IN THE HIGH COURT OF KERALA AT ERNAKULAM
WP(C).No. 26052 of 2004(B)
1. M/S. KERALA TRANSPORT CO., CALICUT.
... Petitioner
Vs
1. ASSISTANT COMMISSIONER OF INCOME TAX
... Respondent
2. COMMISSIONER OF INCOME TAX, CALICUT.
For Petitioner :SRI.S.ARUN RAJ
For Respondent :SRI.P.K.R.MENON(SR.),SR.COUNSEL FOR IT
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
Dated :05/12/2008
O R D E R
C.N. RAMACHANDRAN NAIR, J.
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W.P.C. NO. 26052 OF 2004
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Dated this the 5th day of December, 2008
C.R.
JUDGMENT
The issue that arises for consideration is whether the assessee is
entitled to interest under Section 244A(1)(b) of the I. T. Act on the
excess tax paid along with return under Section 140A of the I.T. Act.
The assessment involved is for the year 1990-91 and for this year, the
assessee admittedly paid Rs. 13,94,620/- under Section 140A of the Act
along with return filed. The assessment was subject matter of appeals
and Ext.P3 is the final revised assessment order issued after
rectification of some mistakes in the earlier order passed. Tax is seen
credited in the assessment in the form of tax deduction at source made
by parties, advance tax paid by the assessee, tax paid along with return
(self-assessed tax) and tax paid against demand notice raised under
Section 156 of the Act. In the ultimate result, it is seen that assessee
was entitled to huge refund. Even though refund is granted along with
interest on substantial portion thereof, the assessing officer declined to
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grant interest on excess payment of self-assessed tax under Section
140A of the Act on the ground that Section 244A(1)(b) does not
authorise payment of interest on such excess self assessed tax paid after
the assessment year 1989-90. Even though assessee filed revision
petition against this order under Section 264 of the Act, the
Commissioner rejected the claim vide Ext.P4 against which this Writ
Petition is filed for declaration that assessee is entitled to interest under
Section 244A(1)(b) of the Act and for direction to respondents to grant
such interest. I have heard counsel appearing for the petitioner-
assessee and standing counsel appearing for the Income-tax
Department.
2. Since interest is claimed under Section 244A(1)(b) of the Act,
the said section with Explanation is extracted hereunder for easy
reference:
244A. (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)…….
(b)in any other case, such interest shall be
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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 the 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 under Section 156 is paid
in excess of such demand.
It is clear from the above provisions and the impugned order that
department does not dispute assessee’s entitlement for interest on
refund of all payments of tax in excess of actual tax found due on
assessment except excess self-assessed tax paid under Section 140A(1)
of the Act. Counsel for the assessee has relied on the decision of the
Supreme Court in MODI INDUSTRIES’ case, 216 ITR 759 and
contended that interest under Section 214 was payable to the assessee
on the entire excess tax paid which includes self-assessed tax also.
Standing counsel on the other hand submitted that even according to
the decision of the Supreme Court above referred, interest is payable
strictly in accordance with statutory provisions and if the Section does
not provide for it, assessee is not entitled to interest. He submitted that
decision of the Supreme Court cannot be relied upon because the said
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decision was rendered in the context of Section 214 which is not
applicable in any way from the assessment year 1989-90 onwards.
Another decision relied on by the assessee is that of the Madras High
Court in CIT V. CHOLAMANDALAM INVESTMENT AND
FINANCE CO.LTD, 294 I.T.R. 438 (Mad.) wherein the Madras High
Court held that assessee is entitled to interest under Section 244(A)(1)
(b) of the Act. However, standing counsel submitted that Madras High
Court in that case was following some other decisions which were
rendered in the context of Section 214 of the Act only.
3. Before considering the scope of the above provision, it is
worthwhile to consider circular issued by the Central Board explaining
the purpose of insertion of new Section 244A vide clause 11.3 of
circular reported in 182 I.T.R. (Statutes) 48 which is as follows:
“11.3 These provisions, apart from being complicated, left
certain gaps for which interest was not 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 refund. …”
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It is obvious from the above that the purpose is to liberalise the then
existing provisions and to ensure that interest is paid for delay in grant
of refund. As already noticed, in the decision referred to above, the
Supreme Court has held that interest is payable on excess self-assessed
tax paid under Section 140A of the Act. The question therefore to be
considered is whether the new provision introduced with effect from
1.4.1989 seeks to limit interest on every payment of tax except self-
assessed tax paid under Section 140A of the Act. It is pertinent to note
that clause (a) of Section 244A(1) provides for interest on refund of
excess payment of tax, such as the fringe benefit tax paid under Section
115WJ, tax collected at source under Section 206 and tax paid by way
of advance tax or tax treated as paid under Section 199 during the
financial year. After providing specific rate of interest on refund of
excess tax paid, categories of which are referred to in clause (a), clause
(b) provides for lower rate of interest on refund of tax paid in other
cases. No doubt tax paid “in any other case” is not defined under the
Act. However, explanation to clause (b) clarifies the date on which
interest is payable by defining “date of payment of tax or penalty”
referred to in clause (b) as the date on which tax is paid pursuant to
notice issued under Section 156. Counsel for the assessee mainly
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argued that “in any other case” referred to in clause (b) covers all other
cases which are not referred to in clause (a) and so much so every
payment of tax in excess of tax due will entitle the assessee for interest.
Alternatively, he submitted that payment of self-assessed tax partakes
the character of payment as if tax is paid pursuant to notice issued
under Section 156 because of the specific provision contained in
Section 140A(2) of the Act. Standing counsel on the other hand
contended that clause (b) covers only payments of tax made pursuant to
notice of demand under Section 156, and self-assessed tax cannot be
treated as payment under Section 156. In this context it is worthwhile
to refer to Section 140A of the Act, which is extracted hereunder for
easy reference:
140A. (1) Where any tax is payable on the basis of
any return required to be furnished under Section
115WD or Section 115WH or Section 139 or Section
142 or Section 148 or Section 153A or, as the case
may be, section 158BC, after taking into account the
amount of tax, if any, already paid under any
provision of this Act, the assessee shall be liable to
pay such tax together with interest payable under any
provision of this Act for any delay in furnishing the
return or any default or delay in payment of advance
tax, before furnishing the return and the return shall
be accompanied by proof of payment of such tax and
interest.
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Explanation:…..
(2) After a regular assessment under Section 115WE
or Section 115WF or Section 143 or Section 144 or
an assessment under Section 153A or section 158BC
has been made, any amount paid under sub-section
(1) shall be deemed to have been paid towards such
regular assessment (or assessment, as the case may
be.
(3) If any assessee fails to pay the whole or any part
of such tax or interest or both in accordance with the
provisions of sub-section (1), he shall, without
prejudice to any other consequences which he may
incur, be deemed to be an assessee in default in
respect of the tax or interest or both remaining
unpaid, and all the provisions of this Act shall apply
accordingly.
(4)…..
It is obvious from sub-section (1) that assessee is required to remit self-
assessed tax due under the return before the date of filing of the return
and proof of payment should be filed along with return. Sub-section
(3) specifically provides that if the assessee does not remit self-
assessed tax as required under sub-section (1), the assessee shall be
deemed to be an assessee in default and all the provisions of the Act
shall apply accordingly. Section 156 authorises the assessing officer to
issue notice of demand whenever tax, penalty, interest or any other
amount is due under the Act. Therefore if an assessee fails to pay self-
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assessed tax along with return as required under sub-section (1) of
Section 140A of the Act, then the officer will declare the assessee as an
assessee in default; and will issue notice of demand requiring him to
pay self-assessed tax so due along with interest due thereon in terms of
Section 156. Obviously any such defaulted self-assessed tax paid
pursuant to notice issued under Section 156 is also covered by clause
(b) of Section 244A(1) entitling the assessee for interest on excess self-
assessed tax paid pursuant to notice of demand. The question now to
be considered is whether an assessee who complies with sub-section
(1) of Section 140A and remits tax along with return should be
declined interest while granting interest to a defaulter who pays self-
assessed tax only on demand after default. I do not think Legislature
intended this inequitable consequence on the statute. Further sub-
section (2) of Section 140A authorises the assessing officer to adjust
self-assessed tax paid along with return against assessed tax as and
when assessment is completed. Therefore what follows from Section is
that self-assessed tax becomes demand of tax when it is adjusted
against assessment by the Officer. Since consequence of non-payment
and adjustment is demand under Section 156 and recovery in
accordance with provisions of the Act, adjustment so made partakes the
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character of tax demanded under Section 156 after assessment. In other
words, all payments of self-assessed tax under Section 140A(1)
partakes the character of demand of tax after assessment is made.
However, if on the date of assessment the assessing officer finds that
self-assessed tax is in excess of tax due, he necessarily grants refund,
which means that assessee will not be entitled to any interest on such
refund. On the other hand, if any self-assessed tax paid, and adjusted
against demand, was later found to be refundable, then assessee will be
entitled to interest under Section 244A(1)(b) of the Act on such excess
tax adjusted against demand. In other words, date of payment to be
reckoned for self-assessed tax for the purpose of interest under Section
244A(1) is the date on which assessment and adjustments are made.
The question raised in the WPC is answered in favour of the assessee in
the way stated above. Consequently, Ext.P4 order of the
Commissioner and to the extent of Ext.P3 declining interest on refund
of self-assessed tax are set aside with direction to the assessing officer
to grant eligible interest on refund of excess self-assessed tax paid from
the date of first regular assessment and adjustment till date of refund at
the rate provided under clause (b) of Section 244A(1) of the Act.
Even though counsel for the assessee referred to the decision of
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the Supreme Court in SANDVIK ASIA LTD. V. CIT., 280 I.T.R. 643
and contended that assessee is entitled to interest on interest for
wrongfully declining grant of interest on refund, I do not think this is a
fit case for granting interest on interest because interest is not
deliberately declined but on account of bona fide mis-interpretation of
new statutory provision by the authorities concerned, and hence this
request is declined.
(C.N. RAMACHANDRAN NAIR)
Judge
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