ORDER
G. Krishnamurthy, President
1. The assessee in these appeals is a Hindu undivided family deriving income from property. For these three years under appeal before us, returns were filed disclosing incomes of various amounts and assessments also were completed on the following incomes :
Rs.
1969-70
31,670
1970-71
30,370
1971-72
40,140
2. The tax payable on the incomes assessed worked out to Rs. 7,310, Rs. 6,859 and Rs. 12,192, respectively. As against the assessed taxes, the assessee paid on different dates taxes by way of advance tax and
self-assessment tax amounting to Rs. 12,590 for the assessment year 1969-70, Rs. 11,803 for the assessment year 1970-71 and Rs. 22,349 for the assessment year 1971-72. As a consequence of these excess payments, refunds of Rs. 5,280 for the assessment year 1969-70, Rs. 4,911 for the assessment year 1970-71 and Rs. 10,157 for the assessment year 1971-72 became due. The following chart filed by the assessee would more clearly show the dates of payment of the taxes by the assessee and the dates of assessment orders. This chart would also show that the refunds were due for the assessment years 1969-70 for over a period of 17 years, for the assessment year 1970-71 for over a period of 18 years and for the assessment year 1971-72 for over a period of 19 years :
1969-70
1970-71
1971-72
Previous year ended
31-3-1969
31-3-1970
31-3-1971
Date of assessment order
21-2-1972
1-3-1973
11-1-1974
Rs.
Rs.
Rs.
Taxes paid :
under section 214 9-7-1969
5,220
Adv. 17-1-1970 7,846
13,200 on 26-10-1972
under section 210 6-2-1969
6,500
Adv. 14-3-1970 3,962
6,670 on 21-4-1977
under section 140A 2-8-1969
B70
1,824 on 3-5-1977 Refund Cr.
(Advance in reality)
Total tax
12,590
11,808
22,349
3. The periods and the figures are submitted by the assessee’s representative, Shri R. K. Tandon, C. A., which are not disputed by the Department, nor are we going into that question.
4. The claims that the assessee made before the Income-tax Officer from time to time were that, on the excess payments of advance tax, the assessee was entitled to interest under Section 214 and for interest on interest under Section 243(1) for not granting the refunds in time and also for interest under Section 244 again for the default of not granting the refunds due. These claims were rejected by the Income-tax Officer. For example, while dealing with the claims made for the assessment year 1971-72 for the payment of interest by an application under Section 154, the Income-tax Officer rejected it, vide his letter dated September 26, 1986, observing :
” You have claimed a refund amounting to Rs. 4,676 and interest thereon amounting to Rs. 4,000. The matter was discussed with your counsel, Shri R. K. Tandon, C. A., on October 24, 1986.
Perusal of assessment records for the assessment year 1970-71 reveals that tax of Rs. 6,859 was determined to be payable by you under Section 154 on July 20, 1984, and after giving credit for payments made by you of Rs. 7,846 under Section 210 and Rs. 3,924 under Section 140A, a refund of Rs. 4,911 was determined to be payable to you. This refund of Rs. 4,911 was adjusted against the following demands outstanding against you :
Rs. 235
penalty demand under section 271(1)(a) for the assessment year 1970-71.
Rs. 4,676
demand outstanding for the assessment year 1976-77
Rs. 4,911
Claim for interest under Section 214 is not tenable as the payment of Rs. 7,846 made by you is not in accordance with the provisions of Section 211 of the Income-tax Act, 1961. Your claim for interest under Section 243/244 is also not covered.
In view of the above facts of the case, your claim for further refund and interest under Section 214/243/244 is rejected.”
5. In this manner, the claims made by the assessee for interest were rejected.
6. Similarly, the claim made for the assessment year 1970-71 was also rejected by the Income-tax Officer observing that the payments made were under Section 140A of the Income-tax Act as self-assessment tax and not as advance tax and that the self-assessment tax could not be considered as advance tax for the purpose of allowing interest under Section 214. For the assessment year 1969-70, the claim was rejected on the ground that though the assessee paid advance tax, it was paid much beyond the financial year 1968-69 and as such those amounts could not be considered for the purpose of grant of interest under Section 214. Thus, more or less, for the same reason, the claims made by the assessee were rejected.
7. The assessee then appealed to the Appellate Assistant Commissioner and urged for the grant of interest on the refunds under these three Sections. These appeals were dismissed agreeing with the views expressed by the Income-tax Officer.
8. For the years 1969-70 and 1970-71, the Deputy Commissioner (Appeals) held that the assessee was not entitled to interest either under Section 214 or under Section 244 as no such claim was ever made before the Income-tax Officer. For the assessment year 1971-72, interest under Section 244A was already allowed to the assessee. The Deputy Commissioner (Appeals) held that no further interest was due to the assessee under any other Section including Section 214. Thus, except the factual aspect, legal aspects were not discussed in depth.
9. Aggrieved by these decisions, the assessee appealed to the Tribunal. Soon thereafter, a request was made on behalf of the assessee by letter dated January 27, 1989, that in view of the importance of the questions of law involved, a Special Bench should he constituted to hear and dispose of these appeals. The point framed by the learned chartered accountant for consideration of the Special Bench was :
” Whether or not under the Income-tax Act, 1961, the taxpayer is entitled to refund with interest under Section 214 and on application for refund being delayed further entitled to interest under Section 243 on the refund and interest amount due under Section 214 and in case of continuing default of the refund, further additional interest under Section 244 of the Income-tax Act is deemed to be due and payable to the taxpayer, as equitably as is charging Sections 215, 217, 220(2), 139(8) arid relevant penalty provisions ? ”
10. This request was granted and a Special Bench was constituted. That is how this matter came up for consideration before the Special Bench.
11. Shri R. K. Tandon, the learned chartered accountant appearing for the assessee, submitted in the first instance that, when the refunds were due to the assessee for any reason and if those refunds were delayed, the interest due on the refunds was also delayed and, for this delay, the assessee would be entitled to interest under the provisions of the Income-tax Act. That interest on interest became an integral component of the refund and this interest due under Sections 214, 244A should have been added to the refund and interest granted on the aggregate. His submission was that the taxes payable under the Income-tax Act could be categorised under four heads :
(a) advance tax, (b) self-assessment tax, (c) provisional tax, and (d) assessed tax. The taxes paid under the first three heads would be adjusted against the assessed tax and, if the taxes paid under those heads happened to be more than the assessed tax, the excess would be refunded and if found to be short, the balance would be recovered. The refunds that become ‘due under the Act really do not belong to the State. Since the assessees are deprived of the use of that money during the period they are with the Government, the assessees are compensated by way of interest. This is the theory behind the grant of interest by the Government, since interest is nothing but compensation for the deprivation for the use of the money. This is the principle that is enacted in Sections 214, 244, etc., which stipulate the payment of interest by the Government to the assessees. Since the principle of paying interest was to compensate the assessee for the deprivation of the use of the money, the question would be whether the assessee paid excess money or not and not whether the assessee paid the taxes on the due dates either as advance tax or as self-assessment tax or as provisional tax. If taxes were paid under these three heads before the assessment was made and if those taxes are in excess of the assessed tax, the assessee would be entitled to interest. The question that would then arise is as to from which date the interest has to be calculated. In the case of excess payment of advance tax, Section 214 provided that the interest will be calculated from the end of the financial year to which it related or in which they have to be paid. Though the requirement of the law is that advance tax should be paid on specified dates, the courts have gone to the extent of saying, that if advance tax was not paid on the due dates but paid before the end of the financial year, those payments would retain the character of advance tax and will have to be treated as such. Thus, strict adherence to the payment of advance tax on the due dates to be called as “advance tax” for the purposes of granting interest having been diluted should not be insisted upon for the grant of interest, this will go against the very object of enacting these Sections, namely, compensating the assessees by way of interest for the deprivation of the use of his money. If the advance tax is not paid before the end of the financial year, but paid after the end of the financial year, still the tax so paid has to be adjusted against the finally determined tax. When the tax so paid is thus adjusted against the finally determined tax, the tax so adjusted became regular tax (see National Agricultural Cooperative Marketing Federation of India Ltd. v. Union of India [1981] 130 ITR 928 (Delhi)) and whatever may be its character, if that tax happened to be more than the finally determined tax, that excess tax not belonging to the Government has to be refunded to the assessee and the assessee has to be compensated for the deprivation of its user. The question posed earlier would then arise as to from what date, interest has to be calculated on such excess payments. If it is not from the end of the financial
year, it can be at least from the date of the assessment order. But to deny interest in toto in any event is against the mandatory provisions of the Income-tax Act and, therefore, unjust and unfair.
12. It was further contended that, when different Sections are enacted to levy penalties for different offences or delays, sometimes same offences and delays, interest on refunds due, should also be given the same kind of treatment by allowing interest both under Sections 214 and 244 as, otherwise, it would amount to unfair discrimination and opposed to the equality Clause of article 14 of the Constitution, as being arbitrary also in addition. What he meant to convey was that, if excess payment of advance tax resulting in refund is entitled to interest under Section 214, that interest has to be allowed along with the refund. If that interest and refund was not given in time, on the aggregate amount of the interest and the refund, interest has to be paid under Sections 243 and 244A, as the case may be, i.e., when Section 244A provided for the payment of interest on the refunds due to the assessee, the ” refunds” referred to in that Section must necessarily be interpreted as the aggregate of the advance tax refund and the interest due thereon under Section 214. Otherwise, the Income-tax Act would be a one way traffic and the Government never intended it to be a one way affair. He, therefore’, submitted that, on the entire excess amounts paid by the assessee, the assessee should be allowed interest and also interest on the interest under Section 244A either from the end of the financial year to which these assessments relate or from the dates of the assessment orders. The Department have denied the assessee the refund for decades. This is very arbitrary and unjust and this kind of attitude on the part of the Department leads to loss of faith of assessees in the administration of the Income-tax Act by the Income-tax Department. This must be rectified by the Tribunal. The Revenue is not expected to be arbitrary or partisan. Since there is no penal element involved in the grant of interest, as held by the Supreme Court (see Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961 (SC), the assessee has to be compensated for the loss of the user of the money.
13. On the other hand, learned representative for the Department, Shri Amitab Mishra, submitted that when the statute made certain provisions, they are meant to be complied with. By not complying with those provisions, the assessee cannot plead for the grant of benefit under those Sections on the imaginary grounds of discrimination or equity. The Legislature made specific provisions for the payment of advance tax, self-assessment tax and for provisional tax. Dates are statutorily fixed for the
payment of these taxes. Those dates have to be complied with. If those dates are not complied with, the taxes paid as and when the assessee pleases cannot be treated as taxes paid under those Sections. Such being the case, the assessee will not be entitled to the grant of interest. By disentitling himself for the payment of interest by non-compliance with the provisions of law which are mandatory, the assessee cannot complain of discrimination, inequitable treatment, unfairness, etc. If the law is as stated for the assessee, the law will never be complied with, and the law will not only become unenforceable but will turn out to be a weak law. It will give assessees the licence to violate the law as they please or suit their convenience. The law made has to be enforced according to the provisions made in the law. According to those provisions, if the taxes were not paid on the stipulated dates, those payments cease to earn the benefit of interest that was sought to be conferred on the payment of those taxes on those due dates. In that view, it cannot be said that there was any excess payment of advance tax or self-assessment tax or provisional tax. Therefore, the claim for payment of interest does not simply arise under any of the provisions of the Income-tax Act. There was no refund due in the sense that whenever and wherever interest was due, that was already granted. If the assessee feels that still some more interest was due to it, he can always go to the Income-tax Officer and claim it. It cannot now complain before the Tribunal that the Tribunal should grant the interest notwithstanding the provisions made to the contrary in the Income-tax Act. In other words, the Tribunal cannot bypass the enacted law and whatever interest has to be granted to an assessee must be within the four corners of the Income-tax Act and not beyond it. The assessee cannot challenge the vires of the Income-tax Act before the Income-tax Appellate Tribunal because the Income-tax Appellate Tribunal has no power to go into the vires of the Income-tax Act as it is a creature of the Income-tax Act. This is the well-settled law. Therefore, the arguments based upon articles 14 and 20 of the Constitution simply do not merit consideration. The claims made by the assessee were rightly dealt with by the Department and either rightly rejected or rightly granted and no grievance whatever was caused to the assessee. The claims made now are all imaginary, do not fall within the provisions of the Income-tax Act and, therefore, the assessee cannot claim the benefit of interest. That is how the counter-arguments of the Department proceeded before us.
14. We have carefully considered the arguments and the relevant orders passed by the authorities below as well as the Sections providing for the payment of interest by the Government to the assessee. Section 214
provides for, the payment of interest by the Central Government on the excess amount of tax paid. It provides :
“214. (1) The Central Government shall pay simple interest at fifteen per cent, per annum on the amount by which the aggregate sum of any instalments of advance tax paid during any financial year in which they are payable under Sections 207 to 213 exceeds the amount of the assessed tax from the 1st day of April next following the said financial year to the date of the regular assessment for the assessment year immediately following the said financial year, and where any such instalment is paid after the expiry of the financial year during which it is payable by reason of the provisions of Section 213, interest as aforesaid shall also be payable on that instalment from the date of its payment to the date of regular assessment :
Provided that in respect of any amount refunded on a provisional assessment under Section 141A, no interest shall be paid for any period after the date of such provisional assessment.
(1A) Where as a result of an order under Section 147 or Section 154 or Section 155 or Section 250 or Section 254 or Section 260 or Section 262 or Section 263 or Section 264, the amount on which interest was payable under Sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced, the Income-tax Officer shall serve on the assessee, a notice of demand in the prescribed form specifying the amount of the excess interest payable and requiring him to pay such amount ; and such notice of demand shall be deemed to be a notice under Section 156 and the provisions of this Act shall apply accordingly.
(2) On any portion of such amount which is refunded under this Chapter, interest shall be payable only upto the date on which the refund was made.
Explanation 1. — In this Section ‘assessed tax’ shall have the same meaning as in Sub-section (5) of Section 215.
Explanation 2. — Where, in relation to an assessment year, an assessment is made for the first time under Section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this Section.”
15. This Section provided for the payment of interest by the Central Government not only on the excess amounts of advance tax payable under Sections 207 to 213 but also on the instalments paid after the expiry of
the financial year in case the amount involved is a commission receipt. That is to say; wherever there is a difficulty in receipt of the income for the purpose of payment of advance tax, the Legislature had taken note of it and provided for the payment of interest even if they are paid after the due dates of instalment or even after the expiry of the financial year, that is to say, the principle of compensating an assessee for the deprivation of the use of the money was not lost sight of, but preserved while making provision for the payment of interest.
16. In so far as the interest payable under Section 214 is concerned, according to this Section, the aggregate sum of instalments of advance tax paid during any financial year in which they are payable must exceed the amount of the assessed tax. A strict interpretation of this Section would mean that the instalments paid must be of advance tax and they must have been paid during the financial year on the due dates on which they are payable. Conversely, if those instalments were paid, though payable in a financial year, but after the expiry of the financial year, they may not be considered as advance tax but is this interpretation correct ? According to us, the strictness attached to the due dates under Section 214 has been diluted by the very Section itself and several High Courts interpreted Section 214 as laying down that interest becomes payable, even, if the advance tax was not paid on the due dates, but paid before the end of the financial year. (See Santha S. Shenoy v. Union of India [1982] 135 ITR 39 (Ker)). Secondly, this literal interpretation is not strictly in accordance with the scheme of advance tax and the legislative intent because, for non-payment of advance tax, penalties can be imposed under Section 221 of the Income-tax Act and can be recovered by adopting coercive measures. The amount so paid, on an analysis of the scheme for the payment of advance tax, it will be noticed, still retains the character of advance tax. While Section 214 provides for the payment of interest by the Central Government, Sections 215, 216 and 217 provide for the payment of interest by the assessee under certain stated circumstances. In other words, while under Sections 215, 216 and 217 interest is payable by the assessee in certain stated circumstances, interest is payable by the Government under Section 214 if the conditions mentioned therein are satisfied. Section 218 provides that an assessee shall be deemed to be an assessee in default where :
“218. (1) If any assessee has sent,–
(a) under Sub-section (1) of Section 209A, a statement, or
(b) under Section 209A or Section 212, an estimate or a revised estimate,
of the advance tax payable by him, but does not pay any instalment in accordance therewith on the date or dates specified in Section 211, he shall be deemed to be an assessee in default in respect of such instalment or instalments.
(2) If any assessee does not pay on the specified date any instalment of advance tax that he is required to pay under Section 210 and does not, on or before the date on which any such instalment as is not paid becomes due, send under Sub-section (1) or Sub-section (2) of Section 212 an estimate or a revised estimate of the advance tax payable by him, he shall be deemed to be an assessee in default in respect of such instalment or instalments.
(3) Notwithstanding anything contained in Sub-section (1) or Sub-section (2), an assessee shall not be deemed to be in default in respect of any amount of which the payment is deferred under Section 213 until after the date communicated by him to the Income-tax Officer under that Section.”
17. Section 220 provides :
“220. (1) Any amount, otherwise than by way of advance tax, specified as payable in a notice of demand under Section 156 shall be paid within thirty-five days of the service of the notice at the place and to the person mentioned in the notice :
Provided that, where the Income-tax Officer has any reason to believe that it will be detrimental to the Revenue if the full period of thirty-five days aforesaid is allowed, he may, with the previous approval of the Inspecting Assistant Commissioner, direct that the sum specified in the notice of demand shall be paid within such period being a period less than the period of thirty-five days aforesaid, as may be specified by him in the notice of demand.
(2) If the amount specified in any notice of demand under Section 156 is not paid within the period limited under Sub-section (1), the assessee shall be liable to pay simple interest at fifteen per cent, per annum from the day commencing after the end of the period mentioned in Sub-section (1) :
Provided that, where as a result of an order under Section 154, or Section 155, or Section 250, or Section 254 or Section 260, or Section 262, or Section 264, the amount on which interest was payable under this
Section had been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded.
(2A) Notwithstanding anything contained in Sub-section (2), the Board may reduce or waive the amount of interest payable by an assessee under the said Sub-section if, on the recommendation made by the Commissioner in this behalf, it is satisfied that –
(i) payment of such amount would cause genuine hardship to the assessee ;
(ii) default in the payment of the amount on which interest was payable under the said Sub-section was due to circumstances beyond the control of the assessee ; and
(iii) the assessee has co-operated in any inquiry relating to the assessment, or any proceeding for the recovery of any amount due from him.
(3) Without prejudice to the provisions contained in Sub-section (2), on an application made by the assessee before the expiry of the due date under Sub-section {!}, the Income-tax Officer may extend the time for payment or allow payment by instalments, subject to such conditions, as he may think fit to impose in the circumstances of the case.
(4) If the amount is not paid within the time limited under subSection (1) or extended under Sub-section (3) as the case may be, at the place and to the person mentioned in the said notice the assessee shall be deemed to be in default.
(5) If, in a case where payment by instalments is allowed under Sub-section (3), the assessee commits default in paying any one of the instalments within the time fixed under that Sub-section, the assessee shall be deemed to be in default as to the whole of the amount then outstanding, and the other instalment or instalments shall be deemed to have been due on the same date as the instalment actually in default.
(6) Where an assessee has presented an appeal under Section 246, the Income-tax Officer may, in his discretion, and subject to such conditions as he may think fit to impose in the circumstances of the case, treat the assessee as not being in default in respect of the amount in dispute in the appeal, even though the time for payment has expired, as long as such appeal remains undisposed of.
(7) Where an assessee has been assessed in respect of income arising outside India in a country the laws of which prohibit or restrict
the remittance of money to India, the Income-tax Officer shall not treat the assessee as in default in respect of that part of the tax which is due in respect of that amount of his income which, by reason of such prohibition or restriction, cannot be brought into India, and shall continue to treat the assessee as not in default in respect of such part of the tax until the prohibition or restriction is removed.
Explanation. — For the purposes of this Section, income shall be deemed to have been brought into India if it has been utilised or could have been utilised for the purposes of any expenditure actually incurred by the assessee outside India or if the income, whether capitalised or not, has been brought into India in any form.”
18. This shows that in the scheme of advance tax payments, advance tax instalment not paid on the due date, or before the expiry of the financial year, can be recovered subject to the levy of penalty or, as the case may be, by the Income-tax Officer exonerating the assessee as not in default. The amounts so paid (i.e.) whenever paid before assessment do not cease to be advance tax.
19. Now, in this context, we can also make a reference to Section 222 of the Income-tax Act whereunder, when an assessee is in default or is deemed to be in default in making payment of tax, the Income-tax Officer, can forward to the Tax Recovery Officer a certificate specifying the amount of arrears due from the assessee. The Tax Recovery Officer, on receipt of such certificate, shall proceed to recover from such assessee the amounts specified therein in one or more of the modes specified in that Section. This means that the arrears of advance tax instalments can be recovered even by the issue of a certificate to the Tax Recovery Officer by adopting coercive methods provided for in that Section, i.e., by attachment and sale of the assessee’s movable property, immovable property, or even arrest of the assessee and his detention in prison or appointing a receiver for the management of the assessee’s movable and immovable properties. Further, what was recovered subsequently by enforcing payment continues to retain the character of advance tax as is evident from the specific provision in Section 219 by the words underlined* by us. Section 219 is in the following words and provides for giving credit for advance tax against tax due on regular assessment.
“219. Any sum, other than a penalty or interest, paid by or recovered from an assessee as advance tax in pursuance of this Chapter shall he treated as a payment of tax in respect of the income of the period which would be the previous year for an assessment for the assessment
year next following the financial year in which it was payable, and credit therefor shall be given to the assessee in the regular assessment :
Provided that where, before the completion of the regular assessment, a provisional assessment is made under Section 141A, the credit shall be given also in such provisional assessment”
20. The underlined words would show that any sum paid by or recovered from an assessee continues to be treated as advance tax paid in pursuance of that Chapter, and both shall be treated as payment of tax in respect of the income of the period which would be the previous year for an assessment for the assessment year next following the financial year in which it was payable. The clear provision that recovery of a sum from an assessee is to be regarded as advance tax must, therefore, clear any doubts that may exist as to whether the amounts recovered after the financial year are to be treated as advance tax or not. Recovery of a sum can only be after an assessee is deemed to be an assessee in default in respect of such instalment or instalments of advance tax, that means payments made after the expiry of the financial year. Thus, a combined reading of Sections 218, 219, 221 and 222 provide a positive intention on the part of the Legislature that amounts paid or recovered under that Chapter continue to be treated as advance tax and retain that character as such till they are adjusted against the tax payable on regular assessment. Advance tax paid after the expiry of the financial year thus continues to be regarded only as advance tax. Thus, if the aggregate of the instalments so paid exceeds the assessed tax, then the excess shall be refunded to the assessee. There is no dispute thus far, except on the nature of the payments made after the financial year which we have shown that it retains its nature as advance tax because, for failure to pay tax after due dates, they have to be recovered as advance tax. Section 214 not only provided for payment of interest by the Central Government on the excess amount of advance tax paid but also the method of calculation of such interest. When the amounts paid after the expiry of the financial year, as we have seen, continue to retain their character as advance tax, the excess payments of which are to be refunded along with the interest, the question would then arise as to from what date and how that interest is to be calculated. Interest cannot be calculated on such payments made after the expiry of the financial year from the first day of the financial year because by then the amounts were not paid. Payment of interest on such amounts cannot, therefore, arise. Therefore, the interest may have to be calculated not from the 1st day of April next following the financial
year during which the instalments of advance tax are payable, but from the date when the sums were actually paid or recovered from the assessee as advance tax to the date of regular assessment. This appears to be a reasonable, fair and rational construction to be placed upon Section 214 for the payment of interest on the excess payment made by way of advance tax. The principle laid down in the judgment of the Delhi High Court in National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India [1981] 130 ITR 928 supports our view.
21. Here, in this context, a reference to Section 243 becomes necessary and also relevant. Sections 237 to 242 provide for the right of the assessee to claim refunds, the manner and the method of claiming refunds and other related matters. Section 243 provides for payment of interest on delayed refunds. It provides that :
” 243. (1) If the Income-tax Officer does not grant the refund –
(a) in any case where the total income of the assessee does not consist solely of income from interest on securities or dividends, within three months from the end of the month in which the total income is determined under this Act, and
(b) in any other case, within three months from the end of the month in which the claim for refund is made under this Chapter,
the Central Government shall pay the assessee simple interest at fifteen per cent, per annum on the amount directed to be refunded from the date immediately following the expiry of the period of three months aforesaid to the date of the order granting the refund.
Explanation. — If the delay in granting the refund within the period of three months aforesaid is attributable to the assessee, whether wholly or in part, the period of the delay attributable to him shall be excluded from the period for which interest is payable.
(2) Where any question arises as to the period to be excluded for the purposes of calculation of interest under the provisions of this Section, such question shall be determined by the Commissioner whose decision shall be final.”
22. This Section does not make a distinction between a refund becoming due on account of excess payment of advance tax or as a consequence of any appellate proceedings. Under Section 237, a person has to satisfy “the Income-tax Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf exceeds the amount
with which he is properly chargeable under the Act”, then the person shall be entitled to the refund of the excess. Thus, if a person satisfies the Income-tax Officer that, as a consequence of excess payment of advance tax, the tax payable by him exceeded the amount with which he was properly chargeable under the Act, he shall be entitled to the refund. Under Section 243, if the Income-tax Officer does not grant the refund that became due under Section 237, the Central Government shall pay the assessee simple interest at 15 per cent, per annum on the amount directed to be refunded from the date immediately following the expiry of the period of three months aforesaid to the date of the order granting the refund, subject to such other provisions as are made. Therefore, delay in the grant of refund entails the payment of interest subject to the provisions of Section 243. The claim of the assessee is that he would be entitled to interest under this Section also from the date immediately following the expiry of the period of three months from the date when the refund became due, in addition to the interest due under Section 214. The interest due under this Section is claimed to be different from the interest due under Section 214. In our considered view, there seems to be no justification in this claim made on behalf of the assessee. While Section 214 dealt with the payment of interest on the excess payment of advance tax over the assessed tax, Section 243 provided for the payment of interest on delayed refunds.
23. Now, refund arises under Section 237 only when the amount of tax paid by an assessee or treated as paid by him exceeds the amount of the tax payable on regular assessment. The word used in Section 237 is ” tax ” and not ” sum “. When we refer to the word ” sum “, we are having in our mind Section 143 of the Income-tax Act which provides that when an Income-tax Officer makes an assessment, he shall determine the sum payable by an assessee or refundable to him on the basis of the income computed. There, the words ” sum payable ” includes not only the taxes payable by him but also the various interests and penalties leviable under the Act. In contradistinction to the word ” sum ” used in Section 143(3)(b), the word used in Section 237 is ” tax “. (See the decision of the Bombay High Court, in Suresh B. Jain v. P. K. P. Nair [1992] 194 ITR 148). There is thus a clear distinction maintained in the Income-tax Act between tax, penalty and interest. The tax is what is payable as per the rates of tax prescribed under the Finance Act on the total income computed. Penalties are those payable for violation of the provisions of the Income-tax Act. As has been held by the Supreme Court in Central Provinces Manganese Ore Co. Ltd.’s case [1986] 160 ITR 961, interest is payable by
way of compensation and never by way of penalty. The excess payment of penalty may also result in refunding the excess payment consequent on the appellate proceedings. The interest calculation is always dependent upon the determination of the final income. That is the reason why Section 240 provided for refunds of any amount becoming due to the assessee which may include the interest and penalties also in addition to tax. Therefore, when Section 237 was referring to the word ” tax ” and when Section 243 provided for the payment of interest on delayed refunds, these refunds are referable to the amounts of tax refundable under Section 237. Since Section 237 referred only to tax and not to interest due on the tax paid as a consequence of the operation of Section 214, such interest, even though payable to the assessee by the Central Government, does not reckon as refund within the meaning of Section 243 read with Section 237 and, therefore, the interest mentioned therein does not cover the interest that became payable by the Central Government under Section 214.
24. Now we go to the third type of interest agitated before us, namely, the interest under Section 244. This Section requires to be quoted in full to understand the object with which this is enacted. This Section has an intimate connection witn^and is based upon, Section 240 which also needs to be quoted to understand it in the proper perspective :
“Section 240. — Where, as a result of any order passed in appeal or other proceeding under this Act, refund of any amount becomes due to the assessee, the Income-tax Officer shall, except as otherwise provided in this Act, refund the amount to the assessee without his having to make any claim in that behalf.
Section 244(1). –Where a refund is due to the assessee in pursuance of an order referred to in Section 240 and the Income-tax Officer does not grant the refund within a period of three months from the end of the month in which such order is passed, the Central Government shall pay to the assessee simple interest at fifteen per cent, per annum on the amount of refund due from the date immediately following the expiry of the period of three months aforesaid to the date on which the refund is granted.
(1A) Where the whole or any part of the refund referred to in sub Section (1) is due to the assessee, as a result of any amount having been paid by him after the 31st day of March, 1975, in pursuance of any order of assessment or penalty and such amount or any part thereof having been found in appeal 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 Sub-section, no interest under Sub-section (1) shall be payable to him in respect of the amount so found to be in excess.
(2) Where a refund is withheld under the provisions of Section 241, the Central Government shall pay interest at the aforesaid rate on the amount of refund ultimately determined to be due as a result of the appeal or further proceeding for the period commencing after the expiry of three months from the end of the month in which the order referred to in Section 241 is passed to the date the refund is granted.”
25. It will be seen from Section 240 that where, as a result of any order passed in appeal or other proceeding, refund of any amount became due to the assessee, the Income-tax Officer shall refund the amount to the assessee without the assessee having to make any claim in that behalf. In other words, under this Section, the obligation of granting the refund was cast upon the Income-tax Officer. The only requirement is that the amount of refund must become due to the assessee as a result of appellate proceedings or other proceedings under the Act. The phrase ” Other proceedings under the Act” used in Section 240, in our opinion, covered the assessment proceedings. Thus, if, as a result of assessment proceedings, refund of any amount became due to the assessee, the Income-tax Officer shall refund the amount to the assessee without the assessee making any claim in that behalf. If our understanding of the Section is correct, then once the Income-tax Officer finds that the advance tax paid by the assessee is in excess of the assessed tax, he has to refund that amount on his own without waiting for the assessee to make any claim
in that behalf. This appears to us to be a rational construction to be placed upon Section 240, particularly on the phrase” or other proceedings under this Act”, it not having been defined anywhere.
26. Now, Section 244 intervenes to say that, where a refund due in pursuance of the provisions of Section 240 was not granted within a period of three months, the Central Government has to pay interest at a stated percentage on the amount of the refund due from the date immediately following the expiry of the period of three months to the date on which the refund is granted. This Section provided for the payment of interest and the calculation of interest under various circumstances with which we are not concerned in this appeal except that the principle argued before us, namely, whether the assessee is entitled to interest under Section 244 on the interest that accrued to him under Section 214 along with the refund. Our answer to this question is in the affirmative because when Section 240 provided that in the case of refund of any amount becoming due as a result of any order in any proceeding under the Act, the Income-tax Officer has to grant the refund without the assessee making any claim in that behalf and when interest due under Section 214 also becomes a part of the amount becoming due to the assessee as a result of the proceeding under the Act, namely, assessment, and when the assessment proceeding resulted in the refund of the excess amount of the advance tax paid plus the interest due on that advance tax, the whole of that amount becomes a refund due to the assessee under Section 240. In our view, the aggregate amount of the refund plus interest due thereon under whatever Section becomes refund due to the assessee and if there is a failure on the part of the Income-tax Officer in granting that aggregate amount, the Central Government is obliged to pay the interest as provided for therein. There does not seem to be any escape from this view because the only ingredient for the application of Section 244 is the existence of the fact of refund becoming due under Section 240. Section 240, as we have explained above, refers to the refund of any amount becoming due to the assessee under the proceeding under the Income-tax Act. The expression ” any amount” becoming due includes the interest payable by the Central Government under Section 214 in addition to the refund. The expression “any amount becomes due to the assessee ” must be contrasted with the word ” amount of tax paid by him” used in Section 237. (See Surest B. Jain v. P. K. P. Nair [1992] 194 ITR 148 (Bom)), which supports this view. The amount becoming due to the assessee is more comprehensive and embraces not only the tax but also as we have mentioned above, any penalty or interest or any other sum levied on the assessee and later
becoming payable to him as a consequence of any appellate order or other proceedings. It is that refund which if not paid by the Income-tax Officer on his own within the stipulated period, the Central Government is obliged to pay to the assessee with simple interest because,, under the general law, which now stands settled by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. C/r[1986] 160 ITR 961, the Central Government has to compensate the assessee for the deprivation of the money due to it. There is enough evidence filed before the Income-tax Officer by way of challans to show that what was paid even after the expiry of the financial year was by way of advance tax. The challans of tax payments clearly show that the amounts paid were by way of provisional and self-assessment tax in addition to advance tax. We are, therefore, of the opinion that the assessee is entitled to interest under Section 244 on the interest due under Section 214 and also on the refunds due as a consequence of assessments made. Thus, to sum up, the assessee, according to us, is entitled to refunds of the excess amounts paid over the assessed tax, and to interest under Section 214 on excess payments of advance tax from the dates of their payment to the dates they were adjusted on regular assessments or, as the case may be, against future demands raised, and also to interest under Section 244 on the aggregate sums of refund and interest found to be due under Section 214. The interest on excess of provisional and self-assessment tax shall be allowable only under Section 244 of the Income4ax Act. The assessee is not entitled to any interest under Section 243 thereon.
27. The Income-tax Officer is hereby directed to verify the dates of payment and calculate the interest due to the assessee for all these years as above and grant the refund. As we have mentioned in the earlier part of our order, the assessee mentions long periods spanning over a decade during which the refunds remained unpaid. Nobody has verified these periods. These periods have to be verified by the Income-tax Officer as to their correctness for the purpose of calculation of interest. The attitude of the Department in keeping these refunds unadjusted is obviously not in public interest.
28. In the result, the appeals are allowed.