□The case concerns the imposition of penalties under Sections 271D and 271E of the Income Tax Act, 1961, on M/S Vamshi Chemicals Ltd. for allegedly violating Sections 269SS and 269T ...
No Acts & Articles mentioned in this case
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6301 OF 2011
Union of India Through Director of
Income Tax
.. Appellant(s)
Versus
M/s Tata Chemicals Ltd. .. Respondent(s)
W I T H
CIVIL APPEAL NO. 2534 of 2012
CIVIL APPEAL NO. 2535 of 2012
CIVIL APPEAL NO. 2536 of 2012
CIVIL APPEAL NO. 2537 of 2012
CIVIL APPEAL NO. 2539 of 2012
CIVIL APPEAL NO. 2540 of 2012
CIVIL APPEAL NO. 2541 of 2012
CIVIL APPEAL NO. 2542 of 2012
CIVIL APPEAL NO. 2543 of 2012
CIVIL APPEAL NO. 2944 of 2012
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CIVIL APPEAL NO. 2945 of 2012
CIVIL APPEAL NO. 3445 of 2012
CIVIL APPEAL NO. 3446 of 2012
CIVIL APPEAL NO.3508 of 2014 @SLP(C) NO.14048/2012
CIVIL APPEAL NO.3509 of 2014 @SLP(C) NO.14050/2012
CIVIL APPEAL NO.3510 of 2014 @SLP(C) NO.14051/2012
CIVIL APPEAL NO.3511 of 2014 @SLP(C) NO.14049/2012
CIVIL APPEAL NO.3512 of 2014 @SLP(C) NO.20154/2012
CIVIL APPEAL NO. 5408 OF 2012
CIVIL APPEAL NO.3513 of 2014 @SLP(C) NO.27453/2012
CIVIL APPEAL NO.3514 of 2014 @SLP(C) NO.27454/2012
CIVIL APPEAL NO.3515 of 2014 @SLP(C) NO.27455/2012
CIVIL APPEAL NO.3516 of 2014 @SLP(C) NO.27456/2012
CIVIL APPEAL NO.3517 of 2014 @SLP(C) NO.27457/2012
CIVIL APPEAL NO.3518 of 2014 @SLP(C) NO.27458/2012
CIVIL APPEAL NO.3519 of 2014 @SLP(C) NO.27459/2012
CIVIL APPEAL NO.3520 of 2014 @SLP(C) NO.27460/2012
CIVIL APPEAL NO.3521 of 2014 @SLP(C) NO.27461/2012
CIVIL APPEAL NO.3522 of 2014 @SLP(C) NO.27462/2012
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CIVIL APPEAL NO.3523 of 2014 @SLP(C) NO.27463/2012
CIVIL APPEAL NO.3524 of 2014 @SLP(C) NO.27677/2012
CIVIL APPEAL NO. 7596 of 2012
CIVIL APPEAL NO. 2589 of 2013
CIVIL APPEAL NO.3525 of 2014 @SLP(C) NO.25727/2012
CIVIL APPEAL NO.3526 of 2014 @SLP(C) NO.14768/2012
CIVIL APPEAL NO.3527 of 2014 @SLP(C) NO.5730/2013
CIVIL APPEAL NO. 7772 of 2012
CIVIL APPEAL NO. 3436 of 2012
CIVIL APPEAL NO. 3427 of 2012
O R D E R
1. Leave granted.
2. The issue that arise for our
consideration and decision in this batch of
appeals is, whether the revenue is legally
responsible under Section 244A of the Income Tax
Act, 1961 (for short, “the Act”) for payment of
interest on the refund of tax made to the
Page 4 4
resident/deductor under Section 240 of the Act.
3. At the outset, it is relevant to notice
that the assessment years in all these appeals are
on and after 01.04.1989, that is after the
admittance of Section 244A of the Act by Direct
Tax Laws (Amendment) Act, 1987 (4 of 1988) with
effect from 01.04.1989, whereby provision for
interest on refunds on any amount due to the
assessee under the Act was introduced.
FACTS:-
4. We would refer to the facts in Civil
Appeal No. 6301 of 2011. The respondent is a
company incorporated under the provisions of
Companies Act, 1956. It is engaged in the
manufacture of nitrogenous fertilizer. During the
assessment year 1997-98, the respondent-company
had commissioned its naptha desulphurization plant
and to oversee the operation of the said plant it
Page 5 5
had sought the assistance of two technicians from
M/s. Haldor Topsoe, Denmark. M/s. Haldor Topsoe
had raised an invoice aggregating to US$
43,290,06/- as service charges for services of the
technicians (US$ 38,500/-) and reimbursements of
expenses (US$ 4,790/-).
5. The resident/deductor had approached the
Income Tax Officer under Section 195 (2) of the
Act inter alia requesting him to provide
information/ determination as to what percentage
of tax should be withheld from the amounts payable
to the foreign company, namely, M/s. Haldor
Topsoe, Denmark. On the request so made, the
Assessing Officer/ Income Tax Officer had
determined and passed Special order under Section
195 (2) of the Act directing the resident/
deductor to deduct/ withhold tax at the rate of
20% before remitting aforesaid amounts to
M/s.Haldor Topsoe. Accordingly, the resident/
Page 6 6
deductor had deducted tax of Rs.1,98,878/- on the
entire amount of US$ 43,290.00/- and credited the
same in favour of the Revenue.
6. After such deposit, the resident/
deductor had preferred an appeal before the
Commissioner of Income Tax (Appeals) against the
aforesaid order passed by the Assessing Officer/
Income Tax Officer under Section 195 (2) of the
Act. The appellate authority while allowing the
appeal so filed by the resident/ deductor, had
concluded, that, the reimbursement of expenses is
not a part of the income for deduction of tax at
source under Section 195 of the Act and
accordingly, directed the refund of the tax that
was deducted and paid over to the Revenue on the
amount of US$ 4790.06/- representing reimbursement
of expenses by order dated 12.07.2002.
7. After disposal of the appeal, the
Page 7 7
resident/ deductor had claimed the refund of tax
on US$ 4790/- (amounting to Rs.22,005/-) with the
interest thereon as provided under Section 244A(1)
of the Act by its letter dated 09.12.2002.
8. The Assessing Officer/ Income Tax Officer
while declining the claim made, has observed,
that, Section 244A provides for interest only on
refunds due to the assessee under the Act and not
to the deductor and since the refund in the
instant case is in view of the circulars viz.
Circular No. 769 and 790 issued by the Central
Board of Direct Taxes (for short “the Board”) and
not under the statutory provisions of the Act, no
interest would accrue on the refunds under Section
244A of the Act. Therefore, the Assessing
Officer/Income Tax Officer while granting refund
of the tax paid on the aforesaid amount has
refused to entertain the claim for interest on the
amount so refunded by order dated 29.07.2003.
Page 8 8
9. Since the Assessing Officer/Income Tax
Officer had declined to grant the interest on the
amount so refunded, the resident/ deductor had
carried the matter by way of an appeal before the
Commissioner of Income Tax (Appeals). The First
Appellate Authority by its order dated 28.03.2005
has approved the orders passed by the Assessing
Officer/ Income Tax Officer and declined the claim
of the deductor/resident on two counts : (a) that
the refund in the instant case would fall under
two circulars viz. Circular No. 769 and 790 issued
by the Board which specifically provide that the
benefit of interest under Section 244A of the Act
on such refunds would not be available to the
deductor/ resident and (b) that a conjoint reading
of Section 156 and the explanation appended to
Section 244A (1)(b) of the Act would indicate that
the amount refunded to the deductor/resident
cannot be equated to the refund of the amount(s)
Page 9 9
envisaged under Section 244A(1)(b) of the Act,
wherein only the interest on refund of excess
payment made under Section 156 of the Act pursuant
to a notice of demand issued on account of post-
assessment tax is contemplated and not the
interest on refund of tax deposited under self-
assessment as in the instant case.
10. The deductor/resident, aggrieved by the
aforesaid order, had carried the matter before the
Income Tax Appellate Tribunal (for short, “the
Tribunal”). The Tribunal while reversing the
judgment and order passed by the Commissioner of
Income Tax (Appeals) has opined, that, the tax was
paid by the deductor/ resident pursuant to an
order passed under Section 195 (2) of the Act and
the refund was ordered under Section 240 of the
Act, therefore, the provisions of Section 244A(1)
(b) are clearly attracted and the revenue is
accountable for payment of interest on the
Page 10 10
aforesaid refund amount. Accordingly, the
Tribunal has allowed the appeal of the deductor/
resident and directed the Assessing Officer/
Income Tax Officer to acknowledge the claim and
allow the interest as provided under Section
244A(1)(b) of the Act on the aforesaid amount of
refund, by order dated 28.06.2008.
11. The Revenue being of the view that they
are treated unfairly by the Tribunal had carried
the matter by way of Income Tax Appeal before the
High Court. The High Court has refused to accept
the appeal filed by the Revenue by the impugned
judgment and order, dated 18.06.2009. That is how
the Revenue is before us in these appeals.
12. We have heard the learned counsel
appearing for the Revenue and the respondent-
assessee in these appeals and also carefully
perused the orders passed by the forums below.
Page 11 11
RELEVANT PROVISIONS:-
13. To appreciate the view point of the
learned counsel for the Revenue, we require to
notice certain provisions of the Act prior to the
insertion of Section 244A of the Act. The
sections that require to be noticed are; Sections
156, 195(2), 240 and 244 of the Act. A perusal of
these sections essentially would indicate the
procedure whereby the tax amount is paid and the
refund of excess amount is claimed by the
assessee. The relevant part of the said sections
is sequentially reproduced:
“Section 156. Notice of demand
When any tax, interest, penalty, fine
or any other sum is payable in
consequence of any order passed under
this Act, the Assessing Officer shall
serve upon the assessee a notice of
demand in the prescribed form
Page 12 12
specifying the sum so payable.
*** *** ***
Section 195. Other sums-
(1) Any person responsible for paying to a
non-resident, not being a company, or to a
foreign company, any interest or any other
sum chargeable under the provisions of this
Act (not being income chargeable under the
head ‘Salaries’) shall, at the time of credit
of such income to the account of the payee or
at the time of payment thereof in cash or by
the issue of a cheque or draft or by any
other mode, whichever is earlier, deduct
income-tax thereon at the rates in force:
Provided that in the case of interest
payable by the Government or a public
section bank within the meaning of
clause (23D) of Section 10 or a public
financial institution within the meaning
of that clause, deduction of tax shall
be made only at the time of payment
thereof in cash or by the issue of
chaque or draft or by any other mode:
Provided further that no such deduction
shall be made in respect of any
dividends referred to in Section 115-O.
Page 13 13
Explanation.- For the purpose of
this section, where any interest or
other sum as aforesaid is credited to
any account, whether called ‘Interest
payable account’ or ‘Suspense account’
or by any other name, in the books of
account of the person liable to pay
such income, such crediting shall be
deemed to be credit of such income to
the account of the payee and the
provisions of this section shall apply
accordingly.
(2) Where the person responsible for
paying any such sum chargeable under
this Act other than salary to a non-
resident considers that the whole of
such sum would not be income chargeable
in the case of the recipient, he may
make an application to the Assessing
Officer to determine, by general or
special order, the appropriate
proportion of such sum so chargeable,
and upon such determination, tax shall
be deducted under sub-section (1) only
on that proportion of the sum which is
so chargeable.
Page 14 14
*** *** ***
Section 240. Refund on appeal, etc.
Where, as a result of any order passed
in appeal or other proceeding under
this Act, refund of any amount becomes
due to the assessee, the Assessing
Officer shall, except as otherwise
provided in this Act, refund the amount
to the assessee without his having to
make any claim in that behalf.
*** *** ***
Section 244. Interest on refund where
no claim is needed
(1) Where a refund is due to the
assessee in pursuance of an order
referred to in section 240 and the
Assessing Officer does not grant the
refund within a period of three months
from the end of the month in which such
order is passed the Central Government
shall pay to the assessee simple
interest at fifteen per cent per annum
on the amount of refund due from the
Page 15 15
date immediately following the expiry
of the period of three months aforesaid
to the date on which the refund is
granted.
(1A) Where the whole or any part of the
refund referred to in sub-section (1)
is due to the assessee, as a result of
any amount having been paid by him
after the 31st day of March, 1975, in
pursuance of any order of assessment or
penalty and such amount or any part
thereof having been found in appeal or
other proceeding under this Act to be
in excess of the amount which such
assessee is liable to pay as tax or
penalty, as the case may be, under this
Act, the Central Government shall pay
to such assessee simple interest at the
rate specified in sub-section (1) on
the amount so found to be in excess
from the date on which such amount was
paid to the date on which the refund is
granted:
Provided that where the amount so found
to be in excess was paid in
Page 16 16
instalments, such interest shall be
payable on the amount of each such
instalment or any part of such
instalment, which was in excess, from
the date on which such instalment was
paid to the date on which the refund is
granted:
Provided further that no interest under
this sub-section shall be payable for a
period of one month from the date of
the passing of the order in appeal or
other proceeding:
Provided also that where any interest
is payable to an assessee under this
subsection, no interest under sub-
section (1) shall be payable to him in
respect of the amount so found to be in
excess.
(2) * * *
(3) The provisions of this section
shall not apply in respect of any
assessment for the assessment year
commencing on the 1st day of April,
Page 17 17
1989, or any subsequent assessment
years.
14. Section 156 of the Act talks about
payment of tax, interest, penalty, fine or any
other sum payable in consequence of any order
passed under the Act on service of notice of
demand issued by the assessing officer to the
assessee specifying the said amounts.
15. Section 195(1) casts an obligation upon
every person in this Country to deduct tax at the
prevailing rates from out of any sum which is
remitted to a non resident/Foreign Company. Sub
Section (2) of Section 195 provides that where a
person responsible for paying any such sum
chargeable under the Act to a non resident/Foreign
Company considers that the whole of such sum would
not be the income chargeable in the case of
recipient, he may make an application to the
Page 18 18
assessing officer/income tax officer to determine,
by general or special order, the appropriate
proportion of such sum so chargeable. The
assessing officer is expected to determine such
sum/tax which are deductible out of remittance to
be sent to the recipient and only after deduction
and payment of such sum/tax, the balance amount is
to be remitted to the non-resident. We clarify
here that it is the statutory obligation of the
person responsible for paying such sum to deduct
tax thereon before making payment, if such
application is not filed.
16. Section 240 of the Act provides for
refund on appeal etc. The Section envisages that
if an amount becomes due to the assessee by virtue
of an order passed in appeal, reference, revision,
rectification or amendment proceedings, the
assessing officer is bound to refund the amount to
the assessee without the assessee being required
Page 19 19
to make any claim in that behalf. The expression
‘other proceedings under the Act’ used in Section
240 of the Act, are wide enough to include any
order passed in proceedings other than the appeals
under the Act.
17. Section 244 of the Act provides for
interest on refunds where no claim is made or
required to be made by the assessee. The said
section envisages that where a refund is due to
the assessee in pursuance of an order passed under
Section 240 of the Act, and the assessing officer
does not grant the refund within a period of three
months from the end of the month in which such
order is passed, the Central Government shall pay
to the assessee a simple interest of 15% per annum
on the amount of refund due from the date
immediately following the expiry of the period of
three months as aforesaid to the date on which the
refund is granted.
Page 20 20
18. Since there was disconcert in the minds
of both the assessee and the Revenue regarding the
cases where payment of interest was required to be
made to the assessee by the Revenue, the
Parliament has thought it fit to insert a new
Section 244A in the place of Sections 214, 243 and
244 in respect of assessments for the assessment
year 1989-90 and onwards. The Section is
extracted:
“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
Page 21 21
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 tax or
penalty to the date on which the refund
is granted.
EXPLANATION.- For the purpose of this
clause, "date of payment of tax or
penalty" means the date on and from
Page 22 22
which the amount of tax or penalty
specified in the notice of demand issued
under section 156 is paid in excess of
such demand.
(2) * * *
(3) * * *
(4) The provisions of this section
shall apply in respect of assessments
for the assessment year commencing on
the 1st day of April, 1989, and
subsequent assessment year”
(emphasis supplied)
19. The objects and reasons for introduction
of the aforesaid Section is clarified by the Board
in its Circular No. 549, dated 31.10.1989.
Relevant paragraphs of which are as under:
“11.2 Insertion of a new section 244A
in lieu of sections 214, 243 and 244,-
Under the provisions of section 214,
interest was payable to the assessess on
any excess advance tax paid by him in a
financial year from the 1st day of April
next following the said financial year
Page 23 23
to the date of regular assessment. In
case the refund was not granted within
three months from the date of the month
in which the regular assessment was
completed, section 243 provided for
further payment of interest. Under
section 244, interest was payable to the
assessee for delay in payment of refund
as a result of an order passed in
appeal, etc., from the date following
after the expiry of three months from
the end of the month in which such order
was passed to the date on which refund
was granted. The rate of interest under
all the three sections was 15 per cent
annum.
11.3. These provisions, apart from being
complicated left certain gaps for which
interest was not paid by the Department
to the assessee for money remaining with
the Government. To remove this inequity,
as also to simplify the provisions in
this regard, the Amending Act, 1987, has
inserted a new Section 244A in the
Income Tax Act, applicable from the
assessment year 1989-90 and onwards
Page 24 24
which contains all the provisions for
payment of interest by the Department
for delay in the grant of refunds. The
rate of interest has been increased from
the earlier 15 per cent annum to 1.5%
per month or part of a month, comprised
in the period of delay in the grant of
refund. The Amending Act, 1987, has
also amended sections 214, 243 and 244
to provide that the provisions of these
sections shall not apply to the
assessment year 1989-90 or any
subsequent assessment years.”
(emphasis supplied)
SUBMISSIONS:-
20. Shri Arijit Prasad, learned counsel
appearing for the Revenue would submit, that, if
the tax is paid under Section 195(2) of the Act,
then while refunding the amounts so paid, the
Revenue need not be burdened with payment of
interest on the amount so refunded. He would
Page 25 25
submit that while Section 244A(1)(a) specifically
provides for the four instances under specific
provisions where the interest would be payable on
the refund of tax paid, Section 244A(1)(b) does
not provide for any specific instance but mentions
“any other cases” and the explanation appended to
the said Section requires payment of refund to be
made in cases where notice of demand was issued
under Section 156 of the Act and since no demand
notice was issued to the assessee under Section
156 of the Act the assessee would not be covered
even by the aforesaid provision and hence, no
interest is payable to the assessee by the
Revenue. It is further submitted that interest
under Section 244A is to be granted in case where
refund of any amount becomes due to an assessee
under this Act and the refund of tax deducted at
source made to the deductor/resident is not under
any statutory provisions of the Act, the deductor/
resident is not entitled for interest on the
Page 26 26
amount of tax deducted and deposited with the
revenue.
21. Per contra, learned senior counsel
appearing for the resident/deductor would submit
that since the payment made under Section 195(2)
is payment made under the Act pursuant to an order
passed by the assessing officer which in turn
would be sheltered under the provisions of Section
156 of the Act, by virtue of clause(b) of sub-
Section(1) of Section 244A of the Act, the Revenue
is obliged to refund the tax with interest.
DISCUSSION:-
22. It is cardinal principle of
interpretation of Statutes that the words of a
Statute must be understood in their natural,
ordinary or popular sense and construed according
to their grammatical meaning unless such
construction leads to some absurdity or unless
Page 27 27
there is something in the context or in the object
of the Statute to the contrary. The golden rule
is that the words of a Statute must prima facie be
given their ordinary meaning. It is yet another
rule of construction that when the words of a
Statute are clear, plain and unambiguous, then the
Courts are bound to give effect to that meaning
irrespective of the consequences. It is said that
the words themselves best declare the intention of
the law giver. The Courts have adhered to the
principle that efforts should be made to give
meaning to each and every word used by the
legislature and it is not a sound principle of
construction to brush aside words in a Statute as
being inapposite surpluses, if they can have
proper application in circumstances conceivable
within the contemplation of the Statute (See
Gurudevdatta VKSSS Maryadit v. State of
Maharashtra [2001] 4 SCC 534).
Page 28 28
23. It is also well settled principle that
the courts must interpret the provisions of the
Statute upon ascertaining the object of the
legislation through the medium or authoritative
forms in which it is expressed. It is well
settled that the Court should, while interpreting
the provisions of the Statute, assign its ordinary
meaning.
24. This Court in Shyam Sunder vs. Ram Kumar
(2001) 8 SCC 24 has observed that in relation to
beneficent construction, the basic rules of
interpretation are not to be applied where (i) the
result would be re-legislation of a provision by
addition, substitution or alteration of words and
violence would be done to the spirit of
legislation, (ii) where the words of a Provision
are capable of being given only one meaning and
(iii) where there is no ambiguity in a provision,
however, the Court may apply the rule of
Page 29 29
beneficent construction in order to advance the
object of the Act.
25. Before the insertion of Section 244A as
a composite Section by the Direct Tax Laws
(Amendment) Act, 1987, the liability to pay
interest on refund of pre-paid taxes was contained
in Sections 214, 243 read with Section 244 (1A) of
the Act. The Parliament has introduced a new
Section in the place of Sections 214, 243 and 244
in respect of assessment for the assessment year
1989-90 and onwards.
26. The language of the Section is precise,
clear and unambiguous. Sub-Section (1) of Section
244A speaks of interest on refund of the amounts
due to an assessee under the Act. The assessee is
entitled for the said amount of refund with
interest thereon as calculated in accordance with
clause (a) & (b) of sub-Section (1) of Section
244A. In calculating the interest payable, the
Page 30 30
section provides for different dates from which
the interest is to be calculated.
27. Clause(a) of sub-Section(1) of Section
244A talks of payment of interest on the amount of
tax paid under Section 155WJ, tax collected at
source under section 206C, taxes paid by way of
advance tax, taxes treated as paid under Section
199 during the financial year immediately
preceding the assessment year. Under this clause,
the interest shall be payable for the period
starting from the first day of the assessment year
to the date of the grant of refund. No interest
is payable if the excess payment is less than 10%
of the tax determined under Section 143(1) of the
Act or on regular assessment. Clause(b) of Sub-
Section(1) of Section 244A opens with the words
"in any other case" that means in any case other
than the amounts paid under Clause(a) of Sub-
section(1) of Section 244A. Under this clause,
Page 31 31
the rate of interest is to be calculated at the
rate of one and a half per cent per month or a
part of a month comprised in the period or the
periods from the date or, as the case may be,
either the dates of payment of the tax or the
penalty to the date on which the refund is
granted. An explanation is appended to clause(b)
of the aforesaid sub-Section to explain the
meaning of the expression "date of payment of tax
or penalty". It clarifies that the “date of
payment of tax or penalty” would mean 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.
28. Having glanced through the relevant
sections and the settled legal principles of
interpretation of Statute, let us revert back to
the factual situation placed before us in this
appeal.
Page 32 32
29. In the present case, the resident/
deductor had approached the assessing authority
inter alia requesting him to determine the tax
that requires to be deducted at source before the
payment is made to a non-resident/foreign company.
On such a request the assessing officer had passed
an order under Section 195(2) of the Act directing
the resident/ deductor to deduct tax at a
particular rate. The resident/ deductor had
appealed against the said order, but had deposited
the tax as directed by the assessing
officer/Income Tax Officer by the aforesaid order
in accordance with the provisions of Section 200
of the Act. When the resident/deductor succeeded
in the appeal, a direction was issued by the
appellate authority for refund of tax so paid. In
observance of the same, the assessing authority
had granted the refund of the tax amount under
Section 240 of the Act, but declined to grant
Page 33 33
interest on the said refund amount. The conclusion
arrived at by the assessing officer was accepted
by the first appellate authority on the ground,
inter alia, that the conjoint reading of Section
156 and the explanation appended to Section
244A(1)(b) of the Act would indicate that the
amount refunded to the resident/ deductor cannot
be equated to the refund contemplated under
Section 244A(1)(b) of the Act, whereunder only the
interest on refund of excess payment made under
Section 156 of the Act on account of post-
assessment tax is contemplated and not the
interest on refund of tax deposited under self-
assessment. However, the Tribunal has rejected the
aforesaid rationale of the assessing authority as
well as the first appellate authority and granted
the claim of the resident/deductor. The High Court
has endorsed the view of the Tribunal and
dismissed the appeals filed the Revenue.
Page 34 34
30. 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 under Section 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
Page 35 35
statutory obligation and non-discretionary in
nature to the assessee. In tune with the aforesaid
general principle, Section 244A is drafted and
enacted. The language employed in Section 244A
of the Act is clear and plain. It grants
substantive right of interest and is not
procedural. The principles for grant of interest
are the same as under the provisions of Section
244 applicable to assessments before 01.04.1989,
albeit with clarity of application as contained in
Section 244A.
31. The Department has also issued Circular
clarifying the purpose and object of introducing
Section 244A of the Act to replace Sections 214,
243 and 244 of the Act. It is clarified therein,
that, since there was some lacunae in the earlier
provisions with regard to non-payment of interest
by the revenue to the assessee for the money
remaining with the Government, the said section is
Page 36 36
introduced for payment of interest by the
Department for delay in grant of refunds. A
general right exists in the State to refund any
tax collected for its purpose, and a corresponding
right exists to refund to individuals any sum paid
by them as taxes which are found to have been
wrongfully exacted or are believed to be, for any
reason, inequitable. The statutory obligation to
refund carried with it the right to interest also.
This is true in the case of assessee under the
Act.
32. The question before us is, whether the
resident/deductor is also entitled to interest on
refund of excess deduction or erroneous deduction
of tax at source under Section 195 of the Act.
33. We would begin our discussion by
referring to circular No. 790, dated 20.04.2000,
issued by the Board. Omitting what is not
Page 37 37
necessary, the material portion of the circular is
extracted:
“........
6.Refund to the person making
payment under Section 195 is being
allowed as income does not accrue to the
non-resident. The amount paid into the
Government account in such cases, is no
longer ‘tax’. In view of this, no
interest under section 244A is admissible
on refunds to be granted in accordance
with this Circular or on the refunds
already granted in accordance with
Circular No. 769.”
34. What the deductor/ resident primarily
contend is that, what has been deposited by him is
a tax, may be for and on behalf of non-resident/
foreign company and when the beneficial circular
provides for refund of tax to the deductor under
certain circumstances, the refund of tax should
carry interest.
Page 38 38
35. The circular issued by Central Board of
Direct Taxes (“the Board” for short) is binding on
the department. Binding nature of the circular is
explained by this Court in the case of UCO Bank v.
CIT 237 ITR 889, wherein this Court has observed
that the circulars issued by the Board in exercise
of its powers under Section 119 of the Act would
be binding on the income tax authorities even if
they deviate from the provisions of the Act, so
long as they seek to mitigate the rigour of a
particular Section for the benefit of the
assessee. Therefore, we cannot be taking
exception to the reasoning and conclusion reached
by the authorities under the Act. However, the
Tribunal and the High Court, have granted interest
on the amount of tax deposited by the resident/
deductor from the date of payment on the ground,
firstly, the refund of tax is directed by the
first appellate authority in the appeal filed by
Page 39 39
the deductor/ resident under Section 240 of the
Act and secondly, the Revenue for having retained
the sum by way of tax has to compensate the person
who had deposited the tax.
36. Section 240 of the Act provides for
refund of any amount that becomes due to an
assessee as a result of an order in appeal or any
other proceedings under the Act. The phrase
“other proceedings under the Act” is of wide
amplitude. This Court has observed, that, the
other proceedings under the Act would include
orders passed under Section 154 (rectification
proceedings), orders passed by the High Court or
Supreme Court under Section 260 (in reference), or
order passed by the Commissioner in revision
applications under Section 263 or in an
application under Section 273A.
Page 40 40
37. 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
Page 41 41
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.
38. 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
Page 42 42
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, therebeing 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 ae quo et bono ought to be refunded, the right
to interest follows, as a matter of course.
Page 43 43
39. 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 catechize 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 1
st
of April of the assessment year.
Simultaneously, since the said payment is not made
pursuant to a notice issued under Section 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
Page 44 44
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.
40.In the result, the appeals fail. Accordingly,
the appeals are dismissed. No order as to costs.
.....................J.
(H.L. DATTU)
.....................J.
(S.A. BOBDE)
NEW DELHI;
FEBRUARY 26, 2014.
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