2016 (2) TMI 470 - HC - Income Tax

Interest payable on excess self-assessment tax refunds upheld by High Court

Commissioner of Income Tax, Kolkata-I Versus Birla Corporation Ltd.

The High Court upheld the Tribunal's decision, affirming that interest is payable on refunds of excess self-assessment tax under Section 244A(1)(b). The ... Interest on Refund u/s 244A - Date from which interest is payable on refund - rectification of mistake - Whether the explanation to Section 244A(1)(b) bars payment of interest upon refund of excess payment on self-assessment? - in order u/s.154 the assessing officer held that interest u/s.244A(1)(a) is not payable on refund of excess self assessment tax whereas s.244A(1)(b) is not attracted in view of the explanation appended thereto - Held that:- We are of the opinion that Clause (b) of Sub-Section 1 of Section 244A is residual in nature and provides for interest on refund of excess self-assessment tax paid by the assessee. Furthermore the explanation to section 244A(1)(b) would have no application since the tax in question was not paid consequent to any notice of demand u/s. 156, rather it was paid u/s 140A. Hence according to mandate of section 244A(1)(b) interest is payable on refund of excess self assessment tax from the date of payment of such tax to the date when the refund is granted. An error, which is by no means self-evident, cannot be called an apparent error. Nevertheless a mistake capable of being rectified u/s. 154 is not limited to clerical or arithmetical mistakes only. However it does not include any mistake which may be discovered by a complicated process of investigation, argument or proof. A decision on a debatable point of law or a disputed question of fact is not a mistake apparent from the record. The ordinary meaning of the word 'apparent' is that it should be something, which appears to be so ex facie that it does not admit scope for any argument or debate. It, therefore, follows that a decision on a debatable point of law or fact or failure to apply the law to a set of facts which remains to be investigated cannot be corrected by way of rectification. Section 244A does not mandate that interest cannot be allowed on self assessment tax paid u/s 140A. As discussed earlier it cannot be said that interest u/s.244A can be allowed only in cases where excess payments of tax is made consequent to a notice of demand u/s.156. The language of the Act is clear and there is no ambiguity in it. Hence the assessee is clearly entitled to claim interest u/s.244A on refund of excess self assessment tax. Thus in the instant case there was no mistake apparent from the record which could be rectified u/s. 154 of the Act - Decided against revenue Issues Involved:1. Justification of interest grant under Section 244A of the Income Tax Act, 1961 on refund due to excess self-assessment tax.2. Applicability of the explanation to Section 244A(1)(b) regarding interest on refund of excess self-assessment tax.3. Contemplation of interest grant on refund due to excess self-assessment tax by the Income Tax Act, 1961.4. Justification of the Tribunal's decision to grant relief based on the issue being debatable.Issue-wise Detailed Analysis:1. Justification of Interest Grant under Section 244A on Refund Due to Excess Self-Assessment Tax:The Tribunal granted interest to the assessee under Section 244A(1)(b) for refunds arising from excess self-assessment tax. The assessee argued that Section 244A should be construed liberally in favor of the taxpayer, citing the Supreme Court's judgment in Union of India vs. Tata Chemicals Ltd., which recognized the right to interest on refunds due to excess tax payments. The Tribunal and CIT(A) relied on the Delhi High Court's judgment in CIT vs. MMTC Ltd., which supported the assessee's entitlement to interest on such refunds. The Tribunal's decision was based on the principle that interest serves as compensation for the unauthorized retention of money by the department.2. Applicability of the Explanation to Section 244A(1)(b):The assessing officer withdrew the interest on the refund of excess self-assessment tax, arguing that the explanation to Section 244A(1)(b) barred such interest since the tax was not paid pursuant to a notice of demand under Section 156. The assessee contended that the explanation did not apply because self-assessment tax under Section 140A is not paid consequent to any notice of demand. The Tribunal and CIT(A) held that the explanation to Section 244A(1)(b) did not bar interest on self-assessment tax refunds, as the tax was not paid in response to a demand notice but voluntarily.3. Contemplation of Interest Grant on Refund Due to Excess Self-Assessment Tax by the Income Tax Act, 1961:The Tribunal and CIT(A) concluded that Section 244A(1)(b) is residual in nature and includes interest on refunds of excess self-assessment tax. They relied on various judgments, including those of the Supreme Court and High Courts, which affirmed that interest is payable on refunds of self-assessment tax. The legislative intent behind Section 244A was to ensure that taxpayers are compensated for the retention of their money by the government, and this principle applies to self-assessment tax as well.4. Justification of the Tribunal's Decision to Grant Relief Based on the Issue Being Debatable:The Tribunal and CIT(A) held that the issue of interest on self-assessment tax refunds was debatable and outside the scope of Section 154, which allows rectification only for mistakes apparent from the record. They concluded that the assessing officer's withdrawal of interest was not justified under Section 154, as the matter involved a debatable point of law. The Tribunal relied on the principle that a decision on a debatable issue cannot be rectified under Section 154, as established in CIT vs. MMTC Ltd.Conclusion:The High Court upheld the Tribunal's decision, affirming that interest is payable on refunds of excess self-assessment tax under Section 244A(1)(b). The explanation to Section 244A(1)(b) does not bar such interest, and the issue is debatable, thus not rectifiable under Section 154. The court directed the revenue to compute and pay the interest due to the assessee within a reasonable time. The appeal was dismissed, and each party was directed to bear its own costs.