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2008 DIGILAW 1440 (MP)

Commissioner of Income-tax v. H. E. G. Ltd.

2008-12-15

DIPAK MISRA, SANJAY YADAV

body2008
JUDGMENT Dipak Misra, J. 1. Regard being had to the similarity of the substantial question of law involved in these appeals preferred under Section 260A of the Income-tax Act, 1961 (or brevity "the Act"), they were heard analogously and are being disposed of by a singular order. For the sake of clarity and convenience, the facts in MAIT No. 58 of 2004 are adumbrated herein. 2. In these appeals, the following substantial question of law is involved: Whether the Tribunal is justified in holding that the assessee is entitled to interest even on the amount of interest allowed or allowable under Section 244A when Section 244A of the Act provides for payment of simple interest only? 3. The assessee, a company incorporated under the Companies Act, 1956, filed its return declaring a total income of Rs. 10,48,96,320. Thereafter, a revised return was filed declaring a total income of Rs. 8,64,95,970 on February 4,1997. The return was processed under Section 143(1)(a) and the total income was finally determined at Rs. 8,80,99,405 as per the order passed under Section 154 of the Act on October 22, 1997. The Assessing Officer, at the time of processing of the assessment of the assessee, observed on the issue regarding the claim of interest paid on loan taken for expansion and pre-operative expenses that the same was not tenable inasmuch as all the expenses incurred up to the commencement of commercial production were required to be capitalised. He was also of the considered opinion that the expenses did not pertain to the existing business of the assessee and, accordingly, made addition of Rs. 1,42,46,623 on account of interest and service charges on term loans and pre-operative expenses. As regards the issue relating to claim under Section 80HH, the Assessing Officer expressed the view that the assessee was required to give a complete working of the correct amount of deduction under Section 80HH of the Act and accordingly, he disallowed the deduction of Rs. 3,00,75,391. 4. Being dissatisfied with the order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) to delete the addition of Rs. 1,46,623 on account of interest and service charges on terms loans and pre-operative expenses. With regard to the claim under Section 80HH, the appellate authority directed the Assessing Officer to allow the deduction on the amount of Rs. 3,00,75,391. 1,46,623 on account of interest and service charges on terms loans and pre-operative expenses. With regard to the claim under Section 80HH, the appellate authority directed the Assessing Officer to allow the deduction on the amount of Rs. 3,00,75,391. Thus, the Commissioner of Income-tax (Appeals) allowed the appeal in part. Being aggrieved with the aforesaid order, the assessee as well as the Revenue preferred an appeal before the Income-tax Appellate Tribunal. The Appellate Tribunal confirmed the decision of the Commissioner of Income-tax (Appeals) and, accordingly, dismissed the appeal of the assessee and partly allowed the appeal of the Revenue. Though many a ground was urged, the learned Counsel for the Revenue referring to the grounds stated in MATT No. 58 of 2004 has restricted the question to the one we have reproduced above. 5. Be it noted, the present bunch of appeals relates to the assessment years 1991-92, 1992-93, 1994-95 and 1995-96. The question for determination fundamentally and basically is whether the society is entitled to interest on interest under Section 244A of the Act. The case of the assessee before the authorities below was that on the date refund was given, from that date interest should have been given. As the interest was not given, the assessee was entitled to claim interest on the amount of interest. 6. We have heard Mr. Rohit Arya, learned senior counsel along with Mr. Sanjay Lai for the Revenue and Mr. Sumit Nema, learned Counsel for the assessee. 7. It is submitted by Mr. Arya, learned senior counsel that Section 244A of the Act which holds the field from April 1, 1989, is different from Section 244 of the Act and, hence, no interest is payable. Section 244 of the Act which deals with interest on refund where no claim is needed reads as under: 244. 7. It is submitted by Mr. Arya, learned senior counsel that Section 244A of the Act which holds the field from April 1, 1989, is different from Section 244 of the Act and, hence, no interest is payable. Section 244 of the Act which deals with interest on refund where no claim is needed reads 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 in Section 240 and the Assessing 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 fifteen 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 day 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. 8. Section 244A of the Act which deals with interest on refund (s) reads as follows: 244A. 8. Section 244A of the Act which deals with interest on refund (s) reads as follows: 244A. Interest on refunds--(1) Where refund of any amount becomes due to the assessee under this Act, he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely:-- (a) where the refund is out of any tax collected at source under Section 206C or paid by way of advance tax or treated as paid under Section 199, during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of one-half per cent, for every month or part of a month comprised in the period from the 1st day of April of the assessment year to the date on which the refund is granted; (b) in any other case such interest shall be calculated at the rate of one half per cent, for every month or part of a month comprised in the period or periods from the date or, as the case may be, dates of payment of the tax or penalty to the date on which the refund is granted. 9. Section 240 of the Act uses the term "refund of any amount becomes due to the assessee". In Section 244A, these words are included in the Section itself which is manifest from Sub-section (1) as therein the words employed are "where refund of any amount becomes due to the assessee under this Act." In this context, we may profitably refer to the decision rendered in CIT v. [2001] 249 ITR 527 (Delhi) wherein it was held as under (page 532): Section 244 deals with interest on refund where no claim is needed. Sub-section (2), inter alia, provides that where a refund is due to the assessee, 'in pursuance of an order referred to in Section 240' and the Assessing Officer does not grant the refund within the stipulated time, the Central Government is required to pay simple interest at the stipulated rate. Section 240 deals with refund on appeal, etc. Sub-section (2), inter alia, provides that where a refund is due to the assessee, 'in pursuance of an order referred to in Section 240' and the Assessing Officer does not grant the refund within the stipulated time, the Central Government is required to pay simple interest at the stipulated rate. Section 240 deals with refund on appeal, etc. This provision clearly lays down that where as a result of any order passed in appeal or other proceedings under this Act, refund of any amount becomes due to the assessee, the Assessing Officer shall, except as otherwise provided in this Act, refund the amount to the assessee without his having to make any claim in that behalf. The crucial expressions in Section 240 are 'any amount which becomes due to the assessee as a result of any order passed in any appeal or other proceedings under the Act' and the 'amount becomes due to the assessee'. Section 244 refers to the liability fastened on the Central Government in case of failure to grant refund within the stipulated time in a case where refund is due to the assessee in pursuance of an order referred to in Section 240. A combined reading of both the provisions makes the position crystal clear that it is any amount which becomes due to the assessee and not necessarily the tax component. Undisputedly, a sum of Rs. 1,90,499 which qualifies for interest became payable to the assessee on the basis of an order passed under Section 240 of the Act. Merely because this was inclusive of an amount which was payable under Section 214 of the Act, that would not make the position any different. It is an amount which became due to the assessee on the basis of the appellate order. Therefore, the assessee was entitled to interest in terms of Section 244 of the Act. A similar view has been taken by the Gujarat High Court in D.J. Works v. [1992] 195 ITR 227 (Guj) and Chimanlal S. Patel v. [1994] 210 ITR 419 (Guj) though with different conclusions. 10. In CIT v. [2002] 254 ITR 606 (SC), a three-judge Bench of the apex court affirmed the decision of the High Court where interest on interest was granted. 11. 10. In CIT v. [2002] 254 ITR 606 (SC), a three-judge Bench of the apex court affirmed the decision of the High Court where interest on interest was granted. 11. In Sandvik Asia Ltd. v. [2006] 280 ITR 643 (SC), it has been held as under (page 671): In our view, the Act recognizes the principle that a person should only be taxed in accordance with law and hence where excess amounts of tax are collected from an assessee or any amounts are wrongfully withheld from an assessee without authority of law the Revenue must compensate the assessee. At the initial stage of any proceedings under the Act any refund will depend on whether any tax has been paid by an assessee in excess of tax actually payable by him and it is for this reason that Section 237 of the Act is phrased in terms of tax paid in excess of amounts properly chargeable. It is, however, of importance to appreciate that Section 240 of the Act, which provides for refund by the Revenue on appeal, etc., deals with all subsequent stages of proceedings and, therefore, is phrased in terms of 'any amount' becoming due to an assessee. The Delhi High Court in Goodyear India Ltd.'s case [2001] 249 ITR 527(Delhi) held that an assessee is entitled to further interest under Section 244 of the Act on interest under Section 214 of the Act which had been withheld by the Revenue. The case of the Revenue was that interest payable to an assessee under Section 214 of the Act was not a refund as defined in Section 237 of the Act and hence no interest could be granted to the assessee under Section 244 of the Act. The court held that for this purpose Section 240 of the Act was relevant which referred to refund of 'any amount becoming due to an assessee' and that the said phrase would include interest and hence the assessee was entitled to further interest on interest wrongfully withheld. It is also important to appreciate that the Delhi High Court also referred to the Gujarat High Court decision in D.J. Works' case [1992] 195 ITR 227(Guj) and read it as taking the same view. This supports the view of the appellant on the correct reading of the Gujarat decision. It is also important to appreciate that the Delhi High Court also referred to the Gujarat High Court decision in D.J. Works' case [1992] 195 ITR 227(Guj) and read it as taking the same view. This supports the view of the appellant on the correct reading of the Gujarat decision. As already noticed in paragraph supra, the Madras High Court in Needle Industries Private Ltd.'s case [1998] 233 ITR 370(Mad) , has also interpreted the phrase 'any amount' in the same manner when considering the provisions of Section 244(1A) of the Act, which also uses the same phrase in the context of interest payable by the Revenue. In express terms the court held that the expression referred not only to the tax but also to interest. The court agreed with a similar view taken by the Kerala High Court in the case of Ambat Echukutty Menon [1988] 173 ITR 581(Ker). Both these were cases where the court was called upon to decide whether further interest was payable by the Revenue on interest which had to be repaid to the assessee. In our opinion, the appellant is entitled to interest under Section 244 and/or Section 244A of the Act in accordance with the terms and provisions of the said sections. 12. In CIT v. Cholamandalam Investment and Finance Co. Ltd. [2007] 294 ITR 438 (Mad), it was held as under (headnote): ... that in view of the express provisions of the Income-tax Act, 1961, an assessee was entitled to compensation by way of interest for the delay in the payment of amounts lawfully due to the assessee which were withheld wrongly and contrary to law. The Government was liable to pay interest at the rate applicable to the excess amount refunded to the assessee. 13. In view of the aforesaid enunciation of law, we are of the considered opinion that grant of interest on interest is permissible and the change in the provision does not affect the same. In the result, we do not find any merit in these appeals and accordingly, they are dismissed. There shall be no order as to costs.