TaxTMI 
TaxTMI 
2014 (3) TMI 610
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....and M.S. Syali, Sr. Advs, Ashish Wad, Jayashree Wad, Kanika Baweja, Advs. for J.S. Wad and Co., Ruby Singh Ahuja, Neha Gupta, Pallav Mongia, Advs. for Karanjawala & Co., G.C. Srivastava, Preeti Bhardwaj, Shiv Kumar Suri, Sunil Kumar Jain, Vijay Kumar, Aditya Panda, Manoneet Dalal, Rustom B. Hathikhanawala, Ajay Vohra, Kavita Jha, Vijay Ranjan, Bhargava V. Desai and Shreyas Malhotra, Advs. ORDER 1. Leave granted. 2. The issue that arise for our consideration and decision in this batch of appeals is, whether the revenue is legally responsible under Section 244A of the Income Tax Act, 1961 (for short, "the Act") for payment of interest on the refund of tax made to the resident/deductor under Section 240 of the Act. 3. At the outset, it is relevant to notice that the assessment years in all these appeals are on and after 01.04.1989, that is after the admittance of Section 244A of the Act by Direct Tax Laws (Amendment) Act, 1987 (4 of 1988) with effect from 01.04.1989, whereby provision for interest on refunds on any amount due to the assessee under the Act was introduced. FACTS:- 4. We would refer to the facts in Civil Appeal No. 6301 of 2011. The respondent is a comp....
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....t case is in view of the circulars viz. Circular No. 769 and 790 issued by the Central Board of Direct Taxes (for short "the Board") and not under the statutory provisions of the Act, no interest would accrue on the refunds under Section 244A of the Act. Therefore, the Assessing Officer/Income Tax Officer while granting refund of the tax paid on the aforesaid amount has refused to entertain the claim for interest on the amount so refunded by order dated 29.07.2003. 9. Since the Assessing Officer/Income Tax Officer had declined to grant the interest on the amount so refunded, the resident/ deductor had carried the matter by way of an appeal before the Commissioner of Income Tax (Appeals). The First Appellate Authority by its order dated 28.03.2005 has approved the orders passed by the Assessing Officer/ Income Tax Officer and declined the claim of the deductor/resident on two counts : (a) that the refund in the instant case would fall under two circulars viz. Circular No. 769 and 790 issued by the Board which specifically provide that the benefit of interest under Section 244A of the Act on such refunds would not be available to the deductor/ resident and (b) that a conjoint read....
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....ions is sequentially reproduced: "Section 156. Notice of demand When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable. ** ** ** Section 195. Other sums- (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head 'Salaries') shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force: Provided that in the case of interest payable by the Government or a public section bank within the meaning of clause (23D) of Section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment....
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....l or other proceeding under this Act to be in excess of the amount which such assessee is liable to pay as tax or penalty, as the case may be, under this Act, the Central Government shall pay to such assessee simple interest at the rate specified in sub-section (1) on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund is granted: Provided that where the amount so found to be in excess was paid in instalments, such interest shall be payable on the amount of each such instalment or any part of such instalment, which was in excess, from the date on which such instalment was paid to the date on which the refund is granted: Provided further that no interest under this sub-section shall be payable for a period of one month from the date of the passing of the order in appeal or other proceeding: Provided also that where any interest is payable to an assessee under this subsection, no interest under sub-section (1) shall be payable to him in respect of the amount so found to be in excess. (2)** ** ** (3) The provisions of this section shall not apply in respect of any asses....
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....e a simple interest of 15% per annum on the amount of refund due from the date immediately following the expiry of the period of three months as aforesaid to the date on which the refund is granted. 18. Since there was disconcert in the minds of both the assessee and the Revenue regarding the cases where payment of interest was required to be made to the assessee by the Revenue, the Parliament has thought it fit to insert a new Section 244A in the place of Sections 214, 243 and 244 in respect of assessments for the assessment year 1989-90 and onwards. The Section is extracted: "244A. Interest on refunds. (1) Where refund of any amount becomes due to the assessee under this Act, he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely:- (a) Where the refund is out of any tax paid under section 115WJ or collected at source under section 206C or paid by way of advance tax or treated as paid under section 199, during the financial year immediately preceding the assess....
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....paid by the Department to the assessee for money remaining with the Government. To remove this inequity, as also to simplify the provisions in this regard, the Amending Act, 1987, has inserted a new Section 244A in the Income Tax Act, applicable from the assessment year 1989-90 and onwards which contains all the provisions for payment of interest by the Department for delay in the grant of refunds. The rate of interest has been increased from the earlier 15 per cent annum to 1.5% per month or part of a month, comprised in the period of delay in the grant of refund. The Amending Act, 1987, has also amended sections 214, 243 and 244 to provide that the provisions of these sections shall not apply to the assessment year 1989-90 or any subsequent assessment years." (Emphasis Supplied) SUBMISSIONS:- 20. Shri Arijit Prasad, learned counsel appearing for the Revenue would submit, that, if the tax is paid under Section 195(2) of the Act, then while refunding the amounts so paid, the Revenue need not be burdened with payment of interest on the amount so refunded. He would submit that while Section 244A(1)(a) specifically provides for the four instances under specific provisio....
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....hin the contemplation of the Statute (See Gurudevdatta VKSSS Maryadit v. State of Maharashtra [2001] 4 SCC 534). 23. It is also well settled principle that the courts must interpret the provisions of the Statute upon ascertaining the object of the legislation through the medium or authoritative forms in which it is expressed. It is well settled that the Court should, while interpreting the provisions of the Statute, assign its ordinary meaning. 24. This Court in Shyam Sunder v. Ram Kumar [2001] 8 SCC 24 has observed that in relation to beneficent construction, the basic rules of interpretation are not to be applied where (i) the result would be re-legislation of a provision by addition, substitution or alteration of words and violence would be done to the spirit of legislation, (ii) where the words of a Provision are capable of being given only one meaning and (iii) where there is no ambiguity in a provision, however, the Court may apply the rule of beneficent construction in order to advance the object of the Act. 25. Before the insertion of Section 244A as a composite Section by the Direct Tax Laws (Amendment) Act, 1987, the liability to pay interest on refund of pre-pai....
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....nt/deductor had approached the assessing authority inter alia requesting him to determine the tax that requires to be deducted at source before the payment is made to a non-resident/foreign company. On such a request the assessing officer had passed an order under Section 195(2) of the Act directing the resident/deductor to deduct tax at a particular rate. The resident/deductor had appealed against the said order, but had deposited the tax as directed by the assessing officer/Income Tax Officer by the aforesaid order in accordance with the provisions of Section 200 of the Act. When the resident/deductor succeeded in the appeal, a direction was issued by the appellate authority for refund of tax so paid. In observance of the same, the assessing authority had granted the refund of the tax amount under Section 240 of the Act, but declined to grant interest on the said refund amount. The conclusion arrived at by the assessing officer was accepted by the first appellate authority on the ground, inter alia, that the conjoint reading of Section 156 and the explanation appended to Section 244A(1)(b) of the Act would indicate that the amount refunded to the resident/deductor cannot be equat....
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....efunds. A general right exists in the State to refund any tax collected for its purpose, and a corresponding right exists to refund to individuals any sum paid by them as taxes which are found to have been wrongfully exacted or are believed to be, for any reason, inequitable. The statutory obligation to refund carried with it the right to interest also. This is true in the case of assessee under the Act. 32. The question before us is, whether the resident/deductor is also entitled to interest on refund of excess deduction or erroneous deduction of tax at source under Section 195 of the Act. 33. We would begin our discussion by referring to circular No. 790, dated 20.04.2000, issued by the Board. Omitting what is not necessary, the material portion of the circular is extracted: "** ** ** 6. Refund to the person making payment under Section 195 is being allowed as income does not accrue to the non-resident. The amount paid into the Government account in such cases, is no longer 'tax'. In view of this, no interest under section 244A is admissible on refunds to be granted in accordance with this Circular or on the refunds already granted in accordance wi....
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....ficer/Income Tax Officer. In the appeal filed against the said order the assessee has succeeded and a direction is issued by the appellate authority to refund the tax paid. The amount paid by the resident/deductor was retained by the Government till a direction was issued by the appellate authority to refund the same. When the said amount is refunded it should carry interest in the matter of course. As held by the Courts while awarding interest, it is a kind of compensation of use and retention of the money collected unauthorizedly by the Department. When the collection is illegal, there is corresponding obligation on the revenue to refund such amount with interest in as much as they have retained and enjoyed the money deposited. Even the Department has understood the object behind insertion of Section 244A, as that, an assessee is entitled to payment of interest for money remaining with the Government which would be refunded. There is no reason to restrict the same to an assessee only without extending the similar benefit to a resident/deductor who has deducted tax at source and deposited the same before remitting the amount payable to a non-resident/foreign company. 38. Provid....