ORDER
1. By this consolidated order, we shall dispose of all the three appeals filed by the assessee against three orders of CIT(A), Delhi, all relating to the asst. yr. 1988-89 as the issue involved in all these appeals is common.
2. The first issue raised in ITA No. 5206/Del/1994 is that the learned CIT(A) was not justified in upholding the order of the AO in not allowing interest under Section 214 of the Act on the total amount of refund of Rs. 77,20,772 from 1st April, 1988 to the date of grant of actual refund. The second grievance of the assessee is that the learned CIT(A) is not justified in not deciding the ground relating to grant of interest on refund of interest of Rs. 11,58,105 in terms of Section 244(1) of the IT Act, 1961 (in short ‘the Act’). Same ground is taken in ITA No. 5089/Del/1994 where the effective issue raised is that the learned CIT(A) was not justified in not allowing interest under Section 214 of the Act on the excess amount of advance tax determined at Rs. 77,20,172. In ITA No. 4893 of 1995, the grievance of the assessee is that learned CIT(A) was not justified in sustaining the order of AO for not allowing the appropriate amount of interest under Section 244(1) of the Act on the refund of Rs. 11,58,105 representing interest under Section 214 of the Act. The first of the case are that the assessee filed return of income for the assessment yeai under reference on 1st Nov., 1988 declaring therein income of Rs. 1,47,10,762. The assessee had paid advance tax and TDS aggregating to Rs. 1,27,66,667. Subsequently, the assessee filed revised return disclosing therein income of Rs. 72,22,415. The AO granted a provisional refund of Rs. 46,26,243 under Section 141A on 27th April, 1989 by computing the income of Rs. 1,55,05,565 and did not grant any interest on the excess amount of advance tax and TDS paid. Subsequently, the AO completed regular assessment under Section 143(3) on 11th March, 1991 on a total income of Rs. 1,51,63,640 and granted further refund of Rs. 85,208 without allowing any interest thereon. The assessee filed an appeal before the CIT(A) which was disposed of on 28th Dec, 1992. The order for giving effect was passed on 24th March, 1993 whereby income was reduced to Rs. 94,51,601 and the tax due thereon was worked out to Rs. 50,45,895. As a result of this order, the AO allowed further refund of Rs. 30,09,321 on 26th Aug., 1993. Thus, the total refund allowed to the assessee aggregated to Rs. 77,20,772. Since the AO did not grant any interest on the refund granted of Rs. 77,20,772, the assessee filed an application under Section 154 on 12th Nov., 1993 requesting the AO to grant interest thereon. As a result of such application, the AO allowed interest of Rs. 11,58,105, under Section 214 but only for the period from 1st April, 1988 to 27th April, 1989, i.e., till the date of order under Section 141A and no interest for the period from 1st April, 1988 to 11th March, 1991, i.e., till the regular assessment, was allowed. The assessee became entitled to interest on refund of Rs. 30,09,321 under Section 244(1), allowed on 26th Aug., 1993, as a result of giving appeal effect to CIT(A)’s order upto the period when refund was allowed. The same was not allowed by the AO on the ground that this refund of the amount of Rs. 30,09,321 had not become due as a result of payment made by the assessee in pursuance of the order of assessment. The AO, therefore, held that provisions of Section 244(1A) of the Act were not applicable to this case.
3. Aggrieved, the assessee filed an appeal before the CIT(A). The first ground taken before CIT(A) related to non-allowing of interest under Section 214 on entire amount of refund of Rs. 77,20,772 determined upto the date of granting refund at the time of giving effect to CIT(A)’s order in quantum appeal. The second ground related to not allowing interest under Section 244(1A) of the Act on total amount of Rs. 77,20,772. The last ground related to not allowing of interest on refund of interest of Rs. 11,58,105 allowed in terms of Section 214 of the Act. The learned CIT(A) vide his order dt. 24th June, 1994 held that AO had rightly granted interest under Section 214 of the Act for the period from 1st April, 1988 to 27th April, 1989, i.e., upto date when refund was granted under Section 141A and the x order of AO did not warrant any interference. As regards ground for not allowing interest under Section 244(1A) the same was withdrawn by the learned counsel. Therefore, the same was dismissed. It was stated before us that ground withdrawn was in fact related to Section 214(1A). As regards next ground relating to grant of interest under Section 244(1), i.e., interest on interest because of delay in granting interest on refund under Section 214, the learned CIT(A) relied on the decision of Tribunal, Delhi (Special Bench), in the case of A.K. Jain & Bros (HUF) v. ITO (1991) 42 TTJ (Del)(SB) 353 : (1992) 40 ITD 100 (Del)(SB) and held that assessee was entitled to interest On interest. Since the AO had not considered such claim while deciding the assessee’s request for rectification under Section 154 of the Act, the learned CIT(A) directed the AO to decide such claim of the assessee keeping in view the decisions of Tribunal in ITA No. 5206 of 1994 is against such order of CIT(A). As regards assessee’s appeal in ITA No. 5089 of 1994, the learned CIT(A) vide his order of same date i.e., 24th June, 1994 held that this appeal had become infructuous in view of the decision in the earlier appeal. Therefore, the same was treated as dismissed. The assessee has also filed an appeal against such order which bears the No. 5089 of 1994. Thereafter, the AO gave effect to CIT(A)’s first order dt. 24th June, 1994. The AO observed that decision of Tribunal, Delhi (Special Bench), in the case of A.K. Jain & Bros. (supra), was not accepted and the appeal was being filed to Delhi High Court. The AO again held that assessee was not entitled to interest on the interest granted under Section 214 of the Act. As regards refund of Rs. 30,09,321 allowed as a result of giving effect to CIT(A)’s order in quantum appeal, the AO held that refund had not become due as a result of payment made in pursuance of assessment order and, therefore, the assessee was not entitled to interest under Section 244(1A) of the Act. The assessee again filed an appeal against this order before CIT(A). The CIT(A) vide his order dt. 20th April, 1995 held that interest on interest was being demanded under Section 154 of the Act. However, the scope of powers of AO under Section 154 was confined only to mistakes which were apparent from record. Since the issue raised by the assessee was highly debatable and contentious, the same fell outside the purview of Section 154 of the Act. He also observed that interest payable by the Government was not an amount payable by the Central Government under Section 244(1) of the Act and, therefore, the assessee was not entitled to interest on interest on refund allowed by the AO. He, therefore, rejected the claim of the assessee. The assessee has filed an appeal against such order in ITA No. 4893 of 1995.
4. The learned Counsel for the assessee, Sh. C.S. Aggarwal, submitted that the assessee is entitled to interest under Section 214 on amount of refund of Rs. 30,09,321 which was refunded as a result of giving appeal effect on 26th Aug., 1993 @ 1.5 per cent for the period from 11th March, 1991 to 1st Oct., 1991, i.e., for 7 months and @ 1 per cent,frpm 1st Oct., 1991 to 28th June, 1993, i.e., for a period of 23 months both aggregating to Rs. 10,08,123. He further stated that the assessee is entitled to interest under Section 244/244A, i.e., interest on interest on amount of interest of Rs. 10,08,123 for the period from 26th Aug., 1993 to 28th Feb., 2006 which works out to Rs. 12,80,921. He further stated that the assessee was also entitled to interest on interest of Rs. 11,58,105 from 28th April, 1989 to 24th Dec, 1993 for 56 months at the rates mentioned in the Act. Further, the assessee is also entitled to interest for the period from 11th March, 1991 to 8th Dec, 1994 on interest of Rs. 13,53,844 and the total claim for interest and interest on interest under Sections 214 and 244/244A works out to Rs. 37,62,121. He further stated that the issue is now squarely covered by the recent judgment of Hon’ble Supreme Court in the case of Sandvik Asia Ltd. v. CIT . He submitted that directions may be issued to the AO for computation of interest as per provisions of the Act in the light of judgment of apex Court’, in the case of Sandvik Asia Ltd. v. CIT (supra).
5. The learned Departmental Representative, on the other hand, submitted that the issue for grant of interest was referred to the AO for his comments and the AO vide his letter dt. 7th Feb., 2006 (copy placed before us) has conceded that the interest of Rs. 10,90,879 under Section 214 is due to the assessee.
6. We have heard both the parties and carefully considered the rival submissions, examined the facts, evidence and material on record. From the facts discussed above, it is clear that the quantum of refund allowed to the assessee on different dates is not in dispute. Now the Department itself has conceded that the assessee is entitled to interest under Section 244 amounting to the extent of Rs. 10,90,879 (correct amount as per assessee works out to Rs. 10,08,123) for the period from 12th March, 1991 to 26th Aug., 1993 on a refund of Rs. 30,09,321 as interest on this amount upto the period 11th March, 1991 had already been allowed. Admittedly, interest due on refund was not allowed at the time when refund under Section 141A was allowed and also no interest was allowed when regular assessment under Section 143(3) was made. Similarly, the assessee also was not allowed interest on refund at the time of giving effect to CIT(A)’s order. Now the material question that requires to be decided by this Bench is whether, the assessee is entitled to interest on interest on the amounts of refund granted by the Revenue. The learned Counsel has strongly relied on the judgment of Supreme Court in the case of Sandvik Asia Ltd. v. CIT (supra). Before dealing with the said judgment, we consider it appropriate to refer to the relevant provisions relating to grant of interest. Section 214 of the IT Act provides payment of simple interest at the rate mentioned in the section on the amount by which aggregate sum of any instalment of advance tax paid during the financial year in which the same 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. However, proviso to Section 214 states that in a case where amount is refunded on a provisional assessment under Section 141A, no interest shall be paid on the amount refunded for any period after the date of such provisional assessment. In the present case, there is no dispute about the fact that amount of advance tax paid was in excess of tax due. Therefore, as per provisions of the Act, the AO should have allowed interest under Section 214 of the Act at the time of granting refund under Section 141A upto the date when refund was granted to the assessee. Sub-section (1A) of Section 214 further provides granting of interest on the amount of refund enhanced as a result of order inter alia, under Section 250 of the Act. Therefore, the assessee was also entitled to interest under Section 214(1A) on amount of refund of Rs. 30,09,321. The assessee was also entitled to interest under Section 214 in respect of refund of Rs. 85,208 allowed at the time of regular assessment completed under Section 143(3) on 11th March, 1991. However, no interest was allowed at the time of granting these refunds.
6.1. Section 240 of the Act provides.that where the refund becomes due as a result of order passed in appeal, the AO shall refund the amount to the assessee without waiting for an application from the assessee for such claim. Proviso to Section 240 was inserted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1st April, 1989 which provides that in a case where the appellate authority has set aside or cancelled the assessment and fresh assessment is directed to be made, the refund if any, shall become due only on the making of such fresh assessment. The proviso further states that if the assessment is annulled, the refund shall become due only on the amount, if any, of the tax paid in excess of the tax chargeable on the total income returned by the assessee. Considering the fact that in the present case, the assessment has not been set aside, cancelled or annulled, the proviso to Section 240 is not applicable. Section 243 of the Act provides payment of interest on delayed refund in a case where the claim for refund has to be made by the assessee. Clause (a) of Sub-section (1) of Section 243 provides for payment of interest if it is not granted within a period of three months from the end of the month in which the total income is determined under this Act. Clause (b) of Sub-section (1) of Section 243 provides granting of refund within three months from the end of month in which the claim for refund is made under this chapter. This section is not applicable to the facts of the present case. Section 244 of the Act provides for granting of interest on refund where no claim is needed from the assessee. Sub-section (1) of Section 244 provides for granting of interest on refund due to the assessee in pursuance of an order referred to in Section 240, i.e., refunds arising on appeals. In a case where the AO does not grant the refund within a period of three months from the end of month in which such order is passed, simple interest shall be payable at the rate mentioned in the section on the amount of refund due from the date immediately following the expiry of the period of three months to the date on which the refund is granted. Since the assessee was not granted refund within a period of three months from the date of the order of the CIT(A), AO ought to have granted interest at the time of giving effect to the order of the CIT(A). Thus, this section covers granting of interest on refund of any amount becoming due as a result of appellate order. Sub-section (1A) of Section 244, further provides granting of interest to the assessee, where the refund becomes due, 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 the Act, the Government shall pay to such assessee simple interest at the rate on the excess amount from the date on which such amount was paid to the date on which such refund was granted. The case of the assessee is covered under Sub-section (1) of Section 244. Now in this case, as a result of order of CIT(A), the assessee became entitled to refund of Rs. 30,09,321 on which the assessee was entitled to interest at, the time of giving effect to CIT(A)’s order dt. 26th Aug., 1993. No such interest was granted to the assessee. However, subsequently the AO allowed interest under Section 214 on amount of refund of Rs. 46,26,243 being refund granted under Section 141 on 27th April, 1989, interest on refund of Rs. 85,208 granted at the time of completing the regular assessment under Section 143(3) on 11th March, 1991 and interest on refund of Rs. 30,09,321 granted at the time of giving effect to CIT(A)’s order on 26th Aug., 1991. But interest was granted only upto the date of regular assessment completed on 11th March, 1991. Now the AO has conceded vide his letter dt. 7th Feb., 1996 that assessee is entitled to interest under Section 214 on the amount of Rs. 30,09,321 for the period from 12th March, 1991 to 26th Aug., 1993, which according to AO works out to Rs. 10,90,879 and as per assessee at Rs. 10,08,123.
6.2. Now the question that requires to be decided by this Bench whether the assessee would be entitled to interest on interest on the amounts of refund referred to above because the Revenue has delayed the grant of interest on the amounts of refunds granted to the assessee. This issue has also been considered by the various High Courts. The Hon’ble Gujarat High Court in the case of D.J. Works v. Dy. CIT where it was held that once the legislature has considered right of the assessee to receive interest on the amount paid in excess, by the same reasoning the assessee would also be entitled to the payment of interest which has been wrongfully withheld by the AO or the Government. The High Court further observed that it is the duty of the AO to grant interest on the excess amount of tax paid by the assessee while giving effect to appellate order. If the excess tax paid cannot be retained without payment of interest, so also the interest which is payable thereon cannot be retained without payment of interest. Thus, the Hon’ble Gujarat High Court held that once the interest amount becomes due, it takes the same colour as the excess amount of tax which was refundable on regular assessment. The relevant findings of the Gujarat High Court recorded at p. 231 of 195 ITR are as under:
Section 214(1) itself recognizes in principle the liability to pay interest on the amount of tax paid in excess of the amount of assessed tax and which is retained by the Government. Interest on the excess amount is payable at the rate of 15 per cent from the first day of the year of assessment of the date of regular assessment. It would thus appear that the legislature itself has considered it fair and reasonable to award interest on the amount paid in excess, which has been retained by the Government. We do not see any reason why the same principle should not be extended to the payment of interest which has been wrongfully withheld by the AO or the Government. It was the duty of the AO to award interest on the excess amount of tax paid by the petitioner while giving effect to the appellate order and granting refund of the excess amount. If the excess tax paid cannot be retained without payment of interest, so also the interest which is payable thereon cannot be retained without payment of interest. Once the interest amount becomes due, it takes the same colour as the excess amount of tax, which is refundable on regular assessment. Therefore, in our opinion, though there is no specific provision for payment of interest on the interest amount for which no order is passed at the time of passing the order of refund of the excess amount and which has been wrongfully retained, interest would be payable at the same rate at which the excess amount carries interest. In other words, the amount payable by way of interest would carry simple interest at the rate of 15 per cent per annum from the date it became payable to the date it is actually paid. The decisions, which were cited at the Bar do not have a direct bearing on the above question and therefore, we do not propose to refer to or deal with them. On general principles, we are of the opinion that the Government is liable to pay interest, at the rate applicable to the excess amount refunded to the assessee, on the interest amount which had become due under Section 214(1) of the Act. In the light of the above discussion, this petition must succeed.
This decision was followed by the Hon’ble Gujarat High Court in the case of Chimanlal S. Patel v. CIT and Anr. . The Revenue accepted the two judgments of Gujarat High Court in the aforesaid two cases and no SLP was filed before the Supreme Court. This matter was also considered by the Hon’ble Madhya Pradesh High Court in the case of CIT v. Narendra Doshi , where by referring to the two judgments of Gujarat High Court in the cases of D.J. Works v. Dy. CIT (supra) and Chimanlal S. Patel v. CIT (supra) held that the Revenue was liable to pay interest on the amounts of interest which it should have paid to the assessee but has unjustifiably failed to do. However, the Revenue filed an appeal against the judgment of Madhya Pradesh High Court before the apex Court and the Hon’ble Supreme Court vide its order dt. 26th July, 2001 (supra) upheld the order of the Madhya Pradesh High Court for the reason that once the Revenue had accepted two judgments of Gujarat High Court in the cases of D.J. Works v. Dy. CIT (supra) and Chimanlal S. Patel v. CIT (supra), the Revenue was bound by principle laid down therein. This matter was also considered by Hon’ble Delhi High Court in the case of CIT v. Goodyear India Ltd. , where it was held that a combined reading of Sections 240 and 244 made the position clear that if any amount which becomes due to the assessee and not necessarily tax component, the assessee would be entitled to interest and this also included interest on interest. In the case of CIT v. Needle Industries (P) Ltd. , the Madras High Court considering the expression ‘amount’ in Section 244(1A) where it was held that interest payable under Section 244(1A) does not include only the amount of tax paid, but also included the amount of interest paid under Sections 139(8) and 215. Thus, it was held that the assessee would be entitled to interest, even on the amount of interest paid by the assessee. In the case of CIT v. Ambat Echukutty Menon , the Hon’ble Kerala High Court held that the liability to pay interest is on the amount of refund due and the assessee would be entitled to interest on the amount of refund due, which also includes interest paid under Sections 139(8) and 215 of the Act. The Hon’ble apex Court approved all these judgments in the case of Sandvik Asia Ltd. v. CIT (supra) and held that even if there is no provision for payment of compensation for the delay in granting refund of interest the Act itself recognized in principle the liability of the Department to pay interest when excess tax was retained and the same principle should be extended to cases where interest was retained.
6.3. The learned Counsel for the assessee has strongly relied on the recent judgment of Hon’ble Supreme Court in the case of Sandvik Asia Ltd. v. CIT (supra). The facts of the case were that assessment years in questions were 1977-78, 1978-79, 1981-82, 1982-83. For the asst. yr. 1977-78, the assessee had paid advance tax and was allowed refund of tax on the basis of assessment order. However, subsequently the assessee was asked to pay additional tax in pursuance of rectification order passed under Section 154. The learned CIT(A) allowed substantial relief and the assessee received refund only of the excess amount paid as advance tax and the assessee was not granted interest on the amount refundable. For the asst. yr. 1978-79, the assessee was granted refund of tax on the basis of the assessment order, but no interest was paid on the refund. After the learned CIT(A) allowed substantial relief, the assessee received only refund of the excess amount paid, but no interest was granted. For the asst. yr. 1981-82, the assessee was granted refund as well as interest on the amount under Section 214. After the learned CIT(A) granted substantial relief, the assessee was allowed interest only under Section 214 but no interest was granted under Sections 214(1A) and 244(1A). For the asst. yr. 1982-83, the assessee paid further tax on assessment, but the learned CIT(A) gave substantial relief and the assessee received refund of the assessed tax paid. However, no interest was granted under Section 214 or Section 244. Pursuant to the order of the Hon’ble Supreme Court, the Department granted interest upto March, 1998 but the Department refused interest on interest. The assessee filed writ petitions in the High Court challenging the orders, but the High Court dismissed the petitions. Thereafter, the assessee filed appeals before the Supreme Court. Now the issue which was considered by the Hon’ble Supreme Court was whether the assessee was entitled to interest on interest because the Department had not granted interest on the amounts of refund due as per provisions of the Act. The stand of the Revenue was that there were no provisions under the Act as per which the assessee could be allowed interest on interest. However, such submission of the Department was rejected by the Hon’ble Supreme Court. The apex Court observed thatthe Act recognizes the principle that a person should only be taxed in accordance with law and hence where excess amounts of tax are collected from an assessee or any amounts are wrongly withheld from an assessee without authority of law, the Revenue must compensate the assessee. Thus, it was held that the assessee would be entitled to interest on interest on the amounts which were unjustifiably withheld by the Department. The Supreme Court has laid down the law of the land which is binding on all the authorities in the country. Even if the judgment is of a later date, the same would relate back to the date when relevant sections of the Act were introduced in the Act. Reliance in this regard is placed on the judgment of Hon’ble Punjab & Haryana High Court in the case of CIT v. Smt. Aruna Luthia (FB). Therefore, the matter would not remain debatable for the purpose of Section 154 of the Act. Accordingly, the objection of the learned CIT(A) that the issue, falls outside the scope of provisions of Section 154 is no longer tenable.
6.4. The sum and substance of the judgments of various High Courts and of the Supreme Court in the cases referred to above is that interest payable to the assessee, as provided in the Act is also an amount and if the same is not paid on the date when it is due, the assessee is equally entitled to interest on the same. Now in this case also, the assessee was not granted interest under Section 214 at the time of granting refund under Section 141A on provisional assessment at the time of granting refund on completion of regular assessment and further at the time of granting refund while giving effect to CIT(A)’s order. It was only after the assessee made an application, the assessee was granted refund of interest of Rs. 11,58,105 under Section 214 of the Act. Further, interest of Rs. 10,08,123 on refund of Rs. 30,09,321 for the period from 12th March, 1991 to 26th Aug., 1993 at the time of giving effect to CIT(A)’s order is yet to be paid. Therefore, the ratio of the judgment of Supreme Court in the case of Sandvik Asia Ltd. v. CIT (supra) and the judgments of various other High Courts referred to above is applicable to the facts of the present case also. Thus, the assessee is also entitled to simple interest on interest from the dates when the refund of interest became due till the date when such refund of interest was granted or yet to be granted at the rate applicable and specified in the Act. However, the assessee would not be entitled to compound rate of interest. We, therefore, set aside the orders of the CIT(A) and direct the AO to grant interest on amount of interest due to the assessee from the dates when the interest became due till the date of granting refund of interest as per rates specified in the Act and after allowing reasonable opportunity to the assessee. We order accordingly. The grounds of appeal of the assessee are allowed to the extent indicated above.
7. In the result, all the appeals of the assessee are allowed.