Union of India v. M/s. Tata Chemicals Ltd
[Citation -2014-LL-0226-164]

Citation 2014-LL-0226-164
Appellant Name Union of India
Respondent Name M/s. Tata Chemicals Ltd.
Court SUPREME COURT
Relevant Act Income-tax
Date of Order 26/02/2014
Judgment View Judgment
Keyword Tags public financial institution • deduction of tax at source • provision for payment • statutory obligation • self-assessment tax • payment of interest • regular assessment • excess advance tax • service of notice • accrued interest • delay in payment • interest payment • rate of interest • prescribed time • foreign company • payment of tax • refund of tax • demand notice • excess amount • non-resident • excess tax • plant
Bot Summary: Circular No. 769 and 790 issued by the Board which specifically provide that the benefit of interest under Section 244A of the Act on such refunds would not be available to the deductor/ resident and that a conjoint reading of Section 156 and the explanation appended to Section 244A(b) of the Act would indicate that the amount refunded to the deductor/resident cannot be equated to the refund of the amount(s) Page 8 9 envisaged under Section 244A(1)(b) of the Act, wherein only the interest on refund of excess payment made under Section 156 of the Act pursuant to a notice of demand issued on account of post- assessment tax is contemplated and not the interest on refund of tax deposited under self- assessment as in the instant case. The Tribunal while reversing the judgment and order passed by the Commissioner of Income Tax has opined, that, the tax was paid by the deductor/ resident pursuant to an order passed under Section 195 of the Act and the refund was ordered under Section 240 of the Act the provisions of Section 244A(1) are clearly attracted and the revenue is accountable for payment of interest on the Page 9 10 aforesaid refund amount. Relevant paragraphs of which are as under: 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 assessess on any excess advance tax paid by him in a financial year from the 1st day of April next following the said financial year Page 22 23 to the date of regular assessment. Per contra, learned senior counsel appearing for the resident/deductor would submit that since the payment made under Section 195(2) is payment made under the Act pursuant to an order passed by the assessing officer which in turn would be sheltered under the provisions of Section 156 of the Act, by virtue of clause(b) of sub- Section(1) of Section 244A of the Act, the Revenue is obliged to refund the tax with interest. Before the insertion of Section 244A as a composite Section by the Direct Tax Laws Act, 1987, the liability to pay interest on refund of pre-paid taxes was contained in Sections 214, 243 read with Section 244 of the Act. Clause(a) of sub-Section(1) of Section 244A talks of payment of interest on the amount of tax paid under Section 155WJ, tax collected at source under section 206C, taxes paid by way of advance tax, taxes treated as paid under Section 199 during the financial year immediately preceding the assessment year. The conclusion arrived at by the assessing officer was accepted by the first appellate authority on the ground, inter alia, that the conjoint reading of Section 156 and the explanation appended to Section 244A(1)(b) of the Act would indicate that the amount refunded to the resident/ deductor cannot be equated to the refund contemplated under Section 244A(1)(b) of the Act, whereunder only the interest on refund of excess payment made under Section 156 of the Act on account of post- assessment tax is contemplated and not the interest on refund of tax deposited under self- assessment.


REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 6301 OF 2011 Union of India Through Director of .. Appellant(s) Income Tax Versus M/s Tata Chemicals Ltd. .. Respondent(s) WITH CIVIL APPEAL NO. 2534 of 2012 CIVIL APPEAL NO. 2535 of 2012 CIVIL APPEAL NO. 2536 of 2012 CIVIL APPEAL NO. 2537 of 2012 CIVIL APPEAL NO. 2539 of 2012 CIVIL APPEAL NO. 2540 of 2012 CIVIL APPEAL NO. 2541 of 2012 CIVIL APPEAL NO. 2542 of 2012 CIVIL APPEAL NO. 2543 of 2012 CIVIL APPEAL NO. 2944 of 2012 Page 1 2 CIVIL APPEAL NO. 2945 of 2012 CIVIL APPEAL NO. 3445 of 2012 CIVIL APPEAL NO. 3446 of 2012 CIVIL APPEAL NO.3508 of 2014 @SLP(C) NO.14048/2012 CIVIL APPEAL NO.3509 of 2014 @SLP(C) NO.14050/2012 CIVIL APPEAL NO.3510 of 2014 @SLP(C) NO.14051/2012 CIVIL APPEAL NO.3511 of 2014 @SLP(C) NO.14049/2012 CIVIL APPEAL NO.3512 of 2014 @SLP(C) NO.20154/2012 CIVIL APPEAL NO. 5408 OF 2012 CIVIL APPEAL NO.3513 of 2014 @SLP(C) NO.27453/2012 CIVIL APPEAL NO.3514 of 2014 @SLP(C) NO.27454/2012 CIVIL APPEAL NO.3515 of 2014 @SLP(C) NO.27455/2012 CIVIL APPEAL NO.3516 of 2014 @SLP(C) NO.27456/2012 CIVIL APPEAL NO.3517 of 2014 @SLP(C) NO.27457/2012 CIVIL APPEAL NO.3518 of 2014 @SLP(C) NO.27458/2012 CIVIL APPEAL NO.3519 of 2014 @SLP(C) NO.27459/2012 CIVIL APPEAL NO.3520 of 2014 @SLP(C) NO.27460/2012 CIVIL APPEAL NO.3521 of 2014 @SLP(C) NO.27461/2012 CIVIL APPEAL NO.3522 of 2014 @SLP(C) NO.27462/2012 Page 2 3 CIVIL APPEAL NO.3523 of 2014 @SLP(C) NO.27463/2012 CIVIL APPEAL NO.3524 of 2014 @SLP(C) NO.27677/2012 CIVIL APPEAL NO. 7596 of 2012 CIVIL APPEAL NO. 2589 of 2013 CIVIL APPEAL NO.3525 of 2014 @SLP(C) NO.25727/2012 CIVIL APPEAL NO.3526 of 2014 @SLP(C) NO.14768/2012 CIVIL APPEAL NO.3527 of 2014 @SLP(C) NO.5730/2013 CIVIL APPEAL NO. 7772 of 2012 CIVIL APPEAL NO. 3436 of 2012 CIVIL APPEAL NO. 3427 of 2012 ORDER 1. Leave granted. 2. issue that arise for our consideration and decision in this batch of appeals is, whether revenue is legally responsible under Section 244A of Income Tax Act, 1961 (for short, Act ) for payment of interest on refund of tax made to Page 3 4 resident/deductor under Section 240 of Act. 3. At outset, it is relevant to notice that assessment years in all these appeals are on and after 01.04.1989, that is after admittance of Section 244A of Act by Direct Tax Laws (Amendment) Act, 1987 (4 of 1988) with effect from 01.04.1989, whereby provision for interest on refunds on any amount due to assessee under Act was introduced. FACTS:- 4. We would refer to facts in Civil Appeal No. 6301 of 2011. respondent is company incorporated under provisions of Companies Act, 1956. It is engaged in manufacture of nitrogenous fertilizer. During assessment year 1997-98, respondent-company had commissioned its naptha desulphurization plant and to oversee operation of said plant it Page 4 5 had sought assistance of two technicians from M/s. Haldor Topsoe, Denmark. M/s. Haldor Topsoe had raised invoice aggregating to US$ 43,290,06/- as service charges for services of technicians (US$ 38,500/-) and reimbursements of expenses (US$ 4,790/-). 5. resident/deductor had approached Income Tax Officer under Section 195 (2) of Act inter alia requesting him to provide information/ determination as to what percentage of tax should be withheld from amounts payable to foreign company, namely, M/s. Haldor Topsoe, Denmark. On request so made, Assessing Officer/ Income Tax Officer had determined and passed Special order under Section 195 (2) of Act directing resident/ deductor to deduct/ withhold tax at rate of 20% before remitting aforesaid amounts to M/s.Haldor Topsoe. Accordingly, resident/ Page 5 6 deductor had deducted tax of Rs.1,98,878/- on entire amount of US$ 43,290.00/- and credited same in favour of Revenue. 6. After such deposit, resident/ deductor had preferred appeal before Commissioner of Income Tax (Appeals) against aforesaid order passed by Assessing Officer/ Income Tax Officer under Section 195 (2) of Act. appellate authority while allowing appeal so filed by resident/ deductor, had concluded, that, reimbursement of expenses is not part of income for deduction of tax at source under Section 195 of Act and accordingly, directed refund of tax that was deducted and paid over to Revenue on amount of US$ 4790.06/- representing reimbursement of expenses by order dated 12.07.2002. 7. After disposal of appeal, Page 6 7 resident/ deductor had claimed refund of tax on US$ 4790/- (amounting to Rs.22,005/-) with interest thereon as provided under Section 244A(1) of Act by its letter dated 09.12.2002. 8. Assessing Officer/ Income Tax Officer while declining claim made, has observed, that, Section 244A provides for interest only on refunds due to assessee under Act and not to deductor and since refund in instant case is in view of circulars viz. Circular No. 769 and 790 issued by Central Board of Direct Taxes (for short Board ) and not under statutory provisions of Act, no interest would accrue on refunds under Section 244A of Act. Therefore, Assessing Officer/Income Tax Officer while granting refund of tax paid on aforesaid amount has refused to entertain claim for interest on amount so refunded by order dated 29.07.2003. Page 7 8 9. Since Assessing Officer/Income Tax Officer had declined to grant interest on amount so refunded, resident/ deductor had carried matter by way of appeal before Commissioner of Income Tax (Appeals). First Appellate Authority by its order dated 28.03.2005 has approved orders passed by Assessing Officer/ Income Tax Officer and declined claim of deductor/resident on two counts : (a) that refund in instant case would fall under two circulars viz. Circular No. 769 and 790 issued by Board which specifically provide that benefit of interest under Section 244A of Act on such refunds would not be available to deductor/ resident and (b) that conjoint reading of Section 156 and explanation appended to Section 244A (1)(b) of Act would indicate that amount refunded to deductor/resident cannot be equated to refund of amount(s) Page 8 9 envisaged under Section 244A(1)(b) of Act, wherein only interest on refund of excess payment made under Section 156 of Act pursuant to notice of demand issued on account of post- assessment tax is contemplated and not interest on refund of tax deposited under self- assessment as in instant case. 10. deductor/resident, aggrieved by aforesaid order, had carried matter before Income Tax Appellate Tribunal (for short, Tribunal ). Tribunal while reversing judgment and order passed by Commissioner of Income Tax (Appeals) has opined, that, tax was paid by deductor/ resident pursuant to order passed under Section 195 (2) of Act and refund was ordered under Section 240 of Act, therefore, provisions of Section 244A(1) (b) are clearly attracted and revenue is accountable for payment of interest on Page 9 10 aforesaid refund amount. Accordingly, Tribunal has allowed appeal of deductor/ resident and directed Assessing Officer/ Income Tax Officer to acknowledge claim and allow interest as provided under Section 244A(1)(b) of Act on aforesaid amount of refund, by order dated 28.06.2008. 11. Revenue being of view that they are treated unfairly by Tribunal had carried matter by way of Income Tax Appeal before High Court. High Court has refused to accept appeal filed by Revenue by impugned judgment and order, dated 18.06.2009. That is how Revenue is before us in these appeals. 12. We have heard learned counsel appearing for Revenue and respondent- assessee in these appeals and also carefully perused orders passed by forums below. Page 10 11 RELEVANT PROVISIONS:- 13. To appreciate view point of learned counsel for Revenue, we require to notice certain provisions of Act prior to insertion of Section 244A of Act. sections that require to be noticed are; Sections 156, 195(2), 240 and 244 of Act. perusal of these sections essentially would indicate procedure whereby tax amount is paid and refund of excess amount is claimed by assessee. relevant part of said sections is sequentially reproduced: Section 156. Notice of demand When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, Assessing Officer shall serve upon assessee notice of demand in prescribed form Page 11 12 specifying sum so payable. *** *** *** Section 195. Other sums- (1) Any person responsible for paying to non-resident, not being company, or to foreign company, any interest or any other sum chargeable under provisions of this Act (not being income chargeable under head Salaries ) shall, at time of credit of such income to account of payee or at time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at rates in force: Provided that in case of interest payable by Government or public section bank within meaning of clause (23D) of Section 10 or public financial institution within meaning of that clause, deduction of tax shall be made only at time of payment thereof in cash or by issue of chaque or draft or by any other mode: Provided further that no such deduction shall be made in respect of any dividends referred to in Section 115-O. Page 12 13 Explanation.- For purpose of this section, where any interest or other sum as aforesaid is credited to any account, whether called Interest payable account or Suspense account or by any other name, in books of account of person liable to pay such income, such crediting shall be deemed to be credit of such income to account of payee and provisions of this section shall apply accordingly. (2) Where person responsible for paying any such sum chargeable under this Act other than salary to non- resident considers that whole of such sum would not be income chargeable in case of recipient, he may make application to Assessing Officer to determine, by general or special order, appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of sum which is so chargeable. Page 13 14 *** *** *** Section 240. Refund on appeal, etc. Where, as result of any order passed in appeal or other proceeding under this Act, refund of any amount becomes due to assessee, Assessing Officer shall, except as otherwise provided in this Act, refund amount to assessee without his having to make any claim in that behalf. *** *** *** Section 244. Interest on refund where no claim is needed (1) Where refund is due to assessee in pursuance of order referred to in section 240 and Assessing Officer does not grant refund within period of three months from end of month in which such order is passed Central Government shall pay to assessee simple interest at fifteen per cent per annum on amount of refund due from Page 14 15 date immediately following expiry of period of three months aforesaid to date on which refund is granted. (1A) Where whole or any part of refund referred to in sub-section (1) is due to assessee, as result of any amount having been paid by him after 31st day of March, 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 amount which such assessee is liable to pay as tax or penalty, as case may be, under this Act, Central Government shall pay to such assessee simple interest at rate specified in sub-section (1) on amount so found to be in excess from date on which such amount was paid to date on which refund is granted: Provided that where amount so found to be in excess was paid in Page 15 16 instalments, such interest shall be payable on amount of each such instalment or any part of such instalment, which was in excess, from date on which such instalment was paid to date on which refund is granted: Provided further that no interest under this sub-section shall be payable for period of one month from date of passing of order in appeal or other proceeding: Provided also that where any interest is payable to assessee under this subsection, no interest under sub- section (1) shall be payable to him in respect of amount so found to be in excess. (2) * * * (3) provisions of this section shall not apply in respect of any assessment for assessment year commencing on 1st day of April, Page 16 17 1989, or any subsequent assessment years. 14. Section 156 of Act talks about payment of tax, interest, penalty, fine or any other sum payable in consequence of any order passed under Act on service of notice of demand issued by assessing officer to assessee specifying said amounts. 15. Section 195(1) casts obligation upon every person in this Country to deduct tax at prevailing rates from out of any sum which is remitted to non resident/Foreign Company. Sub Section (2) of Section 195 provides that where person responsible for paying any such sum chargeable under Act to non resident/Foreign Company considers that whole of such sum would not be income chargeable in case of recipient, he may make application to Page 17 18 assessing officer/income tax officer to determine, by general or special order, appropriate proportion of such sum so chargeable. assessing officer is expected to determine such sum/tax which are deductible out of remittance to be sent to recipient and only after deduction and payment of such sum/tax, balance amount is to be remitted to non-resident. We clarify here that it is statutory obligation of person responsible for paying such sum to deduct tax thereon before making payment, if such application is not filed. 16. Section 240 of Act provides for refund on appeal etc. Section envisages that if amount becomes due to assessee by virtue of order passed in appeal, reference, revision, rectification or amendment proceedings, assessing officer is bound to refund amount to assessee without assessee being required Page 18 19 to make any claim in that behalf. expression other proceedings under Act used in Section 240 of Act, are wide enough to include any order passed in proceedings other than appeals under Act. 17. Section 244 of Act provides for interest on refunds where no claim is made or required to be made by assessee. said section envisages that where refund is due to assessee in pursuance of order passed under Section 240 of Act, and assessing officer does not grant refund within period of three months from end of month in which such order is passed, Central Government shall pay to assessee simple interest of 15% per annum on amount of refund due from date immediately following expiry of period of three months as aforesaid to date on which refund is granted. Page 19 20 18. Since there was disconcert in minds of both assessee and Revenue regarding cases where payment of interest was required to be made to assessee by Revenue, Parliament has thought it fit to insert new Section 244A in place of Sections 214, 243 and 244 in respect of assessments for assessment year 1989-90 and onwards. Section is extracted: 244A. Interest on refunds. (1)Where refund of any amount becomes due to assessee under this Act, he shall, subject to provisions of this section, be entitled to receive, in addition to said amount, simple interest thereon calculated in following manner, namely:- (a) Where refund is out of any tax paid under section 115WJ or collected at source under section 206C or paid by way of advance tax or treated as paid under section 199, during financial year Page 20 21 immediately preceding assessment year, such interest shall be calculated at rate of one-half per cent for every month or part of month comprised in period from 1st day of April of assessment year to date on which refund is granted. Provided that no interest shall be payable if amount of refund is less than ten per cent of tax as determined under sub-section (1) of section 115WE or sub-section (1) of section 143 or on regular assessment; (b) in any other case, such interest shall be calculated at rate of one- half per cent for every month or part of month comprised in period or periods from date or, as case may be, dates of payment of tax or penalty to date on which refund is granted. EXPLANATION.- For purpose of this clause, "date of payment of tax or penalty" means date on and from Page 21 22 which amount of tax or penalty specified in notice of demand issued under section 156 is paid in excess of such demand. (2) * * * (3) * * * (4) provisions of this section shall apply in respect of assessments for assessment year commencing on 1st day of April, 1989, and subsequent assessment year (emphasis supplied) 19. objects and reasons for introduction of aforesaid Section is clarified by Board in its Circular No. 549, dated 31.10.1989. Relevant paragraphs of which are as under: 11.2 Insertion of new section 244A in lieu of sections 214, 243 and 244,- Under provisions of section 214, interest was payable to assessess on any excess advance tax paid by him in financial year from 1st day of April next following said financial year Page 22 23 to date of regular assessment. In case refund was not granted within three months from date of month in which regular assessment was completed, section 243 provided for further payment of interest. Under section 244, interest was payable to assessee for delay in payment of refund as result of order passed in appeal, etc., from date following after expiry of three months from end of month in which such order was passed to date on which refund was granted. rate of interest under all three sections was 15 per cent annum. 11.3. These provisions, apart from being complicated left certain gaps for which interest was not paid by Department to assessee for money remaining with Government. To remove this inequity, as also to simplify provisions in this regard, Amending Act, 1987, has inserted new Section 244A in Income Tax Act, applicable from assessment year 1989-90 and onwards Page 23 24 which contains all provisions for payment of interest by Department for delay in grant of refunds. rate of interest has been increased from earlier 15 per cent annum to 1.5% per month or part of month, comprised in period of delay in grant of refund. Amending Act, 1987, has also amended sections 214, 243 and 244 to provide that provisions of these sections shall not apply to assessment year 1989-90 or any subsequent assessment years. (emphasis supplied) SUBMISSIONS:- 20. Shri Arijit Prasad, learned counsel appearing for Revenue would submit, that, if tax is paid under Section 195(2) of Act, then while refunding amounts so paid, Revenue need not be burdened with payment of interest on amount so refunded. He would Page 24 25 submit that while Section 244A(1)(a) specifically provides for four instances under specific provisions where interest would be payable on refund of tax paid, Section 244A(1)(b) does not provide for any specific instance but mentions any other cases and explanation appended to said Section requires payment of refund to be made in cases where notice of demand was issued under Section 156 of Act and since no demand notice was issued to assessee under Section 156 of Act assessee would not be covered even by aforesaid provision and hence, no interest is payable to assessee by Revenue. It is further submitted that interest under Section 244A is to be granted in case where refund of any amount becomes due to assessee under this Act and refund of tax deducted at source made to deductor/resident is not under any statutory provisions of Act, deductor/ resident is not entitled for interest on Page 25 26 amount of tax deducted and deposited with revenue. 21. Per contra, learned senior counsel appearing for resident/deductor would submit that since payment made under Section 195(2) is payment made under Act pursuant to order passed by assessing officer which in turn would be sheltered under provisions of Section 156 of Act, by virtue of clause(b) of sub- Section(1) of Section 244A of Act, Revenue is obliged to refund tax with interest. DISCUSSION:- 22. It is cardinal principle of interpretation of Statutes that words of Statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning unless such construction leads to some absurdity or unless Page 26 27 there is something in context or in object of Statute to contrary. golden rule is that words of Statute must prima facie be given their ordinary meaning. It is yet another rule of construction that when words of Statute are clear, plain and unambiguous, then Courts are bound to give effect to that meaning irrespective of consequences. It is said that words themselves best declare intention of law giver. Courts have adhered to principle that efforts should be made to give meaning to each and every word used by legislature and it is not sound principle of construction to brush aside words in Statute as being inapposite surpluses, if they can have proper application in circumstances conceivable within contemplation of Statute (See Gurudevdatta VKSSS Maryadit v. State of Maharashtra [2001] 4 SCC 534). Page 27 28 23. It is also well settled principle that courts must interpret provisions of Statute upon ascertaining object of legislation through medium or authoritative forms in which it is expressed. It is well settled that Court should, while interpreting provisions of Statute, assign its ordinary meaning. 24. This Court in Shyam Sunder vs. Ram Kumar (2001) 8 SCC 24 has observed that in relation to beneficent construction, basic rules of interpretation are not to be applied where (i) result would be re-legislation of provision by addition, substitution or alteration of words and violence would be done to spirit of legislation, (ii) where words of Provision are capable of being given only one meaning and (iii) where there is no ambiguity in provision, however, Court may apply rule of Page 28 29 beneficent construction in order to advance object of Act. 25. Before insertion of Section 244A as composite Section by Direct Tax Laws (Amendment) Act, 1987, liability to pay interest on refund of pre-paid taxes was contained in Sections 214, 243 read with Section 244 (1A) of Act. Parliament has introduced new Section in place of Sections 214, 243 and 244 in respect of assessment for assessment year 1989-90 and onwards. 26. language of Section is precise, clear and unambiguous. Sub-Section (1) of Section 244A speaks of interest on refund of amounts due to assessee under Act. assessee is entitled for said amount of refund with interest thereon as calculated in accordance with clause (a) & (b) of sub-Section (1) of Section 244A. In calculating interest payable, Page 29 30 section provides for different dates from which interest is to be calculated. 27. Clause(a) of sub-Section(1) of Section 244A talks of payment of interest on amount of tax paid under Section 155WJ, tax collected at source under section 206C, taxes paid by way of advance tax, taxes treated as paid under Section 199 during financial year immediately preceding assessment year. Under this clause, interest shall be payable for period starting from first day of assessment year to date of grant of refund. No interest is payable if excess payment is less than 10% of tax determined under Section 143(1) of Act or on regular assessment. Clause(b) of Sub- Section(1) of Section 244A opens with words "in any other case" that means in any case other than amounts paid under Clause(a) of Sub- section(1) of Section 244A. Under this clause, Page 30 31 rate of interest is to be calculated at rate of one and half per cent per month or part of month comprised in period or periods from date or, as case may be, either dates of payment of tax or penalty to date on which refund is granted. explanation is appended to clause(b) of aforesaid sub-Section to explain meaning of expression "date of payment of tax or penalty". It clarifies that date of payment of tax or penalty would mean date on and from which amount of tax or penalty specified in notice of demand issued under section 156 is paid in excess of such demand. 28. Having glanced through relevant sections and settled legal principles of interpretation of Statute, let us revert back to factual situation placed before us in this appeal. Page 31 32 29. In present case, resident/ deductor had approached assessing authority inter alia requesting him to determine tax that requires to be deducted at source before payment is made to non-resident/foreign company. On such request assessing officer had passed order under Section 195(2) of Act directing resident/ deductor to deduct tax at particular rate. resident/ deductor had appealed against said order, but had deposited tax as directed by assessing officer/Income Tax Officer by aforesaid order in accordance with provisions of Section 200 of Act. When resident/deductor succeeded in appeal, direction was issued by appellate authority for refund of tax so paid. In observance of same, assessing authority had granted refund of tax amount under Section 240 of Act, but declined to grant Page 32 33 interest on said refund amount. conclusion arrived at by assessing officer was accepted by first appellate authority on ground, inter alia, that conjoint reading of Section 156 and explanation appended to Section 244A(1)(b) of Act would indicate that amount refunded to resident/ deductor cannot be equated to refund contemplated under Section 244A(1)(b) of Act, whereunder only interest on refund of excess payment made under Section 156 of Act on account of post- assessment tax is contemplated and not interest on refund of tax deposited under self- assessment. However, Tribunal has rejected aforesaid rationale of assessing authority as well as first appellate authority and granted claim of resident/deductor. High Court has endorsed view of Tribunal and dismissed appeals filed Revenue. Page 33 34 30. refund becomes due when tax deducted at source, advance tax paid, self assessment tax paid and tax paid on regular assessment exceeds tax chargeable for year as result of order passed in appeal or other proceedings under Act. When refund is of any advance tax (including tax deducted/collected at source), interest is payable for period starting from first day of assessment year to date of grant of refund. No interest is, however, payable if excess payment is less than 10 percent of tax determined under Section 143(1) or on regular assessment. No interest is payable for period for which proceedings resulting in refund are delayed for reasons attributable to assessee (wholly or partly). rate of interest and entitlement to interest on excess tax are determined by statutory provisions of Act. Interest payment is Page 34 35 statutory obligation and non-discretionary in nature to assessee. In tune with aforesaid general principle, Section 244A is drafted and enacted. language employed in Section 244A of Act is clear and plain. It grants substantive right of interest and is not procedural. principles for grant of interest are same as under provisions of Section 244 applicable to assessments before 01.04.1989, albeit with clarity of application as contained in Section 244A. 31. Department has also issued Circular clarifying purpose and object of introducing Section 244A of Act to replace Sections 214, 243 and 244 of Act. It is clarified therein, that, since there was some lacunae in earlier provisions with regard to non-payment of interest by revenue to assessee for money remaining with Government, said section is Page 35 36 introduced for payment of interest by Department for delay in grant of refunds. general right exists in State to refund any tax collected for its purpose, and 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. statutory obligation to refund carried with it right to interest also. This is true in case of assessee under Act. 32. question before us is, whether resident/deductor is also entitled to interest on refund of excess deduction or erroneous deduction of tax at source under Section 195 of Act. 33. We would begin our discussion by referring to circular No. 790, dated 20.04.2000, issued by Board. Omitting what is not Page 36 37 necessary, material portion of circular is extracted: ........ 6. Refund to person making payment under Section 195 is being allowed as income does not accrue to non-resident. amount paid into Government account in such cases, is no longer tax . In view of this, no interest under section 244A is admissible on refunds to be granted in accordance with this Circular or on refunds already granted in accordance with Circular No. 769. 34. What deductor/ resident primarily contend is that, what has been deposited by him is tax, may be for and on behalf of non-resident/ foreign company and when beneficial circular provides for refund of tax to deductor under certain circumstances, refund of tax should carry interest. Page 37 38 35. circular issued by Central Board of Direct Taxes ( Board for short) is binding on department. Binding nature of circular is explained by this Court in case of UCO Bank v. CIT 237 ITR 889, wherein this Court has observed that circulars issued by Board in exercise of its powers under Section 119 of Act would be binding on income tax authorities even if they deviate from provisions of Act, so long as they seek to mitigate rigour of particular Section for benefit of assessee. Therefore, we cannot be taking exception to reasoning and conclusion reached by authorities under Act. However, Tribunal and High Court, have granted interest on amount of tax deposited by resident/ deductor from date of payment on ground, firstly, refund of tax is directed by first appellate authority in appeal filed by Page 38 39 deductor/ resident under Section 240 of Act and secondly, Revenue for having retained sum by way of tax has to compensate person who had deposited tax. 36. Section 240 of Act provides for refund of any amount that becomes due to assessee as result of order in appeal or any other proceedings under Act. phrase other proceedings under Act is of wide amplitude. This Court has observed, that, other proceedings under Act would include orders passed under Section 154 (rectification proceedings), orders passed by High Court or Supreme Court under Section 260 (in reference), or order passed by Commissioner in revision applications under Section 263 or in application under Section 273A. Page 39 40 37. tax refund is refund of taxes when tax liability is less than tax paid. As per old section assessee was entitled for payment of interest on amount of taxes refunded pursuant to order passed under Act, including order passed in appeal. In present fact scenario, deductor/assessee had paid taxes pursuant to special order passed by assessing officer/Income Tax Officer. In appeal filed against said order assessee has succeeded and direction is issued by appellate authority to refund tax paid. amount paid by resident/ deductor was retained by Government till direction was issued by appellate authority to refund same. When said amount is refunded it should carry interest in matter of course. As held by Courts while awarding interest, it is kind of compensation of use and retention of Page 40 41 money collected unauthorizedly by Department. When collection is illegal, there is corresponding obligation on revenue to refund such amount with interest in as much as they have retained and enjoyed money deposited. Even Department has understood object behind insertion of Section 244A, as that, assessee is entitled to payment of interest for money remaining with Government which would be refunded. There is no reason to restrict same to assessee only without extending similar benefit to resident/ deductor who has deducted tax at source and deposited same before remitting amount payable to non-resident/ foreign company. 38. Providing for payment of interest in case of refund of amounts paid as tax or deemed tax or advance tax is method now statutorily adopted by fiscal legislation to ensure that aforesaid Page 41 42 amount of tax which has been duly paid in prescribed time and provisions in that behalf form part of recovery machinery provided in taxing Statute. Refund due and payable to assessee is debt-owed and payable by Revenue. Government, therebeing no express statutory provision for payment of interest on refund of excess amount/tax collected by Revenue, cannot shrug off its apparent obligation to reimburse deductors lawful monies with accrued interest for period of undue retention of such monies. State having received money without right, and having retained and used it, is bound to make party good, just as individual would be under like circumstances. obligation to refund money received and retained without right implies and carries with it right to interest. Whenever money has been received by party which ex ae quo et bono ought to be refunded, right to interest follows, as matter of course. Page 42 43 39. In present case, it is not in doubt that payment of tax made by resident/ depositor is in excess and department chooses to refund excess payment of tax to depositor. We have held interest requires to be paid on such refunds. catechize is from what date interest is payable, since present case does not fall either under clause (a) or (b) of Section 244A of Act. In absence of express provision as contained in clause (a), it cannot be said that interest is payable from 1st of April of assessment year. Simultaneously, since said payment is not made pursuant to notice issued under Section 156 of Act, Explanation to clause (b) has no application. In such cases, as opening words of clause (b) specifically referred to as in any other case , interest is payable from date of payment of tax. sequel of our discussion is Page 43 44 resident/deductor is entitled not only refund of tax deposited under Section 195(2) of Act, but has to be refunded with interest from date of payment of such tax. 40. In result, appeals fail. Accordingly, appeals are dismissed. No order as to costs. ......J. (H.L. DATTU) ......J. (S.A. BOBDE) NEW DELHI; FEBRUARY 26, 2014. Page 44 Union of India v. M/s. Tata Chemicals Ltd
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