[2017] 12 S.C.R. 644

MIS. K. LAKSHMANYA AND COMPANY

COMMISSIONER OF INCOME TAX & ANR.

(Civil Appeal No.4335 of2012)

NOVEMBER 01, 2017

(R. .F. NARIMAN AND SANJAY KISHAN KAUL, JJ.]

Income Tax Act, 1961ss.244(A), .240 and s.245(D){4) - Assessment years 1993-94 and 1994-95 - Interest on refund - C Entitlement of - High Court held that the assessee in the instant case was not entitled to interest uls.244(A) of the Act, when refui1d arose to it on account of partial waiver of interest chargeable uls. 234(A) to (C) by an order of the Settlenlent Commission - Propriety of - Held: Settlement Commission referred to the CBDT circular

which enabled it to waive interest in favour of assessee - U/s. 244(A), it is enough that the refund become due under the Income-tax Act, in which case the assessee shall be entitled to receive simple interest

- ExpressiOn "due" only means that a refimd 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 - There/are, the High Court was incorrect in its vie1v that since a discretionary power has been exercised, no concomitant right was found for refund of interest to the assessee.

Allowing the appeals, the Court

HELD: 1. The Settlement Commission, by its order referred to a circular of the CBDT which gave it the power to waive interest; and by the aforesaid order, interest was partially waived for the assessment years 1993-94 and. 1994-95 in favour of assessee. Under Section 244(A) of the Income Tax Act, 1961, G it is enough that the refund become due under the Income-tax Act, in which case the assessec shall, subject to the provisions of this Section, be entitled to receive simple interest. [Paras 2,

10J[646-G-H; 650-E]

H 644

MIS. K. LAKSHMANYA AND COMPANY v. COMMISSIONER 645

OF INCOME TAX

2. A corresponding right exists, to refund to individuals A any sum paid by them as taxes which are found to have been wrongfully existed or believed to be, for any reason, inequitable.

The statutory obligation to refund, being nondiscretionary, 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. [Para 171 (653-G-H]

3. The expression "due" only means that a refund becomes due if there is an order under the Act which either reduces or 'vaives 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. The view of the C.I.T. (Appeals) and the ITAT was correct 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 the D assessee.[Para 20] [654-E]

Commissioner of Income-Tax, Bhopal v. H.E.G Limited

(2010) 15 SCC 349: Union of India v. Tata Chemicals Ltd. (2014) 6 SCC 335 : (2014] 3 SCR 298 - relied on.

Commissioner of Income-Tax v. Needle Industries Pvt.

Ltd. 233 ITR 370; Sandvik Asia Ltd. v. Commissioner of Income Tax I, Pune and Others (2006) 2 SCC 508 :

[2006] 2 SCR 811; Commissioner of Income Tax, Mumbai v. Anjum MH. Ghaswala and Ors. (2002) 1 F SCC 633 : [2001] 4 Suppl. SCR 303 - referred to.

Case Law Reference

233 ITR 370 referred to Para3

[2006] 2 SCR 811 referred to Para4 G

(2001) 4 Suppl. SCR 303 referred to Para4

(2010) 15 sec 349 relied on Para .15

(2014] 3 SCR 298 , relied on Para 16

A CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4335

of2012.

 From the Judgment and Order dated 09.12.2009 of the High Court of Karnataka at Bangalore in ITA No. 486 of 2004.

WITH

Civil Appeal Nos. 4357, 4358, 4359, 4356, 4346, 4349, 4355, 4353,4339, 4343, 4348, 4345, 43.50, 4351, 4347, 4336, 4340, 4338, 4337, 4354, 4352, 4344, 4342, 4341, 4361, 4362, 4360, 4365, 4363, 4366, 4364 of2012 c Civil Appeal No. 5478 of2013.

Preetesh Kapur, Mohit Chaudhary, AshokA. Kulkarni, Ms. Puja Shanna, Kuna! Sachdeva Balwinder Singh Suri, Ms. Garima Sharma, Rankit B. Raut, Mrs. Bina Gupta, Ms. Puja Sharma, Mrs. Anil Katiyar, Advs. for the Appellant.

K. Radhakrishnan, M. S. Syali, Sr; Advs., Arijit Prasad, Ms. Rashrni Malhotra, Mrs. Anil Katiyar, B. V. Balaram Das, Rustom B.

Hathikhanawala, Mayank Nagi, Vikrant A. Maheshwari, Tarun Singh, Advs. for the Respondents.

The Judgment of the Court was delivered by

R. F. NARIMAN, J. 1. The question which this appeal raises is whether the High Court ofKarnataka at Bangalore was correct in holding . that the assessee in the present case was not entitled to interest under

Section 244 (A) of the Income-Tax, .1961 Act, when refund arose to it .on account of interest that was partially waived by an order of the Settlement Commission. We are concerned in the present case with the assessment years 1993-94 and 1994-95. The asses see, being a . partnership firm, filed a return for these years al1d once the order of assessment was completed, interest under Sections 234(A) to (C) was levied. ·

2. Aggrieved by this levy of interest, the assessec filed an

application before tµe 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, A . 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 B under Sections 234(A)-(C) of 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.l.T. (Appeals) was allowed. This was done by referring to a judgment of the Madras High C Court in Commissioner oflm:ome-Tax Vs. Needle Industries Pvt. Ltd. 233 ITR 370 and with reference to the CBDT circular which enabled the Settlement Commission to waive interest. An appeal by the Revenue to the Income-Tax Appellate Tribunal (!TAT) was dismissed. However, in appeal to the High Court, by the impugnedj udgment dated 09 .12.2009, D the High Court of Karnataka held that, since waiver of interest was within the discretion of the Settlement Commission, no rightfiowed 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 Officer's order was restored.

4. Mr. Preetesh Kapur, learned cow1sel appearing on behalf of the appellant, has placed the relevant statutory provisions before us and has relied upon the Madras High Court judgment in Needle Industries

(supra) and pointed out to us that this very judgment has been affirmed

by this Court in Sandvik Asia Ltd. Vs. Commissioner of Income Tax I.· Pune and Others 2006 (2) SCC 508. According to hill\, since Section F 244(A) is wider than the pre-existing Section 241, it is clear that all the Judgments which deal with Section 241 apply with all force to the facts

- of this case. He also relied upon the judgment of this Court in Commissioner oflncome Tax. Mumbai Vs. Anjum M.H.Ghaswala and Ors. 2002 (1) SCC 633 para 34 in particular, to show that when the G power to waive interest payable under a substantive provision of the Act was given by a circular of the Board to the Settlement Commission, interest' could be so waived and that a circular of the Board gave such power which was exercised by the Settlement Commission in the present case. According to him, the judgments of the C.I.T. (Appeals) and the H

A Tribunal are, therefore, correct and ought not to have been set aside by the High Court.

5. Mr. K.Radhakrishnan, learned senior counsel appearing for the respondent-Revenue, emphasised the expression "due to" which is present in Sections 240 and 244(A) and would, therefore, show that the refund must be "due" i.e. assessee should be entitled, as a matter oflaw to such refund or else interest would not become payable. He also refelTed to Sections 245(D)( 4)and(6) to buttress the aforesaid submission.

According to him, the judgment in Ghaswala's case (supra) would show, paragraphs 23 and 30 in particular, that the Settlement Commission was given no power to waive interest, the idea of a Settlement Commission being that the asscssce pays tax promptly and that no concession can be given by the said Commission. He referred to the reasons given by the Assessing Officer in support of his order and stated that both reasons were correct in law. He also referred to paragraph 12 of the judgment under appeal and stated that the High Court was right, in that there was no entitlement to refund in the facts of the present case.

6. Having heard learned counsel for both sides, it is necessary for us to extract the relevant statutory provisions. Section 240 occw-s in the Chapter which deals with refund, namely Chapter XIX of the Income- Tax Act, 1961. Section 240 reads as follows:

"240. Refund on appeal etc.-Where, as a result of any order passed in appeal or other proceedings 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:

Provided that where, by te order aforesaid,-

( a) an assessment is set aside or cancelled and an order of fresh assessment is directed to be made, the refund, if nay, shall become due only on the making of such fresh assessment;

(b) the assessment is annulled, the refund shall become due . only of the amount, if any, of the tax paid in excess of the tax chargeable on the total income returned by the assessee."

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 ofan order passed under Section245(D)(4) is an order A passed in "other proceeding under this Act"

Thus, it is clear that the assessee in the present' case is covered by Section 240 of the Act.

8. When it comes to interest on refund, Section 244, which applied to assessment years up to and including assessment year 1989-90, made B 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 refund due. c

9. We are in this appeal directly concerned, howeve1; with Section 244(A) of the Act which reads as follows:

"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 collected at source under Section 206C or paid by way of advance tax or treated as paid E under Secttion 199, during the financial year immedaitely preceding the assessment year, such interest shall be calculated at the rate of one-half percent for every month or part of a month comprised in the pcriod;-

i) from the

1st day of April of the assessment year to the date on which the refund is granted:

if the return of income has been furnished on or before the due date specified under sub-section ( l) of Section 139; or

(ii) from the date offumishing ofreturn of income to the date on which the refund is granted, in a case not covered under subclause (I);

(aa) where the refw1d is out of any tax paid under section 140A, such interest shall be calculated at the rate of one-half percent H

A for every month or part of a month comprised in the period, from the date of furnishing of return of income or payment of tax, whichever is later; to the date ori which the refund is granted.

Provided that no interest under clause (a) or clause (aa) shall be payable, if the amount of refund is less than ten percent of the tax as B determined under sub-section (I) 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 the tax or penalty to the date on which the refund is granted.'._'.

Explanation:-F or the purpose 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.

l 0. A 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 the Income-tax Act, in which case the assessee shall, subject to the provisions of this Section, be entitled to receive simple interest.

The objects and reasons for the aforesaid amendment state:

"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 assessee on any excess advance tax paid by him in a financial year from the Ist day of April next following the said financial year 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 ofrefund 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

MIS. K. LAKSHMANYAAND COMPANY v. COMMISSIONER 651

OF INCOME TAX [R. F. NARIMAN, J.] ·

gaps for which interest was not paid by the Department to the A 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 B 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 l .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 fo provide that the provisions of these sections shall not apply to the assessment year C 1989-90 or any subsequent assessment years." (emphasis supplied)"

l I. The present case would fall outside sub-clauses a and aa of this provision and, therefore, fall within the residuary clause, namely sub-clause (b) of Section 244(A).

12. The Madras High Court in Needle Industries Pvt. Ltd. (supra) concerned itself with the position prior to the advent of Section 244A. It found that the expression "refund of any amount" used by Section 240 and 244 would include not only tax and penalty but interest also. It was, therefore, held that the clear intention of Parliament is that the right to E interest will compensate the assessee for the excess payment during the intervening period when the assessee did not have the benefit of use of such money paid in whatsoever character.

The Court held that the result would be that the asssessee would be entitled to interest on refund also.

13. This Court in Sandvik Asia Ltd. (supra) set out several questions of law which arose on the facts of that case. We are concerned with questions C and E which read as follows:

"(C). Whether on a proper interpretation of the various provisions

of the Act an assessee was entitled to be compensated for the G delay in paying to it any 'amount' due to it even ifsueh 'amount' comprised of interest, as had been held by the Delhi and Madras High Courts and hence the impugned judgment was erroneous and ought to be reversed ?

E. Whether the High Court ought to have held that sections 240 and 244 of the Act refer to 'refund of any amount', which phrase clearly includes any amount (including interest) due by the Income Tax department to the assessee, and hence the appellant was entitled to interest on the delay in the payment of amounts due from the Income-tax Depa11ment ?"

14. After setting out the relevant statutory provisions, which at that time covered Section 244 and not Section 244(A), and after referring to a number of decisions, the Court ultimately referred to Needle Industries (supra) and expressly approved the same. It concluded the aforesaid questions in favour of the assessee as follows:

"In the present appeal, the respondents have argued that the compensation claimed by the appellant is for delay by the Revenue in paying of interest, and this does fall within the meaning of refund as set out in Section 237 of the Act. The relevant provision is

Seti on 240 of the Act which clearly lays down that what is relevant is whether any amount has become due to an assessee, and fw1her the phrase any amount will also encompass interest. This view has been accepted by various High Comts such as the Delhi, Madras, Kerala High Courts et.c.

15. In Commissioner oflncome-Tax, Bhopal Vs. H.E.G.Limited 2010 ( 15) SCC 349, this Court was squarely confrnnted with the meaning of the expression " where refund of any amount become due to the assessee" in Section 244(A)(l ). This question was answered as follows:

"5.In the present case, as stated above, there arc two components of the tax paid by the assessee for which the assessee was granted refund, namely TDS of Rs. 45,73,528 and tax paid after original assessment of Rs. 1,71,00,320. The Department contends that the words "any amount" will not include the interest which accrued to the respondent for not refunding Rs. 45,73,528 for 57 months.

We see no merit in this argument. The interest component will partake of the character of the "amount due" under Section 244- A. It becomes an integral part ofR. 45,73,528 which is not paid for 57 months after the said amount became due and payable. As can be seen from the facts narrated above, this is the case of short payment by the Department and it is in this way that the assesscc claims interest under Section 244-A of the Income Tax

Act. Therefore, on both the aforestated grounds, we are of the A the view that the assessee was entitled to interest for 57 months on Rs. 45,73,5289. The principal amount of Rs. 45,73,528 has been paid on 31.12.1997 but not of interest which, as stated above, partook the character of 'amount due" under Section 244-A."

16. In Union oflndia Vs. Tata Chemicals Ltd. 2014 (6) SCC 335, B this Court after going into the object for the enactment of Section 244(A), held:

"Interest payment is a statutory obligation and nondiscretionary in nature to the assessee. In tune with the aforesaid general principle, Section 244A is drafted and enacted. The language c employed in Section 244A of the Act is clear and plain. It grants substantive right of interest and is not procedwal. The principles for grant ofinterest 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 a 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 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."

17. The above extract would clearly show that a corresponding right exists, to refund to individuals any sum paid by them as taxes which G 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.

18. However, Mr. K.Radhakrishnan, learned senior counsel appearing for the respondent-Revenue, has strongly relied upon the decision of this Court in Ghaswala's case (supra). In this judgment, this Court held that the Settlement Commi.ssion was introduced into th<; Income-tax Act for the purpose of quick settlement of cases before it, so that the the tax due to the Revenue gets collected at the earliest.

The object of this exercise is not to assist tax evaders.

In so holding, this Court held that Section 245(D)( 6) being procedural in nature, cannot be used to locate any power to waive interest, if it is not otherwise waived under some other substantive provision in the Income-Tax Act.

19. Ultimately, this Court arrived at the conclusion that the C Commission cannot either waive or reduce interest which is statutorily

. payable unless there is express power to do so in that behalf. However, while so saying, the Court went on to clarify that the circulars issued pursuant to the powers under Section 119 of the Act, which empower the autJ10ritics under the Act to waive or reduce interest, may be availed D by the Settlement Commission to waive interest.

20. We arc of the view thatthc expression "due" only means that a refund becomes due if there is an order under the Act whih 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 E exercised, a concomitant right springs into being in favour of the asscsscc. 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 i.n its view that since a discretionary power has been exercised, no concomitant right was found for refund of interest to the assesscc.

21. The appeals arc accordingly allowed and the impugned judgment is set aside.

Ankit Gyan Appeals allowed.