Commissioner of Income Tax vs Ambat Echukutty Menon

K.S. Paripoornan, J.—At the, instance of the Revenue, the Income Tax Appellate Tribunal, Cochin Bench, has referred the following question of law for the decision of this court :

" Whether, on the facts and in the circumstances of the case, is the assessee who is entitled to refund of interest collected u/s 220(2) of the Income Tax Act also entitled to interest on the same ? "

The respondent is an assessee to Income Tax. The question involved in this batch of cases relates to the assessment years 1961-62 to 1963-64. For these years, certain refunds became due to the respondent (assessee) as a result of the orders passed by the Supreme Court. These amounts consisted of Income Tax, penalty and interest levied u/s 220 of the Income Tax Act. The assesses failed to comply with the notice of demand. So interest u/s 220 of the Act was levied and collected. In pursuance of the decision of the Supreme Court, amounts became refundable to the assessee. While granting the refund, the Income Tax Officer allowed interest u/s 244 of the Act in respect of the amounts representing Income Tax and penalty. He did not award interest u/s 244 of the Act on that portion of refund which represented interest levied u/s 220 of the Act and collected from the assessee. The plea of the assessee to allow interest u/s 244 of the Act on the interest collected earlier by the Revenue u/s 220(2) of the Act was negatived. The Income Tax Officer took the view that the words " any amount" occurring in Section 240 of the Act could only refer to tax and penalty levied. The order of the Income Tax Officer is dated January 4, 1980. On appeal, the Appellate Assistant Commissioner of Income Tax, by order dated October 6, 1981, held that the refund referred to in Section 240 of the Act is "of any amount that had become due to the assessee" and so would include the interest u/s 220 of the Act as well, which became refundable by virtue of the proviso to Section 220(2) of the Act. He, therefore, reversed the decision of the Income Tax Officer and directed the Income Tax Officer to grant interest on the amount of Rs. 6,903 which represented the interest levied and collected u/s 220(2) of the Act. The Revenue filed an appeal before the Appellate Tribunal and assailed the order of the Appellate Assistant Commissioner. The Appellate Tribunal, after referring to the relevant provisions of the Act, held that the refund of interest u/s 220 of the Act is an amount coming within the purview of Section 240 and, therefore, eligible for the interest contemplated by Section 244(1) of the Act. The appeals filed by the Revenue were dismissed. Thereafter, the Revenue filed an application to refer certain questions of law arising out of the appellate order of the Tribunal dated October 13, 1983. The Tribunal accordingly referred the question of law formulated hereinabove for the decision of this court.

We heard counsel for the Revenue and also counsel for the assessee. The argument put forward before the Tribunal was reiterated before us. It was contended that the Appellate Tribunal erred in holding that the refund of interest u/s 220(2) of the Act is "an amount" which comes within the purview of Section 240 and, therefore, eligible for the interest contemplated by Section 244(1) of the Act. We are unable to accept this plea. Section 220(2) of the Act along with the proviso, Section 240 and Section 244 of the Act may be looked into to understand their import.

" 220. When tax payable and when assessee deemed in default--......

(2) If the amount specified in any notice of demand u/s 156 is not paid within the period limited under, Sub-section (1), the assessee shall be liable to pay simple interest at fifteen per cent, per annum from the day commencing after the end of the period mentioned in Sub-section (1) :

Provided that, where as a result of an order u/s 154, or Section 155, or Section 250, or Section 254, or Section 260, or Section 262, or Section 264, the amount on which interest was payable under this section had been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded. "

" 240. Refund on appeal, etc.--Where, as a result of any order passed in appeal or other proceeding under this Act, refund of any amount becomes due to the assessee, the Income Tax 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. "

" 244. Interest on refund where no claim is needed.--(1) Where a refund is due to the assessee in pursuance of an order referred to in Section 240 and the Income Tax Officer does not grant the refund within a period of three months from the end of the month in which such order is passed, the Central Government shall pay to the assessee simple interest at fifteen per cent, per annum on the amount of refund due from the date immediately following the expiry of the period of three months aforesaid to the date on which the refund is granted. "

It is common ground that the amount collected by the Revenue included also interest levied and collected u/s 220 of the Act. The amounts became refundable to the assessee as a result of the order passed by the Supreme Court. The refund of the amounts was made to the assessee in consequence of such an order passed by the court. That was done u/s 240 of the Act. It cannot be disputed that Income Tax, penalty and interest collected became refundable to the assessee. Whenever refund of any amount becomes due to the assessee and it is not granted within a particular period, Section 244 mandates payment of interest. Section 240 of the Income Tax Act is a general section which envisages refund of any amount that becomes due to the assessee. It will take within its fold even interest levied and collected u/s 220(2) of the Act. Section 244(1) makes a reference to Section 240 and states that when a refund is due to the assessee in pursuance of an order referred to u/s 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 u/s 220(2) of the Act. If the interest Collected u/s 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 eligible to interest u/s 244 of the Act. The Appellate Tribunal was justified in holding, on a reference to sections 220(2), 240 and 244 of the Act, that refund of the interest collected u/s 220(2) is an amount coming within the purview of Section 240 and so eligible for the interest contemplated by Section 244(1) of the Act.

We, therefore, answer the question referred to us in the affirmative, against the Revenue and in favour of the assessee.

A copy of this judgment under the seal of this court and the signature of the Registrar shall be sent to the Income Tax Appellate Tribunal, Cochin Bench.