ORDER
R.N. Puri, Accountant Member
1. The appeals filed by the assessee in respect of assessment years 1973-74, 1974-75 and 1977-78 were, for the sake of convenience, consolidated and heard together. These appeals are directed against the orders of the Commissioner of Income-tax (CIT) passed under Section 263 of the Income-tax. Act, 1961. After considering the rival submissions, these appeals are being disposed of as under.
2. The question to be decided in these appeals is whether, under Section 244(1A), the assessee was entitled to get interest on the refund of the amounts paid by it by way of interest under Sections 215, 217(1A) and 220(2). The assessee had paid certain amounts of interest under Sections 215, 217(1A) and 220(2). Interest is payable under Section 215 where the assessee has under-estimated his income liable to tax. Where the advance tax paid by the assessee on the basis of his own estimate is less than 75% of the assessed tax, interest under Section 215 is payable upon the amount by which the advance tax paid falls short of the assessed tax. It may so happen that subsequent to the completion of the assessment, the total income determined may get reduced as a result of appeal or revision or rectification. It is, hence, provided that if the amount on which interest was payable has been reduced, the interest levied shall be reduced accordingly and the excess interest paid, if any, shall be refunded. Interest under Section 217(1A) is char geable where the advance-tax payable by an assessee exceeds by one-third the tax demanded and the assessee does not send an estimate of his income and pay higher advance tax, as required by the provisions of Section 212(3A). Here also it is provided that in case the amount on which interest was payable under this section is subsequently reduced, interest is to be reduced accordingly and the excess amount paid is to be refunded. Interest under Section 220(2) is chargeable, if the amount specified in any notice of demand under Section 156 is not paid within the specified period. This interest is also required to be reduced, where, as a result of the subsequent modification of the total income, the amount on which interest was payable had been reduced and the excess interest paid, if any, is to be refunded.
3. On the respective amounts, on which these interests had been charged, being reduced subsequently, these interests were also correspondingly reduced. The amounts paid in excess of what were required to be paid were refunded to the assessee. The ITO allowed interest under Section 244(1A) on the amounts refunded to the assessee, The CIT was of the view that the ITO was in error in allowing interest under Section 244(1 A) on the amounts refunded to the assessee. He, hence, revised the orders of the ITO under Section 263. He directed the ITO to withdraw interest allowed by him under Section 244(1A) on the refund of the amounts which had been paid by the assessee by way of interest under Sections 215, 217(1A) and 220(2). Being aggrieved by the orders of the CIT, the assessee has come up in appeal before us. The contention of the assessee is that interest under Section 244(1A) was very much admissible to it on the refund of the amounts of interests paid by it under Sections 215, 217(1A) and 220(2).
4. We have considered the matter carefully. The provisions of Section 244 which provide for allowance of interest on refund are as under:
244. Interest on refund where no claim is needed. – (1) Where a refund is due to the assessee in pursuance of an order referred to 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 twelve 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 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)…
Sub-section (1A) was inserted by the Taxation Laws (Amendment) Act, 1975 with effect from 1-10-1975.
5. Whenever refund of any amount becomes due to the assessee and it is not granted within a particular period, Sub-section (1) of Section 244 mandates payment of interest. Interest is payable to the assessee for the period of delay in the grant of refund beyond three months from the end of the month in which the appellate order, the order in revision or other proceeding giving rise to the refund was passed. The purpose is to ensure that, in case the amount due to the assessee is not provided to him within a reasonable period, the department makes good the loss caused to the assessee on account of assessee’s funds being withheld, by paying interest to the assessee. The purpose of Sub-section (1A) is a different one. This sub-section was brought on the Statute with effect from 1-10-1975. It was felt that where a person had paid the disputed tax or penalty and in subsequent determination it was found that he was not required to be charged with tax or penalty he had been charged with, then the Government should pay him interest for the use of his money. It was, hence, provided that interest was to be paid on such amount from the date of payment to the date of its being refunded. It is significant to note that the words used in Sub-section (1A) are “tax or penalty”. It is not in respect of any and every amount refunded to the assessee that interest is payable within the terms of Sub-section (1A). Only if the refund is due to the assessee as a result of any amount having been paid by him in pursuance of any order of assessment or penalty and such amount or any part thereof has been found in appeal or other proceeding to be in excess of the amount which the assessee was liable to pay as tax or penalty, is the Government required to pay interest. It is thus obvious that interest within the terms of Sub-section (1A) is not payable in respect of the amounts refunded to the assessee, which amounts had been paid by him by way of interests levied under Sections 215, 217(1A) and 220(2). It is only under Sub-section (1) that interest is payable on the refund of any amount, whether paid by way of tax or penalty or interest, but within the terms of Sub-section (1A) interest is payable only on the refund of the amounts of tax or penalty.
6. The learned authorised representative of the assessee had drawn our attention to the decision of the Hyderabad Bench of the Tribunal in the case of Smt. K. Mahalakshtnamma v. ITO [1984] 7 ITD 180, but we fail to understand as to how this decision is of any help in the determination of the issue with which we are confronted in the present appeal. In that case, the assessee had paid a certain amount by way of tax on self-assessment in terms of Section 140A(1). Subsequently, in appeal, certain deletions were ordered on account of which the income of the assessee fell below the maximum amount up to which no tax was chargeable. The tax paid by the assessee on self-assessment was thus refunded to the assessee. The question arose whether interest under Section 244(1A) was to be allowed on the amount of refund. The contention of the department was that self-assessment tax could not be regarded as being tax paid “in pursuance of any order of assessment” and, hence, the assessee was not entitled to get any interest in terms of Section 244(1 A). This contention of the department did not find favour with the Tribunal. The Tribunal took into consideration the provisions of Section 140A(2) which had stated that after the regular assessment was made under Section 143(3) or Section 144, the self-assessment tax paid under Section 140A(1) was to be deemed to have been paid towards such regular assessment. The Tribunal was of the view that the fiction had to be taken to its logical conclusion and, hence, the tax paid on self-assessment was to be regarded as being tax paid in pursuance of an order of assessment within the meaning of Section 244(1A). We fail to understand as to how this decision will be of any help in deciding the issue arising before us. The issue before us is whether, under the provisions of Section 244(1A), interest is to be allowed only on the refund of amount paid by the assessee by way of tax or penalty or whether interest can also be allowed in respect of the refund of the amount paid by the assessee by way of interest. The decision of the Tribunal cited by the assessee will be of no guidance in this direction.
7. The assessee had also relied on the decision of the Kerala High Court in the case of CIT v. Ambat Echukutty Menon [1988] 173 ITR 581. The question examined by the Kerala High Court in that case was whether on interest under Section 220(2) paid by the assessee being refunded to him, interest under Section 244(1) was admissible in the event of refund given, to the assessee beyond the prescribed period. The department was of the view that the words “any amount” occurring in Section 240 of the Act could only refer to tax and penalty levied and, as such, refund of the interest which had been paid by the assessee under Section 220(2) would not qualify for allowance of interest in terms of Section 244(1). The High Court, however, did not accept this contention of the department. The High Court was of the view that the refund of interest which had been paid by the assessee under Section 220(2) was an amount coming within the purview of Section 240 and, therefore, eligible for interest contemplated under Section 244(1). It was pleaded by the authorised representative that, even under Sub-section (1A), the same position would prevail. It was contended that it was not justified to interpret Sub-section (1A) in the manner so as to hold that interest was admissible on the refund of tax or penalty and not on the refund of anything else.
8. We have considered the submission of the assessee carefully. We do not find it possible to accept that each and every refund will qualify for interest contemplated under Section 244(1A). The language of Section 244(1A) is different from that of Section 244(1). Their purposes are different, as already explained above. It is true that under Sub-section (1), interest is payable on any refund. But this is not the case under Sub-section (1A). Under Sub-section (1A), interest is to be paid only on such refund which is of tax or penalty. If the refund is of anything else, no interest is payable within the terms of Sub-section (1A). Under Sub-section (1), interest becomes payable, if the refund is not given within three months from the end of the month in which the order in appeal .or any other proceeding, in pursuance of which refund has become due, is passed. This interest is payable on refund of any amount becoming due to the assessee. The amount of refund becoming due to the assessee may be of tax, penalty or interest paid by him. If interest paid by the assessee, say, under Section 215 or 217(1A) or 220(2), is now required to be refunded to him, interest will be required to be paid on the amount of the refund if the refund is not given within the stipulated time. But under Sub-section (1A), things are different. Under Sub-section (1A), it is only on the refund of tax or penalty that interest is contemplated to be paid. Refund of interest paid by the assessee under Section 215 or 217(1A) or 220(2) does not fall within the purview of Sub-section (1A). It is mentioned in Sub-section (1A) that 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 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, the Government shall pay interest on the amount so found to be in excess. In other words, if in pursuance of an assessment, the assessee had paid tax, but subsequently in appeal it was found that the amount paid by him was in excess of what he was liable to pay, interest will become payable in terms of Sub-section (1A) on the amount found to have been paid in excess. So will interest become payable on the refund of penalty. But no interest has been provided to be paid in respect of refund of any other payment. Refund of any interest paid by the assessee, say, under Section 215 or 217(1A) or 220(2) will not qualify for allowance of interest within the terms of Section 244(1 A).
9. Because of the foregoing discussion, our conclusion is that the ITO was in error in having allowed interest under Section 244(1A) on the refund of the amount which had been paid by the assessee by way of interest under Section 215 or 217(1A) or 220(2). As these orders of the ITO were prejudicial to the interests of revenue, the CIT was justified in revising them under Section 263. The CIT was justified to direct the ITO to withdraw the interest.
10. The appeals of the assessee are dismissed.
