Full Text
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 2942 OF 2004
M/s. J. K. Industries ] a partnership firm registered under the ]
Indian Partnership Act, 1932 and also ] granted registration under the Income Tax ]
Act, 1961 and having its office at F-1, ]
Gyan Darshan, S.V.P. Road, Kandivali (W) ]
Mumbai 400 067. ] .. Petitioner.
Commissioner of Income Tax, ]
Mumbai City- XXV
, Mumbai having ] her office at C-11, Pratyakashkar ]
Bhavan, Bandra Kurla Complex, ]
Bandra (E), Mumbai 400 051. ]
(2) The Union of India ] through the Secretary, Ministry of ]
Finance, Government of India, ]
North Block, New Delhi 110 001. ] .. Respondents.
Mr. Madhur Agrawal i/b. Mr. Atul K. Jaswani, for Petitioner.
Mr. Suresh Kumar, for Respondents.
DATED : 16th JUNE 2023.
ORAL JUDGMENT
2 Petitioner had filed its return of income on 30th June 1984, for A. Y. 1984-85 relevant to previous year ended dated 31st March 1984, declaring loss of Rs.1,79,830/-. The Assessment for A. Y. 1984-85 was completed under Section 143(3) of the Act and Assessment Order dated 23rd March 1987 determining the total income at Rs.4,83,658/- was passed. The Assessing Officer (A.O.) also made an addition of Rs.6,63,500/- under Section 68 of the Act in respect of the amount of capital contributed by the five partners on the ground that it was not proved to be cash credit. The A.O. also initiated penalty proceedings under Section 271 (1)(c) of the Act and consequently, issued a notice of demand dated 23rd March 1987, demanding a sum of Rs. 4,31,815/-.
3 Being aggrieved by the Assessment Order dated 23rd March 1987 passed by the A.O., Petitioner filed an Appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] on 21st April 1987. The Appeal was dismissed by an order dated 22nd February 1989.
4 Impugning order passed by the CIT(A), Petitioner filed an appeal before the ITAT on 11th May 1989 (Appeal No.1). S.R.JOSHI 2 of 18
5 Upon the CIT(A) dismissing the Appeal, A.O. proceeded further with the penalty proceedings and vide order dated 4th August 1989 levied penalty of Rs. 6,37,411/- under Section 271(1)(c) of the Act. Against this order, on 15th September 1989, Petitioner preferred an appeal before CIT(A). This Appeal came to be dismissed by an order dated 3rd January 1991 which was impugned in Appeal (Appeal No.2) filed before the ITAT.
6 The ITAT while dealing with quantum appeal, i.e., Appeal No.1, impugning order passed by CIT(A) on 22nd February 1989, by its order dated 31st March 1999, restored the matter to the file of the A.O. with a direction to re-consider the issue regarding the allegations made under Section 68 of the Act. Consequent to the remand by the ITAT, the A.O. in his order dated 6th December 1995, came to the conclusion that the partners were assesseed to tax and, therefore, investment in the Petitioner – firm were proved beyond doubt and, therefore, deleted the additions made in the original assessment. Notwithstanding, this order dated 6th December 1995, Petitioner was not granted refund of tax paid/ recovered pursuant to the original Assessment Order.
7 Petitioner, therefore, filed an application to A.O. under Section 154 of the Act, pointing out that Petitioner was not granted S.R.JOSHI 3 of 18 refund pursuant to the order dated 6th December 1995. In response to the application, the A. O., by an order dated 22nd July 1999, granted refund of Rs.4,31,815/- along with interest thereon of Rs.5,11,616/- under Section 244A of the Act aggregating to Rs.9,43,431/-. After adjusting refund against demands for Assessment Years 1984-85, 1987-88, 1988-89 and 1989-90, a refund order of Rs.2,03,927/- was issued to Petitioner.
8 Simultaneously, an order dated 18th August 1999 under Section 220(2) of the Act was passed, charging interest of Rs.7,07,115/in respect of penalty imposed under Section 271(1)(c) of the Act, after adjusting refunds for the Assessment Years 1985-86, 1990-91 and 1993-94 against penalty for A. Y. 1984-85. The demand of Rs.7,07,115/- was fully adjusted against refunds for Assessment Years 1984-85, 1990-91, 1994-95 and 1998-99.
9 Petitioner also received letter dated 24th August 1999 from the A.O. giving clarification and details regarding adjustment of refunds including interest against tax dues and granting of resultant refund of Rs.2,03,297/- for A. Y. 1984-85.
10 When the Appeal No.2 filed by Petitioner came up for hearing before the ITAT, by an order dated 5th July 2002, the ITAT set aside the penalty order in view of the fresh Assessment Order passed on 6th S.R.JOSHI 4 of 18 December 1995. Petitioner, therefore, by a letter dated 4th September 2002, made an application to the A.O. to give effect to the order passed on 5th July 2002 by the ITAT and to grant refund of the amount recovered along with interest under Sections 244/244A of the Act.
11 The A.O. passed an order under Section 154 of the Act on 4th June 2003 granting refund of Rs.13,44,526/- and interest of Rs.5,78,029/- under Section 244A of the Act, aggregating to Rs.19,22,555/-. The refund was calculated as under:- (A) Principal Amount of Penalty refunded Rs.637411 ======= (B) Interest granted on the above refund u/s. 244A (Rate of interest varied from 12% p.a. to 8% p.a. accordance with the amendment in the provision of section 244A from time to time) Rs.1,65,519 (Collected by TRO on 25-01-93) Rs.1,45,000 (Collected by TRO on various dates in installment in 1991) Rs.7,082 Refund of A. Y. 90-92 adjusted on 29-0993 Rs.14,478 Refund of A. Y. 93-94 adjusted on 25-02-94 Rs.3,05,332 Refund of various year adjusted on 18-08-99 Rs.6,37,411 Total Interest (Rs.) 1,96,405 2,03,407 1,78,217 Rs.5,78,029 =======
(C) Principal amount of interest recovered u/s.
220(2) refunded without interest Rs.7,07,115 Total (A+B+C) Rs.19,22,555 ======= S.R.JOSHI 5 of 18
12 It is Petitioner’s case that interest on refund was not calculated correctly, because no interest was granted on the amount recovered as interest under Section 220(2) of the Act. It is also Petitioner’s case that interest should have been granted under Section 244 of the Act in stead of Section 244A of the Act and that interest should also be granted on the refund of interest recovered under Section 220(2) of the Act. Petitioner filed a Revision Petition before Respondent No.1, i.e., Commissioner of Income Tax under Section 264 of the Act.
13 Respondent No.1, by an order dated 30th April 2004 dismissed the revision application of Petitioner. Respondent No.1 held that Section 244 of the Act was replaced w.e.f. 1st April 1989 by Section 244A of the Act. In the case of Petitioner, penalty was imposed on 4th August 1989, the refund arose after 1st April 1989 and therefore, Section 244A of the Act would apply and not Section 244. Hence, no interference was called for on the claims for interest on the refund of the amount calculated under Section 220(2) of the Act. Respondent No.1 further held that there was no provision under the Act for payment of interest on interest and thus, no interest could be paid to Petitioner on this amount. It is this order dated 30th April 2004 of Respondent No.1 which is impugned in this Petition. S.R.JOSHI 6 of 18
14 On the applicability of Section 244 of the Act, Mr. Agrawal submitted that sub-section 3 of Section 244 of the Act which was inserted by Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1st April 1989 provides that the provision of Section 244 of the Act was not applicable in respect of an Assessment for the Assessment Year commencing on the 1st day of April 1989 or any subsequent Assessment Year. Since the matter at hand relates to Assessment Year 1984-85, Section 244 of the Act shall apply. To buttress this submission Mr. Agrawal referred to sub-section 4 of Section 244A which provides that provision of Section 244A of the Act shall apply in respect of Assessments for the A. Y. commencing on the 1st day of April 1989 and subsequent Assessment Years. Therefore, it was clear that if refunds were due in respect of any Assessment Year up to 31st March 1989, i.e., A. Y. 1988-89, Section 244 of the Act will apply and from A.Y. 1989-90 Section 244A will apply.
15 On the issue of interest on refund of the amount paid under Section 220(2) of the Act, Mr. Agrawal submitted that sub-section 1A of Section 244 provides that where the whole or any part of the refund referred to in sub-section 1 of Section 244 is due to the assessee as a result of any amount having been paid by him after 31st March 1975 in pursuance of order of penalty and such amount or any part thereof having S.R.JOSHI 7 of 18 been found in appeal or other proceedings under the Act to be in excess of the amount which such an assessee is liable to pay as penalty under the Act, Central Government should 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. Mr. Agrawal states that expression used in this subsection is “any amount having been paid” and “on the amount so found to be in excess”. Sub-section does not say “on the tax having been paid”. If the sub-section had to be read that way then law makers would have worded it or used the expression “on any amount of tax paid” and “not any amount having been paid.” Therefore, the Act does not permit the segregation of the amount paid as tax and interest component separately.
16 Mr. Agrawal further submitted that the claim of Petitioner is not interest on interest as incorrectly stated in the impugned order but only interest on the entire amount having been refunded not only on the tax component excluding the interest component. Mr. Agrawal also relied upon the judgment of the Delhi High Court in Modipon Ltd., v./s. Commissioner of Income Tax[1] to submit that the assessee is entitled to interest in respect of interest payment made under Section 220(2) of the said Act. On the said proposition, Mr. Agrawal also relied upon the
1. 257 ITR 270 (2004) S.R.JOSHI 8 of 18 judgment of the Gujarat High Court in Commissioner of Income Tax v/s. which has been relied upon by the Delhi High Court in Modipon (supra) and finally on Commissioner of Income Tax v/s. Needle Industries Pvt. Ltd.[3]
17 Mr. Suresh Kumar, strongly opposed the Petition. Mr. Suresh Kumar in fairness submitted that though he has opposed the Petition, on the aspect of interest on interest paid under Section 220(2) of the Act, in fairness and as an Officer of Court, stated that in the case at hand, Section 244 will apply and not 244A of the Act by virtue of the judgment of the Bombay High Court in Sandvik Asia Ltd., v/s. Commissioner of Income Tax and Others 4 (Sandvik Asia [Bombay]).
18 Relying on the same judgment of Sandvik Asia (Bombay) (supra), Mr. Suresh Kumar submitted that there is no provision under the Income Tax Act that interest should be paid on interest and, therefore, Petitioner’s demand for interest on the amount paid under Section 220(2) of the Act has to be rejected.
19 Before we proceed further, Mr. Agrawal brought to our notice that the Judgment of the Bombay High Court in Sandvik Asia (supra) has been overruled by the Apex Court in Sandvik Asia Ltd. v/s. Commissioner
2. 256 ITR 596
3. 233 ITR 370
4. 267 ITR 78 S.R.JOSHI 9 of 18 of Income Tax and Others 5 (Sandvik Asis [SC]). Mr. Agrawal further submitted that the Apex Court has held where there has been inordinate delay, interest on interest can be granted. At the same time, Mr. Agrawal also submitted that in Commissioner of Income Tax v/s. Gujarat Fluoro Chemicals[6], the Apex Court has clarified that Sandvik Asia [SC] (supra) cannot be applied in every case but can be applied only in cases where the Court came to a conclusion that there was an inordinate delay on the part of Revenue in refunding certain amount which included the statutory interest and therefore, may direct the Revenue to pay compensation, therefore, not interest on interest.
20 Therefore, the two issues which require to be answered in this Petition are:- (A) whether in the facts and circumstances of the case, Section 244 of the Act will apply or Section 244A of the Act will apply? and (b) whether Petitioner is entitled to interest on refund of the interest paid by Petitioner under Section 220(2) of the Act?
21 In view of what we have recorded earlier as conceded by Mr. Suresh Kumar, the first issue does not arise. We will proceed on the basis
5. (2006) 280 ITR 643
6. (2013) 358 ITR 291 (SC) S.R.JOSHI 10 of 18 that, in the facts and circumstances of this case, Section 244 of the Act would apply.
22 On the second issue, undoubtedly, Petitioner had paid the penalty amount of Rs.6,37,411/- together with interest thereon. Section 244 (1) of the Act reads as under:-
23 The provision of law contained in section 244(1) on the face of it discloses that if the Department fails to refund the amount due in terms of section 240 within three months from the end of the month in which the order referred to in section 240 is passed, then the Department would be liable to pay the interest at the rate of 15 per cent per annum on the refund amount till the refund is granted. This liability of payment of interest in case of failure to pay the amount within three months in terms of section 240, itself reveals that the obligation thereunder would arise without there being any need for demand of compliance of such obligation. Upon the failure to pay the amount within three months, undoubtedly such obligation to pay interest will have to be complied with along with the compliance of the provisions of section 240. However, subsection (1) of section 244 nowhere speaks of interest on interest. On the S.R.JOSHI 12 of 18 contrary, it refers to simple interest on the amount of refund due in pursuance of the order referred to in section 240. Once it is clear that section 240 does not relate to any interest amount but speaks of the repayment of the excess amount paid by the assessee and section 244(1) refers to the order spoken of on such excess amount refundable to the assessee; it clearly means that the interest payable under section 244(1) is on such excess amount refundable to the assessee under section 240, and both the amounts are to be paid simultaneously.
24 The provisions of law comprised under section 244(1)ex facie discloses that if the Department fails to repay the excess amount within three months from the date it becomes due and payable to the assessee, then the assessee should be paid interest on such amount at the rate of 15 per cent per annum. In other words, on the failure to refund the amount within the specified time, and without there being any demand, the Department is bound to pay along with such refund, the interest thereon as specified in section 244(1). Even the subtitle of the section reads “Interest on refund where no claim is needed”. It is thus clear that the obligation to pay interest in terms of section 244(1) is also without any need for claim of interest, while performing its obligation under section 240 of the said Act. S.R.JOSHI 13 of 18
25 It is also necessary to take note of section 244(1A) of the Act. It reads thus: “244. (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 subsection (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: Provided that where the amount so found to be in excess was paid in installments, such interest shall be payable on the amount of each such installment or any part of such installment, which was in excess, from the date on which such installment was paid to the date on which the refund is granted.”
26 The Madras High Court in Needle Industries Pvt. Ltd., (supra) has held that the expression “amount” in the earlier part of Section 244 (1A) of the Act would refer to not only the tax but also the interest, and the expression “amount” is a neutral expression and it cannot be limited to the tax paid in pursuance of the order of assessment. The clear intention of the Parliament is that the right to interest will compensate the assessee for the excess payment during the intervening period when the assessee did not have the benefit of use of such money S.R.JOSHI 14 of 18 paid in whatsoever character. The Madras High Court further held that in the context of Section 244(1A) of the Act, the expression “tax” would include interest also and the definition of tax under Section 2(43) meaning “income tax” cannot be applied in the context of Section 244(1A) of the Act. The Court also held that consequently, the interest paid in pursuance of the order of Assessment has to be regarded as forming part of income tax or an adjunct to income tax and the result would be that Assessee is entitled to interest on the interest refunded also. The relevant part of the judgment reads as under:- “ Further, the expression, “amount” in the earlier part of the section 244 (1A) would refer to not only the tax but also the interest and the expression “amount” is a neutral expression and it cannot be limited to the tax paid in pursuance of the order of assessment. We are of the opinion that the expression “tax or penalty” found in the later part of the section 244(1A) would not qualify or restrict the scope of the expression “amount” found in the earlier part to mean only “tax or penalty”. As already seen, the function of the later part of section 244 (1A) of the Act is to find out the excess of the amount which the assessee paid by way of tax or penalty and that is the reason the expression “tax or penalty” has been employed. However, to determine the amount on which the Revenue is liable to pay interest, section 244 (1A) gives emphasis on the amount paid by the assessee in pursuance of the order of assessment and the amount, in our opinion, cannot be limited to the amount of tax or penalty, but would encompass the amount of S.R.JOSHI 15 of 18 interest paid by the assessee. The clear intention of Parliament is that the right to interest will compensate the assessee for the excess payment during the intervening period when the assessee did not have the benefit of use of such money paid in whatsoever character. In addition, if a literal meaning is given to the expression, “tax” found in the later part of section 244 (1A) of the Act, it will create an anomalous situation resulting in exclusion of the concept of the interest. In our opinion, the word “tax” in the later part of section 244 (1A) has to be construed in the light of the expression “amount” found in the earlier part of section 244 (1A) of the Act to include the amount of interest paid by the assessee. Therefore, in the context of section 244 (1A) of the Act, the expression “tax”, in our opinion, would include interest also and the definition of tax in section 2(43) meaning “income tax” cannot be applied in the context of section 244 (1A) of the Act. Consequently, the interest paid in pursuance of the order of assessment has to be regarded as forming part of income tax or an adjunct to income tax. The result would be that the assessee is entitled to interest on the interest refunded also. As a matter of fact, in the subsequent order of rectification, the Income-tax Officer has granted interest on the refunded interest which clearly shows the right thinking of the Department in accepting the position that the assessee would be entitled to interest on the interest refunded. The view of the Appellate Tribunal that the assessee would be entitled to interest on the refunded amount of interest levied under sections 139(8) and 215 of the Act is legally sustainable in law.” 27 We are in respectful agreement with the view expressed by the Madras High Court in Needle Industries Pvt. Ltd. (supra). This has been followed by the Gujarat High Court in Gujarat State Warehousing S.R.JOSHI 16 of 18 Corporation (supra) and later Delhi High Court followed Gujarat State Warehousing Corporation (supra) in the Modipon Ltd. (supra).
28 We should also add that Section 240 of the Act makes no distinction between refund of tax or penalty paid and refund on other amount collected. The case of Respondent is totally off target because Petitioner is not claiming interest on interest which is due to Petitioner but what Petitioner has claimed is interest on amount which is paid by Petitioner as interest under Section 220(2) of the Act which forms part of refund due to Petitioner. The A.O. had wrongly demanded the amount of the interest under Section 220(2) of the Act.
29 Petitioner had paid interest of Rs.7,07,115/- on outstanding amount of penalty. On deletion of penalty, Petitioner became entitled to refund of amount of penalty paid by Petitioner as well as the interest thereon paid under Section 220(2) of the Act. The amount of interest paid by Petitioner under Section 220(2) of the Act, in our view, thus became part of refund envisaged under Section 240 of the Act. Therefore, Petitioner is entitled to interest on the said amount under the provisions of Section 244(1A) of the Act.
30 In the circumstances, in our view, the Rule that was granted on 14th January 2005 has to be made absolute in terms of prayer clauses S.R.JOSHI 17 of 18 (a) and (b) which read as under:- “(a) that this Hon’ble Court may be pleased to issue a writ of Certiorari or a Writ in the nature of Certiorari or any other appropriate Writ, Order or Direction under Article 226 of the Constitution of India, calling for the records of the Petitioner’s case insofar as they relate to the impugned order dated 30- 04-2004 passed under section 264 of the Act being Exhibit “G” hereto, and, after going through the same and examining the question of the legality thereof, to quash, cancel and set aside the same; (b) that this Hon’ble Court may also be pleased to issue a Writ of Mandamus or a Writ in the nature of Mandamus or any other appropriate Writ, Order or Direction under Article 226 of the Constitution of India, ordering and directing Respondent No.1 to grant interest on refund to the Petitioner under Section 244 of the Act instead of 244A of the Act and also to grant interest on the refund of amount of interest recovered under section 220(2) of the Act.”
31 The concerned A.O. shall within eight weeks from the date this Judgment is uploaded, give effect to this order and Judgment by calculating the refund and pass refund order.