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H.V. Mirchandani Vs. First Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Bangalore
Decided On
Judge
Reported in(1983)4ITD353(Bang.)
AppellantH.V. Mirchandani
RespondentFirst Income-tax Officer
Excerpt:
.....asses-see is eligible for interest on refund of tax paid in excess under the subsection, if the excess payment had been due to the assessee "as a result of any amount having been paid by him after 31-3-1975". the assessment year in the assessee's case is the assessment year 1978-79 and the payment of tax was by way of tax deducted at source after this date. no doubt, tax deduction has been made under section 192, where the tax payment, as rightly pointed out by the learned departmental representative, is one on behalf of the assessee even as mentioned in part b of chapter xvii of the act, in more than one place, as for example, specifically under section 199 of the act. it is the assessee's case that tax paid on behalf becomes tax paid by the assessee on adjustment and that the scheme.....
Judgment:
1. This is an appeal filed by Shri H. V. Mirchandani of Bangalore against the order of the AAC, upholding the ITO's refusal to grant interest under Section 244(1A) of the Income-tax Act, 1961 ('the Act'), in an order under Section 154 of the Act for the assessment year 1978-79.

2. The assessee, who was a Government servant, was absorbed in public sector and had, therefore, a right to commute his pension fully under the rules. Since in the then view only one-third of such commuted amount will be exempt, the ITO exempted one-third of the amount and brought the balance two-thirds being Rs. 62,085 to tax. A decision to the effect that the full amount would be exempt under Section 10(10A) of the Act, in another case was accepted by the Central Board of Direct Taxes in circular No. 286 of 17-11-1980 as the correct interpretation of law. The assessee's assessment, therefore, came to be rectified in an order wherein this amount of Rs. 62,085 originally brought to tax was excluded. The assessee became entitled to a refund of Rs. 27,014 by order of the ITO under Section 154 passed on 8-12-1980. The assessee wrote to the ITO on 29-12-1980 that he had not authorised interest under Section 244(1A). The ITO replied on 2-1-1981 that the assessee was not entitled to the refund on his understanding of the provision.

He took the view that such refund is possible only on orders passed on appeal or revision and not on an order under Section 154. The assessee went in appeal against the order under Section 154 itself claiming that interest should have been authorised along with the refund in the order under Section 154 itself. The first appellate authority confirmed the finding of the ITO. It was the assessee's case that he was entitled to interest from the date of payment till the refund under Section 244(1) and 244(1A). The first appellate authority took the view that he was eligible to neither of the interest (sic). The assessee is, therefore, in second appeal. The learned counsel for the assessee repeated the arguments raised before the authorities below. He claimed that the words 'other proceedings' under Section 244(1A) included an order of rectification. According to him, the interest must run from the date of payment. The learned departmental representative claimed that the refund was authorised by a circular of the Board and that it was not a right which was available to the assessee at the time of assessment. In such a case, he claimed, that interest was not payable. He also pointed out that it was not a case of advance tax payment and that in view of the language of Section 192 of the Act, it was clear that it was paid on behalf of the assessee by the employer. According to him, the tax paid on behalf of the assessee is not the same thing as tax paid by the assessee. He claimed that the assessee is not eligible for interest for either of the reasons. He also pointed out that interest under Section 244(1A) is not an issue which could be agitated independently in an appeal as Section 246 of the Act which lists out appealable orders, does not include an order under Section 244(1A). He, therefore, disputed the jurisdiction of the first appellate authority and, therefore, of this Tribunal to entertain this ground.

3. We have carefully considered the records as well as the arguments.

We will first attempt to deal with the question of jurisdiction. No doubt, the assessee had applied for interest on the refund by a separate letter after the receipt of the order under Section 154 directing refund and his request was negatived. If the assessee had come on appeal against the refusal of the ITO declining the assessee's request in the letter asking for interest, we might have found ourselves accepting the departmenta contention that such an order refusing to grant interest is not an appealable order. But the assessee, in this case, filed an appeal against the order under Section 154 itself, once he knew the ITO's reply. This appeal was in time. If the interest under Section 244(1A) is mandatory and had to be given along with the refund as contended by the assessee, the omission to award such interest becomes a wrongful withholding of the correct refund and would be liable for appeal like any other order, e.g., where there is an error in tax calculation, because the assessee is entitled to object to the 'amount of tax determined' under Clause (c) of Sub-section (1) of Section 246. It stands to reason that 'the amount of tax determined' comprehends the amount of refund authorised, as refund is consequential to determination of tax. We have, therefore, to decide the question of jurisdiction after our finding whether Section 244(1A) is mandatory as contended by the assessee.

4. Section 244 is listed under the heading 'Interest on refund where no claim is needed'. Section 244 is reproduced as under: 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 Income-tax 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 twelve per cent per annum on the amount of refund due from the 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 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 sub-section, no interest under Sub-section (1) shall be payable to him in respect of the amount so found to be in excess.

(2) Where a refund is withheld under the provisions of Section 241, the Central Government shall pay interest at the aforesaid rate on the amount of refund ultimately determined to be due as a result of the appeal or further proceeding for the period commencing after the expiry of three months from the end of the month in which the order referred to in Section 241 is passed to the date the refund is granted.

Section 244(1) authorises interest for refund delayed after a period of three months of the order in appeal or other proceeding, interest starts running after the expiry of three months. This sub-section is not relevant in assessee's case as it is not assessee's case that refund authorised under Section 154 has been delayed for a period of more than three months. Section 244(1A) interest is available if any consequential order is passed in appeal or other proceeding under this Act. Section 154 is a proceeding under the Act and there cannot be any doubt that an order under Section 154 is also comprehended in the words 'other proceeding'. Hence, the asses-see is eligible for interest on refund of tax paid in excess under the subsection, if the excess payment had been due to the assessee "as a result of any amount having been paid by him after 31-3-1975". The assessment year in the assessee's case is the assessment year 1978-79 and the payment of tax was by way of tax deducted at source after this date. No doubt, tax deduction has been made under Section 192, where the tax payment, as rightly pointed out by the learned departmental representative, is one on behalf of the assessee even as mentioned in Part B of Chapter XVII of the Act, in more than one place, as for example, specifically under Section 199 of the Act. It is the assessee's case that tax paid on behalf becomes tax paid by the assessee on adjustment and that the scheme under Section 244(1A) is for payment of interest from the date on which such amount was paid. He, therefore, seeks interest from the date when tax was deducted at source, or in the alternative, from the date on which the adjustment was made, i.e., the date of assessment.

The issue, in our opinion, is answered very easily because of the definition of the word 'refund' in Section 237 of the Act which reads as under: If any person satisfies the Income-tax Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of the excess.

It has, therefore, been specifically laid down under the statute that the tax paid on behalf of the assessee should be treated as the tax paid by him. Even otherwise, we find it difficult to accept the proposition that tax specifically deducted from the assessee's salary and paid by the employer into the treasury on behalf of the assessee should not be treated as money paid by him. We, therefore, have no difficulty in accepting the assessee's claim that Section 244(1A) authorises the assessee to get interest as consequential relief because such a refund even as the head to Section 244 mentions is interest on refund 'where no claim is needed'. Hence the ITO was bound to have granted interest along with the refund amount. Hence, the interest is mandatory and should have been authorised along with refund. We are not impressed by the argument of the learned departmental representative that this refund is given as a result of the circular as though it were an extra-legal concession granted to the assessee. The law as interpreted by the High Court of Karnataka and subsequently by the Delhi High Court overruling its earlier decision was the same as accepted by the Government as the correct interpretation and it has, therefore, to be assumed that this was the law even at the time of assessment. Hence, there was clearly a mistake in law which was bound to be rectified under Section 154 as was rightly done by the ITO. If Section 154 is right for the purpose of refund, it cannot be wrong for the purpose of interest.

5. The only other dispute is the date with reference to which the interest has to be allowed whether, it be from the date of actual deduction of tax at source or from the date of adjustment. Though we have held that the payment on behalf of the assessee is payment by the assessee for purposes of reckoning the assessee's right to refund under Section 237, we are not able to accept the argument that interest will start running from the date when tax was deducted at source. It is because the interest from the date of payment till the date of assessment is regulated by Chapter XVII of the Act. Section 214 of the Act stipulates interest payable by the Government on advance tax paid in excess of the actual amount of income-tax payable by the assessee.

Section 215 stipulates a similar interest payable by the assessee when there is a shortfall. Interest is payable by the Government or the assessee, as the the case may be, only in respect of advance tax and there is no such similar scheme for excess paid by way of tax deducted at source. In the case of refunds under Chapter XIX, interest is stipulated, under Section 243 of the Act, on refunds delayed beyond a period of three months, whether the refund is of advance tax or tax deducted at source, as long as the assessee's income is from sources other than dividend and interest in securities. Section 244(1) interest is allowed without claim for refunds similarly delayed as a result of appeals. In other words, Section 243 grants interest on normal refund while Section 244(1) grants interest on appeal refunds. Section 244(1A) was introduced by Taxation Laws (Amendment) Act, 1975 with effect from 1-10-1975 on the recommendation of the Select Committee on Taxation Laws (Amendment) Bill, 1973. The Select Committee while recommending the provisions observed as under: Clause 56 (original clause 57) ; Clause 97 (original clause 105) and Clause 118 (original clause 132):--The amendments made in Clause 56 are of a clarificatory nature and also provide that only payments of disputed taxes made after the 31st March, 1975, will be entitled to interest. New Sub-section (3A) as proposed to be inserted in Section 34A of the Wealth-tax Act by clause 97 of the Bill and new Sub-section (3A) as proposed to be inserted in Section 33A of the Gift-tax Act by clause 118 of the Bill have been amended on the same lines.

The intention was to make good the omission by which an assessee would lose the interest which he would have otherwise been entitled if proper assessment had been made even on the first accasion. In other words, the assessee, it was provided, should get interest on the funds which was locked up with the Government by an order which was ultimately found to be wrong. The disputed tax paid by the assessee, it was provided, should earn interest. The section itself makes that very clear. The section was prospective and that is the reason for fixing the date, 1-10-1975. In assessee's case, the assessee would have got entitled to the refund on the date of the original assessment, i.e., 28-9-1978, if the law was correctly applied on that date. On that date, the assessee would not have got any interest from the date of payment because Section 214 of the Act awards interest only on payment of advance tax. But he would have earned interest under Section 244(1) for the period of delay on any amount of refund after the assessment or appeal or rectification. Section 244(1A) makes good an omission and grants interest on refunds now authorised from the date of payment.

Payment, in this context, could, therefore, only mean the date of adjustment, i.e., the date of assessment order in respect of tax determined at source when, the tax paid on behalf is treated as paid by the assessee by adjustment so made. There is no question of excess payment prior to the assessment when tax is paid by deduction.

6. We have now to revert to the question of jurisdiction. We have held in the preceding paragraph that the interest was to be authorised by the ITO on refund under Section 244(1A) without a claim. In other words, it is automatic. Such interest, we have held, should be reckoned from the date of the assessment order as the date on which such amount was paid by way of adjustment to the date on which the refund was actually granted. Since this was a statutory interest to be allowed without a claim, not granting such interest is an omission in reckoning the amount of tax (or refund) payable (refundable) to (by) the assessee. Hence, this is a matter which is appealable as part of the assessment unlike, for example, interest under Section 217 of the Act where a separate order is necessary as held by the Karnataka High Court in the case of CIT v. Nanda Theatres [1978] 115 1TR 301. The Madras High Court in the case of Triplicane Urban Co-operative Society Ltd. v.CIT [1980] 126 ITR 125 has clarified that even where the order is under Section 214 and there is no specific right of appeal under Section 246, there could be an appeal against the order of assessment as such. It is (sic) we have to decide in favour of the assessee even in respect of jurisdiction.

7. Since we are directing interest on refund only from the date of assessment as against the date of deduction of tax at source, the appeal will be treated as partly allowed. The assessee will be entitled to interest from the date of original assessment till the date of refund.


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