1984 (3) TMI 155 - AT - Income Tax

Appeal partially allowed with interest under different sections.

The appeal was allowed in part. Interest under section 214 was rightly allowed up to the date of refund following the appellate order. However, interest ... Interest On Refund, Interest Payable By Government Issues Involved:1. Admissibility of interest under section 214.2. Admissibility of interest under section 244(1) on refunds comprising interest under sections 214 and 244(1A).Detailed Analysis:1. Admissibility of Interest under Section 214:The primary issue revolves around whether interest under section 214 of the Income-tax Act, 1961, is admissible up to the date of refund following an appellate order. The original assessment did not consider interest under section 214 as the advance tax paid was insufficient to cover the demand. Upon appeal, the Commissioner (Appeals) allowed certain reliefs, leading to a refund. The Commissioner (Appeals) upheld the assessee's contention that interest under section 214 should be allowed up to the date of refund, relying on several High Court decisions, including those from Madras, Calcutta, and Kerala.The departmental representative argued that section 214 provides for interest only up to the date of regular assessment, which is the initial assessment made by the ITO, and not beyond, even if an appellate order reduces the demand. This view was supported by the Delhi High Court in National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India, which held that the term 'regular assessment' refers only to the initial assessment.However, the assessee's counsel pointed out that the Delhi High Court also considered sections 214(2) and 244(1A) together, concluding that interest is payable on the refund of advance tax from the date of payment up to the date of actual refund. The Tribunal noted the controversy among various High Courts but relied on the Delhi High Court's decision, which harmonized sections 214 and 244(1A) to allow interest up to the date of refund.2. Admissibility of Interest under Section 244(1) on Refunds Comprising Interest under Sections 214 and 244(1A):The second issue concerns whether interest under section 244(1) is admissible on the full amount of refund, including interest under sections 214 and 244(1A). The departmental representative argued that allowing interest under section 244(1) on amounts already comprising interest would result in 'interest on interest,' which is not permissible under the law. The Commissioner (Appeals) had directed interest under section 244(1) on the entire refund amount due to the appellate order, which the department contested.The Tribunal examined the provisions of sections 244(1) and 244(1A). It was noted that section 244(1A), introduced based on the Wanchoo Committee's recommendations, provides interest on excess payments from the date of payment to the date of refund, minus one month, for payments made after 31-3-1975. This provision was intended to provide a larger benefit to taxpayers and was in substitution of interest under section 244(1).The Tribunal concluded that the law provides for 'simple interest' under sections 214, 244(1), and 244(1A), and there is no provision for allowing further interest on interest calculated under another section. Thus, the Commissioner (Appeals) was not justified in directing interest under section 244(1) on interest allowed under sections 214 and 244(1A). The ground of the department was accepted, and the ITO was directed to work out the interest in accordance with the Tribunal's directions.Conclusion:The appeal was allowed in part. Interest under section 214 was rightly allowed up to the date of refund following the appellate order. However, interest under section 244(1) was not admissible on amounts comprising interest under sections 214 and 244(1A).