IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR FRIDAY, THE 5TH DECEMBER 2008 / 14TH AGRAHAYANA 1930 WP(C).No. 26052 of 2004(B) -------------------------- PETITIONER(S): --------------- M/S. KERALA TRANSPORT CO., CALICUT. BY ADV. SRI.S.ARUN RAJ RESPONDENT(S): --------------- 1. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE (I), CALICUT 2. COMMISSIONER OF INCOME TAX, CALICUT. ADV. SRI.P.K.R.MENON(SR.),SR.COUNSEL FOR IT SRI. JOSE JOSEPH, SC FOR IT THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 05/12/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: 2 APPENDIX PETITIONER'S EXHIBITS: EXT.P1 TRUE COPY OF THE ASSESSMENT ORDER DATED 23.3.1993 FOR THE ASSESSMENT YEAR 1990-91 EXT.P2 TRUE COPY OF THE ORDER DATED 26.7.2002 PASSED UNDER SECTION 154 OF THE ACT BY THE FIRST RESPONDENT. EXT.P3 TRUE COPY OF THE ORDER DATED 18.12.2002 PASSED UNDER SECTION 154 OF THE ACT BY THE FIRST RESPONDENT. EXT.P4 TRUE COPY OF THE ORDER DATED 23.3.2004 PASSED UNDER SECTION 264 OF THE ACT BY THE 2ND RESPONDENT. RESPONDENTS' EXHIBITS: NIL. TRUE COPY P.S. TO JUDGE. C.N. RAMACHANDRAN NAIR, J. -------------------------------------------- W.P.C. NO. 26052 OF 2004 -------------------------------------------- Dated this the 5th day of December, 2008 C.R. JUDGMENT The issue that arises for consideration is whether the assessee is entitled to interest under Section 244A(1)(b) of the I. T. Act on the excess tax paid along with return under Section 140A of the I.T. Act. The assessment involved is for the year 1990-91 and for this year, the assessee admittedly paid Rs. 13,94,620/- under Section 140A of the Act along with return filed. The assessment was subject matter of appeals and Ext.P3 is the final revised assessment order issued after rectification of some mistakes in the earlier order passed. Tax is seen credited in the assessment in the form of tax deduction at source made by parties, advance tax paid by the assessee, tax paid along with return (self-assessed tax) and tax paid against demand notice raised under Section 156 of the Act. In the ultimate result, it is seen that assessee was entitled to huge refund. Even though refund is granted along with interest on substantial portion thereof, the assessing officer declined to 2 grant interest on excess payment of self-assessed tax under Section 140A of the Act on the ground that Section 244A(1)(b) does not authorise payment of interest on such excess self assessed tax paid after the assessment year 1989-90. Even though assessee filed revision petition against this order under Section 264 of the Act, the Commissioner rejected the claim vide Ext.P4 against which this Writ Petition is filed for declaration that assessee is entitled to interest under Section 244A(1)(b) of the Act and for direction to respondents to grant such interest. I have heard counsel appearing for the petitioner- assessee and standing counsel appearing for the Income-tax Department. 2. Since interest is claimed under Section 244A(1)(b) of the Act, the said section with Explanation is extracted hereunder for easy reference: 244A. (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)....... (b)in any other case, such interest shall be 3 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. It is clear from the above provisions and the impugned order that department does not dispute assessee's entitlement for interest on refund of all payments of tax in excess of actual tax found due on assessment except excess self-assessed tax paid under Section 140A(1) of the Act. Counsel for the assessee has relied on the decision of the Supreme Court in MODI INDUSTRIES' case, 216 ITR 759 and contended that interest under Section 214 was payable to the assessee on the entire excess tax paid which includes self-assessed tax also. Standing counsel on the other hand submitted that even according to the decision of the Supreme Court above referred, interest is payable strictly in accordance with statutory provisions and if the Section does not provide for it, assessee is not entitled to interest. He submitted that decision of the Supreme Court cannot be relied upon because the said 4 decision was rendered in the context of Section 214 which is not applicable in any way from the assessment year 1989-90 onwards. Another decision relied on by the assessee is that of the Madras High Court in CIT V. CHOLAMANDALAM INVESTMENT AND FINANCE CO.LTD, 294 I.T.R. 438 (Mad.) wherein the Madras High Court held that assessee is entitled to interest under Section 244(A)(1) (b) of the Act. However, standing counsel submitted that Madras High Court in that case was following some other decisions which were rendered in the context of Section 214 of the Act only. 3. Before considering the scope of the above provision, it is worthwhile to consider circular issued by the Central Board explaining the purpose of insertion of new Section 244A vide clause 11.3 of circular reported in 182 I.T.R. (Statutes) 48 which is as follows: "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 which contains all the provisions for payment of interest by the department for delay in the grant of refund. ..." 5 It is obvious from the above that the purpose is to liberalise the then existing provisions and to ensure that interest is paid for delay in grant of refund. As already noticed, in the decision referred to above, the Supreme Court has held that interest is payable on excess self-assessed tax paid under Section 140A of the Act. The question therefore to be considered is whether the new provision introduced with effect from 1.4.1989 seeks to limit interest on every payment of tax except self- assessed tax paid under Section 140A of the Act. It is pertinent to note that clause (a) of Section 244A(1) provides for interest on refund of excess payment of tax, such as the fringe benefit tax paid under Section 115WJ, tax collected at source under Section 206 and tax paid by way of advance tax or tax treated as paid under Section 199 during the financial year. After providing specific rate of interest on refund of excess tax paid, categories of which are referred to in clause (a), clause (b) provides for lower rate of interest on refund of tax paid in other cases. No doubt tax paid "in any other case" is not defined under the Act. However, explanation to clause (b) clarifies the date on which interest is payable by defining "date of payment of tax or penalty" referred to in clause (b) as the date on which tax is paid pursuant to notice issued under Section 156. Counsel for the assessee mainly 6 argued that "in any other case" referred to in clause (b) covers all other cases which are not referred to in clause (a) and so much so every payment of tax in excess of tax due will entitle the assessee for interest. Alternatively, he submitted that payment of self-assessed tax partakes the character of payment as if tax is paid pursuant to notice issued under Section 156 because of the specific provision contained in Section 140A(2) of the Act. Standing counsel on the other hand contended that clause (b) covers only payments of tax made pursuant to notice of demand under Section 156, and self-assessed tax cannot be treated as payment under Section 156. In this context it is worthwhile to refer to Section 140A of the Act, which is extracted hereunder for easy reference: 140A. (1) Where any tax is payable on the basis of any return required to be furnished under Section 115WD or Section 115WH or Section 139 or Section 142 or Section 148 or Section 153A or, as the case may be, section 158BC, after taking into account the amount of tax, if any, already paid under any provision of this Act, the assessee shall be liable to pay such tax together with interest payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return and the return shall be accompanied by proof of payment of such tax and interest. 7 Explanation:..... (2) After a regular assessment under Section 115WE or Section 115WF or Section 143 or Section 144 or an assessment under Section 153A or section 158BC has been made, any amount paid under sub-section (1) shall be deemed to have been paid towards such regular assessment (or assessment, as the case may be. (3) If any assessee fails to pay the whole or any part of such tax or interest or both in accordance with the provisions of sub-section (1), he shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of the tax or interest or both remaining unpaid, and all the provisions of this Act shall apply accordingly. (4)..... It is obvious from sub-section (1) that assessee is required to remit self- assessed tax due under the return before the date of filing of the return and proof of payment should be filed along with return. Sub-section (3) specifically provides that if the assessee does not remit self- assessed tax as required under sub-section (1), the assessee shall be deemed to be an assessee in default and all the provisions of the Act shall apply accordingly. Section 156 authorises the assessing officer to issue notice of demand whenever tax, penalty, interest or any other amount is due under the Act. Therefore if an assessee fails to pay self- 8 assessed tax along with return as required under sub-section (1) of Section 140A of the Act, then the officer will declare the assessee as an assessee in default; and will issue notice of demand requiring him to pay self-assessed tax so due along with interest due thereon in terms of Section 156. Obviously any such defaulted self-assessed tax paid pursuant to notice issued under Section 156 is also covered by clause (b) of Section 244A(1) entitling the assessee for interest on excess self- assessed tax paid pursuant to notice of demand. The question now to be considered is whether an assessee who complies with sub-section (1) of Section 140A and remits tax along with return should be declined interest while granting interest to a defaulter who pays self- assessed tax only on demand after default. I do not think Legislature intended this inequitable consequence on the statute. Further sub- section (2) of Section 140A authorises the assessing officer to adjust self-assessed tax paid along with return against assessed tax as and when assessment is completed. Therefore what follows from Section is that self-assessed tax becomes demand of tax when it is adjusted against assessment by the Officer. Since consequence of non-payment and adjustment is demand under Section 156 and recovery in accordance with provisions of the Act, adjustment so made partakes the 9 character of tax demanded under Section 156 after assessment. In other words, all payments of self-assessed tax under Section 140A(1) partakes the character of demand of tax after assessment is made. However, if on the date of assessment the assessing officer finds that self-assessed tax is in excess of tax due, he necessarily grants refund, which means that assessee will not be entitled to any interest on such refund. On the other hand, if any self-assessed tax paid, and adjusted against demand, was later found to be refundable, then assessee will be entitled to interest under Section 244A(1)(b) of the Act on such excess tax adjusted against demand. In other words, date of payment to be reckoned for self-assessed tax for the purpose of interest under Section 244A(1) is the date on which assessment and adjustments are made. The question raised in the WPC is answered in favour of the assessee in the way stated above. Consequently, Ext.P4 order of the Commissioner and to the extent of Ext.P3 declining interest on refund of self-assessed tax are set aside with direction to the assessing officer to grant eligible interest on refund of excess self-assessed tax paid from the date of first regular assessment and adjustment till date of refund at the rate provided under clause (b) of Section 244A(1) of the Act. Even though counsel for the assessee referred to the decision of 10 the Supreme Court in SANDVIK ASIA LTD. V. CIT., 280 I.T.R. 643 and contended that assessee is entitled to interest on interest for wrongfully declining grant of interest on refund, I do not think this is a fit case for granting interest on interest because interest is not deliberately declined but on account of bona fide mis-interpretation of new statutory provision by the authorities concerned, and hence this request is declined. (C.N. RAMACHANDRAN NAIR) Judge kk 11