C.n.ramachandran Nair, J v. Kerala Chemicals & Proteins [323 Itr 584], Wherein We Have Held The Interest Is Payable Only From The Date Of Introduction Of The Provision, That Is, 1.6.2003

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE K.SURENDRA MOHAN THURSDAY, THE 7TH OCTOBER 2010 / 15TH ASWINA 1932 ITA.No. 1714 of 2009() ---------------------------- ITA.40/COCH/2008 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/RESPONDENT ------------------------------- THE COMMISSIONER OF INCOME TAX, THRISSUR. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): APPELLANT ---------------------------------- M/S. SOUTH INDIAN BANK LTD., SIB HOUSE, THRISSUR. ADV. SRI.P.BALAKRISHNAN (E) THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07/10/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: SVS/ C.N.RAMACHANDRAN NAIR & K.SURENDRA MOHAN, JJ.-------------------------------I.T.A.No.1714 OF 2009 -------------------------------- Dated this the 7[th] day of October, 2010 J U D G M E N T ~~~~~~~~~~~ C.N.Ramachandran Nair, J. Of the two questions raised in the appeal filed by therevenue against the orders of the Tribunal disposing of theassessment appeal relating to the respondent for theassessment year 1998-1999, the first issue is whether thedepartment is entitled to collect interest under Section 234D ofthe Income Tax Act. This issue stands decided by our decisionreported in CIT vs. Kerala Chemicals & Proteins[323 ITR584], wherein we have held the interest is payable only from thedate of introduction of the provision, that is, 1.6.2003. 2.The next question raised is with regard to the datewith reference to which the assessee is entitled to interestunder Section 244A of the Income Tax Act on the refund paid toit. The assessing officer declined interest because the refund is attributable to an additional claim of deduction of provision forbad debt which was allowed by the first appellate authority.However, in appeal, the first appellate authority held thatassessee is entitled to interest under Section 244A from10.1.2001 and not from 1.4.1999 as claimed by the assessee interms of Section 244A(1)(a) of the Act. The reason behindlimiting the interest from 10.1.2001 by the CIT (Appeal) is thatthe assessee did not claim any deduction of provision for baddebt in the original return. But the claim was made in the courseof assessment on 10.1.2001. According to the CIT (Appeal), theassessee is not entitled to any interest for period prior to thedate on which the claim was made which lead to the refund. Insecond appeal, the Tribunal held the assessee is entitled forinterest from 1.4.1999 onwards against which, the revenue hasfiled this appeal. 3.We have heard standing counsel appearing for theappellant and Adv. Sri.P.Balakrishnan appearing for therespondent. 4.The question to be considered is whether thestatutory provisions entitle the department to limit the interestfrom the date of claim of deduction, the allowance of which leadto refund. Since our decision depends on the interpretation ofthe Section, we extract hereunder, the said section. “244A.(1)Where refund of anyamount becomes due to the assessee underthis Act, he shall, subject to the provisionsof this section, be entitled to receive, inaddition to the said amount, simple interestthereon calculated in the following manner,namely:- (a) where the refund is out of any taxpaid under section 115WJ or collected atsource under section 206C or paid by way ofadvance tax or treated as paid under section199, during the financial year immediatelypreceding the assessment year, such interestshall be calculated at the rate of one-half percent for every month or part of a monthcomprised in the period from the 1st day ofApril of the assessment year to the date onwhich the refund is granted: “244A.(1)Where refund of anyamount becomes due to the assessee underthis Act, he shall, subject to the provisionsof this section, be entitled to receive, inaddition to the said amount, simple interestthereon calculated in the following manner,namely:- (a) where the refund is out of any taxpaid under section 115WJ or collected atsource under section 206C or paid by way ofadvance tax or treated as paid under section199, during the financial year immediatelypreceding the assessment year, such interestshall be calculated at the rate of one-half percent for every month or part of a monthcomprised in the period from the 1st day ofApril of the assessment year to the date onwhich the refund is granted: Provided no interest shall be payable ifthe amount of refund is less than ten percent of the tax determined under sub-section(1) of section 115WE or sub-section (1) ofsection 143 or on regular assessment. (b)in any other case, such interestshall be calculated at the rate of one-half percent for every month or part of a monthcomprised in the period or periods from thedate or, as the case may be, dates of paymentof the tax or penalty to the date on whichthe refund is granted. (2)If the proceedings resulting in therefund are delayed for reasons attributableto the assessee, whether wholly or in part,the period of the delay so attributable to himshall be excluded from the period for whichinterest is payable, and where any questionarises as to the period to be excluded, it shallbe decided by the Chief Commissioner orCommissioner whose decision thereon shall befinal.” 5.The contention of the counsel for the revenue is thatdelay in refund is on account of delay in making the claim fordeduction of bad debts and so much so by virtue of sub-section(2) of Section 244A the department is entitled to decline interestto the assessee for the period up to the date on which the claimof deduction of bad debts is allowed by the CIT (Appeal).According to the standing counsel, the Tribunal did not considereven the scope of sub-section (2) of the Section 244A which ledto granting the relief to the assessee in terms of their claim. Counsel for the assessee on the other hand contend that interestunder Section 244A is mandatory and the same is payable fromthe beginning of the assessment year to the date of grant ofrefund. What we find from sub-clause (1) is that interest ispayable at the rate prescribed therein on the refund ordered tothe assessee which is obviously excess tax paid. The period forwhich interest is payable will depend on the nature of paymentof tax which is refunded to the assessee. In the case ofpayments covered by clause (a) of Section 244A (1) interest ispayable from the beginning of the relevant assessment year tillthe date of grant of refund. However, in the case of payments oftax in any of the forms other than those referred to in sub-clause(a) interest is provided in clause (b) of Section 244A from thedates of payment of such tax or penalty till the date of grant ofrefund. This case is obviously covered by clause (a) and so muchso assessee is entitled to interest on excess refund from thebeginning of the assessment year till the date of grant of refundwhich is granted by the Tribunal. However, the question iswhether operation of sub-section (2) justifies denial of interestfor any period thereof as claimed by the revenue. 6.Sub-section (2) of Section 244A provides thatassessee shall not be entitled to interest for the period of delayin issuing the proceedings leading to the refund that isattributable to the assessee. In other words, if the issue of therefund order is delayed for any period attributable to theassessee, then assessee shall not be entitled to interest for suchperiod. This is ofcourse an exception to sub-clause (a) and (b) ofSection 244A (1) of the Act. In other words, if the issue of theproceedings, that is, refund order, is delayed for any periodattributable to the assessee, then assessee is not entitled tointerest for such period. Further, what is clear fromsub-clause (2) is that, if the officer feels that delay in refund forany period is attributable to the assessee, the matter should bereferred to the Commissioner or Chief Commissioner or anyother notified person for deciding the issue and orderingexclusion of such periods for the purpose of granting interest tothe assessee under Section 244A (1) of the Act. In this case,there was no decision by the Commissioner or ChiefCommissioner on this issue and so much so, we do not think theassessing officer made out the case of delay in refund for anyperiod attributable to the assessee disentitling for interest. So much so, in our view the officer has no escape from grantinginterest to the assessee in terms of Section 244A (1)(a) of theAct. 7.The next question to be examined is whether there isany substance in the contention of the standing counsel for therevenue that belated claim of deduction of provision for bad debtunder Section 36(1)(vii)(a) will disentitle the assessee fromgetting interest on refund upto the date of making claim.Admittedly, the assessee did not make any claim for deduction ofprovision for bad debt in the original return filed. However,before completion of the assessment the assessee made a claimof deduction of provision for bad debt on 10.1.2001, which wasrejected by the assessing officer for failure to establish the claimby the assessee. The, CIT(A) in the appeal filed against theassessment allowed the claim and remanded the matter tothe assessing officer. Refund is granted to the assesseewhile issuing the revised order based on order in appealfiled by the assessee. The question to be considered iswhether belated claim for deduction which when allowedentitled the assessee for refund is a situation covered bysub-section (2) of Section 244A of the Act. The situation covered by sub-section (2) is only delay in completion of proceedingsgranting refund that is attributable to the assessee. Obviously,refund is issued as a result of assessment whether original orrevised. If assessee causes any delay in completion of suchproceedings under which the refund is granted, then certainlythe period of delay attributable to the assessee only is the periodfor which assessee is not entitled to interest. In this case, theassessing officer has not established that the assessee hascaused any delay in issuing the refund order. Of course, if theassessment is delayed by the assessee by taking time forproduction of document without which refund cannot begranted, then certainly, the delay in assessment is attributableto the assessee disentitling assessee for interest for such periodunder sub-section (2) of the above Act. In this case assessmentwas taken up in the usual course and before completion ofassessment, assessee made the claim which was considered andrejected by the assessing officer. However, in appeal the claimwas allowed and based on CIT (Appeal) order the assessingofficer granted refund. We do not find any material to hold thatthe delay in establishing the claim with documents that led torefund is attributable to the assessee and so much so this is not a case covered by sub-section (2) of the Act. We, therefore,hold that belated claim of deduction made on 10.1.2001 by theassessee will not justify denial of interest otherwise eligibleunder Section 244(1)(a) from 1.4.1999 to 10.1.2001. We,therefore, uphold the order of the Tribunal declaring assessee'seligibility to get interest from 1.4.1999 till date of refund. 8.We notice a lacunae in the Statute in the aboveprovision because the situation that arose in this case is notcontemplated therein. The department could contend that if allclaims of deduction were made in the original return and higheramount of refund was claimed in such return, the officer couldhave granted refund under Section 143(1) of the Act itselfthereby avoiding interest on refund in regular assessment forlonger period. Return was infact processed under Section 143(1)and based on claims in the original return, refund was grantedin terms of the claim made by the assessee. However, higheramount of refund and interest thereon are liable to be paid bythe department from the beginning of the assessment year onlybecause assessee made belated claim for deduction leading toentitlement of higher amount of refund of tax paid which was allowed only by the appellate authority. Therefore, it could beprovided in Section 244(1)(a) that interest on refund is payableon the amount of refund claimed in the original return filed andnot on excess refund later claimed or happened to be claimedbased on belated claims of deduction, exemption etc. However,in the absence of any such provision under Section 244A limitinginterest payment on the refund claim in the original return, theassessee is entitled to interest on excess tax refunded in termsof clause (a) & (b) of Section 244 (A)(1) of the Act subject to thelimitation contained in sub section 2 discussed above. The Income Tax Appeal is therefore partly allowed andpartly dismissed as stated above. (C.N.RAMACHANDRAN NAIR, JUDGE) (K.SURENDRA MOHAN, JUDGE) ps