1. The short and interesting issue in this appeal by the assessee for assessment year 1980-81 is whether it was entitled to interest under Section 244(1A) of the Income-tax Act, 1961 ("the Act" for short) on the interest paid by the assessee under Section 220(2) of the Act which was ultimately refunded to it.
2. Briefly stated the facts are these. While giving effect to the order of the Appellate Tribunal dated 14-7-1988 for assessment year 1980-81, the Assessing Officer computed the total income at nil. Since the assessee had paid tax of Rs. 75,520, the same was found to be refundable. The Assessing Officer worked out interest under Section 244(1A) of the Act on the aforesaid amount of Rs. 75,520 at Rs. 26,425.
The assessee had also paid interest under Section 220(2) of the Act amounting to Rs. 8,490 on 3-2-1987. This was also held refundable by the Assessing Officer because total demand had been reduced to nil.
Thus the total amount refundable to the assessee for assessment year 1980-81 was worked out to Rs. 1,10,435 (Rs. 75,520 + Rs. 26,425 + Rs. 8,490). No interest under Section 244(1A) of the Act was, however, allowed on the aforesaid amount of Rs. 8,490.
3. The assessee preferred an appeal before the learned CIT(A) who dismissed the same vide impugned order.
5. Shri Subhash Aggarwal, the learned Counsel for the assessee relied on the following decisions for the proposition that interest under Section 244(1A) of the Act was allowable to the assessee on the aforesaid amount of Rs. 8,490 : D.J. Works v. Dy. CIT [1992] 195 ITR 227 (Guj.); Chimanlal S. Patel v. CIT; CIT v. S. Balwant Singh Gujral [1990] Taxation 99 (3) -237 (MP) and CIT v. Ambat Echukutty Memon [1988] 173 ITR 581 (Ker.).
7. We have carefully considered the rival submissions as also the facts on record. Before dealing with the matter, it would be worthwhile and proper to refer to the decisions cited by the learned Counsel for the assessee.
8. In the case of D.J. Works (supra), the question that arose before the Gujarat High Court by way of a writ petition was whether the assessee was entitled to interest on interest under Section 214 of the Act or not. The High Court noted that if the excess tax paid cannot be retained without payment of interest, so also the interest which is payable thereon cannot be retained without payment of interest. It was observed that once the interest amount becomes due, it takes the same colour as the excess amount of tax which is refundable on regular assessment. The High Court noted that though there was no specific provision to pay interest on interest, the Legislature itself had considered it fair and reasonable to award interest on the amount paid in excess and there was no reason why the same principle should not be extended to the payment of interest which had been wrongfully withheld by the Assessing Officer or the Government. The High Court, therefore, held that the assessee was entitled to interest on interest under Section 214 of the Act. From the above, it is clear that the said decision which has not been rendered in the context of appeal or reference, but in the context of writ petition is under Section 214 of the Act and does not make any discussion about Section 244(1A) of the Act which is before us in the present proceedings.
9. As regards the Gujarat High Court decision in the case of Chimanlal S. Patel (supra), that is also in respect of interest on interest allowable under Section 214 of the Act and follows the earlier decision in the case of D.J. Works (supra). We, therefore, need not make any further discussion regarding this decision.
10. In the case of S. Balwant Singh Gujral (supra), the full copy of the text of the Madhya Pradesh High Court judgment has not been produced before us. The facts, however, show that for assessment year 1967-68, as a result of relief given in appeal by the Appellate Asstt.
Commissioner and the Appellate Tribunal, the assessee became entitled to a total refund of Rs. 40,033 which included interest paid by the assessee under Sections 139(8) and 215 of the Act. The Assessing Officer allowed interest under Section 244(1A) on the excess amount of tax only. The Appellate Asstt. Commissioner affirmed the order but the Tribunal directed the Income-tax Officer to allow interest on the entire amount of refund. The department sought reference and the Madhya Pradesh High Court held that the assessee was entitled to interest under Section 244(1A) on the entire amount of refund due as a result of appeal or other proceedings under the Act. In the absence of full text of the judgment, we are not in a position to appreciate as to what weighed with the High Court to come to the decision that it did. We shall leave the matter at that.
11. As regards the Kerala High Court decision in the case of Ambat Echukutty Memon (supra), the question was of eligibility of interest under Section 244(1) and not under Section 244(1A) of the Act. In that case, for assessment years 1961-62 to 1963-64, certain refunds became due to the assessee as a result of the orders passed by the Supreme Court. These amounts consisted of income-tax, penalty and interest paid under Section 220 of the Act. While the Assessing Officer allowed interest under Section 244 of the Act in respect of the amounts representing income-tax and penalty, no such interest under Section 244 was allowed in respect of the interest collected under Section 220 of the Act. The High Court examined the provisions of Sections 220, 240 and 244 and observed that Section 240 of the Act is a general provision which envisages refund of any amount that becomes due to the assessee.
According to the High Court that would take within its fold even interest levied and collected under Section 220(2) of the Act. It was observed that there is no express or implied provision in Section 244 of the Act that interest shall not be paid on interest collected Under Section 220(2) of the Act. On these facts, it was held that the assessee was entitled to interest under Section 244(1) of the Act on the refund of interest collected under Section 220 (2) of the Act. From the above facts, it would be immediately clear that there is absolutely no discussion in this judgment about the provisions contained in Section 244(1A) of the Act. The proposition laid down by the High Court is with regard to the interest payable by the Government under Section 244(1) and the proposition, with respect, is correct. Since there is no discussion about the provisions of Section 244(1A) of the Act, this authority does not give any support to the assessee's case which is before us.
12. A careful study of the Act shows that terms like "tax", "penalty" and "interest" have been used to denote different concepts. Section 156 of the Act makes a clear distinction between tax, penalty and interest.
Section 229 of the Act also talks of any sum imposed by way of interest, fine, penalty or any other sum payable which clearly brings out the distinction between penalty and interest. Section 132B(l)(i) of the Act also makes a distinction between tax, penalty and interest. The expression "tax" has been defined in Section 2(43) of the Act as under : 2(43): tax in relation to the assessment year commencing on the 1st day of April, 1965 and any subsequent assessment year means income-tax chargeable under the provisions of this Act and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date.
13. In the case of Bhor Industries Ltd. v. CIT [1961] 42 ITR 57, the Supreme Court while considering the question as to whether or not the interest that was charged to the company under Section 18A of the Indian Income-tax Act should be deducted along with income-tax before the fictional dividends as contemplated by Section 23A observed thus : The words of the sub-Section are clear to show that interest as interest is added to the tax as determined. There is nothing to show that it is to be treated as tax and it thus retains its character of interest but is recoverable along with the tax. Indeed, Section 29 of the Income-tax Act makes a distinction between tax, penalty and interest. Since Section 23A speaks of deduction only of income-tax and super-tax, no deduction could be made in respect of this interest.
14. In the case of P.S. Subramanyan, ITO v. Simplex Mills Ltd. [1963] 48 ITR 980 (Bom.), the question was whether the payment of interest by Government on advance tax paid by the assessee under Section 18A(1) of the Indian Income-tax Act, 1922 reduced the tax payable by the assessee and could be said to be grant of relief from the payment of tax empowering the Assessing Officer to take action under Section 34(1) (b) of the Indian Income-tax Act to recover such interest. The High Court held that the payment of interest by the Government on advance tax paid by the assessee did not reduce the tax payable by the assessee and could not be said to be grant of relief from the payment of tax. It was accordingly held that the Income-tax Officer was not competent to take action under Section 34(1)(b) to recover interest, inasmuch as, it could not be said that excessive relief had been allowed to the assessee in the original assessment.
15. Section 229 of the Act stipulates that interest charged is not part of the tax though it is recoverable along with it.
16. The upshot of the above discussion is that tax, penalty and interest are distinct concepts and they have to be understood in the context in which they are used in different provisions of the Act.
17. Section 240 of the Act stipulates that where as a result of any order passed in appeal or other proceedings under the Act, refund of "any amount" becomes due to the assessee, the Assessing Officer shall refund "the amount" to the assessee. Obviously, "any amount" would include tax, penalty, interest, etc. Section 244(1) lays down that where a refund is due to the assessee in pursuance of an order referred to in Section 240 of the Act and the Assessing Officer does not grant the refund within the prescribed period, then the Central Government shall pay to the assessee simple interest at a particular percentage per annum on the amount of refund due from a certain date to the date on which the refund is granted. This Section clearly refers to the refund due under Section 240 of the Act which may include refund of interest as well. There is thus no difficulty in allowing interest to an assessee under Section 244(1) of the Act on the amount of interest paid in excess and found refundable under Section 240 of the Act.
18. Section 244(1A) was, however, inserted by the Taxation Laws (Amendment) Act, 1975 w.e.f. 1-10-1975. If this sub-Section is broken into parts and analysed, the following points emerge for consideration: (a) the whole or any part of the refund should become due to the assessee under Section 240 of the Act; (b) this refund should be as a result of any amount having been paid by the assessee after 31-3-1975 in pursuance of an order of assessment or penalty; (c) such amount of any part thereof should be found in appeal or other proceedings under the Act to be in excess of the amount which such assessee is liable to pay as tax or penalty; and (d) if the above conditions are fulfilled, then the Central Government is bound to pay to such assessee simple interest at the rate specified in Section 244(1) on the amount so found to be in excess from a certain date to the date on which the refund is granted.
19. From the above, it is clear that though Section 244(1) talks of any refund to the assessee under Section 240(1), sub-Section (1A) of Section 244, however, carves out an exception. Interest under Section 244(1) of the Act is allowable only where the refund has arisen as a result of the excess payment of tax or penalty. There is nothing in this sub-Section to suggest that the term "tax" includes "interest" also. Indeed, it has been noted in earlier part of this order that "interest' and "tax" are different concepts under the Act. It is also significant to note that first proviso to Section 220(2) stipulates that where as a result of rectification, appeal, revision, etc., the amount on which interest under Section 220(2) was payable had been reduced, the interest shall also be reduced accordingly and the excess interest paid, if any, shall be refunded. In this proviso, there is no provision to pay interest on interest. When the Legislature in its wisdom has clearly stipulated that interest under Section 244(1A) is allowable on the amount of tax or penalty found refundable, then there is no scope or room for applying general principles to neutralise or nullify the effect of the specific provisions brought on the statute book. We accordingly hold that no interest under Section 244(1A) of the Act is allowable in respect of the interest paid under Section 220 (2) of the Act which was later held to have been paid in excess and was found refundable to the assessee.
20. We accordingly confirm the impugned order on the point and dismiss the assessee's appeal.