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2009 DIGILAW 1023 (KER)

Devayani Amma v. Dy. Commissioner of Income Tax

2009-10-28

C.N.RAMACHANDRAN NAIR, V.K.MOHANAN

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Judgment :- C.N. Ramachandran Nair, J. The question raised in the appeal filed by the assessee is whether the Income Tax Appellate Tribunal was justified in holding that interest received by the assessee on refund relating to previous year is assessable to tax in the assessment year in which such interest is granted to the assessee along with the refund. 2. We have heard Sri. P. Balakrishnan, learned counsel appearing for the appellant and the Standing Counsel appearing for the respondents. 3. The assessment made in the case of the assessee for the year 1983-84 was subjected to appeal which was decided in favour of the appellant. However, the assessing officer revised the assessment under S. 140 of the Income Tax Act. 1961 (for short ’the Act’) and granted refund only in the previous year relevant for the year 194 95. Along with refund of excess tax paid, a further sum of Rs. 2,87,537/- was granted towards interest payable under S. 244 (1A0 of the Act. However, the entire interest was treated as income of the assessment year 1994-95 and assessed to tax. The assessee contested the liability for tax on the entire interest amount for the assessment year 1983-84 on the ground that interest accrues every year from the date of excess tax payment till the date of refund. Even though the assessee was successful in first appeal before the Commissioner of Income Tax Appeals, the Tribunal, following the decision of the Orissa High Court in C.I.T. v. Sri, Popsing Rice Mill (212 ITR 385) and another decision of the Allahabad High Court in J.K. Spinning & Weaving Mills Co. v. Addl, C.L.T. (104 ITR 695), allowed the Department’s appeal and restored the assessment holding that interest income is assessable on receipt basis. It is against this order of the Tribunal, the appellant has approached this Court in this appeal. 4. Counsel for the assessee has relied on the decision of the Supreme Court reported in Ramabai v. Commissioner of Income. Tax, Andhra Pradesh ( 181 ITR 400 and contended that interest income, whatever be the nature of interest, is assessable on an year to year basis from the date of accrual till the date of receipt. 4. Counsel for the assessee has relied on the decision of the Supreme Court reported in Ramabai v. Commissioner of Income. Tax, Andhra Pradesh ( 181 ITR 400 and contended that interest income, whatever be the nature of interest, is assessable on an year to year basis from the date of accrual till the date of receipt. Standing Counsel, on the other hand, submitted that the decision of the Supreme Court is with regard to the interest received under the Land Acquisition Act and the same does not apply to interest received on a refund under the Act Counsel for the appellant submitted that the decision of the Supreme Court in Ramabai’s case (cited supra) came subsequent to the decision of the Supreme Court which was followed by the Orissa high Court in deciding the matter against the assessee. We notice that all the decisions are in respect of the interest received under the Land Acquisition Act and the position declared by the Supreme Court is neutralized by an amendment introducing S. 56 (viii) and S. 145(b) introduced by the Finance (N0.2) Act. w.e.f. 1-4-2010. Since the amendment is prospective, the contention of counsel is that until then, the law declared by the Supreme Court should be followed. Since the decisions are not on interest on refund granted under the Income Tax. Act, we have to consider the matter with respect to the statutory provisions 5. We find that the assessee’s eligibility for interest on refund arises only when the assessment is revised in terms of the appellate order by the assessing officer under S. 143 of the I.T. Act In other words, unless on revision of assessment in terms of the appellate order, excess tax is found to have been paid by the assessee, the assessee would not be entitled to any refund at all. Interest on refund arises only when refund is ordered in favour of the assessee. Therefore, eligibility of interest under S. 244(1A) arises, when the result of the revision of assessment pursuant to order in appeal, leads to grant of refund of excess Tax paid by the assessee. Of course, the liability of the Government to grant interest under S. 244(1A) is mandatory and it from the date of payment till date of refund. Therefore, eligibility of interest under S. 244(1A) arises, when the result of the revision of assessment pursuant to order in appeal, leads to grant of refund of excess Tax paid by the assessee. Of course, the liability of the Government to grant interest under S. 244(1A) is mandatory and it from the date of payment till date of refund. However, in our vies, interest accrues only when assessee is found to be eligible for refund of excess tax on revision of assessment based on orders in appeal. S. 145(1) of the Act provides as follows:- “145. Method of accounting (1) Income chargeable under the head “Profits and gains of business or profession” or “Income from other sources” shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee”. (2) From the above, it is clear that income under the two heads, i.e., income from business or profession and income from other sources, shall subject to accounting standards, if any, prescribed by the Government in terms of sub-s. (2) be assessed in the assessment year relevant for the previous year in which such income accrues under the mercantile system or it is received by the assessees. Therefore, in order to assess the interest income for any assessment year, such interest income should accrue, i.e., it should become due to the assessee or it should be received by the assessee in the relevant previous year. In this case, we have already found that interest under S. 244 (1A) accrues to assessee only when it is granted to the assessee along with refund order issued under S. 240 of the Act. In fact along with refund order, the refund voucher is also issued to the assessee in the year 1994-95 and so much so, interest under S. 244(1A) in this case accrued to the assessee and was also paid to the in the previous year relevant for the assessment year 1994-95. We therefore uphold the order of the Tribunal and dismiss the appeal.