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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
K.R. SHRIRAM, FIRDOSH P. POONIWALLA, JJ.
M/s. J. K. Industries - Petitioner
Versus
Krishna Sahal & Ors. - Respondents
Writ Petition No. 2942 of 2004
Decided On : 16-06-2023
Interest on Refund - Income Tax - Section 264 of the Income Tax Act, 1961 - Sections 244, 244A - The judgment discusses the applicability of Sections 244 and 244A of the Income Tax Act, 1961 in the context of interest on refund. It also addresses the entitlement of the petitioner to interest on the refund of the interest paid under Section 220(2) of the Act.
Fact of the Case:
The petitioner, a registered partnership firm, challenged an order rejecting its application for interest on refund under Sections 244/244A of the Income Tax Act, 1961. The petitioner had filed its return of income for A.Y. 1984-85, declaring a loss. The assessment was completed, and penalty proceedings were initiated. The petitioner filed appeals and ultimately sought a refund of tax paid/recovered pursuant to the original assessment order.
Finding of the Court:
The court found that the petitioner was entitled to interest on the amount paid under Section 220(2) of the Act and that Section 244 of the Act applied to the case. The court held that the petitioner's claim was not for interest on interest but for interest on the entire amount refunded, including the interest component.
Issues: The issues addressed by the court were the applicability of Section 244 or 244A of the Act and the entitlement of the petitioner to interest on the refund of the interest paid under Section 220(2) of the Act.
Ratio Decidendi: The court held that the petitioner was entitled to interest on the amount paid under Section 220(2) of the Act as part of the refund under Section 240 of the Act. It interpreted the provisions of Sections 244 and 244A and concluded that interest was payable on the refund due to the assessee.
Final Decision: The court granted the petitioner's writ petition, quashed the impugned order, and directed the respondent to grant interest on the refund to the petitioner under Section 244 of the Act. The concerned A.O. was ordered to calculate the refund and pass a refund order within eight weeks.
JUDGMENT :
K.R. Shriram, J.
Petitioner is a Registered Partnership firm and was carrying on business, inter alia, of ship breaking. Petitioner is seeking to challenge an order dated 30th April 2004 passed under Section 264 of the Income Tax Act, 1961 (the “Act”) by Respondent No.1, rejecting application of Petitioner to grant interest on refund under the provisions of Sections 244/244A of the Act.
2. Petitioner had filed its return of income on 30th June 1984, for A. Y. 1984-85 relevant to previous year ended dated 31st March 1984, declaring loss of Rs.1,79,830/-. The Assessment for A. Y. 1984-85 was completed under Section 143(3) of the Act and Assessment Order dated 23rd March 1987 determining the total income at Rs.4,83,658/- was passed. The Assessing Officer (A.O.) also made an addition of Rs.6,63,500/- under Section 68 of the Act in respect of the amount of capital contributed by the five partners on the ground that it was not proved to be cash credit. The A.O. also initiated penalty proceedings under Section 271 (1)(c) of the Act and consequently, issued a notice of demand dated 23rd March 1987, demanding a sum of Rs.4,31,815/- .
3. Being aggrieved by the Assessment Order dated 23rd March 1987 passed by the A.O., Petitioner filed an Appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] on 21st April 1987. The Appeal was dismissed by an order dated 22nd February 1989.
4. Impugning order passed by the CIT(A), Petitioner filed an appeal before the ITAT on 11th May 1989 (Appeal No.1).
5. Upon the CIT(A) dismissing the Appeal, A.O. proceeded further with the penalty proceedings and vide order dated 4th August 1989 levied penalty of Rs. 6,37,411/- under Section 271(1)(c) of the Act. Against this order, on 15th September 1989, Petitioner preferred an appeal before CIT(A). This Appeal came to be dismissed by an order dated 3rd January 1991 which was impugned in Appeal (Appeal No.2) filed before the ITAT.
6. The ITAT while dealing with quantum appeal, i.e., Appeal No.1, impugning order passed by CIT(A) on 22nd February 1989, by its order dated 31st March 1999, restored the matter to the file of the A.O. with a direction to re-consider the issue regarding the allegations made under Section 68 of the Act. Consequent to the remand by the ITAT, the A.O. in his order dated 6th December 1995, came to the conclusion that the partners were assesseed to tax and, therefore, investment in the Petitioner – firm were proved beyond doubt and, therefore, deleted the additions made in the original assessment. Notwithstanding, this order dated 6th December 1995, Petitioner was not granted refund of tax paid/ recovered pursuant to the original Assessment Order.
7. Petitioner, therefore, filed an application to A.O. under Section 154 of the Act, pointing out that Petitioner was not granted refund pursuant to the order dated 6th December 1995. In response to the application, the A. O., by an order dated 22nd July 1999, granted refund of Rs.4,31,815/- along with interest thereon of Rs.5,11,616/- under Section 244A of the Act aggregating to Rs.9,43,431/-. After adjusting refund against demands for Assessment Years 1984-85, 1987-88, 1988-89 and 1989-90, a refund order of Rs.2,03,927/- was issued to Petitioner.
8. Simultaneously, an order dated 18th August 1999 under Section 220(2) of the Act was passed, charging interest of Rs.7,07,115/- in respect of penalty imposed under Section 271(1)(c) of the Act, after adjusting refunds for the Assessment Years 1985-86, 1990-91 and 1993-94 against penalty for A. Y. 1984-85. The demand of Rs.7,07,115/- was fully adjusted against refunds for Assessment Years 1984-85, 1990-91, 1994-95 and 1998-99.
9. Petitioner also received letter dated 24th August 1999 from the A.O. giving clarification and details regarding adjustment of refunds including interest against tax dues and granting of resultant refund of Rs.2,03,2
The main legal point established in the judgment is that the petitioner was entitled to interest on the amount paid under Section 220(2) of the Act as part of the refund under Section 240 of the Act.....
The main legal point established in the judgment is that the words 'amount of refund' in Section 244A(1)(a) must be given their natural meaning, entitling the appellant to interest on the whole refun....
Taxpayers are entitled to interest on refunds under Section 244A of the Income Tax Act, and this does not constitute 'interest on interest'.
In tax matters, entitlement to interest on delayed refunds, including on interest accrued, is affirmed, highlighting the principle that overdue amounts accrue additional interest.
The statutory obligation to pay interest on tax refunds under the Income-tax Act strengthens entitlement for interest on delayed payments, classifying undue retention of funds due and payable.
The main legal point established in the judgment is that the right to interest on a refunded amount accrues to the assessee on the date specified in Section 38(3)(a)(ii) of the Delhi Value Added Tax ....
Entitlement to interest on refunded amount under the Finance Act, 2016 based on legal precedents and interpretations.
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