ISSUE FOR CONSIDERATION
Section 244A(1) provides for the grant of
simple interest in cases where refund is due to the assessee – simple interest
at the rates prescribed for different circumstances and for the periods
specified in the section. No interest is payable if the amount of refund is
less than 10% of the tax as determined u/s 143(1) or on regular assessment. In
a case where the return of income is not filed by the due date specified u/s
139(1), the interest is payable for the period commencing with the date of
filing the return. Ordinarily, interest is calculated at the rate of 0.5% for
every month or part of a month. Additional interest at the rate of 3% per annum
is granted in cases where the refund due as the result of appellate or
revisional orders is delayed beyond the period of the time allowed u/s 153(5)
of the Act. The amount of interest granted gets adjusted on account of
subsequent orders which have the effect of varying the amount of refund.
Where the proceedings resulting in the
refund are delayed for reasons attributable to the assessee, wholly or in part,
the period of the delay attributable to him is excluded from the period for
which interest is payable as per the provisions of sub-section (2) of section
244A. In deciding the question as to the period to be excluded, the decision of
the Commissioner shall be final.
Often, the refund arises or its amount
increases where a claim for deduction is made after filing the return of income
by filing a revised return, or placing the claim in the assessment or appellate
proceedings. In such cases, an interesting issue arises about deciding whether
the period for which the claim is deferred can be excluded for calculation of
the interest due to the assessee. Conflicting views of the courts are available
on the subject of excluding the period or otherwise. Gauhati and a few other
high courts have taken a view that the refund can be said to have been delayed
due to the failure of the assessee in claiming the deduction in time and the
period in question should be excluded while granting the interest on refund.
The Bombay, Gujarat and the other high courts have held that such situations of
deferred claims cannot be held to reduce the period for which the interest is
otherwise allowable to the assessee under
sub-section (1).
THE ASSAM ROOFING LTD. CASE
The issue came up for consideration in the
case of Assam Roofing Ltd. vs. CIT, 11 taxmann.com 279
(Gauhati). In that case the assessee filed its return of income on 31st
December, 1992 for the assessment year 1991-92, including the receipt of the
transport subsidy in the total income. In the note it was claimed to be a
capital receipt, though during the assessment proceedings completed on 16th
May, 1994 u/s 143(3) no separate representation was made by the assessee
claiming that subsidy was not taxable. An appeal was filed against the
assessment order for contesting the addition on account of the said subsidy
which was decided in its favour by the Commissioner (Appeals) by an order dated
27th October, 1994 directing that the transport subsidy amounting to
Rs. 98,79,266 be deleted from the total income. The AO passed an order dated 13th
December, 1994 to give effect to the appellate order, deleting transport
subsidy amounting to Rs. 98,79,266. He also allowed interest u/s 244A on the
amount of refund that was found due to the assessee as a result of the
appellate order for a period of 33 months, i.e., from 1st April,
1992 to 13th December, 1994.
Subsequently, in the rectification
proceedings, the AO held that the grant of refund was delayed for reasons
attributable to the assessee and, as a consequence, interest on refund was held
to be payable only for a period of eight months, that is, from 16th
May, 1994 (date of completion of assessment) to 13th December, 1994,
that is, the date of order giving effect to the appellate order. The appeal by
the assessee against the order reducing the interest was allowed by the
Commissioner (Appeals) and his order was confirmed by the Tribunal. The
following substantial question of law was raised: ‘Whether on the facts and
in the circumstances of the case, the Tribunal was justified and correct in
allowing interest u/s 244A of the Income-tax Act, 1961 to the assessee for the
period of delay in granting refund of tax where such delay is due to reasons
attributable to the assessee?’
The Revenue contended that the assessee had
voluntarily included the amount received on account of transport subsidy as
taxable income and on the said basis the assessment was made; at no point of
time in the course of the assessment proceedings had the assessee taken the
stand that the amount received on account of transport subsidy was not taxable;
the issue was raised by the assessee only in the appeal filed before the
Commissioner (Appeals) which was disposed of by the order dated 27th October,
1994; thereafter, on 13th December, 1994 the amount of transport
subsidy earlier included in the taxable income of the assessee was deleted and
orders were passed for the refund.
Relying on the provisions of section 244A(2)
of the Act, it was contended that the payment of refund was made at the
particular point of time only because of the conduct of the assessee in not
raising the said issue at any earlier point of time and the payment of refund, therefore,
got delayed for reasons attributable to the assessee; consequently, the
assessee was not entitled for interest for the period for which he was at
fault.
In reply the assessee contended that the
provisions of Chapter XIX of the Act made it abundantly clear that the grant of
refund was not contingent on any application of the assessee and such refund
u/s 240 of the Act was consequential to any order passed in an appeal or other
proceedings under the Act; no claim for refund was required to be lodged; the
provisions of section 244A(2) of the Act had no application to the case
inasmuch as the refund was consequential to the appellate order, no proceeding
for refund could be visualised so as to hold the assessee responsible for any
delay in finalisation of such a proceeding.
Relying on the decision in Sandvik
Asia Ltd. vs. CIT, 280 ITR 643, it was contended by the assessee that
there was a compensatory element in the interest that was awardable u/s 244A of
the Act and that such interest mitigates the hardship caused to the assessee on
account of wrongful levy and collection of tax. Reliance was also placed on the
decision of the Punjab and Haryana High Court in the case of National
Horticulture Board vs. Union of India, 253 ITR 12 to contend that interest
on refund was automatic and consequential and did not depend on initiation of a
proceeding for refund or on raising a claim for refund, as the case may be.
Section 244A of the Act, the Court observed,
contemplated grant of interest at the specified rate from the first day of
April of the assessment year to the date on which refund was granted in case of
payments of tax as contemplated by sub-clauses (a) and (b) of sub-section (1).
It further noted that under sub-section (2) of section 244A if the ‘proceedings
resulting in the refund’ were delayed for reasons attributable to the assessee,
no interest was to be awarded for the period of such delay for which the
assessee was responsible. Significantly, the Court took note of the expression ‘proceedings
resulting in revision (to be read as “refund”)’ appearing in sub-section
(2) of Section 244A to hold that the scope of section 244A(2) was not limited
to the cases of sections 238 and 239 but covered the cases of the refunds
arising on account of any order under the scheme of the Act; the expression
‘proceeding’ referred to in sub-section (2), more reasonably, would mean any
proceeding as a result of which refund had become due; viewed thus, the
expression ‘proceeding’ might take within its ambit an appeal proceeding
consequential to which refund had become due. The Court supported its decision
by relying on the decision of the Punjab and Haryana High Court in the
National Horticulture Board case (supra).
The Court in
deciding the issue noted the fact that the assessee itself declared the amount
of transport subsidy received by it to be taxable and voluntarily paid the tax
and no claim to the contrary was raised in the course of the assessment
proceeding; it was only in the appeal filed that the issue was raised and was
allowed by the Commissioner (Appeals) and a consequential refund was granted.
The Court ruled that in the above
circumstances, it could not but be held that the assessee was responsible for
the delay in grant of refund and it would be correct to hold that the interest
was payable only with effect
from 16th May, 1994 till the date of payment of the refundable amount.
The Gauhati High Court allowed the appeal of
the Revenue and reversed the order of the Tribunal by holding that the delay in
grant of refund was attributable to the assessee and as a consequence the
period for which interest on refund was to be granted required to be reduced.
MELSTAR INFORMATION TECHNOLOGIES LTD. CASE
The issue recently arose in the case of the CIT
vs. Melstar Information Technologies Ltd., 106 taxmann.com 142 (Bom.).
In this case, the assessee had not claimed certain expenditure before the AO
but raised such a claim before the Tribunal which remanded the proceedings to
the Commissioner (Appeals) who allowed the claim of expenditure. The deduction
so allowed resulted in a refund of taxes paid and it is at that juncture that
there arose the question u/s 244A of payment of interest on such refund.
It appears that there was a dispute about
the period for which the interest was to be granted to the assessee, or about
the eligibility of the assessee to interest. The AO seemed to be of the view
that no interest was payable to the assessee for the reason that the delay in
granting the refund was entirely attributable to the assessee inasmuch as he
had delayed the claim for deduction. The AO, while granting refund, seemed to
have denied the interest by relying on the provisions of section 244A(2) after
taking the approval of the Commissioner. The Tribunal, on an appeal by the
assessee, held that an appeal was maintainable against the order refusing the
interest on refund and further held that the delay could not be held to be
attributable to the assessee and, therefore, the Tribunal directed the payment
of interest.
The Revenue, aggrieved by the order of the
Tribunal had raised the following question for the Court’s consideration: ‘Whether
on the facts and circumstances of the case and in law, the ITAT has erred in
law in assuming jurisdiction to hear the appeal when no such appeal lies before
the ITAT or before CIT(A) because as per the provisions of Section 244A(2) of
the Income Tax Act, decision of CIT is final as held by Kerala High Court in
the case of Kerala Civil Supplies 185 taxman 1?’
The Court noted that the issue pertained to
interest payable to the assessee u/s 244A of the Act where the Revenue did not
dispute the assessee’s claim of refund and its eligibility to interest thereon
in ordinary circumstances. However, since the delay in the proceedings
resulting in the refund was attributable to the assessee, by virtue of
sub-section (2) of section 244A of the Act the assessee was not entitled to
such interest.
The Court observed that there was no
allegation or material on record to suggest that any of the proceedings were
delayed in any manner on account of reasons attributable to the assessee and
therefore the Tribunal was correct in allowing the interest to the assessee.
The Court, in deciding that there was no substantial
question of law involved in the appeal of the Revenue, relied on the decision
in the case of Ajanta Manufacturing Ltd. vs. Deputy CIT, 391 ITR 33
(Guj.) wherein a similar issue was considered. In that case, the
assessee had made a belated claim for deduction during assessment on filing a
revised return of income, and the Revenue had denied the interest by
attributing the delay in grant of refund to the assessee on applying the
provisions of sub-section (2) of section 244A of the Act. The Court noted with
approval the following observations of the said decision:
“16. We would also examine the order
of the Commissioner on merits. As noted, according to the Commissioner the
assessee had raised a belated claim during the course of the assessment proceedings
which resulted into delay in granting of refund and therefore, the assessee was
not entitled to interest for the entire period from the first date of
assessment year till the order giving effect to the appellate order was passed.
We cannot uphold the view of the Commissioner. First and foremost requirement
of sub-section (2) of Section 244A is that the proceedings resulting into
refund should have been delayed for the reasons attributable to the assessee,
whether wholly or in part. If such requirement is satisfied, to the extent of
the period of delay so attributable to the assessee, he would be disentitled to
claim interest on refund. The act of revising a return or raising a claim
during the course of the assessment proceedings cannot be said to be the
reasons for delaying the proceedings which can be attributable to the assessee.
(The) mere fact that the claim came to be granted by the Appellate Commissioner
would not change this position. In essence, what the Commissioner (Appeals) did
was to allow a claim which in law, in his opinion, was allowable by the
Assessing Officer. In other words, by passing order in appeal, he merely
recognised a legal position whereby the assessee was entitled to claim certain
benefits of reduced tax. Surely, the fact that the assessee had filed the
appeal which ultimately came to be allowed by the Commissioner, cannot be a
reason for delaying the proceedings which can be attributed to the assessee.
17. The Department does not contend that
the assessee had needlessly or frivolously delayed the assessment proceedings
at the original or appellate stage. In absence of any such foundation, (the)
mere fact that the assessee made a claim during the course of the assessment
proceedings which was allowed at the appellate stage would not ipso facto imply
that the assessee was responsible for causing the delay in the proceedings
resulting into refund. We may refer the decision of the Kerala High Court in
case of CIT vs. South Indian Bank Ltd., reported in (2012) 340 ITR 574 (Ker)
in which the assessee had raised a belated claim for deduction which was
allowed by the Commissioner (Appeals). The Revenue, therefore, contended that
for such delay, interest should be declined under Section 244A of the Act. In
the said case also, the assessee had not made any claim for deduction of
provision of bad debts in the original return. But before completion of the
assessment, the assessee had made such a claim which was rejected by the
Assessing Officer. The Commissioner allowed the claim and remanded the matter
to the Assessing Officer. Pursuant to which, the assessee became entitled to
refund. Revenue argued that the assessee would not be entitled to interest in
view of Section 244A(2). In this context, the Court held in Para. 6 as under
(page 578 of 340 ITR):
‘6.
Sub-section (2) of section 244A provides that the assessee shall not be
entitled to interest for the period of delay in issuing the proceedings leading
to the refund that is attributable to the assessee. In other words, if the
issue of the refund order is delayed for any period attributable to the
assessee, then the assessee shall not be entitled to interest for such period.
This is of course an exception to clauses (a) and (b) of section 244A(1) of the
Act. In other words, if the issue of the proceedings, that is, refund order, is
delayed for any period attributable to the assessee, then the assessee is not
entitled to interest for such period. Further, what is clear from sub-section
(2) is that, if the officer feels that delay in refund for any period is
attributable to the assessee, the matter should be referred to the Commissioner
or Chief Commissioner or any other notified person for deciding the issue and
ordering exclusion of such periods for the purpose of granting interest to the
assessee under section 244A(1) of the Act. In this case, there was no decision
by the Commissioner or Chief Commissioner on this issue and so much so, we do
not think the Assessing Officer made out the case of delay in refund for any
period attributable to the assessee disentitling for interest. So much so, in
our view, the officer has no escape from granting interest to the assessee in
terms of section 244A(1) (a) of the Act’.”
OBSERVATIONS
The issue under consideration revolves in a
narrow compass; whether the claim for deduction, made subsequent to the filing
of return of income, can be held to be attracting the provisions of sub-section
(2) of section 244A for excluding the period of delay in claiming the deduction
from the period for which interest is granted u/s 244A on the amount of refund
that has resulted or has increased due to the grant of deduction pursuant to
the delayed claim.
The relevant sub-section reads as under: (2)
If the proceedings resulting in the refund are delayed for reasons
attributable to the assessee, whether wholly or in part, the period of the
delay so attributable to him shall be excluded from the period for which
interest is payable under sub-sections (1) or (1A), and where any question
arises as to the period to be excluded, it shall be decided by the Principal
Chief Commissioner or Chief Commissioner or Principal Commissioner or
Commissioner whose decision thereon shall be final.
The requirement of sub-section (2) is that
the proceedings resulting into refund should have been delayed and the delay
should be for the reasons attributable to the assessee. Only where such
requirement is satisfied, the interest relating to the period of delay so
attributable to the assessee would be denied.
On a careful reading of the provision of
sub-section (2) it is gathered that the said provisions are attracted only in
cases where the twin conditions are cumulatively satisfied: the proceedings
resulting into refund have been delayed, and further that the delay is for
reasons that are attributable to the assessee. Non-satisfaction of any one of
the conditions would not disentitle the assessee from the claim of interest on
refund; for this purpose it may be essential to appreciate the contextual
meaning of the term ‘proceedings’. Can the acts of filing the revised return or
claiming the reliefs in assessment or appellant proceedings be construed to be
‘proceedings’ for attracting the provisions of sub-section (2)? May be not. The
proceedings referred to in sub-section (2) should, in our opinion, mean and
co-rate the proceedings in respect of assessment or adjudication of appeals and
it is here that the assessee should be found to have delayed such proceedings
in any manner for disentitling him from the claim of interest.
Revising the return or placing the claim
during such proceedings cannot be considered to be part of proceedings
resulting in refund. It is essential that the proceedings in question should
further result in refund. Only assessment, rectification, revision or appellate
proceedings can be considered to be proceedings that result in refund. It is
such proceedings that should have been delayed and not the claim of deduction
or refund, and further the delay in such proceedings should be attributable to
the assessee. It is for these reasons some of the Courts have given emphasis to
ascertain whether the assessee had contributed to delay the assessment
proceedings on frivolous grounds without placing their analysis of provisions
in so many words in the orders.
Our understanding is further strengthened by
the amendments of 2016 for insertion of clause “a” in sub-section (1) of
section 244A with effect from 1st June, 2016 to provide that the
interest would be paid for the period commencing from the date of filing of
return of income where such return is filed outside the due date prescribed u/s
139(1). In the absence of such an amendment, interest could not have been
denied to the assessee for the delay in filing the return of income as was held
by some of
the Courts.
The Court in the Assam Roofing Limited
case rightly held that the meaning of the term ‘proceedings resulting in
refund’ was not limited to cases of sections 238 and 239 of the Act but also
cover the other cases of refund and would include any proceedings resulting in
refund and such proceedings also included the appellate proceedings. Having
held that, the Court failed in appreciating that the assessee was not
responsible for delaying any of the proceedings that resulted in refund or said
to have been delayed. Instead, the Court held that the act of filing the claim
in the appellate proceedings was to be construed as an act of delaying the
proceedings that resulted in refund. It therefore held that putting a claim at
the appellate stage was responsible for delay in grant of refund and therefore
the interest for the period up to the date of putting the claim was not
allowable. It is respectfully submitted that this was a classic case of missing
the wood for the trees; the case where the Court was preoccupied with the delay
in placing the claim for deduction, overlooking the important fact that what
was relevant for the application of sub-section (2) was delay in the proceeding
and not the delay in grant of refund as a consequence of the delayed claim. It
might be that the assessee was responsible for making belated claim but
certainly not delaying
the proceedings.
It is required to be appreciated that the
interest is the consequence of payment of excess tax. Accordingly, once excess
tax is found to have been paid at whatever stage, the tax was required to be
refunded. And as a consequence interest was bound to be paid unless the
assessee is shown to be responsible for delaying the proceedings and not the
refund. Putting a delayed claim for the deduction, otherwise allowable under
the Act, under no circumstances could be construed as an act of delaying the
‘proceedings’, when it was otherwise the duty of the authorities to compute the
correct total income by allowing all deductions that were allowed under the Act
and simultaneously excluding all such receipts that were required to be
excluded. (Please see circular No. 26 dated 7th July, 1955.)
The act of revising a return or raising a
claim during the course of the assessment proceedings cannot be said to be part
of the proceedings for refund and cannot also be said to be the reasons for
delaying the proceedings which can be held to be attributable to the assessee.
This understanding will not change on account of the claim for deduction
outside the return of income. What happens on allowing the claim is something
which is otherwise required to be allowed as per the law by the AO. In other
words, by passing an order he merely recognises a legal position whereby the
assessee is entitled to claim certain benefits of reduced tax. Surely, the
claim in the proceedings ultimately resulting in refund cannot be construed as
an act of delaying the proceedings that can be attributed to the assessee. In
the absence of any finding that the assessee was responsible for delaying the
proceedings, the mere fact that the assessee made a claim during the course of
the assessment proceedings which was allowed at the appellate stage would not ipso
facto imply that the assessee was responsible for causing the delay in the
proceedings that resulted into refund.
In the case of Ajanta Manufacturing
Limited, 72 taxmann.com, 148 (Guj.), the assessee company had included
the receipt of subsidy in total income and paid tax thereon while filing the
return of income. During the course of assessment, a claim was made under a
letter for excluding the subsidy for receipt from income. The claim of the
assessee was allowed in appeal by the Commissioner (Appeals) and the reduction
in income resulted in refund. In deciding the period for which the interest
should be allowed for such refund, the High Court held that the disabling
provisions of sub-section 2 and section 244A were not attracted in the facts of
the case and the interest should be granted for the full period as per the
provisions of section 244(1) of the Act.
In the case of Sahara India Savings
& Investments Corporation Limited, 38 taxmann.com 192 (All.) the
refund was not granted for not filing TDS certificates with the return of
income. Subsequently, the refund became due on filing of the certificates;
while the refund was granted, the interest thereon was denied on the ground
that the refund was delayed due to non-filing of TDS certificates with the
return of income. The Allahabad High Court held that a delay in application for
refund could not be construed as a delay attributable to the assessee and the
provisions of sub-section (2) were not attracted in the facts of the case.
In the case of Larsen & Toubro,
330 ITR 340 (Bom.), again in the circumstances where the TDS
certificates were not filed with return of income, the Court upheld the order
of the Tribunal holding that interest u/s 244A could not be denied only on the
ground that certificates were not filed with the return of income.
The Supreme Court in the case of H.E.G.
Limited, 334 ITR 331 (SC), held that interest was payable to the
assessee u/s 244A for withholding of the refund by the AO on account of denial
of credit for TDS.
The Punjab and
Haryana High Court in the case of National Horticulture Board, 253 ITR 12
(P&H), held that the interest u/s 244A could not be denied on the
ground of the delayed application for refund of the taxes paid.
In the case of South Indian Bank
Limited, 340 ITR 574 (Ker.), the Commissioner (Appeals) had allowed the
related claim for deduction. The interest on resulting refund was denied by the
income tax authorities on the ground of the delayed claim for deduction which
was made, outside the return of income, in the assessment proceedings. The
Kerala High Court held that the AO had no escape from granting interest to the
assessee.
The Kerala High Court, in the case of Pala
Marketing Co-Op. Society Limited, 79 taxmann.com 438 (Ker.), however,
held that the assessee was not entitled to interest on refund where he had
delayed the filing of return of income even where such delay was condoned
following its own decision in the case of M. Ahammadkutty Haji, 288 ITR
304. However, the Rajasthan High Court in the case of Dariyavie
Singh Karnavat, 18 taxmann.com 180, held that the interest was payable
in similar circumstances ignoring the decision of the Kerala High Court in the M.
Ahammadkutty case cited before
the Court.
Interestingly, the Karnataka High Court in
the case of Dinakar Ullal, 323 ITR 452 (Kar.), ruled out the
application of circular No. 12 dated 30th October, 2003 and circular
No. 13 dated 22nd December, 2006 issued by CBDT. In granting the
interest on refund due on an application for condonation of delay in claiming
the refund of taxes paid, the said circulars provided that no interest on
refund should be granted in cases where the delay in application of refund was
favourably condoned.
Recently, the Bombay High Court in the case
of State Bank of India in ITA No. 1218 of 2016 held that interest
on refund could not be denied in a case where the refund arose on account of
the claim for deduction made during the assessment proceedings… following its
own decision in the case of Chetan M. Shah, 53 taxmann.com 18.
The better view appears to be the
one in favour of granting interest for the full period commencing from the
first day of the assessment year to the date of the grant of refund.
