1. These appeals filed at the instance of the assessee, are directed against the common order dated January 2 2003, passed by the Commissioner of Income-tax (Appeals), Visakhapatnam, camp at Hyderabad, and they pertained to the assessment years 1997-78 to 1979-80.
2. By these appeals, the assessee claims interest under Section 243/244 or the Income-tax Act, 1961, on the delayed refund of tax and interest.
These cases have a chequered history. The assessee is a partner in two firms, i.e., M/s. Swasthik Oil Industries and M/s. Swastik Dall Mills.
3. In respect of the previous year, relevant to the assessment year 1977-78, the assessment was completed originally under Section 143(1) of the Act on February 12, 1980. Later on, assessment was made under Section 143(3) on September 23, 1986. Consequent to the change in the assessed income of the firm, M/s. Swastik Oil Industries, assessment was modified under Section 155 of the Act on May 31, 1993.
4. In respect of the previous year relevant to the assessment year 1978-79, assessment was originally completed on March 31, 1981. It appears to have been revised under Section 143(3) of the Act.
Consequent to the modification in the order passed in the case of M/s.
Swastik Oil Industries, an order under Section 155 of the Act was passed in the case of the assessee on May 31, 1993.
5. In respect of the assessment year 1979-80, the assessment was originally made under Section 143(3) of the Act on March 31, 1981. It was modified, consequent to the modification order passed in the case of the firm, M/s. Swastik Oil Industries, by the order dated May 31, 1993, under Section 155 of the Act.
6. In the said modification orders, interest under Section 214 of the Act was not allowed by the Assessing Officer up to the date of passing the modification orders. Therefore, the assessee challenged the inaction of the Assessing Officer before the first appellate authority.
The contention of the assessee was that interest under Section 214 of the Act has to be calculated and granted to the assessee up to the date of modification order for all the three years. The first appellate authority vide common order dated October 17, 1995, accepted the contention of the assessee and directed the Assessing Officer to grant interest.
7. Though the said common order was passed by the Deputy Commissioner of Income-tax (Appeals) on October 17, 1995, the Assessing Officer has given effect to the said order of the first appellate authority only on May 24, 2002. While passing the consequential orders on May 24, 2002, the Assessing Officer calculated the interest under Section 214 of the Act only up to the date of passing the orders under Section 155 of the Act, i.e., up to May 31, 1993. It may be noticed that there is a delay of 107 months in passing the consequential order, reckoned from the date of order passed by the Deputy Commissioner (Appeals). In other words, the assessee did not receive the amount receivable on May 31, 1993, till the date of consequential order dated May 24, 2002.
According to the assessee, the interest payable on the refund under Section 214 of the Act accrued to the assessee on May 31, 1993, itself.
For example, in respect of the assessment year 1977-78, interest accrued to the assessee is Rs. 16,940 on the refund of Rs. 7,745 bringing the total amount refundable to Rs. 24,685.00. Since there is delay in refunding the amount, interest has to be computed under Section 243 of the Act. Since the Assessing Officer has not granted interest under Section 243/244 of the Act, in the order passed on May 24, 2002, the assessee contended before the first appellate authority that the interest accrued to the assessee and payable under Section 214 of the Act has to be taken into account, as part of the amount refundable to the assessee, and on the sum total, such refund, the Assessing Officer ought to have granted interest, if the refund is not paid within the due time. In the instant case, there was substantial delay in granting refund, and hence, the assessee submitted that he is entitled to interest under Section 243/244 on the interest refundable under Section 214 of the Act. Reliance was placed upon the following decisions :D. J. Works v. CIT (Deputy) 8. The learned Commissioner of Income-tax (Appeals) was not convinced with the submissions of the assessee. He observed that the interest under Section 214 of the Act was calculated and determined in the order dated May 24, 2002, and thus, such interest becomes refundable on that date. Since this aggregate refund was worked out for all the three years, and immediately thereafter refund was issued by a consolidated refund order, there was no delay attributable on the part of the Assessing Officer, and thus, the assessee has not made out a case for grant of interest under Section 243 of the Act. The contention of the assessee that interest should have been granted, since there is time gap in the issue of the refund between the date of order under Section 155 dated- May 31, 1993) and the date of issue of refund (dated May 24, 2002), was rejected on the ground that in the order dated May 31,1993, interest was not correctly worked out, and thus, the quantification was done and the refund got crystalised only upon the passing of the order dated May 24, 2002, and, thus, there was no delay in the issue of the refund.
Learned counsel appearing on behalf of the assessee submitted that there is substantial delay in passing the consequential orders, and if the interpretation placed upon the provisions of the Act by the Commissioner of Income-tax (Appeals) is accepted, the provisions of Sections 243 and 244 cannot be applied uniformly to all the assesses, and it would be at the sweet will of the Assessing Officer to grant refund immediately in one case and to pass a consequential order after substantial delay in another case, which, in tune, would deprive an assessee, the enjoyment of the amount refundable. Therefore, correct interpretation of the provisions should be that soon after an order is passed by the superior authority, effect should be given within a reasonable period, and in the case of delay, assessee should be compensated with interest under Section 243/244 on the amount refundable, which includes interest under Section 214. Learned counsel relied upon the following decisions, besides the Circular No. 209 dated January 11, 1977, of the Central Board of Direct Taxes.D. J. Works v. Deputy CIT (e) Trustees of H. E. H. Nizam's Religious Endowment Trust v. ITO ; and 11. He has also referred to Circular dated August 20, 1968, issued by the Central Board of Direct Taxes, wherein, it was clarified that interest has to be calculated up to the date of refund voucher, and not up to the date of passing the assessment order.
12. The case of the assessee is that the interpretation of the provisions of Section 243/244 as well as the clarifications issued by the Central Board of Direct Taxes and the interpretation upon those provisions by the various courts go to show, that if an assessee is deprived of the use of the funds which are refundable in law, the Assessing Officer is duty bound to compensate for such loss by granting interest under Section 243/244 of the Act.
13. On the other hand, the learned departmental representative strongly relied upon the orders of the tax authorities. She submitted that the interest under Section 214 of the Act was determined only in the order dated May 24, 2002. Therefore, there was no delay in granting refund, so as to enable the assessee to claim for any interest on such refund.
14. I have carefully considered the rival submissions and perused the record. In the case of A. K. Jain and Bros. (HUF) [1992] 40 ITD 100 (Delhi) the Special Bench of the Tribunal observed that the expression "any amount becomes due" in Section 240 of the Act includes interest payable by the Central Government under Section 214 in addition to the refund. Therefore, the assessee is entitled to interest under Section 244 on the interest under Section 214 and also on the refund due as a consequence of assessments made.
15. In the case of K. C. P. Ltd. [1990] 34 ITD 1, the Tribunal (Hyderabad Special Bench) observed that where the refund is not granted within one month of the date of the order giving rise to the refund, interest will be payable from that date.
16. In the case of D. J. Works , the hon'ble Gujarat High Court observed that when the Legislature itself has considered it fair and reasonable to award interest on the amount paid in excess of what has been retained by the Government, the same principle should be extended to the payment of interest, which has been wrongly withheld by the Assessing Officer or the Government. It is the duty of the Assessing Officer to award interest on the excess amount of tax paid by the assessee. So also, the interest which is payable thereon cannot be retained without payment of interest. In this case, the hon'ble Gujarat High Court held that interest under Section 214 is payable on the interest amount which has become due under Section 214 of the Act.
17. In the case of Goodyear India Ltd. , the hon'ble Delhi High Court observed that Section 240 deals with refund of amount and lays down that when as a result of any order passed in appeal or other proceeding under this Act, if refund becomes due to the assessee, the Assessing Officer has to refund the amount, without expecting the assessee to make a claim in that behalf, and in the absence of refunding such amount, a liability is fastened on the Central Government under Section 244 of the Act. Thus, a combined reading of both the provisions makes the position crystal clear that it is the amount which becomes due to the assessee, and not necessarily the tax component, which earns interest. In other words, interest under Section 244 has to be worked out not only on the tax component, but also on the interest payable under Section 214 of the Act. The facts of that case were as follows : 18. In respect of the assessment year 1967-68, advance tax paid by the assessee was to be refunded by the Assessing Officer. The assessee claimed interest on the advance tax, under Section 214 of the Act, but it was denied by the Assessing Officer. The first appellate authority directed the Assessing Officer to allow interest. Interest works out to Rs. 1,90,499 for the period from April 1,1967, to September 30,1972.
The refund of the interest was granted on April 21, 1977. The assessee, therefore, claimed further interest under Section 244 on the amount of Rs. 1,90,499. The Assessing Officer rejected the assessee's claim, where as the Tribunal accepted the claim of the assessee by observing that the amount of Rs. 1,90,499 became refundable as a result of the appellate order, and thus, the assessee was entitled to interest under Section 244 as the refund was not granted within the stipulated time.
The view taken by the Appellate Tribunal was, as discussed above, confirmed by the hon'ble High Court.
19. In the case of Nizam's Religious Endowment Trust , the hon'ble Andhra Pradesh High Court observed that if the amount due is not refunded within the stipulated time, interest has to be paid under Section 244 of the Act.
20. In the case of Narendra Doshi , the apex court upheld the view taken by the Gujarat High Court in the case of D. J.Works . In other words, the Revenue is liable to pay interest on interest which should have been paid to the assessee, but unjustifiedly retained.
21. From the aforesaid decisions, it is clear that Section 240 of the Income-tax Act casts an obligation on the Assessing Officer to grant refund even though the assessee has not asked for it. The refund includes the interest payable under Section 214 of the Act. The refund became payable in the instant case, when the first appellate authority directed the Assessing Officer to grant interest under Section 214 of the Act. Since the Assessing Officer has not passed the consequential order within a reasonable time, assessee cannot be deprived of the legitimate amount refundable for an unreasonably long period, and thus reckoned from the Deputy Commissioner of Income-tax (Appeals) order dated October 12, 1995, interest under Section 244 has to be granted to the assessee till the date of actual refund of the amount. The Legislature in its wisdom recognised that some time is required for granting refund. Accordingly under Section 244 of the Act, it was stated that if the Assessing Officer does not grant the refund within a period of three months, simple interest at 15 per cent, is payable to the assessee. In the instant case, there was a substantial delay of 107 months. The case of the Revenue is that the period of three months has to be reckoned from the date of passing the consequential order. If such an interpretation is placed upon Section 244 of the Act, it would lead to absurd results, and it would be left to the sweet will of the Assessing Officer to pass the consequential order, after a long gap. In the case of CIT v. J. H. Gotla , the apex court has observed that in the matter of interpretation of statute, equitable considerations should be preferred, if a strict and literal construction of the statute leads to absurd results, i.e., a result not intended to be subserved by the object of the legislation, ascertained from the scheme of the legislation.
22. Look at from this perspective, the "order" referred to in Section 240 is the order passed in appeal, i.e., the order dated October 17,1995, and three months from the end of the month in which such order was passed expires by January 31, 1996, whereas in the instant case, the refund was granted presumably on May 24, 2002. Thus, the assessee is entitled to interest under Section 244 of the Act, even on the amount of interest calculated under Section 214 of the Act refundable.
The Assessing Officer is directed accordingly.