Vishnubhai N. Thakkar Vs. Astt. Cit - Court Judgment

Excerpt:
these two appeals by the assessee are directed against the order of commissioner (appeals)-ii, ahmedabad, for assessment years 1985-86 and 1986-87. since a common issue is involved on the basis of identical facts, therefore, these appeals are disposed of by this common order for the sake of convenience.the short controversy in these appeals is that interest under section 244(1a) was not allowed by the assessing officer on the excess amount of interest under section 220(2) found refundable due to appeal effect.the statement of facts submitted before the commissioner (appeals) are as under : "the appellant had filed appeals against levy of penalty under section 273(1)(b) of the income tax act, before honourable tribunal, ahmedabad.on account of tribunals order the appellant was entitled to.....

Judgment:
These two appeals by the assessee are directed against the order of Commissioner (Appeals)-II, Ahmedabad, for assessment years 1985-86 and 1986-87. Since a common issue is involved on the basis of identical facts, therefore, these appeals are disposed of by this common order for the sake of convenience.

The short controversy in these appeals is that interest under section 244(1A) was not allowed by the assessing officer on the excess amount of interest under section 220(2) found refundable due to appeal effect.

The statement of facts submitted before the Commissioner (Appeals) are as under : "The appellant had filed appeals against levy of penalty under section 273(1)(b) of the Income Tax Act, before honourable Tribunal, Ahmedabad.

On account of Tribunals order the appellant was entitled to refund in respect of payments made in respect of penalty levied by the assessing officer and paid by the appellant. Appellant was also charged interest under section 220(2) of the Income Tax Act. Consequently on reduction of penalty, interest charged was also reduced and appellant entitled to refund of interest as interest charged was already paid. While refunding the interest, the learned assessing officer did not grant interest on refund of interest paid under section 220(2).

The Commissioner (Appeals) rejected the appeal of the assessee with following observations : "In both these appeals filed from the orders giving effect to the Tribunals order, the grievance of the appellant is that no interest has been allowed under section 244(1A) on the refund of interest paid earlier by the appellant under section 220(2). It find that section 244(1A) applies only in the case of payment of tax or penalty. It does not cover the case of payment of interest under section 220(2). " The learned authorised representative of the assessee contended that the assessee is entitled for interest on the entire refundable amount including interest paid under section 220(2). He relied on a judgment of Honble Gujarat High Court D.J Works v. Dy. CIT (1992) 195 ITR 227 (Guj).

The learned Departmental Representative objected to the submissions of the learned authorised representative and supported the orders of revenue authorities. He referred and relied on a judgment of Honble Supreme Court Modi Industries Ltd. & Ors. v. CIT & Anr. (1995) 216 ITR 759 (SC).

We considered the submissions of the learned representatives of both parties, perused the records and gone through the judgments cited by both the sides. The judgment of Honble Supreme Court cited by the learned Departmental Representative will not help the revenue as the facts and issue were different in the said judgment. It relates to interpretation of meaning of "regular assessment". The Honble Supreme Court has never said that interest will not be paid on excess deposit of advance tax. It has been held that interest on excess payment of advance tax is payable but it is payable in two phases, firstly under section 214 upto the regular assessment and in second phase under section 244(1A).

The provisions of Income Tax Act relating to issue under consideration are section 156, proviso 2 to section 220 and section 244(1A). Section 156 relates to notice of demand, which is to be issued when any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act. Section 244(1A) relates to interest on refund. The word "pursuance" used in section 244(1A) is very important and relevant to issue under consideration. Whether amount paid against interest under section 220(2) will amount to payment in pursuance of penalty order or not If reply is yes, interest under section 244(1A) will be payable to assessee, otherwise not. In this regard, if section 156 is read in juxtaposition with section 244(1A), it will be found that when penalty or tax amount recovered under section 156, the excess recovery will be in pursuance of order of assessment or penalty.

Similarly, in case of excess recovery or recoverable interest under section 220 under section 156, it should also be taken and treated in pursuance of order of penalty or assessment. Once this logical aspect is accepted excess interest paid under section 220(2) is also eligible for interest under section 244(1A). It is true that in interpretation of statute the logical aspect is not a final thing but it helps in reaching a conclusion of logical interpretation of a statute. The ordinary dictionary meaning of word "pursuance" and "pursue" is "act of pursuing", "consequence", "to chase" "to seek after", "to aim at", "to continue", "proceed in compliance with", "proceed along", "continue follow". According to Biswas Encyclopaedic Law Dictionary, "in pursuance of means "under or under the authority of or by virtue of".

According to Mukherjees The Law Lexicon, the words "in pursuance of" do not mean what would be conveyed by "in exercise of powers conferred by". The words "in pursuance of have several meanings and the most appropriate in the instant case would be "conformable to" or "in accordance with" (See Sardaria v. Rajasthan Board of Revenue LLR 1954 (Raj) 861.

The Honble Supreme Court had also considered the word pursuant in case of Modi Industries (supra), (the relevant p. 808) that for the purpose of section 244(1A) the amount of advance payment of tax and the amount of tax deducted at source must be treated as payment of income-tax pursuant to an order of assessment. The relevant headnote of that judgment is reproduced as under : "(ii) If any tax paid pursuant to an assessment order after 31-3-1975 (which will include tax deducted at source and advance tax to the extent the same has been retained and treated by the Income Tax Officer as payment of tax in discharge of the assessees tax liability in the assessment order), becomes refundable wholly or in part as a result of any appellate or other order passed, the Central Government will have to pay the assessee interest on the refundable amount under section 244(1A). For the purpose of this section, the amount of advance payment of tax and the amount of tax deducted at source must be treated as payment of income-tax pursuant to an order of assessment on and from the date when these amounts were set off against the tax demand raised in the assessment order, in other words the date of the assessment order." From the above discussion on meaning of word pursue pursuance, in pursuance of and pursuant and according to the observations of the Honble Supreme Court, it is clear that when for the purpose of section 244(1A), the amount of advance payment of tax and amount of tax deducted at source are treated as payment of income-tax in pursuance to an order of assessment, when it is so, then the interest paid under section 220(2) can also be treated as amount having been paid in pursuance of order of penalty in the case under appeal. Since the impugned interest under section 220(2) was paid in pursuance of order of penalty, therefore, the interest under section 244(1A) is payable to the assessee.

It is relevant to mention here that an excess amount is found to have been paid by assessee. Such excess amount cannot be earmarked that so much payment made by assessee was against interest under section 220(2). Such interpretation will be absurd interpretation. The interest under section 220(2) solely depends upon the quantum of penalty or tax, the amount will be increased or decreased with fluctuation in quantum of penalty. In other words, it can be said it is consequential effect of penalty, therefore, charging and making payments of interest under section 220(2) by assessee is in pursuance of penalty order. The amount of penalty reduced in appeal no longer retains the character of penalty and, therefore, interest paid under section 220(2) on that part of the deleted penalty in appeal would also not retain the character of penal interest under section 220(2). This will be simply an amount refundable to the assessee as a result of appellate order. In support of this view, one may refer the decision of Allahabad High Court, CIT v.Allahabad Saint Paul Society (1995) 216 ITR 863 (All). The headnote of the judgment is reproduced as under : "The assessee claimed that it was a wholly charitable institution and its income should not be subject to tax under sections 12 and 13 of the Income Tax Act, 1961. The Income Tax Officer rejected the contention and assessed the tax and also charged interest for non-payment of tax.

The Tribunal held that the assessee was a charitable institution and the assessment under sections 12 and 13 was bad in law. On a reference : Held, that the finding of the Tribunal was not perverse. Since the assessment was not valid, interest imposed for non-payment of tax was erroneous. " Further, there is no express or implied prohibition in section 244(1A) of the Act that interest shall not be paid on interest collected under section 220(2) of the Act.

Under the facts and circumstances of the case under appeal, interest under section 244(1A) is payable to assessee with a view to doing full and complete justice with party. To support the above view, one can rely on the judgment of Honble Supreme Court Raja Ram Kumar Bhargava v.Union of India (1988) 171 ITR 254 (SC ). The relevant headnote of the judgment is reproduced as under : "(ii) That, however, without going into the merits of the claim in relation to the refund of excess profit tax, with a view to doing full and complete justice between the parties, interest ought to be paid to the plaintiffs on the amount of refund of excess profits tax, as well as further interest therein at 6 per cent per annum till date of payment.

The Honble Kerala High Court has held in case of CIT v. Ambat Echukutty Menon (1998) 173 ITR 581 (Ker) that interest is to be paid on excess amount of interest paid under section 220(2) which was found refundable to the assessee due to appeal effect. The headnote of the judgment is reproduced as below : "Whenever refund of any amount becomes due to the assessee and it is not granted within a particular period, section 244 of the Income Tax Act, 1961, mandates payment of interest. Section 240 is a general section which envisages refund of any amount that becomes due to the assessee and takes within its fold even interest levied and collected under section 220(2). Section 244(1) refers to section 240 and states that when a refund is due to the assessee in pursuance of an order referred to under section 240, interest shall be paid to the assessee by the Central Government at a certain percentage. There is no express or implied prohibition in section 244 of the Act that interest shall not be paid on interest collected under section 220(2) of the Act. If the interest collected under section 220(2) of the Act also becomes refundable along with other amounts on the passing of an order in appeal and section 240 envisages refund of such amount, the interest refunded is also entitled to interest under section 244 of the Act." Following are the decisions in support of above view. The decisions of the Madras High Court, in case of CIT v. Needle Industries (P) Ltd. (1998) 233 ITR 370 (Mad). The relevant observations on p. 375 are reproduced as under as under : "Further, the expression, amount in the earlier part of the section 244(1A) would refer to not only the tax but also the interest and the expression amount is a neutral expression and it cannot be limited the tax paid in pursuance of the order of assessment. We are of the opinion that the expression tax or penalty found in the later part of the section 244(1A) would not quality or restrict the scope of the expression amount found in the earlier part to mean only tax or penalty. As already seen, the function of the later part of section 244(1A) of the Act is to find out the excess of the amount which the assessee paid by way of tax or penalty and that is the reason the expression tax or penalty has been employed. However, to determine the amount on which the revenue is liable to pay interest, section 244(1A)given emphasis on the amount paid by the assessee in pursuance of the order of assessment and the amount, in our opinion, cannot be limited to the amount of tax or penalty, but would encompass the amount of interest paid by the assessee. To clear intention of Parliament is that the right to 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. In addition, if a literal meaning is given to the expression, tax found in the later part of section 244(1A) of the Act, it will create an anomalous situation resulting in exclusion of the concept of the interest. In our opinion, the word tax in the later part of section 244(1A) has to be construed in the light of the expression amount found in the earlier part of section 244(1A) of the Act to include the amount of interest paid by the assessee. Therefore, in the context of section 244(1A) of the Act, the expression tax, in our opinion, would include interest also and the definition of tax in section 2(43) meaning interest-tax cannot be applied in the context of section 244(1A) of the Act. Consequently, the interest paid in pursuance of the order of assessment has to be regarded as forming part of income-tax or an adjunct to income-tax. The result would be that the assessee is entitled to interest on the interest refunded also ........" The observations of Honble jurisdictional High Court of Gujarat in this regard in the case of D.J. Works v. Dy. CIT (supra) at pp. 231 and 232 are reproduced as under : "Section 214(1) itself recognizes in principle the liability to pay interest on the amount of tax paid in excess of the amount of assessed tax and which is retained by the government. Interest on the excess amount is payable at the rate of 15 per cent from the first day of the year of assessment to the date of regular assessment. It would thus, appear that the legislature itself has considered it fair and reasonable to award interest on the amount paid in excess, which has been retained by the government. We do not see any reason why the same principle, should not be extended to the payment of interest which has been wrongfully withheld by the assessing officer or the government. It was the duty of the assessing officer to award interest on the excess amount of tax paid by the petitioner while giving effect to the appellate order and granting refund of the excess amount. 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. Once the interest amount becomes due, it takes the same colour as the excess amount of tax which is refundable on regular assessment. Therefore, in our opinion, though there is no specific provision for payment of interest on the interest amount for which no order is passed at the time of passing the order of refund of the excess amount and which has been wrongfully retained, interest would be payable at the same rate at which the excess amount carries interest, In other words, the amount payable by way of interest would carry simple interest at the rate of 15 per cent per annum from the date it became payable to the date it is actually paid. The decisions, which were cited at the Bar do not have a direct bearing on the above question and, therefore, we do not propose to refer to or deal with them. On general principles, we are of the opinion that the government is liable to pay interest, at the rate applicable to the excess amount refunded to the assessee, on the interest amount which had become due under section 214(1) of the Act. In the light of the above discussion, this petition must succeed." The Honble jurisdictional High Court of Gujarat has also interpreted the provisions relating to interest payable to assessee in the case of Laxmiben Hemdas Patel v. S.B. Rohtagi, ITO (1994) 209 ITR 267 (Guj).

The Honble court was of the view that there is no reason to restrict the interpretation of section 244(1A) only to some orders by which refund of excess tax or penalty is granted and not cover orders passed under section 154 of the Act. The relevant observations at P. 270 of 209 ITR are reproduced as under : "(IA) Where the whole or any part of the refund referred to in sub-section (1) is due to the assessee, as a result of any amount having been paid by him after 31-3-1975, in pursuance of any order of assessment or penalty and such amount or any part thereof having been found in appeal or other proceeding under this Act to be in excess of the amount which such assessee is liable to pay as tax or penalty, as the case may be, under this Act, the Central Government shall pay to such assessee simple interest at the rate specified in sub-section (1) on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund is granted : "Considering the aforesaid provisions, in our view, the scope and ambit of section 240 is very wide. It provides that as a result of any order passed in appeal or other proceeding under the Act, any amount which becomes due to the assessee requires to be refunded to the assessee. In the context of section 240, section 244 provides for payment of interest on such refund. The phrase other proceedings used under section 240 is of wide amplitude and would cover any order passed in proceedings other than appeals under the Income Tax Act. Therefore, the phrase orders passed in other proceedings under the Income Tax Act would include orders passed under section 154 (rectification proceedings), orders passed by the High Court or Supreme Court under section 260 (in reference) and orders passed by the Commissioner in revision applications under section 263 or section 264 or on an application under section 273A of the Act. In this view of the matter, in our view, there is no reason to restrict the meaning of the phrase other proceedings under the Income Tax Act used in section 240 to only some orders by which refund of excess tax or penalty is granted and not to cover orders passed under section 154 of the Act ......." With the support of above observation, it can be said that excess interest paid under section 220(2) is covered by "other proceedings".

Therefore, when interest under section 244(1A) is payable for order under section 154, then it is also payable on excess interest paid under section 220(2).

In addition to the above, one can also rely on the following decisions : 1. Interest on interest can also be claimed-Chimanlal S. Patel v. CIT (1994) 210 ITR 419 (Guj).

2. Refundsinterest onself-assessment loses its identityand assumescharacter of tax paid for purpose of quantification of any excess of tax payment in response to notice of demand issued under section 156 and on such excess tax assessee would be entitled to interest under section 244(1A). Dhanvi Trading & Inv. (P) Ltd. v.Assessing Officer 3. Interest is required to be paid by the government to the assessee for holding and utilising the excess money paid by the assessee. Hoogly Mills Co. Ltd. v. Dy. CIT (2001) 20 DTC 848 (Cal. A. Bench).

After giving a deep and thoughtful consideration to the entire material, we are of the considered opinion that interest under section 244(1A) is payable on entire refundable amount including refund on account of excess payment of interest under section 220(2) which is due to appeal effect of penalty appeal. Therefore, the orders of revenue authorities under appeal are set aside and assessing officer is directed to give interest under section 244(1A) on refundable amount of interest under section 220(2) in accordance with above finding.