Interpretation of Tax Law: Interest on Refunded Advance Tax

Trustees Of HEH. Nizam´s Religious Endowment Trust Versus Income-Tax Officer, A-Ward, Special Circle I, Hyderabad, And Another

Trustees Of HEH. Nizam´s Religious Endowment Trust Versus Income-Tax Officer, A-Ward, Special Circle I, Hyderabad, And Another - [1981] 131 ITR 239, 15 ... Issues Involved:
1. Applicability of Section 244 read with Section 240 versus Section 214 for the claim of the petitioners for refund.
2. Interpretation of the term 'regular assessment' in Section 214.

Issue-wise Detailed Analysis:

1. Applicability of Section 244 read with Section 240 versus Section 214:

The petitioners, trustees of H.E.H. the Nizam's Religious Endowment Trust, sought interest on the excess advance tax paid for the assessment years 1968-69 and 1969-70. The Income Tax Officer (ITO) refused to grant interest under Section 214, arguing that the assessment orders under Section 143(3) resulting in demand did not warrant interest on refunded advance tax. The Commissioner upheld this decision, leading the petitioners to file revision petitions under Section 264.

The court examined whether Section 244 read with Section 240 or Section 214 applied to the petitioners' claim. Section 214 pertains to interest on excess advance tax paid, whereas Section 244, introduced in the 1961 Act, deals specifically with interest on refunds due as a result of appellate orders. The court noted that Section 244(1) mandates the Central Government to pay interest on refunds due from the date immediately following the expiry of three months from the end of the month in which the appellate order is passed. Since the refund in this case arose from an appellate order, Section 244 read with Section 240 was deemed applicable. The court concluded that the petitioners' right to interest on the refunded advance tax fell within the ambit of Section 244(1) read with Section 240, thereby dismissing the claim under Section 214.

2. Interpretation of 'Regular Assessment' in Section 214:

The petitioners contended that the term 'regular assessment' in Section 214 should include the consequential order passed by the ITO pursuant to the appellate order. They argued that an appeal is a continuation of the original proceeding, and thus the appellate order should be considered as part of the regular assessment.

However, the court emphasized that 'regular assessment' is defined in Section 2(40) as the assessment made under Section 143 or Section 144. Section 143 deals with assessments made by the ITO based on the return filed by the assessee, and Section 144 pertains to best judgment assessments. The court held that the statute does not expand the concept of 'regular assessment' to include consequential orders passed by the ITO as a result of appellate orders. The court referred to the scheme of the Act and noted that assessments under Sections 143 and 144 are the only ones considered as 'regular assessments.'

The court also cited various judicial precedents, including decisions from the Bombay, Madras, and Allahabad High Courts, which consistently interpreted 'regular assessment' as the first or original assessment made by the ITO. The court concluded that the term 'regular assessment' in Section 214 refers to the initial assessment made by the ITO under Section 143 or Section 144 and does not include consequential orders resulting from appellate decisions.

Conclusion:

The court held that the petitioners' claim for interest on the refunded advance tax was governed by Section 244 read with Section 240, and not by Section 214. Additionally, the term 'regular assessment' in Section 214 was interpreted to mean the initial assessment made by the ITO under Section 143 or Section 144, excluding consequential orders from appellate decisions. Consequently, the court upheld the Commissioner's decision and dismissed the writ petitions, directing the parties to bear their own costs.