2018 (5) TMI 1157 - HC - Income Tax

Court rules Section 234B not applicable to excess refund cases, emphasizes Section 234D relevance.

The court ruled in favor of the assessee, holding that Section 234B of the Income Tax Act does not apply to situations where a refund granted under ... Interest u/s 234B - Interest for defaults in payment of advance tax - whether interest should be charged on the amount after considering refund which was issued on passing intimation u/S.143(1)(a) - Held that:- In order to address the mischief as in the present case, the legislature found it necessary to insert section 234D to the Act. Reference is made to subsection (4) of section 143 providing that where a regular assessment under section 143(3) or section 144 is made, any tax or interest paid under section 143(1) shall be deemed to have been paid towards such regular assessment and if no refund is due on regular assessment or the amount refunded under section 143(1) exceeds the amount refundable on regular assessment, the whole or the excess amount so refunded would be deemed to be tax payable by the assessee. Despite this, the legislature was of the opinion that in a case where refund is already granted upon processing return under section 143(1) of the Act but in eventual assessment it is found that the refund granted is in excess or that return does not give rise to any refund claim at all, the existing statute does not provide for levying interest. Clearly the legislature was of the opinion that even with the aid of the provisions of subsection (4) of section 143 of the Act, the existing provisions cannot be so interpreted as to levy interest in such a case. It is well settled that interpreting a statutory provision, one of the useful external aids is to ascertain what was the position prior to enactment of the statute and what mischief the statute seeks to address. If the very object of inserting section 234D to the Act was to address a situation which was inadequate to levy interest in a case like the present one, interpretation advanced by the Revenue must be rejected. If we accept the contention of the Revenue that existing section 234B of the Act already covered such a situation, insertion of section 234B of the Act would be rendered meaningless and the provisions of section 234D superfluous. Appeal allowed. Issues Involved:1. Charging of interest under Section 234B of the Income Tax Act on the amount of refund issued after processing the return under Section 143(1)(a).2. Interpretation and applicability of Section 234D of the Income Tax Act.Issue-wise Detailed Analysis:1. Charging of Interest under Section 234B:The primary issue revolves around whether the Income Tax Appellate Tribunal was correct in law to charge interest under Section 234B on the amount of refund issued after processing the return under Section 143(1)(a). The facts of the case reveal that the respondent assessee filed a return of income for the assessment year 1994-95, which was processed under Section 143(1)(a), resulting in a refund of Rs. 59,38,056. This refund was later adjusted against the assessee's tax dues of earlier years. Subsequently, the Assessing Officer issued a notice under Section 143(2) and conducted a scrutiny assessment, determining a higher total income and tax liability. The refund amount was withdrawn, and the Assessing Officer calculated interest on the outstanding tax liability, including the refund amount, under Section 234B for the period between March 1995 and January 1997.The assessee contended that neither Section 234B nor any other provision envisages the levy of interest on a refund amount paid after processing the return under Section 143(1). The Revenue argued that Section 234B encompasses such situations, and the interest should be charged for the period the assessee enjoyed the refund amount, which was later found not payable.2. Interpretation and Applicability of Section 234D:The Tribunal allowed the Revenue's appeal by referring to subsection (4) of Section 143 and rejecting the assessee's interpretation of Section 234B. The assessee argued that Section 234D, inserted by the Finance Act, 2003, with effect from 01.06.2003, was specifically introduced to address such situations where a refund granted under Section 143(1) is later found to be in excess or not due at all upon regular assessment. The assessee contended that Section 234D creates a new liability and cannot be applied retrospectively to situations arising before its insertion.The Revenue maintained that Section 234B covers the situation where a refund is granted under Section 143(1) and later adjusted against assessed tax liability. They argued that even if Section 234D overlaps with Section 234B, charging interest under Section 234B is permissible if the case falls under its purview.Judgment Analysis:The court examined the language of Section 234B, which deals with interest for defaults in payment of advance tax. The court noted that Section 234B envisages charging interest where the advance tax paid is less than 90% of the assessed tax. However, the court highlighted that Section 234D, introduced with effect from 01.06.2003, specifically addresses the situation where a refund granted under Section 143(1) is later found to be in excess or not due upon regular assessment.The court referred to the memorandum explaining the insertion of Section 234D, which aimed to charge interest on excess refunds granted at the time of summary assessment. The court emphasized that the legislature found it necessary to introduce Section 234D to address the inadequacy in the existing statute to levy interest in such cases. The court concluded that interpreting Section 234B to cover the situation would render Section 234D meaningless and superfluous.The court also referred to the judgment of the Supreme Court in the case of Commissioner of Income-tax v. Reliance Energy Ltd., which held that Section 234D cannot be applied retrospectively to assessments completed before 01.06.2003. The court noted that in the present case, the assessments were completed long before the insertion of Section 234D.Conclusion:The court allowed the tax appeal, set aside the judgment of the Tribunal, and answered the question of law in favor of the assessee. The court held that Section 234B does not cover the situation where a refund granted under Section 143(1) is later found to be in excess or not due upon regular assessment. The court directed the concerned Revenue authority to give effect to this order.