Assessee wins refund interest case: Tribunal allows interest on excess amount paid, overturns revenue decisions

The appeals of the assessee for the assessment years 1985-86 and 1986-87 were allowed. The assessee was entitled to interest under section 244(1A) on the refund of interest paid under section 220(2). The Tribunal held that interest under section 244(1A) is payable on the entire refundable amount, including the excess interest paid under section 220(2), overturning the decisions of the revenue authorities.

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Issues Involved:
1. Entitlement to interest under section 244(1A) on the refund of interest paid under section 220(2).

Issue-wise Detailed Analysis:

1. Entitlement to Interest under Section 244(1A) on Refund of Interest Paid under Section 220(2):

The primary issue in these appeals is whether the assessee is entitled to interest under section 244(1A) on the refund of interest paid under section 220(2). The Assessing Officer did not grant interest on the refund of interest paid under section 220(2), which was contested by the assessee.

The CIT (Appeals) rejected the assessee's appeal, stating that section 244(1A) applies only to the payment of tax or penalty and does not cover the payment of interest under section 220(2).

The learned AR of the assessee contended that the assessee is entitled to interest on the entire refundable amount, including interest paid under section 220(2), relying on the judgment of the Hon'ble Gujarat High Court in D.J. Works v. Dy. CIT [1992] 195 ITR 227.

The learned Departmental Representative supported the orders of the revenue authorities and referred to the judgment of the Hon'ble Supreme Court in Modi Industries Ltd. v. CIT [1995] 216 ITR 759, which was found not applicable as the facts and issue were different.

The Tribunal considered the submissions and perused the records and judgments cited. The judgment of the Hon'ble Supreme Court in Modi Industries Ltd. was distinguished as it related to the interpretation of 'regular assessment' and did not address the issue of interest on excess deposit of advance tax.

The Tribunal examined the provisions of the Income-tax Act, specifically sections 156, 220(2), and 244(1A). It was emphasized that the word "pursuance" in section 244(1A) is crucial. If the amount paid against interest under section 220(2) is considered as payment in pursuance of a penalty order, then interest under section 244(1A) would be payable.

The Tribunal referred to various legal dictionaries and judgments to interpret the terms "pursue," "pursuance," and "pursuant." It was concluded that interest paid under section 220(2) could be treated as an amount paid in pursuance of a penalty order, making it eligible for interest under section 244(1A).

The Tribunal also highlighted that there is no express or implied prohibition in section 244(1A) against paying interest on interest collected under section 220(2). It cited several judgments, including those from the Hon'ble Supreme Court, Allahabad High Court, and Gujarat High Court, supporting the view that interest on excess payment, including interest, should be compensated.

The Tribunal concluded that interest under section 244(1A) is payable on the entire refundable amount, including the refund of excess interest paid under section 220(2) due to the appeal effect. Consequently, the orders of the revenue authorities were set aside, and the Assessing Officer was directed to grant interest under section 244(1A) on the refundable amount of interest under section 220(2).

Conclusion:

In the result, the appeals of the assessee for both the assessment years 1985-86 and 1986-87 were allowed, entitling the assessee to interest under section 244(1A) on the refund of interest paid under section 220(2).

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