TaxTMI 
TaxTMI 
2016 (2) TMI 470
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.... payment of interest upon refund of excess payment on selfassessment? (III) Whether grant of interest to the assessee on refund arising due to excess payment on self assessment is contemplated by the Income Tax Act, 1961? (IV) Whether in the facts and circumstances of the case the Tribunal was justified in granting the aforesaid relief to the assessee on the ground that the issue was debatable? The facts and circumstances briefly stated are as follows:- The assessee paid tax in respect of the relevant assessment years including self-assessment tax u/s.140A of the Act. Subsequently, the assessment u/s.143(3) was completed for both the assessment years 1992-93 and 1993-94 and certain additions were made. The assessee preferred an appeal before the Commissioner of Income Tax (Appeals) (hereinafter referred to as 'CIT(A)') who allowed certain relief resulting in an order for refund. While giving effect to the said order of the learned CIT(A), an order for refund along with interest was allowed to the assessee for both the years under consideration. Subsequently, the assessing officer issued a notice u/s.154 and the interest previously allowed u/s.244A(1)(b) on the refund....
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.... 143 or on regular assessment; (b) in any other case, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period or periods from the date or, as the case may be, dates of payment of tax or penalty to the date on which the refund is granted. Explanation.-For the purposes of this clause, "date of payment of tax or penalty" means the date on and from which the amount of tax or penalty specified in the notice of demand issued u/s. 156 is paid in excess of such demand. (2)... (3)... (4)..." Mr. J. P. Khaitan learned senior advocate appearing for the assessee contended as follows: (I) that the interest is payable on the refund of the excess selfassessment tax under Clause (b) of Sub-Section (1) of Section 244A which should be construed liberally and in favour of the assessee. He relied on the case of Union of India -Vs- Tata Chemicals Ltd. reported in (2014) 6 SCC 335; (II) that section 244A(1)(a) provides for interest on refunds out of Advance tax and tax deducted at source while Section 244A(1)(b) is residual in nature and provides for interest on refund in other cases including excess tax paid on self as....
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.... of excess tax and interest cannot be granted otherwise than in accordance with the statutory scheme. Hence there can be no debate as regards the question whether in a given situation interest can be granted on a refund of excess selfassessment tax. Thus the learned tribunal has erred in holding that the issue is debatable and beyond the scope of s.154 of the Act. We have heard the rival contentions advanced by the learned counsel for the parties and carefully perused the record. In the case of Tata Chemicals (supra) the issue before the Supreme Court was whether the resident/deductor is also entitled to interest on refund of excess deduction or erroneous deduction of tax at source u/s. 195 of the Act. In this case, the assessee was an Indian Company engaged in manufacture of fertilizer. The assessee engaged the services of two technicians from a foreign company. The said foreign company raised an invoice for the services rendered by the technicians, which included reimbursement for some expenses incurred by them. The assessee approached the Income Tax Officer u/s. 195(2) of the Act to determine the percentage of tax, which should be withheld from the amount payable to the foreig....
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....rtment. In this regard, the Apex Court held as follows:- "37. A "tax refund" is a refund of taxes when the tax liability is less than the tax paid. As per the old section an assessee was entitled for payment of interest on the amount of taxes refunded pursuant to an order passed under the Act, including the order passed in an appeal. In the present fact scenario, the deductor/assessee had paid taxes pursuant to a special order passed by the assessing officer/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 unauthorisedly by the Department. When the collection is illegal, there is corresponding obligation on the Revenue to refund such amount with interest inasmuch as they have retained and enjoyed the money deposited. Eve....
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.... covered by Clause (a) of Section 244A (1). In this regard the Apex Court held as follows:- "39. In the present case, it is not in doubt that the payment of tax made by the resident/depositor is in excess and the department chooses to refund the excess payment of tax to the depositor. We have held that the interest requires to be paid on such refunds. The catechise is from what date interest is payable, since the present case does not fall either under clause (a) or (b) of Section 244-A of the Act. In the absence of an express provision as contained in clause (a), it cannot be said that the interest is payable from the 1st of April of the assessment year. Simultaneously, since the said payment is not made pursuant to a notice issued under Section 156 of the Act, Explanation to clause (b) specifically referred to as "in any other case", the interest is payable from the date of payment of tax. The sequel of our discussion is the resident/deductor is entitled not only to the refund of tax deposited u/s. 195(2) of the Act, but has to be refunded with interest from the date of payment of such tax." The contention of the Revenue that Clause (b) is not applicable in view of the explana....
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.... starting from the date of payment of such tax or penalty and ending on the date of the grant of the refund. (Refer to example III in para 11.8)." (Emphasis supplied) The inferences to be drawn from the Board's circular is clear that if refund is out of any tax other than out of advance-tax or tax deducted at source, interest shall be payable from the date of payment of tax and ending on the date of the grant of refund. It is to be noted that nowhere does the CBDT even remotely suggest that interest is not payable by the Department on self-assessment tax. Moreover, the amount paid u/s. 140A of the Act on self assessment is an amount payable as and by way of the tax after noticing that there is likely to be shortfall in the taxes already paid. Thus this payment is considered to be a tax under the aforesaid provision. 8. The contention of revenue is that no interest at all is payable to the petitioner u/s. 244A(1)(a) and (b) of the Act unless the amounts have been paid as tax. It would not cover cases where the payment is gratuitous as is evident from the fact that the petitioner in its computation after paying tax on self assessment of Rs. 2.60 crores seeks a refund of Rs.....
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.... only be made from the date of notice u/s. 156 of the Act is issued to the petitioner in terms of Explanation to Section 244A(1)(b) of the Act cannot be accepted for two reasons. Firstly, as held by the Supreme Court in Tata Chemicals (supra), the Explanation would have effect only where payments of tax have been made pursuant to notice u/s. 156 of the Act. In this case, the payment has not been made pursuant to any notice of demand but prior to the filing of the return of income in accordance with Section 140A of the Act. Secondly, the provisions of Section 244A(1)(b) very clearly mandate that the revenue would pay interest on the amount refunded for the period commencing from the date the payment of tax is made to the revenue upto the date when refund is granted to the revenue. Thus, the submission of Mr. Pinto that the interest is payable not from the date of payment but from the date of demand notice u/s. 156 of the Act cannot be accepted as otherwise the legislation would have so provided in Section 244A 1(b) of the Act, rather then having provided from the date of payment of the tax." The object and reasons for introduction of Section 244A was clarified by the CBDT in its ci....
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....r to the date of grant of refund. No interest is, however, payable if the excess payment is less than 10 per cent of tax determined under Section 143(1) or on regular assessment. No interest is payable for the period for which the proceedings resulting in the refund are delayed for the reasons attributable to the assessee (wholly or partly). The rate of interest and entitlement to interest on excess tax are determined by the statutory provisions of the Act. Interest payment is a statutory obligation and non-discretionary in nature to the assessee. In tune with the aforesaid general principle, Section 244-A is drafted and enacted. The language employed in Section 244-A of the Act is clear and plain. It grants substantive right of interest and is not procedural. The principles for grant of interest are the same as under the provisions of Section 244 applicable to assessments before 1-4- 1989, albeit with clarity of application as contained in Section 244-A. . 31. The Department has also issued circular clarifying the purpose and object of introducing Section 244-A of the Act to replace Sections 214, 243 and 244 of the Act. It is clarified therein, that, since there was some lacun....
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.... 12. The tax due on the returned income has to be paid by way of tax deducted at source (Section 199), advance tax (Section 209) or by way of self-assessment tax (Section 140A). In addition, where the assessment is completed at an income higher than the returned income, the tax payable by the assessee is specified in the notice of demand issued u/s. 156 of the Act. Where there is a shortfall in payment on tax vis-a-vis the tax finally due on the assessed income, the assessee is liable to pay interest u/s. 234B of the Act. Conversely, where the Revenue makes a high-pitched assessment which is subsequently reduced/modified in appeal, any payment of taxes made, which are subsequently refunded as a consequence of relief obtained in appeals, etc., are monies legitimately belonging to the tax payers and wrongly withheld by the Government. This is based on the principle that if the Revenue had, in the first instance, made correct assessment of the tax liability of the assessee, the assessee would not have been deprived by the use of money. In such a situation, where pre-paid taxes are in excess of the assessed tax, the assessee is entitled to refund of such tax along with interest there....
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.... of payment of tax. The Karnataka High Court rejected this contention of the revenue and held as follows:- "13. Therefore, the object behind the insertion of section 244A, as understood by the Department, is that an assessee is entitled to payment of interest for money remaining with the Government which would be ordered to be refunded. Therefore, if that is the object behind the insertion of section 244A, the contention of the Revenue that if the case does not fall under either of the clauses in section 244A, no interest is payable, is without any substance. 14. Clauses (a) and (b) specifically refer to the instances where interest is paid under the Act. It is not exhaustive. It is possible, in a given case, that after the expiry of the financial year, the assessee may pay tax either along with the self-assessment return or even before the return is filed. If ultimately the said payment is found to be in excess and the Department chooses to refund the said amount, then the question would be, from what date interest is payable since interest is payable on such refunds u/s. 244A. In the absence of an express provison as contained in clause (a), it cannot be said that the interes....
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....n refund from out of amount paid as self-assessment tax would fall under this clause. 32. Noticeably, for purposes of calculating the liability of the Revenue towards interest on the amount being refunded u/s. 244A(1)(b), the beginning point is prescribed as the "date of payment of tax (or penalty)". This expression is defined in the explanation appended to the clause to be indicative of the date of payment of the amount "specified" in the demand notice u/s. 156. Thus, the legislation makes it clear that for the residuary clause, the amount paid by the assessee (from which refund is to be made) must have been deposited pursuant to demand notice issued by the assessing authority. To put it conversely, the clause would not apply, by virtue of the explanation, in case the excess amount (being refunded) has been paid by the assessee otherwise than in compliance with demand notice or voluntarily. This is the import and effect of the explanation if the language employed thereof is read, understood and construed in its natural and ordinary sense. Since the words used are clear, plain and unambiguous, there is no scope for beneficent construction since it would lead to relegislation, whi....
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....n. Such claim appears to have come later. 37. For the very same reasons as set out above, we are not inclined to endorse the view taken by Madras High Court in the case of CIT v. Cholamandalam Investment & Finance Co. Ltd. (supra) wherein in our view, the proposition of law on the subject was expounded in too broad terms. As clarified by the Supreme Court in the case of Commissioner of Income Tax, Gujarat v. Gujarat Fluoro Chemicals (supra), there is no general principle obliging the Revenue to pay interest on all sums wrongfully retained. It is trite that a fiscal statute is to be construed strictly. The claim of interest on refund of income tax has to be pegged on the statutory clauses only. 38. For the foregoing reasons, we answer the substantial question of law mentioned in para 3 above accordingly in favour of the Revenue. 39. In absence of explanation as to how the assessee erred in calculation of self-assessment tax, there being no allegation that such excess deposit was pursuant to demand by the Revenue, the claim for interest on excess payment voluntarily made cannot be sustained. In the result, the appeal is allowed and the impugned order passed by ITAT directing th....
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....lowing reasons:- a) The judgment in the case of Gujarat Fluro Chemicals is not even remotely connected with the issue which came up for consideration before the Division Bench. The issue was already covered by a judgement, in the case of Sutlej Industries (supra) of a co-ordinate bench. b) Apropos to the question one can argue on the basis of Gujrat Fluro Chemicals (supra) that "it is only that interest provided for under the statute which can be claimed by an assessee." c) The Apex Court in the case of Tata Chemicals (supra) opined, in paragraph 38 quoted above, that "providing for payment of interest in case refund of amounts paid as tax or deemed tax or advance tax is a method now statutorily adopted by fiscal legislation." d) Amount paid on self-assessment u/s140A also partakes the character of assessed tax as would appear from explanation appended to Section 140A(1B) which provides that "assessed tax means the tax on the total income as declared in the return...." e) Sub-section 3 of Section 140A provides for consequences in case of omission by an assessee to pay such assessed tax u/s. 140A which is as follows:- "(3) If any assessee fails to pay the whole or any pa....
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....of tax including self assessment tax be refunded to the assessee. In these circumstances the principle of restitution would be squarely attracted and the revenue is also statutorily bound to pay interest u/s.244A(1)(b) to the assessee. The apex court in South Eastern Coalfield - Vs- State of M. P. reported in 2003 (8) SCC 648 has categorically held that once the doctrine of restitution is attracted, the interest is often a normal relief given. Restitution sometimes refers to "disgorging of something which has been taken" and sometimes refers to "compensation for injury done". Law does not favour unjust enrichment nor does it favour unjust impoverishment. The principle of unjust enrichment proceeds on the basis that it would be unjust to allow one person to retain a benefit received at the expense of another person. It provides the theoretical foundation for the law governing the doctrine of restitution which was echoed in Tata Chemicals (supra). In the light of the discussion made above, we are of the opinion that Clause (b) of Sub-Section 1 of Section 244A is residual in nature and provides for interest on refund of excess self-assessment tax paid by the assessee. Furthermore th....
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....a). 8. That apart, the law is well-settled that even for the refund of tax paid under section 140A on self-assessment, the assessee is entitled to interest as held by this court in CIT v. Ashok Leyland Ltd., [2002] 254 ITR 641. 9. It is also trite law that wherever the assessee is entitled to refund, there is a statutory liability on the Revenue to pay the interest on such refund on general principles to pay the interest on sums wrongfully retained. 10. We are also strengthened by the decision of the apex court for the above view taken in Sandvik Asia Ltd. v. CIT, [2006] 280 ITR 643, wherein it is held as follows (headnote): 'In view of the express provisions of the Income-tax Act, 1961, an assessee is entitled to compensation by way of interest for the delay in the payment of amounts lawfully due to the assessee which are withheld wrongly and contrary to law. The Government is liable to pay interest, at the rate applicable to the excess amount refunded to the assessee,...' " In CIT v M/s. Vam Organic Chemiclas Ltd. (Income Tax Appeal No. 49 of 2007 Allahabad High Court, decided on 26th February 2015) the Court relying on Vijaya Bank (supra), Stock Holding Corporat....
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....erest on the amount refunded for the period commencing from the date, payment of tax is made to the Revenue, upto the date when refund is granted. The Bombay High Court in Stock Holding Corporation of India Limited (supra) said: Thus, the interest is payable not from the date of payment but from the date of demand notice under section 156 cannot be accepted as otherwise the legislation would have so provided in section 244A(1)(b), rather than having provided from the date of payment of the tax.' " The Kerala High Court in ACIT -Vs- M/s. Kerala Transport Company reported in (2014) 222 Taxman 149, the Rajasthan High Court in CIT -Vs- M/s. Mangalam Arts reported in (2013) 218 Taxman 51 and the Punjab & Haryana High Court in CIT -Vs- Punjab Chemical & Crop Protection Ltd. reported in (2015) 231 Taxman 312 have taken the same view as above. By the impugned order the learned tribunal relying upon CIT v MMTC Ltd (supra) held that the scope of section 154 does not extend to a debatable issue and hence the assessing officer in exercise of power u/s 154 could not have withdrawn the interest u/s 244A(1)(b) on the refund of excess self assessment tax. Mr Khaitan learned Senior Advocate a....
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....tigated cannot be corrected by way of rectification. Reference in this regard may be made to CIT v MMTC Ltd (supra). Section 244A does not mandate that interest cannot be allowed on self assessment tax paid u/s 140A. As discussed earlier it cannot be said that interest u/s.244A can be allowed only in cases where excess payments of tax is made consequent to a notice of demand u/s.156. The language of the Act is clear and there is no ambiguity in it. Hence the assessee is clearly entitled to claim interest u/s.244A on refund of excess self assessment tax. In K.K.J. Foundations -Vs.- The Assistant Director of Income Tax (ITA. No. 242 of 2014) the Kerala High Court by Judgment dated 8th September 2015 held as follows:- "By invoking the power of rectification, the ultimate conclusion of a decision cannot be changed. So also, the employment of the words phraseologies in Sec.154 shows that by rectification it intended only to correct any mistake and amend the same accordingly. It is a settled proposition of law that rectification is a process by which a mistake is set at right. It thus means correcting an error which was apparent from record and not deciding the matter over and again ....