Case: M/s. K. Lakshmanya &amp; Company Vs. Commissioner of Income Tax &amp; Another

We are concerned in the present case with the assessment years5. The assessee, being a partnership firm, filed a return for these years and once the order of assessment was completed, interest under Sections 234(A) to (C) was levied.2. Aggrieved by this levy of interest, the assessee filed an application before the Settlement Commission, requesting the Commission to waive the interest on the ground that it caused hardship to it. The Settlement Commission, by its order dated 22.03.2000, referred to a circular of the CBDT which gave it the power to waive such interest; and by the aforesaid order, interest was partially waived for the assessment years in question. On an application made by the assessee, the Assessing Officer, by his order dated 25.04.2000 refused to grant interest on the refund that was payable, and was not paid, within three months from the specified date. This was done on two grounds, namely, that the provisions of Section 244(A) do not provide for payment of interest on refund due on account of waiver of interest that is charged under Sectionsof the Act and second, that the power assumed by the Settlement Commission for waiver of interest, by following the CBDT circular referred to, does not enable the Commission to provide for payment of interest under Section 244(A).3. An appeal that was filed before the C.I.T. (Appeals) was allowed. This was done by referring to a judgment of the Madras High Court in Commissioner ofv. Needle Industries Pvt. Ltd. (1998) 233 ITR 370 and with reference to the CBDT circular which enabled the Settlement Commission to waive interest. An appeal by the Revenue to theAppellate Tribunal (ITAT) was dismissed. However, in appeal to the High Court, by the impugned judgment dated 09.12.2009, the High Court of Karnataka held that, since waiver of interest was within the discretion of the Settlement Commission, no right flowed to the assessee to claim refund as a matter of right under law. In the aforesaid circumstances, the judgments of the Tribunal and C.I.T. (Appeals) were set aside and the Assessing Officers order was restored.

Reasoning:
7. A cursory reading of the aforesaid section shows that refund may become due to the assessee, either as a result of an order passed in appeal or other proceedings under this Act. It is clear that refund that arises as a result of an order passed under Section 245(D)(4) is an order passed in "other proceeding under this Act"8. Thus, it is clear that the assessee in the present case is covered by Section 240 of the Act.9. When it comes to interest on refund, Section 244, which applied to assessment years up to and including assessment yearmade it clear that it would apply where a refund is due to the assessee in pursuance of an order referred to in Section 240. It is only if the Assessing Officer does not grant the refund within three months from the end of the month in which such order is passed, that the Central Government shall pay to the assessee simple interest on the amount of refundA cursory look at the aforesaid section shows that the aforesaid section is even wider than section 244 and is not restricted to refund being issued to the assessee in pursuance to an order referred to in Section 240. Under this Section, it is enough that the refund become due under theAct, in which case the assessee shall, subject to the provisions of this Section, be entitled to receive simple interest.The present case would fall outsidea and aa of this provision and, therefore, fall within the residuary clause, namely(b) of Section 244(A).The above extract would clearly show that a corresponding right exists, to refund to individuals any sum paid by them as taxes which are found to have been wrongfully exasted or believed to be, for any reason, inequitable. The statutory obligation to refund, being non discretionary, carries with it the right to interest, also making it clear that the right to interest is parasitical. The right to claim refund is automatic once the statutory provisions have been complied with.We are of the view that the expression "due" only means that a refund becomes due if there is an order under the Act which either reduces or waives tax or interest. It is of no matter that the interest that is waived is discretionary in nature, for the moment that discretion is exercised, a concomitant right springs into being in favour of the assessee. We are, therefore of view that the C.I.T. (Appeals) and the ITAT were correct in their view and that consequently, the High Court was incorrect in its view that since a discretionary power has been exercised, no concomitant right was found for refund of interest to theg outor of Income Tax. Set Satellite (Singapore) Pte.d learned counsel for theis clear that the appeal of the department deserves to be dismissed as the matter is covered by the judgment of this Court dated 26.11.2014 in Union of India Throughof Income TaxVs. Tata Chemicals Limited 2014 (6) SCC 335.