TaxTMI 
TaxTMI 
2024 (4) TMI 258
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....udication. 3. The ld. Counsel for the assessee stated that the solitary issue/ dispute in both the appeals relates to the adjustment of part income-tax refund received by the assessee against the total outstanding refund, comprising of principal/ tax and interest - with the assessee contending that the refund be adjusted first against the interest component outstanding and then against the principal/tax, while the Department's contention was to the contrary. The result of the entire exercise would be the effect on the quantum of interest to which the assessee would be entitled u/s 244A of the Act on the outstanding principal so remaining after adjustment of the part refund received. That if, as pleaded by the ld. Counsel for the assessee, the part refund received is first adjusted against the interest component of refund, the principal component remaining would be larger in quantum as opposed to the situation in which, apropos the contention of the Revenue, the part refund is adjusted first against principal and then against interest outstanding. As a consequence of which, if the assessee's contention is accepted, its entitlement to interest on the principal outstanding in terms....
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....o be made entirely against outstanding refund of interest. As a consequence while the refund computed by the department and granted to the assessee of Rs. 6.28 Crs comprises of tax Rs. 2.07 Crs and interest of Rs. 4.21 Crs, as per the assessee, the refund works out to Rs. 9.65 Crs comprising of tax Rs. 3.97 Crs and interest Rs. 5.67 Crs. AY 1998-99 8. The facts pertaining to AY 1998-99 are that, in pursuance to order passed u/s 154 of the Act on 30.05.2016, the income of the assessee was assessed at Rs. 72,22,89,780/- . Subsequently, on 11.10.2017, the Hon'ble High court granted relief to the assessee to the extent of Rs. 25,90,06,699/-. On 04.04.2018, the order giving effect to the High Court order was passed assessing the income of the assessee at Rs. 46,41,25,441/-. Refund was not issued for a long time upto 01.12.2003 when the assessee ultimately filed a writ petition in the High Court which was allowed by the High Court vide order passed on 20.02.2023, directing the Revenue to issue refund of Rs. 17,15,34,707/- + interest in two weeks. On 07.03.2023, the ld. CIT(A) passed order directing the Assessing Officer to issue refund as per the Hon'ble High Court's order. However....
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....in this regard, and if the assessee's plea is accepted, it would tantamount to interest on interest; it would be in violation of the order of the Hon'ble Apex Court. 11. The ld. DR has also filed submissions in writing before us, contending that interest being in the nature of compensation for use of money borrowed, or retained, or not paid to the person to whom it is due; therefore, once the money is paid back to the assessee, no question of further payment of any compensation for deprivation of income-tax refund payable will arise. She has also referred to the provisions of the Indian Contract Act, Section 59 to 61 dealing with the appropriation of payments, and summarized the same stating that, as per the said provisions, it is the debtor who has first right to intimation of debt at the time of payment; if the debtor fails to intimate the same, then the right goes to the creditor and if the creditor fails to intimate, then it goes to the law itself, according to which, the refund should be appropriated proportionately. Her submissions in this regard are reproduced hereunder:- "No. Sr.DR/(ITAT)-1/'A' Bench/Nirma Ltd./2023-24 &....
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....st be applied accordingly. Illustrations (a) A owes B, among other debts, 1,000 rupees upon a promissory note which falls due on the first June. He owes B no other debt of that amount. On the first June, A pays to B 1,000 rupees. The payment is to be applied to the discharge of the promissory note (b) A owes to B, among other debts, the sum of 567 rupees. B writes to A and demands payment of this sum. A sends to B 567 rupees. This payment is to be applied to the discharge of the debt of which 8 had demanded payment 60 Application of payment where debt to be discharged is not indicated.- Where the debtor has omitted to intimate and there are no other circumstances indicating to which debt the payment is to be applied, the creditor may apply it at his discretion to any lawful debt actually due and payable to him from the debtor, whether its recovery is or is not barred by the law in force for the time being as to the limitation of suits 61 Application of payment where neither party appropriates.- Where neither party makes any appropriation, the payment shall be applied in discharge of the debts in order of time, whether t....
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....EY JAIN) Senior Departmental Representative, (ITAT)-1, 'A' Bench, Ahmedabad" 12. We have heard the contentions of both the parties. The issue in dispute before us is the manner of adjustment of part refund granted to the assessee, whether first against interest component of refund as argued by the Ld. Counsel for the assessee or otherwise as per the Revenue. 13. It is an admitted fact that the issue of adjustment of refund against outstanding principal/tax and interest has already been decided by the ITAT in the decisions as cited by the ld. Counsel for the assessee before us as noted above. This issue was first decided by the Mumbai Bench of the Tribunal in the case of Union Bank of India (supra), wherein it was held as under:- "3.4 We have gone through the facts of this case and submissions made by both sides, provisions of law as well as judgments placed before us. It is noted that the only issue to be decided by us is that while granting the refund in pursuance to the appeal effect order, whether the amount of refund granted earlier should be adjusted first against the interest component of the earlier refund and thereafter the balance a....
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....ct, when an assessee is duty bound to pay the outstanding tax, amount paid by the assessee shall first be adjusted against interest payable and the balance shall be adjusted against tax payable, the same procedure needs to be followed in respect of refund due to the assessee i.e., the amount shall first be adjusted towards interest payable and balance, if any, shall be adjusted towards lax payable (in the instant case tax refundable to the assessee). 5. Learned counsel, appearing on behalf of the assessee, pleaded accordingly. On the other hand learned Departmental Representative submitted that the assessee is not entitled to interest on interest. However with regard to the plea of the assessee that it does not amount to payment of interest on interest but only adjustment of the refund from the Revenue against interest component first and thereafter against tax component, in which event u/s. 244A assessee is entitled to interest on the tax component, learned Departmental Representative could not place any decision contrary to the decision of Hon'ble Delhi High Court cited by learned counsel for the assessee. 6. We have carefully considered the rival submission....
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....that the assessee claims interest under Section 244A of the Income-Tax Act. Therefore, on both the aforestated grounds, we are of the view that the assessee was entitled to interest for 57 months on Rs. 45,73,528/-. The principal amount of Rs. 45,73,528 has been paid on December 31, 1997 but net of interest which, as stated above, partook of the character of "amount due" under Section 244A." 15. A reading of the aforesaid passage from the decision of the Supreme Court in HEG Limited (supra) indicates that it would be incorrect and improper to regard payment of interest when part payment is made as interest on interest. What has been elucidated and clarified by the Supreme Court is that when refund order is issued, the same should include the interest payable on the amount, which is refunded. If the refund does not include interest due and payable on the amount refunded, the Revenue would be liable to pay interest on the shortfall. This does not amount to payment of interest on interest. An example will clarify the situation and help us to understand what is due and payable under Section 244A of the Act. Suppose Revenue is liable to refund Rs. 1 lac to an assessee with effe....
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....ny, shall be adjusted towards the tax payable." 3.8 Thus, from the perusal of the above, it is clear that where the amount of tax demanded is paid by the assessee then it shall first be adjusted towards interest payable and balance if any whatever tax payable. Now, if we go through section 244A, we find that no specific provision has been brought on the statute with respect to adjustment of refund issued earlier for computing the amount of interest payable by the revenue to the assessee on the amount of refund due to the assessee. Thus, the law is silent on this issue. Under these circumstances, fairness and justice remands that same principle should be applied while granting the refund as has been applied while collecting amount of tax. The revenue is not expected to follow double standards while dealing with the tax payers. The fundamental principle of fiscal legislation in any civilized society should be that the state should treat its citizens (i.e. tax payers in this case) with the same respect, honesty and fairness as it expects from its citizens. It is further noted by us that Hon'ble Delhi High Court has already decided this issue in clear words which has been ....
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.... 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. Providing for payment of interest in case of refund of amounts paid as tax or deemed tax or advance tax is a method now statutorily adopted by fiscal legislation to ensure that the aforesaid amount of tax which has been duly paid in prescribed time and provisions in that behalf form part of the recovery machinery provided in a taxing Statute. Refund due and payable to the assessee is debt-owed and payable by the Revenue. The Government, there being no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, cannot shrug off its apparent obligation to reimburse the deductors lawful monies with the acc....
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....gainst interest first, as pleaded by assessee, would result in any way in paying interest on interest. Further the Hon'ble court took note of the fact that there is no provision in law for manner of adjustment of part refund granted. And taking into account the provisions of section 140A of the Act requiring self-assessment tax paid short by the assessee to be first adjusted against interest outstanding and then against tax, and also the provisions of section 220 of the Act charging interest on the portion of outstanding demand of tax including interest, the hon'ble court held that the same principle would follow if Revenue defaults in full payment of refund. The Hon'ble High court also noted that since section 244A of the Act debars payment of interest on interest refund, it held that part refund needs to be adjusted against interest first otherwise the assessing Officer/ Revenue would refund the principal amount and not pay the interest component u/s 244A for an unlimited period with impunity and without any sanction which would tantamount to allowing a premium on non-compliance with the law. 15. Taking note of the decision of the Hon'ble Delhi High Court as above, the ITAT he....