Issue for Consideration Section 244A(1) of the Income-tax Act, 1961 provides for payment of interest on refunds due to the assessee. It provides that, in addition to the amount of refund, the assessee is entitled to simple interest at the rate of ½% for every month or part of a month,in cases where refund is out of any tax paid u/s. 115WJ or tax collected at source u/s. 206C or paid by way of advance tax or treated as paid u/s. 199, for the period commencing from the first day of April of the assessment year to the date on which the refund is granted. In any other case, including the case of a refund of self assessment tax (not being the case where refund is less than 10% of the tax determined), the interest is payable, vide clause(b) of section 244A(1), at the same rate, for every month or part of a month, for the period commencing from the date of payment of the tax or penalty to the date on which the refund is granted.
An Explanation to clause (b) defines the term “date of payment of tax or penalty” to mean the date on and from which the amount of tax or penalty specified in the notice of demand issued u/s. 156 is paid in excess of such demand.
The sub-section reads as under:
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 paid under section 115WJ or 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:
Provided that no interest shall be payable if the amount of refund is less than ten per cent of the tax as determined under sub-section (1) of section 115WE or sub-section (1) of section 143 or on regular assessment;
(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.
Explanation.—For the purposes of this clause, “date of payment of tax or penalty” means the date on and from which the amount of tax or penalty specified in the notice of demand issued under section 156 is paid in excess of such demand.
The issue has arisen before the courts as to whether any interest is payable u/s. 244A on self-assessment tax paid by the assessee, where such self-assessment tax or a part thereof becomes refundable to the assessee. The questions that arose in addressing the issue on hand were; Can the payment of a self-assessment tax be treated as the payment made in pursuance of a notice and that too in excess of the amount that is specified in the notice of demand u/s. 156? Can such a payment be considered as a payment referred to under clause(a)of section 244A? Does the Explanation to clause(b) have the effect of reducing the scope of clause(b) to payments made in pursuance of demand or not? Whether the generality of clause(b) is otherwise not restricted by explanation to clause(b)?
While the Bombay, Delhi, Madras, Karnataka and Punjab & Haryana High Courts have taken a view that the assessee is entitled to interest u/s. 244A on such refund of self-assessment tax, the Delhi High Court has recently taken a contrary view, holding that no interest is payable u/s. 244A on self-assessment tax refunded to the assessee.
Stock Holding Corporation’s Case
The issue recently came up
before the Bombay High Court in the case of Stock Holding Corporation of
India Ltd vs. N. C. Tewari, CIT & Others, 373 ITR 282.
In
this case, the assessee paid a self-assessment tax of Rs. 2.60 crore in
August 1994 for assessment year 1994-95. In December 1996, the
assessment was completed u/s. 143(3), raising a demand of Rs. 1.76
crore. This demand was partly adjusted against the refund due of Rs.
1.53 crore for another assessment year. The Commissioner(Appeals), on
appeal, granted substantial relief to the assessee in appeal against the
assessment order. While giving effect to the order of the
Commissioner(Appeals) in October 1998, the assessee was granted a refund
of Rs. 2 crore, consisting of tax of Rs. 1.53 crore and Rs. 18.24 lakh
aggregating to Rs. 1.7124 crore and interest of Rs. 29 lakh being
interest on refund of Rs. 1.53 crore. However, no interest was granted
on Rs. 18.24 lakh for the period from the date of payment of tax on
self-assessment till the date of refund.
The assessee filed a
revision application to the Commissioner of Income-tax u/s. 264, seeking
a total interest of Rs. 42.87 lakh, u/s. 244A, consisting of Rs. 33.75
lakh payable on a refund of Rs. 1.53 crore (being the demand adjusted
against refund of another year) and Rs. 9.12 lakh on refund of tax of
Rs. 18.24 lakh (being the tax paid on self-assessment). The Commissioner
partly allowed the revision petition, directing the payment of interest
on Rs. 1.53 crore, but rejecting the claim for interest on refund of
tax paid on self-assessment of Rs. 18.24 lakh. A writ petition was filed
before the Bombay High Court challenging this order.
Before the
Bombay High Court, on behalf of the assessee, it was argued that the
issue of grant of interest was no longer in dispute in view of the
Supreme Court decision in the case of Union of India vs. Tata Chemicals
Ltd. 363 ITR 658. It was claimed that refund of any amount due under the
Act to the assesse would entitle the assessee to receive the refund
along with interest. While clause (a) of section 244A(1) governed
refunds of advance tax and tax deducted at source, clause (b) would
govern all other refunds, including tax paid on self-assessment.
Reliance was placed on the CBDT circular number 549 dated 30th October
1989, 182 ITR (St) 1. It was argued that the explanation to section
244A(1)(b) would have no application to the case, as no amount had been
paid in excess of the demand specified u/s. 156.
On behalf of
the revenue, it was argued that the amount paid on self-assessment was
not tax payable in pursuance of a notice of demand. It was contended
that as per the computation of income filed by the assessee, a refund of
Rs. 47.15 lakh only was claimed and consequently, the assessee was
entitled to only refund of the tax, and not to interest thereon. It was
claimed that the decision in Tata Chemicals (supra) was not applicable
to the case before the court, as in that case, the assessee had claimed
interest on refund of amount of TDS that was deducted in excess of tax
that it was liable to deduct in view of an order passed by the
authorities under the Act. Alternatively, it was argued that if at all
any interest was to be allowed to the assessee, it would only be from
the date on which the notice u/s. 156 was issued to the assessee, which
was the date of the assessment order.
The Bombay High Court noted that it was clear that the amount paid by the assessee as self-assessment tax was not covered by clause (a) of section 244A(1), since it was neither a payment of advance tax, nor a tax deducted at source. Thus, it would fall under clause (b), a residuary clause governing refunds of amounts not falling under clause (a). It rejected the revenue’s contention that such tax would not fall under clause (b), because of non- applicability of the said clause. According to the High Court, such a contention was opposed to the meaning of the provision even on a bare reading of the said clause(b). According to the court, if a tax paid was not covered by clause (a), it fell within clause (b), which was a residuary clause.
The Bombay High Court also observed that the contention of the revenue was otherwise negatived by the CBDT circular number 549 (supra), which clarified, in relation to the provisions of section 244A, that if the refund was out of any tax, other than advance tax or tax deducted at source or penalty, interest was payable for the period starting from the date of payment of such tax or penalty and ending on the date of the grant of the refund. The court observed that nowhere did the CBDT even remotely suggest that interest was not payable by the Income- tax Department on refund of the self-assessment tax. According to the court, the amount paid u/s. 140A on self- assessment was an amount payable as and by way of tax, to meet the likely shortfall in the taxes.
Addressing the arguments of the revenue that no interest at all was payable unless the amount had been paid as tax in pursuance of a notice of demand, and that section 244A did not cover the cases where the payment was gratuitous, as was in the case of the assessee, who sought an interest of Rs. 47 lakh after paying tax on self- assessment of Rs. 2.60 crore, the court observed that
(a) section 244A(1) commenced with the words “when refund of any amount became due to the assessee under this Act…”, and that (b) clause (b) commenced with the words “in any other case…….” and those words clearly provided that refund of any amount that became due to any assessee under the Act would entitle the assessee to interest u/s. 244A.
In any case, the Court noted , the amount on which the refund was being claimed was originally paid as self- assessment tax u/s. 140A and even the assessing officer in passing the assessment order, had accepted the entire amount paid as self-assessment tax as a payment of tax. In addition, the court observed that when any refund became due to an assessee out of tax paid, it became so only after holding that it was not the tax payable in the first instance. The Bombay High Court therefore rejected the revenue’s contention that the amount of tax paid on self-assessment was not a ‘tax’, and that interest could not be granted on refund of such amounts which were not ‘taxes’.
Addressing the revenue’s argument that the decision of the Supreme Court in Tata Chemicals (supra) was not applicable to the facts of the case before it, the Bombay High Court, analysing the observations of the Supreme Court, observed that it was clear that the requirement to pay interest arose whenever an amount was refunded to an assessee as it was a kind of compensation for use and retention of the money collected by the revenue. The only distinction being made in the facts of the case before it, and those before the Supreme Court was that the amount paid as tax on self-assessment was paid voluntarily, while in the case before the Supreme Court, the tax was deducted at a higher rate in view of the order passed by an authority under the Act. The court observed that there was no distinction between the two, as, when an assessee paid tax either as advance tax or on self- assessment, it was paid to discharge an obligation under the Act and a non-compliance visited an assessee with a penalty just as non-compliance of orders passed by authorities under the Act would. Thus, according to the court, there was no voluntary payment of tax on self- assessment as was contended by the revenue.
The Bombay High Court then addressed the argument of the revenue that in view of the explanation to section 244A(1)(b), eligibility thereunder arose only when the amounts were paid consequent to a notice issued u/s. 156. The court noted that the same submission advanced by the revenue before the Supreme Court in the case of Tata Chemicals (supra) had been rejected in that case by the Tribunal, the High Court as well as the Supreme Court.
Rejecting the argument of the revenue that the payment of interest, in any case, should be for the period that commenced from the date of notice u/s. 156, the Bombay High Court observed that; the Supreme Court in Tata Chemicals (supra), held that theExplanation applied only where payment of tax was made pursuant to notice u/s. 156; the payment in the instant case had not been made pursuant to any notice of demand, but was made prior to the filing of the return of income and was in accordance with section 140A; the provisions of section 244A(1)
(b) required the revenue to pay interest on the amount refunded for the period commencing from the date the payment of tax was made to the revenue, up to the date when refund was granted by the revenue.
The Bombay High Court drew support from the decisions of the Karnataka High Court in the case of CIT vs. Vijaya Bank 338 ITR 489 and of the Delhi High Court in CIT vs. Sutlej Industries Ltd 325 ITR 331, where, in identical circumstances, it was held that interest u/s 244A was payable from the date of payment of the tax on self- assessment to the date of refund of the amounts. The Court therefore held that interest u/s. 244A was payable on refund of excess self-assessment tax paid by the assessee.
A similar view, that interest was payable under section 244A on refund of self-assessment tax, has also been taken by the Madras High Court in the case of CIT vs. Cholamandalam Investment & Finance Co Ltd 294 ITR 438, and the Punjab and Haryana High Court in the case of CIT vs. Punjab Chemical & Crop Protection Ltd. 231 Taxman 312.
Engineers India’s case
The issue again recently came up before the Delhi High Court in the case of CIT vs. Engineers India Ltd 373 ITR 377.
In this case, the assessee filed its return of income for assessment year 2006-07 in November 2006. It filed a revised return disclosing a higher income in November 2008. During the course of assessment proceedings, a disallowance of Rs. 69 lakh was made u/s. 14A read with rule 8D. An appeal was filed against such disallowance to the Commissioner(Appeals), and during the course of hearing before the Commissioner (Appeals), the issue of the assessing officer not having allowed interest u/s. 244A was raised by the assessee. The Commissioner(Appeals) allowed the assessee’s claim for interest u/s. 244A, following the decision of the Madras High Court in the case of Cholamandalam Investment and Finance Company Ltd (supra).
In appeal before the Tribunal by the revenue, the tribunal upheld the order of the Commissioner(Appeals), as regards admissibility of interest on the excess self- assessment tax paid.
In the further appeal before the Delhi High Court by the revenue, the revenue argued that interest was payable to the assessee only if it was so provided under the statute. Reliance was placed on the decisions of the Supreme Court in the cases of Sandvik Asia Ltd vs. CIT 280 ITR 643, CIT vs. Gujarat Fluoro Chemicals 358 ITR 291 and Tata Chemicals (supra). On behalf of the assessee, reliance was placed on the decisions of the Delhi High Court in the case of Sutlej Industries (supra), and of the Bombay High Court in the case of Stock Holding Corporation of India (supra).
The Delhi High Court noted that in Sandvik Asia’s case, the issue for consideration by the Supreme Court was as to whether the assessee was entitled to be compensated by the revenue for delay in payment of the amount due to the assessee. Since there was an inordinate delay in that case on the part of the revenue in refunding the amount, the Supreme Court held that the assessee was entitled to be adequately compensated by way of interest for the delay in payment of the amount “lawfully due to the assessee which are withheld wrongly and contrary to the law”.
The Delhi High Court noted the decision of the Madras High Court in the case of Cholamandalam Investment (supra), and observed that the argument in that case revolved around the question as to whether interest would be admissible under clause (a) or clause (b) of section 244A(1), in the context of the distinction on account of the additional requirement in clause (a) that the amount refundable must be more than 10% of the tax determined. The Madras High Court held that the refund was governed by clause (b) and was therefore not subject to that restriction.
The Delhi High Court, then noted the decision of its own court in the case of Sutlej Industries (supra), where the question of law related to whether clause (b) of section 244A(1) excluded the payment of interest on refund of self-assessment tax. It noted that in Sutlej Industries’ case, the assessee had paid self-assessment tax u/s. 140A, in addition to TDS and advance tax.
The Delhi High Court, then noted the decision of the Supreme Court in the case of CIT vs. Gujarat Fluoro Chemicals (supra) where a bench of two judges doubted the correctness of the decision in the case of Sandvik asia(supra), and referred the matter for consideration and authoritative pronouncement to a larger bench. It noted the observations of the larger bench of the Supreme Court, which clarified that only interest provided for under the statute may be claimed by an assessee from the revenue, and no other interest on such statutory interest.
The Delhi High Court, then noted the observations of the Supreme Court in the case of Tata Chemicals (supra), which was a case of whether the deductor of TDS is also entitled to interest on refund of excess deduction or erroneous deduction of tax at source under section 195.
The Delhi High Court, then analysed the decision of the Bombay High Court in the case of Stock Holding Corporation of India (supra), which was in the context of an issue similar to that before the Delhi High Court. According to the Delhi High Court, the Bombay High Court did not take note of the clarification given by the Supreme Court in the case of Gujarat Fluoro Chemicals(supra).
The Delhi High Court analysed the provisions relating to payment of advance tax, filing of returns and payment of self-assessment tax. It observed, on analysis, that it was clear from the bare reading of these provisions that whether for purposes of computing the advance tax liability or for calculation of self-assessment tax, the assessee was given the liberty to make the estimation of his own accord. The revenue expected proper declaration on the basis of which the liability would be eventually determined, since after all, the necessary information or data was available first to the assessee. It observed that the liability of the revenue to pay interest u/s. 244A on refund of excess amount paid towards the income tax by the assessee required to be examined in the above light.
The court observed that the provisions relating to advance tax in respect of fringe benefits u/s. 115WJ, credit for tax deducted u/s. 199, credit for tax collected at source under section 206C and liability for advance tax u//s 207 had no connection with the liability to pay self-assessment tax and therefore clause (a) of section 244A(1) would not apply to refund out of the amount paid as self-assessment tax. On the other hand, clause (b) was a residuary clause which opened with the expression “in any other case”, and naturally therefore, the liability of the revenue towards interest on refund from out of amount paid as self-assessment tax would fall under this clause.
It noted that under clause (b), the beginning point for purposes of calculating the liability of the revenue towards interest on the amount being refunded was prescribed as the date of payment of tax (penalty). This expression, as defined in the explanation appended to the clause, was indicative of the date of payment of the amount specified in the demand notice u/s. 156. According to the Delhi High Court therefore, the legislation made it clear that for the rest of the clause, the amount paid by the assessee (from which refund was to be made) must have been deposited pursuant to a demand notice issued by the assessing authority. The clause (b) would therefore not apply, by virtue of the Explanation, in case the excess amount being refunded had been paid by the assessee otherwise than in compliance with demand notice or voluntarily. According to the Delhi High Court, this was the import and effect of the Explanation if the language employed thereof was read, understood and construed in its natural and ordinary sense. Since the words used were clear, plain and unambiguous, according to the Delhi High Court, there was no scope for beneficial construction, since it would lead to re-legislation, which was impermissible.
According to the Delhi High Court, the observations of the Supreme Court in Sandvik Asia’s case (supra) must be understood in the light of clarification given in the case of Gujarat Fluoro Chemicals (supra), and there was no liability on the revenue to pay tax on refund beyond the liability created by the statutory provisions. In the case of Tata Chemicals (supra), the Delhi High Court noted that the collection of the tax through the deductor was found to be illegal, thus giving rise to the liability to pay interest on the refunded amount.
The Delhi High Court therefore,concluded that there could not be a general rule that whenever a refund of income tax paid in excess was to be made, the revenue must necessarily pay interest on the refunded amount. The letter and spirit of the law on the subject, according to the Delhi High Court was that the party which committed the error in proper calculation (or delay in proper assessment) must bear the burden. If the excess amount was paid due to erroneous assessment by the revenue, having exacted such burden wrongfully and inequitably on the assessee and having retained the excess amount thus received, the reimbursement must be accompanied by payment of interest at the statutorily prescribed rate. Conversely, if the assessee was to be blamed for the miscalculation (or for delay, or for want of claim of refund), the revenue did not owe any interest, even if the excess payment of tax was liable to be refunded.
The Delhi High Court therefore expressed its inability to subscribe to follow the view taken by its own Division Bench in the case of Sutlej Industries (supra). In doing so, it observed that in that case, even otherwise, the question had been examined in the facts and circumstances indicative of high-pitched assessment made by the revenue and the refund of the self-assessment tax resulting from a claim to such effect being made by the assessee in the return. It noted that in the case before it, the revenue had not made the excessive assessment so as to impel the deposit of self-assessment tax in excess, and that the assessee did not make a claim for refund in the return, but that such claim appeared to have been made later.
It also declined to follow the decision of the Madras High Court in the case of Cholamandalam Investment (supra), for the same reasons and since, in the view of the Delhi High Court, the proposition of law on the subject was expounded in too broad terms in that case. The Delhi High Court observed that as clarified by the Supreme Court in Gujarat Fluoro Chemicals, there was no general principle of liking the revenue to pay interest on all sum so wrongfully retained. It observed that it was trite that a fiscal statute is to be construed strictly, and the claim of interest on refund of income tax had to be pegged only on the statutory clauses.
In the absence of explanation as to how the assessee erred in calculation of self-assessment tax, and there being no allegation that such excess deposit was pursuant to demand by the revenue, the Delhi High Court therefore held that the claim for interest on excess payment voluntary paid could not be sustained.
Observations
Use of the citizen’s money, whether paid voluntarily or otherwise, by the Government, not representing any liability, should be compensated is an acceptable principle of law and when not provided for specifically, should be read in to the law as has been held by the apex court. Therefore, the case for the interest on refund of an tax , including that of the tax paid on self assessment, is on a sound footing in cases where it has been held back for no fault of the tax payer. This understanding is independent of the provisions of section 244A, which provisions, in our opinion, further strengthens the case for interest.
It is true that the case of interest under consideration is not covered by clause(a) of section 244A(1). Whether the case is however, covered by clause(b) or not is a question that requires to be examined and answered for arriving at the correct view. The additional question that is required to be addressed is whether the Explanation to the clause has the effect of limiting the scope of the clause or not. Obviously, on a bare reading of the clause, it is clear that refund of any tax, other than advance tax or tax deducted at source or penalty, entitles an assessee to interest u/s. 244A. The clause later on provides that the interest shall be payable for the period starting from the date of payment of such tax or penalty and ending on the date of the grant of the refund. Explanation to the clause defines the term from ‘the date of payment of tax or penalty’ and while doing so it links tax payments to those paid in pursuance of a notice of demand. It is this restriction that has emboldened the revenue to take a stand that no interest is payable on refund of tax paid on self assessment.
Usually an Explanation does not limit the scope of the provision and when it seeks to do so, a question arises over its ability to do so. In the context, it is clear that the intention of the legislature is to grant interest on ‘any refund’ and therefore the Explanation should be interpreted to provide also for the cases where the tax is paid in pursuance of the notice of demand and in addition to provide for the period for which the interest in such cases is to be paid. In our opinion, this is the only way the Explanation can be interpreted considering the clear and unambiguous language of the main provision contained in clause(b). Alternatively, the Explanation could be said to have been inserted only to provide for the period for which interest is to be paid and in that case there would be a tacit acceptance of the fact that the case under consideration for interest on refund of self assessment tax surely falls under clause(b). Any limitation restricting the period through an Explanation, would be construed as an unauthorised limitation and would therefore have to be read down, especially in a case where the interest is otherwise payable for the moneys withheld by the Government.
The Delhi High Court, in the past, in Sutlej Industries case, had ruled in favour of the assessee when it held that an assessee was entitled to interest u/s. 244A on refund of taxes paid on account of self assessment tax. Instead of following the said decision that was delivered on similar facts, the Delhi High Court distinguished it in Engineers India’s case, which we with respect believe was under an error of facts. An error was committed when It assumed that the payment of self-assessment tax was on account of demand by the revenue, in the case of Sutlej Industries. This erroneous assumption led the court to believe that such payment was on regular assessment, and not on self-assessment and .therefore, the payment was pursuant to a notice of demand u/s. 156, on refund of which there was no doubt that interest was payable u/s. 244A. It is evident from the facts of the case of Sutlej Industries, that the payment of the self-assessment tax was prior to filing of the return of income. The Court, in Engineers India’s case, was therefore not justified in trying to differentiate the ratio of the decision of its own division bench in the earlier case of Sutlej Industries and in not following that decision.
Judicial propriety and discipline required that in case the division bench in Engineers India’s case disagreed with the earlier decision in Sutlej Industries case, it should have referred the earlier decision to a larger bench of the court, and not taken a different view from that taken by a division bench of the same court in the earlier decision.
The decision of the Supreme Court in the case of Tata Chemicals was rendered after its decision in the case of Gujarat Fluoro Chemicals. Both these decisions contained important observations of the apex court which are very relevant in the context. We are sure that had these observations of the apex court been pressed in service before the court, the decision in Engineers India ‘s case would have been different. The following observations of the Supreme Court in the case of Tata Chemicals (supra) are relevant in this regard (underlined for emphasis):
The refund becomes due when tax deducted at source, advance tax paid, self assessment tax paid and tax paid on regular assessment exceeds tax chargeable for the year as a result of an order passed in appeal or other proceedings under the Act. When refund is of any advance tax (including tax deducted/collected at source), interest is payable for the period starting from the first day of the assessment year to the date of grant of refund. No interest is, however, payable if the excess payment is less than 10 percent of tax determined u/s. 143(1) or on regular assessment. No interest is payable for the period for which the proceedings resulting in the refund are delayed for the reasons attributable to the assessee (wholly or partly). The rate of interest and entitlement to interest on excess tax are determined by the statutory provisions of the Act. Interest payment is a statutory obligation and non- discretionary in nature to the assessee. In tune with the aforesaid general principle, section 244A is drafted and enacted.
‘A “tax refund” is a refund of taxes when the tax liability is less than the tax paid. As per the old section an assessee was entitled for payment of interest on the amount of taxes refunded pursuant to an order passed under the Act, including the order passed in an appeal. In the present fact scenario, the deductor/assessee had paid taxes pursuant to a special order passed by the assessing officer/ Income Tax Officer. In the appeal filed against the said order the assessee has succeeded and a direction is issued by the appellate authority to refund the tax paid. The amount paid by the resident/ deductor was retained by the Government till a direction was issued by the appellate authority to refund the same. When the said amount is refunded it should carry interest in the matter of course. As held by the Courts while awarding interest, it is a kind of compensation of use and retention of the money collected unauthorizedly by the Department. When the collection is illegal, there is corresponding obligation on the revenue to refund such amount with interest in as much as they have retained and enjoyed the money deposited. Even the Department has understood the object behind insertion of section 244A, as that, an assessee is entitled to payment of interest for money remaining with the Government which would be refunded. There is no reason to restrict the same to an assessee only without extending the similar benefit to a resident/ deductor who has deducted tax at source and deposited the same before remitting the amount payable to a non-resident/ foreign company.
Providing for payment of interest in case of refund of amounts paid as tax or deemed tax or advance tax is a method now statutorily adopted by fiscal legislation to ensure that the aforesaid amount of tax which has been duly paid in prescribed time and provisions in that behalf form part of the recovery machinery provided in a taxing Statute. Refund due and payable to the assessee is debt-owed and payable by the Revenue. The Government, there being no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, cannot shrug off its apparent obligation to reimburse the deductors lawful monies with the accrued interest for the period of undue retention of such monies. The State having received the money without right, and having retained and used it, is bound to make the party good, just as an individual would be under like circumstances. The obligation to refund money received and retained without right implies and carries with it the right to interest. Whenever money has been received by a party which ex aequo et bono ought to be refunded, the right to interest follows, as a matter of course.
The view that interest is payable under clause (b) of section 244A(1) only where tax is paid pursuant to a notice of demand u/s. 156, based on interpretation of the Explanation to clause (b) is clearly contradictory to the decision of the Supreme Court in the case of Tata Chemicals (supra), where the Supreme Court held as under:
In the present case, it is not in doubt that the payment of tax made by resident/ depositor is in excess and the department chooses to refund the excess payment of tax to the depositor. We have held the interest requires to be paid on such refunds. The catechise is from what date interest is payable, since the present case does not fall either under clause (a) or (b) of section 244A of the Act. In the absence of an express provision as contained in clause (a), it cannot be said that the interest is payable from the 1st of April of the assessment year. Simultaneously, since the said payment is not made pursuant to a notice issued u/s. 156 of the Act, Explanation to clause (b) has no application. In such cases, as the opening words of clause (b) specifically referred to “as in any other case”, the interest is payable from the date of payment of tax. The sequel of our discussion is the resident/deductor is entitled not only the refund of tax deposited under Section 195(2) of the Act, but has to be refunded with interest from the date of payment of such tax.
The view, that the language of section 244A is clear and unambiguous, and that the CBDT circular therefore need not be referred to for its interpretation, also does not seem to be justified, given the contrary view on the issue taken by several High Courts (including by the Division Bench of the Dellhi court in Sutlej Industries case ) in the matter. It is a well-established principle that circulars issued by the CBDT are binding on the assessing officer, and therefore an assessing officer cannot take a view contrary to that expressed by the CBDT to deny the benefit to an assessee. CBDT circular number 549 of 1989 clarifies as under:
“11.4 The provisions of the new section 244A are as under:—
(i) Sub-section (1) provides that where in pursuance of any order passed under this Act, refund of any amount becomes due to the assessee then—
(a) if the refund is out of any advance tax paid or tax deducted at source during the financial year immediately preceding the assessment year, interest shall be payable for the period starting from the 1st April of the assessment year and on the date of grant of the refund. No interest shall, however, be payable, if the amount of refund is less than 10 per cent of the tax determined on regular assessment;
(b) if the refund is out of any tax, other than advance tax or tax deducted at source or penalty, interest shall be payable for the period starting from the date of payment of such tax or penalty and ending on the date of the grant of the refund. (Refer to example III in para 11.8).”
Very often, taxpayers apprehend that there could be litigation on certain claims for deduction made in the return of income, and prefer to pay a slightly higher amount of tax so that they do not end up paying interest in case the claim is denied. This cannot be said to be a voluntary payment, since it is on account of the excessive tendency towards litigation of the tax department in recent times.
The facts in Engineer India’s case seem to indicate that it was only the claim for interest u/s. 244A which was made in appeal proceedings and not the claim of refund for the first time as seems to be believed by the court. In any case, a payment of tax whenever made, cannot be considered to be a voluntary payment, as a rule. No taxpayer would voluntarily want to pay higher taxes than he is likely to be liable to ultimately pay, given the difficulties in obtaining refunds from the tax department and the low rate of interest paid on refunds.
Therefore, the view taken by the Bombay, Madras, Karnataka, and Punjab and Haryana High Courts, and the Delhi High Court in the case of Sutlej Industries, to the effect that interest is payable u/s. 244A on refund of self-assessment tax paid by an assessee, seems to be the better view of the matter.
