Dr. Harbhajan Singh v. The Income Tax Officer, ‘A’ Ward, Phagwara And Another

In the High Court of Punjab and Haryana, Chandigarh CWP No. 10808 of 1988 Date of Decision: November 16, 2009 Dr. Harbhajan Singh …Petitioner Versus The Income Tax Officer, ‘A’ Ward, Phagwara and another …Respondents CORAM:HON’BLE MR. JUSTICE M.M. KUMAR HON’BLE MR. JUSTICE JASWANT SINGH Present:Mr. Rohit Sud, Advocate,for the petitioner. Mr. Vivek Sethi, Advocate,for the respondents 1.To be referred to the Reporters or not? 2.Whether the judgment should be reported inthe Digest?the Digest? M.M. KUMAR, J. The assessment for the assessment year 1974-75 of thepetitioner-assessee was completed on 19.3.1977 and a demand of Rs.5,92,454/- was created. The aforesaid amount was appropriated by thedepartment on that very date out of the seized money belonging to theassessee. Likewise, in respect of assessment year 1975-76, theassessment was completed on 17.3.1978, a demand of Rs. 5,19,645/-was created and money was appropriated on the same very date from theseized amount belonging to the assessee, which was lying with thedepartment. The assessee filed an appeal under Section 254(1) of the Income-tax Act, 1961 (for brevity, ‘the Act’) in respect of both theassessment years. The Appellate Authority relied upon its order dated11.9.1978, annulled the assessment in respect of both the assessmentyears on 17.4.1979. As a consequence, the entire tax became refundableto the assessee along with interest due under Section 244 of the Act.However, the amount appropriated and realised from the assessee,which was found refundable, was adjusted on 22.2.1982 in respect ofsubsequent assessment years of 1976-77 and 1977-78. It is in the lightof the aforesaid facts that the assessee claimed his entitlement to interestin respect of assessment year 1974-75 under Section 244(1A) of the Actfrom the date of assessment upto the period when it was adjusted inrespect of subsequent assessment year (11.9.1978 to 22.2.1982). Inrespect of assessment year 1975-76, interest has been claimed from17.4.1979 to 22.2.1982. A further claim has also been made that theamount, which remained unadjusted should also bear interest from thedate of adjustment till the date of payment as per the provisions ofSection 244(2) of the Act. 2.Written statement filed by the respondents does not disputethe aforesaid factual position. However, reliance has been placed onSection 132B(4)(b) of the Act to raise an argument that interest ischargeable from the date immediately following the expiry of the periodof six months from the date of the order under Sub-section (5) ofSection 132 of the Act to the date of regular assessment. It is, however,undisputed that regular assessment was completed on 19.3.1977 inrespect of assessment year 1974-75 and on 17.3.1978 in respect ofassessment year 1975-76. 3.Mr. Rohit Sud, learned counsel for the assessee has arguedthat the issue of interest raised in the instant petition is no longer resintegra and in similar circumstances a Division Bench of this Court hasallowed interest in the case ofCommissioner of Income Taxv. Leader Engineering Works, (1989) 178 ITR 529 (P&H). He has drawn ourattention to para 4 of the judgment to substantiate his argument. He hasalso placed reliance on another Division Bench judgment of this Courtrendered in the case of Commissioner of Income Tax v. Hansa Agencies (P) Ltd., (1998) 234 ITR 271 (P&H), where the aforesaidview has been followed and applied and argued that the assessee isentitled to interest on entire refund including pre-assessment tax paidand found in excess of regular demand after giving effect to appellateorder from the date when original assessment was framed excluding theperiod of one month from the date of passing of order in appeal. 4.At this stage, learned counsel for the petitioner states thathe would not press another issue with regard to refund of tax wronglycharged by the department on the sum of Rs. 50,000/- in respect ofassessment year 1977-78 as there is some dispute on facts. Agencies (P) Ltd., (1998) 234 ITR 271 (P&H), where the aforesaidview has been followed and applied and argued that the assessee isentitled to interest on entire refund including pre-assessment tax paidand found in excess of regular demand after giving effect to appellateorder from the date when original assessment was framed excluding theperiod of one month from the date of passing of order in appeal. 4.At this stage, learned counsel for the petitioner states thathe would not press another issue with regard to refund of tax wronglycharged by the department on the sum of Rs. 50,000/- in respect ofassessment year 1977-78 as there is some dispute on facts. 5.Mr. Vivek Sethi, learned counsel for the respondents hasmade an attempt to distinguish the aforesaid judgments by arguing thatno relief under Section 244(1A) of the Act has been given by any of thetwo Division Benches and to that extent the matter cannot be consideredto be covered. His submission appears to be that the judgmentsdelivered by two Division Benches in Leader Engineering Works(supra) and Hansa Agencies (P) Ltd. (supra) are confined only to therelief of giving interest under Section 244(1A) of the Act. 6.After hearing learned counsel for the parties we are of theconsidered view that the issue of interest under Section 244(1A) of theAct is covered in favour of the assessee and against the revenue by boththe Division Bench judgments. In Hansa Agencies (P) Ltd. (supra),the question of grant of interest under Section 244(1A) of the Actdirectly fell for consideration. In order to appreciate the issue, theaforesaid provision may be set out in extenso, which reads thus:- “244. (1)Where a refund is due to the assessee inpursuance of an order referred to in section 240 and theIncome-tax Officer does not grant the refund within aperiod of three months from the end of the month in whichsuch order is passed, the Central Government shall pay tothe assessee simple interest at fifteen per cent per annum onthe amount of refund due from the date immediatelyfollowing the expiry of the period of three months aforesaidto the date on which the refund is granted. (1A) Where the whole or any part of the refundreferred to in sub-section (1) is due to the assessee, as aresult of any amount having been paid by him after the 31stday of March, 1975, in pursuance of any order ofassessment or penalty and such amount or any part thereofhaving been found in appeal or other proceedings underthis Act to be in excess of the amount which such assesseeis liable to pay as tax or penalty, as the case may be, underthis Act, the Central Government shall pay to such assesseesimple interest at the rate specified in sub-section (1) on the amount so found to be in excess from the date on whichsuch amount was paid to the date on which the refund isgranted: Provided that where the amount so found to be inexcess was paid in instalments, such interest shall bepayable on the amount of each such instalment or any partof such instalment, which was in excess, from the date onwhich such instalment was paid to the date on which therefund is granted : Provided further that no interest under this sub-section shall be payable for a period of one month from thedate of the passing of the order in appeal or otherproceeding: Provided also that where any interest is payable to anassessee under this sub-section, no interest under sub-section (1) shall be payable to him in respect of the amountso found to be in excess. (2)Where a refund is withheld under theprovisions of Section 241, the Central Government shallpay interest at the aforesaid rate on the amount of refundultimately determined to be due as a result of the appeal orfurther proceeding for the period commencing after theexpiry of three months from the end of the month in whichthe order referred to in section 241 is passed to the date therefund is granted.” Provided further that no interest under this sub-section shall be payable for a period of one month from thedate of the passing of the order in appeal or otherproceeding: Provided also that where any interest is payable to anassessee under this sub-section, no interest under sub-section (1) shall be payable to him in respect of the amountso found to be in excess. (2)Where a refund is withheld under theprovisions of Section 241, the Central Government shallpay interest at the aforesaid rate on the amount of refundultimately determined to be due as a result of the appeal orfurther proceeding for the period commencing after theexpiry of three months from the end of the month in whichthe order referred to in section 241 is passed to the date therefund is granted.” 7.The aforesaid provisions were interpreted by the DivisionBench of this Court in Hansa Agencies (P) Ltd. (supra) by placing reliance on a judgment of Hon’ble the Supreme Court rendered in thecase ofModi Industries Ltd.v. CIT, (1995) 216 ITR 759 (SC) and the same reads as under:- “(ii)If any tax is paid pursuant to an assessment orderafter 31[st] March, 1975 (which will include tax deducted atsource and advance tax to the extent the same has beenretained and treated by the ITO as payment of tax indischarge of the assessee’s tax liability in the assessmentorder), becomes refundable wholly or in part as a result ofany appellate or other order passed, the CentralGovernment will have to pay the assessee interest on therefundable amount under S. 244(1A). For the purpose ofthis section, the amount of advance payment of tax and theamount of tax deducted at source must be treated aspayment of income-tax pursuant to an order of assessmenton and from the date when these amounts were set-offagainst the tax demand raised in the assessment order, inother words, the date of the assessment order.”after 31[st] March, 1975 (which will include tax deducted atsource and advance tax to the extent the same has beenretained and treated by the ITO as payment of tax indischarge of the assessee’s tax liability in the assessmentorder), becomes refundable wholly or in part as a result ofany appellate or other order passed, the CentralGovernment will have to pay the assessee interest on therefundable amount under S. 244(1A). For the purpose ofthis section, the amount of advance payment of tax and theamount of tax deducted at source must be treated aspayment of income-tax pursuant to an order of assessmenton and from the date when these amounts were set-offagainst the tax demand raised in the assessment order, inother words, the date of the assessment order.” 8.In view of the above, the relief claimed by the assessee forpayment of interest under Section 244(1A) of the Act is liable to beallowed. Accordingly, the assessee is held entitled to interest in respectof assessment year 1974-75 with effect from 11.9.1978 to 22.2.1982 andin respect of assessment year 1975-76 interest is allowed from17.4.1979 to 22.2.1982 with a rider that the assessee would not beentitled to interest for a period of one month from the date of passing of 8.In view of the above, the relief claimed by the assessee forpayment of interest under Section 244(1A) of the Act is liable to beallowed. Accordingly, the assessee is held entitled to interest in respectof assessment year 1974-75 with effect from 11.9.1978 to 22.2.1982 andin respect of assessment year 1975-76 interest is allowed from17.4.1979 to 22.2.1982 with a rider that the assessee would not beentitled to interest for a period of one month from the date of passing of the order in appeal as is provided by the proviso to Section 244(1A) ofthe Act.9.The other claim pertains to payment of interest in respect ofunadjusted amount from the date of adjustment of the amount till thedate of its actual payment i.e. from 22.2.1982 till the date of payment. Abare perusal of sub-section (2) of Section 244 of the Act would showthat if refund claim of the petitioner is withheld under Section 241beyond a period of three months then the assessee becomes entitled topayment of simple interest at the rate of 15% per annum on the amountof refund till the date of payment. It is not disputed that the refund ofunadjusted amount belonging to the petitioner has been withheld since22.2.1982. The amount was payable within a period of three monthsfailing which it was to bear statutory interest as is provided by Section244(2) of the Act. Accordingly, the aforesaid claim made by theassessee is also allowed and he is held entitled to interest on the refundclaim with effect from the expiry of three months from 22.2.1982. Theneedful shall be done within a period of three months from the date ofreceipt of copy of this order. (M.M. KUMAR)JUDGE November 16, 2009manoj/Pkapoor (JASWANT SINGH) JUDGE