Wp(C)/26052/2004 Of M/S.kerala Transport Co.calicut v. Asst.commissioner Of Incometax Cir.i,Cal

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR FRIDAY, THE 5TH DECEMBER 2008 / 14TH AGRAHAYANA 1930 WP(C).No. 26052 of 2004(B) -------------------------- PETITIONER(S): --------------- M/S. KERALA TRANSPORT CO., CALICUT. BY ADV. SRI.S.ARUN RAJ RESPONDENT(S): --------------- 1. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE (I), CALICUT 2. COMMISSIONER OF INCOME TAX, CALICUT. ADV. SRI.P.K.R.MENON(SR.),SR.COUNSEL FOR IT SRI. JOSE JOSEPH, SC FOR IT THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 05/12/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: PETITIONER'S EXHIBITS: EXT.P1 TRUE COPY OF THE ASSESSMENT ORDER DATED 23.3.1993 FOR THE ASSESSMENTYEAR 1990-91 EXT.P2 TRUE COPY OF THE ORDER DATED 26.7.2002 PASSED UNDER SECTION 154 OF THEACT BY THE FIRST RESPONDENT. EXT.P3 TRUE COPY OF THE ORDER DATED 18.12.2002 PASSED UNDER SECTION 154 OF THEACT BY THE FIRST RESPONDENT. EXT.P4 TRUE COPY OF THE ORDER DATED 23.3.2004 PASSED UNDER SECTION 264 OF THEACT BY THE 2ND RESPONDENT. RESPONDENTS' EXHIBITS: NIL. TRUE COPY P.S. TO JUDGE. C.N. RAMACHANDRAN NAIR, J. -------------------------------------------- W.P.C. NO. 26052 OF 2004 -------------------------------------------- Dated this the 5th day of December, 2008 C.R.JUDGMENT The issue that arises for consideration is whether the assessee isentitled to interest under Section 244A(1)(b) of the I. T. Act on theexcess tax paid along with return under Section 140A of the I.T. Act.The assessment involved is for the year 1990-91 and for this year, theassessee admittedly paid Rs. 13,94,620/- under Section 140A of the Actalong with return filed. The assessment was subject matter of appealsand Ext.P3 is the final revised assessment order issued afterrectification of some mistakes in the earlier order passed. Tax is seencredited in the assessment in the form of tax deduction at source madeby parties, advance tax paid by the assessee, tax paid along with return(self-assessed tax) and tax paid against demand notice raised underSection 156 of the Act. In the ultimate result, it is seen that assesseewas entitled to huge refund. Even though refund is granted along withinterest on substantial portion thereof, the assessing officer declined to grant interest on excess payment of self-assessed tax under Section 140A of the Act on the ground that Section 244A(1)(b) does notauthorise payment of interest on such excess self assessed tax paid afterthe assessment year 1989-90. Even though assessee filed revisionpetition against this order under Section 264 of the Act, theCommissioner rejected the claim vide Ext.P4 against which this WritPetition is filed for declaration that assessee is entitled to interest underSection 244A(1)(b) of the Act and for direction to respondents to grantsuch interest. I have heard counsel appearing for the petitioner-assessee and standing counsel appearing for the Income-taxDepartment. 2. Since interest is claimed under Section 244A(1)(b) of the Act,the said section with Explanation is extracted hereunder for easyreference: 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)....... (b)in any other case, such interest shall be calculated at the rate of one half per cent forevery month or part of a month comprised inthe period or periods from the date or, as thecase may be, dates of payment of the tax orpenalty to the date on which the refund isgranted. Explanation:- For the purposes of this clause, "date ofpayment of tax or penalty" means the date on andfrom which the amount of tax or penalty specified inthe notice of demand issued under Section 156 is paidin excess of such demand. 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)....... (b)in any other case, such interest shall be calculated at the rate of one half per cent forevery month or part of a month comprised inthe period or periods from the date or, as thecase may be, dates of payment of the tax orpenalty to the date on which the refund isgranted. Explanation:- For the purposes of this clause, "date ofpayment of tax or penalty" means the date on andfrom which the amount of tax or penalty specified inthe notice of demand issued under Section 156 is paidin excess of such demand. It is clear from the above provisions and the impugned order thatdepartment does not dispute assessee's entitlement for interest onrefund of all payments of tax in excess of actual tax found due onassessment except excess self-assessed tax paid under Section 140A(1)of the Act. Counsel for the assessee has relied on the decision of theSupreme Court in MODI INDUSTRIES' case, 216 ITR 759 andcontended that interest under Section 214 was payable to the assesseeon the entire excess tax paid which includes self-assessed tax also.Standing counsel on the other hand submitted that even according tothe decision of the Supreme Court above referred, interest is payablestrictly in accordance with statutory provisions and if the Section doesnot provide for it, assessee is not entitled to interest. He submitted thatdecision of the Supreme Court cannot be relied upon because the said decision was rendered in the context of Section 214 which is not applicable in any way from the assessment year 1989-90 onwards.Another decision relied on by the assessee is that of the Madras High Court in CIT V. CHOLAMANDALAM INVESTMENT ANDFINANCE CO.LTD, 294 I.T.R. 438 (Mad.) wherein the Madras HighCourt held that assessee is entitled to interest under Section 244(A)(1)(b) of the Act. However, standing counsel submitted that Madras HighCourt in that case was following some other decisions which wererendered in the context of Section 214 of the Act only. 3. Before considering the scope of the above provision, it isworthwhile to consider circular issued by the Central Board explaining the purpose of insertion of new Section 244A vide clause 11.3 ofcircular reported in 182 I.T.R. (Statutes) 48 which is as follows: "11.3 These provisions, apart from being complicated, leftcertain gaps for which interest was not paid by theDepartment to the assessee for money remaining with theGovernment. To remove this inequity, as also to simplifythe provisions in this regard, the Amending Act, 1987, hasinserted a new Section 244A in the Income Tax Act,applicable from the assessment year 1989-90 and onwardswhich contains all the provisions for payment of interest bythe department for delay in the grant of refund. ..." 3. Before considering the scope of the above provision, it isworthwhile to consider circular issued by the Central Board explaining the purpose of insertion of new Section 244A vide clause 11.3 ofcircular reported in 182 I.T.R. (Statutes) 48 which is as follows: "11.3 These provisions, apart from being complicated, leftcertain gaps for which interest was not paid by theDepartment to the assessee for money remaining with theGovernment. To remove this inequity, as also to simplifythe provisions in this regard, the Amending Act, 1987, hasinserted a new Section 244A in the Income Tax Act,applicable from the assessment year 1989-90 and onwardswhich contains all the provisions for payment of interest bythe department for delay in the grant of refund. ..." It is obvious from the above that the purpose is to liberalise the thenexisting provisions and to ensure that interest is paid for delay in grantof refund. As already noticed, in the decision referred to above, theSupreme Court has held that interest is payable on excess self-assessedtax paid under Section 140A of the Act. The question therefore to beconsidered is whether the new provision introduced with effect from1.4.1989 seeks to limit interest on every payment of tax except self-assessed tax paid under Section 140A of the Act. It is pertinent to notethat clause (a) of Section 244A(1) provides for interest on refund ofexcess payment of tax, such as the fringe benefit tax paid under Section115WJ, tax collected at source under Section 206 and tax paid by wayof advance tax or tax treated as paid under Section 199 during thefinancial year. After providing specific rate of interest on refund ofexcess tax paid, categories of which are referred to in clause (a), clause(b) provides for lower rate of interest on refund of tax paid in othercases. No doubt tax paid "in any other case" is not defined under theAct. However, explanation to clause (b) clarifies the date on whichinterest is payable by defining "date of payment of tax or penalty"referred to in clause (b) as the date on which tax is paid pursuant tonotice issued under Section 156. Counsel for the assessee mainly argued that "in any other case" referred to in clause (b) covers all othercases which are not referred to in clause (a) and so much so everypayment of tax in excess of tax due will entitle the assessee for interest.Alternatively, he submitted that payment of self-assessed tax partakesthe character of payment as if tax is paid pursuant to notice issuedunder Section 156 because of the specific provision contained inSection 140A(2) of the Act. Standing counsel on the other handcontended that clause (b) covers only payments of tax made pursuant tonotice of demand under Section 156, and self-assessed tax cannot betreated as payment under Section 156. In this context it is worthwhileto refer to Section 140A of the Act, which is extracted hereunder foreasy reference: 140A. (1) Where any tax is payable on the basis ofany return required to be furnished under Section115WD or Section 115WH or Section 139 or Section142 or Section 148 or Section 153A or, as the casemay be, section 158BC, after taking into account theamount of tax, if any, already paid under anyprovision of this Act, the assessee shall be liable topay such tax together with interest payable under anyprovision of this Act for any delay in furnishing thereturn or any default or delay in payment of advancetax, before furnishing the return and the return shallbe accompanied by proof of payment of such tax andinterest. Explanation:..... (2) After a regular assessment under Section 115WEor Section 115WF or Section 143 or Section 144 oran assessment under Section 153A or section 158BChas been made, any amount paid under sub-section(1) shall be deemed to have been paid towards suchregular assessment (or assessment, as the case maybe. Explanation:..... (2) After a regular assessment under Section 115WEor Section 115WF or Section 143 or Section 144 oran assessment under Section 153A or section 158BChas been made, any amount paid under sub-section(1) shall be deemed to have been paid towards suchregular assessment (or assessment, as the case maybe. (3) If any assessee fails to pay the whole or any partof such tax or interest or both in accordance with theprovisions of sub-section (1), he shall, withoutprejudice to any other consequences which he mayincur, be deemed to be an assessee in default inrespect of the tax or interest or both remainingunpaid, and all the provisions of this Act shall applyaccordingly. (4)..... It is obvious from sub-section (1) that assessee is required to remit self- assessed tax due under the return before the date of filing of the returnand proof of payment should be filed along with return. Sub-section(3) specifically provides that if the assessee does not remit self-assessed tax as required under sub-section (1), the assessee shall bedeemed to be an assessee in default and all the provisions of the Actshall apply accordingly. Section 156 authorises the assessing officer toissue notice of demand whenever tax, penalty, interest or any otheramount is due under the Act. Therefore if an assessee fails to pay self- assessed tax along with return as required under sub-section (1) ofSection 140A of the Act, then the officer will declare the assessee as anassessee in default; and will issue notice of demand requiring him topay self-assessed tax so due along with interest due thereon in terms ofSection 156. Obviously any such defaulted self-assessed tax paidpursuant to notice issued under Section 156 is also covered by clause(b) of Section 244A(1) entitling the assessee for interest on excess self-assessed tax paid pursuant to notice of demand. The question now tobe considered is whether an assessee who complies with sub-section(1) of Section 140A and remits tax along with return should bedeclined interest while granting interest to a defaulter who pays self-assessed tax only on demand after default. I do not think Legislatureintended this inequitable consequence on the statute. Further sub-section (2) of Section 140A authorises the assessing officer to adjustself-assessed tax paid along with return against assessed tax as andwhen assessment is completed. Therefore what follows from Section isthat self-assessed tax becomes demand of tax when it is adjustedagainst assessment by the Officer. Since consequence of non-paymentand adjustment is demand under Section 156 and recovery inaccordance with provisions of the Act, adjustment so made partakes the character of tax demanded under Section 156 after assessment. In otherwords, all payments of self-assessed tax under Section 140A(1)partakes the character of demand of tax after assessment is made.However, if on the date of assessment the assessing officer finds thatself-assessed tax is in excess of tax due, he necessarily grants refund,which means that assessee will not be entitled to any interest on suchrefund. On the other hand, if any self-assessed tax paid, and adjustedagainst demand, was later found to be refundable, then assessee will beentitled to interest under Section 244A(1)(b) of the Act on such excesstax adjusted against demand. In other words, date of payment to bereckoned for self-assessed tax for the purpose of interest under Section244A(1) is the date on which assessment and adjustments are made.The question raised in the WPC is answered in favour of the assessee inthe way stated above. Consequently, Ext.P4 order of theCommissioner and to the extent of Ext.P3 declining interest on refundof self-assessed tax are set aside with direction to the assessing officerto grant eligible interest on refund of excess self-assessed tax paid fromthe date of first regular assessment and adjustment till date of refund atthe rate provided under clause (b) of Section 244A(1) of the Act. Even though counsel for the assessee referred to the decision of the Supreme Court in SANDVIK ASIA LTD. V. CIT., 280 I.T.R. 643and contended that assessee is entitled to interest on interest forwrongfully declining grant of interest on refund, I do not think this is afit case for granting interest on interest because interest is notdeliberately declined but on account of bona fide mis-interpretation ofnew statutory provision by the authorities concerned, and hence thisrequest is declined. kk (C.N. RAMACHANDRAN NAIR) Judge