Of Income Tax-7 v. %Date Of Decision: 4[Th]August, 2022

$~2 IN THE HIGH COURT OF DELHI AT NEW DELHI +ITA 1447/2018 PRINCIPAL COMMISSIONER OF INCOME TAX-7..... AppellantThrough :Mr. Kunal Sharma, Senior StandingCounsel for Revenue along with Mr.Shrey Nargotra, Advocate. versus %Date of Decision: 4[th]August, 2022 CORAM: HON'BLE MR. JUSTICE MANMOHANHON'BLE MS. JUSTICE MANMEET PRITAM SINGH ARORA J U D G M E N T MANMEET PRITAM SINGH ARORA, J (Oral): 1.The present appeal has been filed by Revenue-Appellant impugningthe order dated 29[th]June, 2018, passed by the Income Tax AppellateTribunal (hereinafter referred to 'ITAT') in ITA No. 5486/Del/2014 for theAssessment Year ('AY') 2001-02. 2.Briefly stated the facts are that initially, the income of assessee i.e. therespondent herein was assessed at Rs.73,17,35,961/- vide an order dated 19[th]January, 2010. Consequent to the above, a demand for payment of interest ITA 1447/2018 under Section 234D(2) and Section 220(2) of the Income Tax Act, 1961('the Act') was raised by Revenue on the respondent herein. However, uponsubsequent re-computation of the income vide an order dated 3[rd]February,2010, passed under Sections 154/250/143(3) of the Act, the income of theassessee was assessed at Rs.40,88,00,550/- after setting-off brought forwardlosses for AY 1996-1997. Consequently, as a result of the reduction oftaxable income, the respondent herein was entitled to refund of sumdeposited as interest under Section 234D and Section 220 (2) of the Act. Theassessee was held entitled to refund of a sum of Rs.1,66,46,933/- underSection 234D and a sum of Rs.1,99,131/- under Section 220(2) of the Act. 3.The respondent was, however, aggrieved by non-grant of ‘interest’ onthe aforesaid order of refund under Sections 234D and 220(2) of the Act .The Respondent therefore filed an appeal before the Commissioner ofIncome Tax (Appeals) ['CIT(A)'] against the said order on the ground thatthe Assessing Officer ('AO') has erred in not granting interest under Section244A of the Act on the refund granted. The CIT(A) dismissed the appeal ofthe respondent, relying upon the judgment of the Supreme Court in the caseof Commissioner of Income Tax, Gujarat vs. Gujarat Fluoro Chemicalsreported in (2014) 1 SCC 126. The CIT(A) concluded that the claim of‘interest’ by the respondent for the refund amounts to 'interest on interest'and held that it is beyond the scope of Section 244A of the Act. 4.The respondent aggrieved by the aforesaid order of the CIT(A) filedan appeal before the ITAT, which allowed the appeal placing reliance on thejudgment of the Division Bench of this Court in the case of Preeti NAggarwala v. Chief Commissioner of Income Tax & Anr.reported in[2017] 394 ITR 557(Del) and a judgment of a Coordinate Bench of the ITA 1447/2018 ITAT, Ahmedabad in the case of ACIT v. Alembic Glass Industries Ltd.reported in 111 ITD 320 (Ahd). The ITAT held that the respondent isentitled to interest under Section 244A(1)(b) of the Act on the sum refundedto the assessee on recomputation, as a result of the reduction of its taxableincome. 4.The respondent aggrieved by the aforesaid order of the CIT(A) filedan appeal before the ITAT, which allowed the appeal placing reliance on thejudgment of the Division Bench of this Court in the case of Preeti NAggarwala v. Chief Commissioner of Income Tax & Anr.reported in[2017] 394 ITR 557(Del) and a judgment of a Coordinate Bench of the ITA 1447/2018 ITAT, Ahmedabad in the case of ACIT v. Alembic Glass Industries Ltd.reported in 111 ITD 320 (Ahd). The ITAT held that the respondent isentitled to interest under Section 244A(1)(b) of the Act on the sum refundedto the assessee on recomputation, as a result of the reduction of its taxableincome. 5.The learned counsel for the Revenue states that the ITAT has erred inawarding interest on the refund as the same amounts to grant of 'interest oninterest', which is beyond the scope of Section 244A of the Act. He furtherstates that the ITAT erred in placing reliance on the judgment of Preeti NAggarwala (supra). In this regard, he placed reliance upon the order passedby the predecessor Division Bench of this Court in the case of SutlejIndustries Limited vs. CIT in ITA No. 493/2003 dated 6[th]January, 2016,referring the issue of entitlement of an assessee to interest under Section244A of the Act on the amount of self assessment tax paid, which becomesrefundable upon assessment. He contends that the issue of interest on refundgranted under Section 234D and Section 220(2) of the Act in the presentproceedings is similar to the said issue. The learned counsel contends thatsince the said reference is still pending before a larger Bench, the ITATshould have awaited the judgment of the larger bench and it erred inawarding interest by relying on the judgment of Preeti N. Aggarwala(supra). 6.He also placed reliance on the judgment of the Supreme Court inGujarat Fluoro Chemicals Limited (supra) to contend that, it is only theinterest provided under Section 244A of the Act, which can be claimed byan assessee from the Revenue. No other interest is payable on the refund ofthe sum found due and payable to the respondent herein. The learned ITA 1447/2018 counsel contended that the since the refund is of the statutory interestdeposited by the assessee, the sum directed to be refunded by AO is interest.7.Per contra, the learned counsel for the respondent had relied upon thejudgment of this Court in Preeti N Aggarwala (supra). He also relied uponthe order of the Supreme Court dated 12[th]December, 2019 in Civil AppealNo. 3826 of 2012 in M/s Universal Cables Ltd. v. Commissioner ofIncome-Tax, Jabalpur to contend that the Supreme Court has held thereinthat the Revenue is liable to pay interest on any amount recovered orcollected during the assessment proceedings and which is subsequentlyfound liable to be refunded to the assessee. 8.He also relied upon the judgment of the Bombay High Court in StockHolding Corporation of India Ltd. v. N.C. Tewari, Commissioner ofIncome-tax, Mumbai City-III [2015] 53 taxmann.com 106 (Bombay),wherein the Court has held that the Revenue is liable under Section 244A(1)(b) of the Act to pay interest upon refund of tax deposited by the assessee onself assessment. The Bombay High Court relied upon the judgment of thisCourt in CIT v. Sutlej Industries Ltd. reported in [2010] 325 ITR 331(Delhi), wherein it was held that interest is payable from the date ofpayment of tax on self assessment to the date of repayment of the amountunder Section 244A of the Act. 9.We have heard the learned counsel for the parties. The contention ofthe learned counsel for the Revenue that the issue arising in the presentappeal must await the judgment in the reference made to the larger Bench inSutlej Industries Limited vs. CIT in ITA No. 493/2003 (2016) (supra) hasno merit. The subject matter of the said reference is with respect toentitlement of the assessee to interest on the refund of the amount of self ITA 1447/2018 9.We have heard the learned counsel for the parties. The contention ofthe learned counsel for the Revenue that the issue arising in the presentappeal must await the judgment in the reference made to the larger Bench inSutlej Industries Limited vs. CIT in ITA No. 493/2003 (2016) (supra) hasno merit. The subject matter of the said reference is with respect toentitlement of the assessee to interest on the refund of the amount of self ITA 1447/2018 assessment tax. The Division Bench made the said reference in view of theconflicting decisions of this Court in CIT v. Sutlej Industries Ltd. [2010]325 ITR 331 (Delhi) and CIT v. Engineers India Limited reported in 2015373 ITR 377 Delhi. The question of law framed by the Court while makingthe said reference makes this plainly evident. The issue arising in the presentproceedings admittedly does not pertain to refund of self-assessment tax andinterest thereon. 10.In the present case, as noted above, the subject matter of refund is thepayment collected by Revenue towards interest under Section 234D andSection 220(2) of the Act. The said payment was made by assesseeconsequent to a demand raised upon the assessee by the Revenue. The saiddemand upon re-computation has since been found to be incorrect and theAO has directed refund to the assessee. The subject matter of theproceedings is grant of interest on the refund found due and payable to theassessee. The ITAT has directed payment of interest on the said refund. 11.The contention of the Revenue that since the refunded amount wasdeposited by the assessee towards 'interest' due to the Revenue, any award ofinterest on the refund would amount to 'interest on interest' is factuallyincorrect. The amount which has been directed by AO to be refunded to theassessee under Section 234D and Section 220(2) of the Act is not 'interest' inthe hands of the assessee i.e. the recipient. The refund amount does not bearthe character of 'interest' either in the hands of the assessee i.e. the payee orin the hands of the Revenue i.e. the payer. In this regard, it would berelevant to refer to the definition of 'interest' under Section 2(28)A of theAct, which reads as under : ITA 1447/2018 Page 5 of 12 manner in respect of any moneys borrowed or debtincurred (including a deposit, claim or other similarright or obligation) and includes any service fee orother charge in respect of the moneys borrowed ordebt incurred or in respect of any credit facilitywhich has not been utilised;” 12.The payment of refund by Revenue to assessee admittedly does notsatisfy either of the twin conditions set out in the definition clause and it istherefore not interest, as sought to be contended by the Revenue. 13.The sum directed to be refunded to the assessee is a debt in the handsof the Revenue and therefore for Revenue to term ‘payment of this debt’ as‘interest’ is fallacious. Infact, it is on the payment of this debt that theassessee is demanding that Revenue should be liable to pay interest for theperiod that Revenue retained the said money. The assessee is thereforeseeking interest on the debt owed to it by the Revenue and not ‘interest oninterest’ as sought to be contended by the Revenue. 14.In this regard, it would also be relevant to refer to definition of‘refund’, as it appears in the Oxford English Dictionary, Fifth Edition,Volume 2, N-Z : which reads as under : “refund [Old French refonder or Latin refundere, formed asRE- + fundere pour; later based on FUND verb.]1 verb trans. a Pour back, pour in or out again. Nowrare or obsolete. LME. b Give back, restore. Now rare.LME.cPHILOSOPY.Putbackintosomethingantecedent. rare. L17. 2 a verb trans. Return or repay (a sum of money);hand back. M16. b verb in trans. Make repayment.M17. c verb trans. Reimburse or repay (a person). ITA 1447/2018 M18. 2a Smart Set Warranted to cure in thirty days or moneyrefunded. c J.M. LUDLOW A proposal to refund him outof the Treasury. [Emphasis Supplied] 14.In this regard, it would also be relevant to refer to definition of‘refund’, as it appears in the Oxford English Dictionary, Fifth Edition,Volume 2, N-Z : which reads as under : “refund [Old French refonder or Latin refundere, formed asRE- + fundere pour; later based on FUND verb.]1 verb trans. a Pour back, pour in or out again. Nowrare or obsolete. LME. b Give back, restore. Now rare.LME.cPHILOSOPY.Putbackintosomethingantecedent. rare. L17. 2 a verb trans. Return or repay (a sum of money);hand back. M16. b verb in trans. Make repayment.M17. c verb trans. Reimburse or repay (a person). ITA 1447/2018 M18. 2a Smart Set Warranted to cure in thirty days or moneyrefunded. c J.M. LUDLOW A proposal to refund him outof the Treasury. [Emphasis Supplied] 15.The said definition explains that the payment of refund made by theRevenue is return of money to the assessee and the same does not bear anycharacter of interest and therefore, the contention that the award of interestgranted by ITAT on said refund amounts to ‘interest on interest’ isuntenable. 16.The predecessor Division Bench of this Court in the judgment ofPreeti N. Aggarwala (supra) had deliberated on the issue of grant of interestunder Section 244A(1)(b) of the Act on the refund of money collected by theRevenue under the head 'interest’ under Section 220(2A) of the Act and hasheld that the assessee is entitled to interest on the sum found refundable tothe assessee, as a result of waiver of interest. The relevant portion of theaforessaid judgment reads as under : 22. The aforesaid decision in Union of India v. TataChemicals Limited (supra) is clear in its enunciationthat even if there is no express statutory provision forpayment of interest, the government cannot avoid itsobligation to reimburse the lawful monies "togetherwith accrued interest" for the period of "undueretention". Once it is clear that Section 244A(1)(b) ofthe Act which talks of "any other case" does not havetobeinterpretedrestrictivelyandcanincludesituations like in the present case, then it is evidentthat there is nothing in the said provision whichprohibits the payment of interest on an amount ofrefund due to the Petitioners as a result of the waiverChemicals Limited (supra) is clear in its enunciationthat even if there is no express statutory provision forpayment of interest, the government cannot avoid itsobligation to reimburse the lawful monies "togetherwith accrued interest" for the period of "undueretention". Once it is clear that Section 244A(1)(b) ofthe Act which talks of "any other case" does not havetobeinterpretedrestrictivelyandcanincludesituations like in the present case, then it is evidentthat there is nothing in the said provision whichprohibits the payment of interest on an amount ofrefund due to the Petitioners as a result of the waiver ITA 1447/2018 of interest under Section 220(2A) of the Act. Thecircular of the CBDT dated 26[th]April 2016 acceptsthe above proposition laid down in Union of India v.Tata Chemicals Limited (supra) in its entirety. 23. The sum found refundable to the Petitioners as aresult of the waiver of interest order passed by theCCIT is a definite sum that was wrongly deductedfrom the Petitioners as interest. Payment of intereston that sum by the Revenue cannot be characterisedas payment of 'interest on interest'. In India TradePromotion Organization v. CIT (supra) the questionbefore the Court concerned the denial of interest onrefund. It was clarified that "if the refund does notinclude interest due and payable on the amountrefunded, the Revenue would be liable to pay intereston the shortfall. This does not amount to payment ofinterest on interest." 23. The sum found refundable to the Petitioners as aresult of the waiver of interest order passed by theCCIT is a definite sum that was wrongly deductedfrom the Petitioners as interest. Payment of intereston that sum by the Revenue cannot be characterisedas payment of 'interest on interest'. In India TradePromotion Organization v. CIT (supra) the questionbefore the Court concerned the denial of interest onrefund. It was clarified that "if the refund does notinclude interest due and payable on the amountrefunded, the Revenue would be liable to pay intereston the shortfall. This does not amount to payment ofinterest on interest." 17.ThepredecessorDivisionBenchincomingtotheaforesaidconclusion, referred to the expression 'in any other case’ in Section 244A(1)(b) of the Act to hold that Revenue is liable to pay interest on the sum foundrefundable to an assessee, upon waiver of interest. In the facts of the presentcase too, a sum has admittedly been found refundable to the assessee as aconsequence of reduction in the taxable income. The relevant text of Section244A(1)(b) of the Act reads as under : “Interest on refunds.244A.(1) Where refund of any amount becomes dueto the assessee under this Act, he shall, subject to theprovisions of this section, be entitled to receive, inaddition to the said amount, simple interest thereoncalculated in the following manner namely :-244A.(1) Where refund of any amount becomes dueto the assessee under this Act, he shall, subject to theprovisions of this section, be entitled to receive, inaddition to the said amount, simple interest thereoncalculated in the following manner namely :- (a)xxxxxxxxx(aa)xxxxxxxxx(aa)xxxxxxxxx (b)in any other case, such interest shall be calculated at the rate of one-half per cent for every ITA 1447/2018 month or part of a month comprised in the period orperiods from the date or, as the case may be, dates ofpayment of the tax or penalty to the date on which therefund is granted.” [Emphasis Supplied] 18.The learned counsel for the Revenue has not disputed that thepayment of interest by the respondent under Section 234D and Section220(2) of the Act was in pursuance of the demand raised by the Revenue,which demand subsequently has been found to be incorrect and the moneyhas become due and payable by the Revenue to the assessee. 19.It would be relevant to note here that in the judgment of Preeti N.Aggarwala (supra), the predecessor Division Bench took note of thepending reference to the larger Bench in Sutlej Industries Limited vs. CITin ITA No. 493/2003 (supra) and observed that the issue involved in thesaid reference pertains to refund of excess self assessment tax whereas, theissue determined in the judgment in Preeti N. Aggarwala (supra) waspayment of interest on the amount of refund payable to the assessee underSection 220A of the Act. The issue arising in the present appeal isauthoritatively answered by the predecessor Division Bench in Preeti N.Aggarwala (supra) and we do not find any substance in the contention ofthe learned counsel for the Revenue that present appeal must await thedecision of the larger Bench. 20.In this regard, it would be instructive to refer to the judgment of theSupreme Court in the case of Union of India v. Tata Chemicals Ltd.reported in (2014) 6 SCC 335 which reads as under : “25. Before the insertion of Section 244-A as a ITA 1447/2018 Page 9 of 12 compositesectionbytheDirectTaxLaws(Amendment) Act, 1987, the liability to pay interest onrefund of pre-paid taxes was contained in Section 214,243 read with Section 244 (1-A) of the Act. Parliamenthas introduced a new section in the place of Sections214, 243 and 244 in respect of assessment for theAssessment Year 1989-1990 and onwards. 20.In this regard, it would be instructive to refer to the judgment of theSupreme Court in the case of Union of India v. Tata Chemicals Ltd.reported in (2014) 6 SCC 335 which reads as under : “25. Before the insertion of Section 244-A as a ITA 1447/2018 Page 9 of 12 compositesectionbytheDirectTaxLaws(Amendment) Act, 1987, the liability to pay interest onrefund of pre-paid taxes was contained in Section 214,243 read with Section 244 (1-A) of the Act. Parliamenthas introduced a new section in the place of Sections214, 243 and 244 in respect of assessment for theAssessment Year 1989-1990 and onwards. 26. The language of the section is precise, clear andunambiguous. Sub-section (1) of Section 244-A speaksof interest on refund of the amounts due to an assesseeunder the Act. The assessee is entitled for the saidamount of refund with interest thereon as calculated inaccordance with clause (a) & (b) of sub-section (1) ofSection 244-A. In calculating the interest payable, thesection provides for different dates from which theinterest is to be calculated. 37. A “tax refund” is a refund of taxes when the taxliability is less than the tax paid. As per the old sectionan assessee was entitled for payment of interest on theamount of taxes refunded pursuant to an order passedunder the Act, including the order passed in an appeal.In the present fact scenario, the deductor/assessee hadpaid taxes pursuant to a special order passed by theassessing officer/Income Tax Officer. In the appealfiled against the said order the assessee has succeededand a direction is issued by the appellate authority torefundthetaxpaid.Theamountpaidbytheresident/deductor was retained by the Government tilla direction was issued by the appellate authority torefund the same. When the said amount is refunded itshould carry interest in the matter of course. As heldby the Courts while awarding interest, it is a kind ofcompensation of use and retention of the moneycollected unauthorisedly by the Department. When the ITA 1447/2018 collection is illegal, there is corresponding obligationon the Revenue to refund such amount with interestinasmuch as they have retained and enjoyed the moneydeposited. Even the Department has understood theobject behind insertion of Section 244-A, as that, anassessee is entitled to payment of interest for moneyremaining with the Government which would berefunded. There is no reason to restrict the same to anassessee only without extending the similar benefit to aresident/deductor who has deducted tax at source anddeposited the same before remitting the amountpayable to a non-resident/foreign company. 38. Providing for payment of interest in case of refundof amounts paid as tax or deemed tax or advance tax isa method now statutorily adopted by fiscal legislationto ensure that the aforesaid amount of tax which hasbeen duly paid in prescribed time and provisions inthat behalf form part of the recovery machineryprovided in a taxing statute. Refund due and payableto the assessee is debt-owned and payable by theRevenue. The Government, there-being no expressstatutory provision for payment of interest on therefund of the excess amount/tax collected by theRevenue, cannot shrug of its apparent obligation toreimburse the deductors lawfulmonieswith theaccrued interest for the period of undue retention ofsuch monies.....The obligation to refund moneyreceived and retained without right implies andcarries with it the right to interest. Whenever moneyhas been received by a party which ex ae quo et bonoought to be refunded, the right to interest follows, asa matter of course.” (Emphasis Supplied) 21.The said judgment was also followed by the Supreme Court in thecase of Universal Cable (supra) to hold that there is reason to deny payment ITA 1447/2018 of interest to the deductor who has deducted the tax at source and depositedthe same with the treasury. The Supreme Court rejected the submission ofthe Revenue that interest can only be granted to an assessee under Section244A of the Act and not to a deductor of the tax at source. (Emphasis Supplied) 21.The said judgment was also followed by the Supreme Court in thecase of Universal Cable (supra) to hold that there is reason to deny payment ITA 1447/2018 of interest to the deductor who has deducted the tax at source and depositedthe same with the treasury. The Supreme Court rejected the submission ofthe Revenue that interest can only be granted to an assessee under Section244A of the Act and not to a deductor of the tax at source. 22.The judgment of the Supreme Court in the case of Gujarat FluoroChemicals (supra) arose on issue as regards payment of interest in the eventof the failure of Revenue to refund the interest payable within the statutoryperiod. The Supreme Court held that it is the interest provided under thestatute which may be claimed by an assessee from the Revenue and no otherinterest on statutory interest is payable. 23.In the present case, as noted above, the assessee has been foundentitled to refund of money deposited by it upon re-computation by theRevenue and interest thereon is liable to be paid under Section 244A(1)(b)of the Act as held by this Court in Preeti N. Aggarwala (supra). 24.In view of the aforesaid discussion, we do not find any infirmity in theorder passed by the ITAT and we do not find any substantial question of lawin the present appeal and the same is accordingly dismissed. MANMEET PRITAM SINGH ARORA, J AUGUST 4, 2022j MANMOHAN, J ITA 1447/2018