment of the tax till the date of granting of the refund, as the right to claim interest is a statutory right conferred by the Act and does not depend on the order for the refund being made. The statutory provisions under Sections 237, 240, and 244A of the Income Tax Act were scrutinized, which revealed that the assessee is entitled to a refund of excess tax paid without making any claim, and interest on such refund is payable from the date of payment of tax until the refund is granted.2. Taxability of Interest on Refund for Respective Assessment Years:The second issue was whether the interest on the refund should be spread over the respective assessment years for which the interest is paid or be taxed in the year of receipt. The assessee contended that interest accrues on a day-to-day basis and should be spread over the respective years, relying on judgments from the Calcutta High Court and the Supreme Court. The revenue argued that the right to claim interest accrues only on the date of the consequential order passed pursuant to the order of the Appellate Authority. The court examined various judgments, including the Supreme Court's decision in Ramabai Vs. CIT, which held that interest received on account of enhanced compensation should be spread over the years between the date of acquisition till it was actually paid.Statutory Provisions and Judicial Precedents:Sections 237 and 240 of the Income Tax Act were analyzed, which confer a statutory right on the assessee to get a refund of excess tax paid. Section 244A entitles the assessee to interest on the refund amount from the date of payment of tax until the refund is granted. The court also referred to the Supreme Court's judgment in Ramabai's case, which approved the principle that interest accrues over the years and should be spread accordingly. The court disagreed with the Kerala High Court's judgment in K. Devayani Amma's case, which held that interest under Section 244(1A) accrues only when it is granted to the assessee along with the refund order.Conclusion:The court concluded that the interest on refund accrues on a day-to-day basis and should be spread over the respective assessment years. The questions referred were answered in favor of the assessee and against the revenue. The Referred Case was disposed of with no order as to costs.