Court rules interest on refund under Section 244 for Assessment Year 1984-85, grants relief to Petitioner

The Court held that for the Assessment Year 1984-85, Section 244 should apply instead of Section 244A for interest on a refund. It was determined that interest on the amount paid as interest under Section 220(2) should be granted under Section 244 and also on the refund of the interest recovered under Section 220(2). The Petitioner was deemed entitled to interest on the refund under Section 244 and on the interest recovered under Section 220(2). The Assessing Officer was directed to calculate and issue the refund order within eight weeks.

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Issues Involved:
1. Applicability of Section 244 or Section 244A of the Income Tax Act.
2. Entitlement to interest on refund of interest paid under Section 220(2) of the Act.

Summary:

Issue 1: Applicability of Section 244 or Section 244A of the Income Tax Act

Petitioner, a registered partnership firm engaged in ship breaking, challenged an order dated 30th April 2004 under Section 264 of the Income Tax Act, 1961, which rejected their application for interest on a refund under Sections 244/244A of the Act. The Court noted that the penalty was imposed on 4th August 1989, and the refund arose after 1st April 1989. Respondent No. 1 held that Section 244A, replacing Section 244 from 1st April 1989, applied. However, the Court agreed with the Petitioner that for the Assessment Year 1984-85, Section 244 should apply, based on sub-section 3 of Section 244 and sub-section 4 of Section 244A, which delineate their applicability based on assessment years.

Issue 2: Entitlement to Interest on Refund of Interest Paid under Section 220(2) of the Act

The Petitioner argued that interest on the refund was not calculated correctly as no interest was granted on the amount recovered as interest under Section 220(2). They contended that interest should be granted under Section 244 instead of Section 244A and also on the refund of interest recovered under Section 220(2). The Court noted that Section 244(1A) provides for interest on any amount paid, not just tax, and that the expression "amount" includes interest. The Court cited precedents from the Madras High Court in Needle Industries Pvt. Ltd., the Gujarat High Court in Gujarat State Warehousing Corporation, and the Delhi High Court in Modipon Ltd., which supported the view that interest on interest is permissible in cases of inordinate delay.

The Court concluded that the Petitioner is entitled to interest on the amount paid as interest under Section 220(2), as it forms part of the refund due under Section 240. Consequently, the Rule was made absolute, and Respondent No. 1 was directed to grant interest on the refund under Section 244 and also on the refund of the amount of interest recovered under Section 220(2).

Order:
The concerned Assessing Officer is directed to calculate the refund and pass the refund order within eight weeks from the date the judgment is uploaded. No order as to costs. Petition disposed.

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