Commissioner of Income Tax vs South Indian Bank Ltd.

C.N. Ramachandran Nair, J.—Of the two questions raised in the appeal filed by the Revenue against the orders of the Tribunal disposing of the assessment appeal relating to the respondent for the asst. yr. 1998-99, the first issue is whether the Department is entitled to collect interest under s. 234D of the IT Act. This issue stands decided by our decision in Commissioner of Income Tax Vs. Kerala Chemicals and Proteins Ltd., , wherein we have held that the interest is payable only from the date of introduction of the provision, that is, 1st June, 2003.

The next question raised is with regard to the date with reference to which the assessee is entitled to interest under s. 244A of the IT Act on the refund paid to it. The AO declined interest because the refund is attributable to an additional claim of deduction of provision for bad debt which was allowed by the first appellate authority. However, in appeal, the first appellate authority held that assessee is entitled to interest under s. 244A from 10th Jan., 2001 and not from 1st April, 1999 as claimed by the assessee in terms of s. 244A(1)(a) of the Act. The reason behind limiting the interest from 10th Jan., 2001 by the CIT(A) is that the assessee did not claim any deduction of provision for bad debt in the original return. But the claim was made in the course of assessment on 10th Jan., 2001. According to the CIT(A), the assessee is not entitled to any interest for period prior to the date on which the claim was made which lead to the refund. In'' second appeal, the Tribunal held that the assessee is entitled for interest from 1st April, 1999 onwards against which, the Revenue has filed this appeal.

We have heard standing counsel appearing for the appellant and advocate Sri P. Balakrishnan appearing for the respondent.

The question to be considered is whether the statutory provisions entitle the Department to limit the interest from the date of claim of deduction, the allowance of which lead to refund. Since our decision depends on the interpretation of the section, we extract hereunder, the said section.

244A. (1) Where refund of any amount becomes due to the assessee under this Act, he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely--

(a) where the refund is out of any tax paid under s. 115WJ or collected at source under s. 206C or paid by way of advance tax or treated as paid under s. 199, during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period from the 1st day of April of the assessment year to the date on which the refund is granted :

Provided no interest shall be payable if the amount of refund is less than ten per cent of the tax determined under sub-s. (1) of s. 115WE or sub-s. (1) of s. 143 or on regular assessment.

(b) in any other case, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period or periods from the date or, as the case may be, dates of payment of the tax or penalty to the date on which the refund is granted.

(2) If the proceedings resulting in the refund are delayed for reasons attributable to the assessee, whether wholly or in part, the period of the delay so attributable to him shall be excluded from the period for which interest is payable, and where any question arises as to the period to be excluded, it shall be decided by the Chief CIT or CIT whose decision thereon shall be final.

The contention of the counsel for the Revenue is that delay in refund is on account of delay in making the claim for deduction of bad debts and so much so by virtue of sub-s. (2) of s. 244A the Department is entitled to decline interest to the assessee for the period upto the date on which the claim of deduction of bad debts is allowed by the CIT(A). According to the standing counsel, the Tribunal did not consider even the scope of sub-s. (2) of the s. 244A which led to granting the relief to the assessee in terms of their claim. Counsel for the assessee on the other hand contends that interest under s. 244A is mandatory and the same is payable from the beginning of the assessment year to the date of grant of refund. What we find from sub-cl. (1) is that interest is payable at the rate prescribed therein on the refund ordered to the assessee which is obviously excess tax paid. The period for which interest is payable will depend on the nature of payment of tax which is refunded to the assessee. In the case of payments covered by cl. (a) of s. 244A(1) interest is payable from the beginning of the relevant assessment year till the date of grant of refund. However, in the case of payments of tax in any of the forms other than those referred to in sub-cl. (a) interest is provided in cl. (b) of s. 244A from the dates of payment of such tax or penalty till the date of grant of refund. This case is obviously covered by cl. (a) and so much so assessee is entitled to interest on excess refund from the beginning of the assessment year till the date of grant of refund which is granted by the Tribunal. However, the question is whether operation of sub-s. (2) justifies denial of interest for any period thereof as claimed by the Revenue.

Sub-s. (2) of s. 244A provides that assessee shall not be entitled to interest for the period of delay in issuing the proceedings leading to the refund that is attributable to the assessee. In other words, if the issue of the refund order is delayed for any period attributable to the assessee, then assessee shall not be entitled to interest for such period. This is of course an exception to sub-cls. (a) and (b) of s. 244A(1) of the Act. In other words, if the issue of the proceedings, that is, refund order, is delayed for any period attributable to the assessee, then assessee is not entitled to interest for such period. Further, what is clear from sub-cl. (2) is that, if the officer feels that delay in refund for any period is attributable to the assessee, the matter should be referred to the CIT or Chief CIT or any other notified person for deciding the issue and ordering exclusion of such periods for the purpose of granting interest to the assessee under s. 244A(1) of the Act. In this case, there was no decision by the CIT or Chief CIT on this issue and so much so, we do not think that the AO made out the case of delay in refund for any period attributable to the assessee disentitling for interest. So much so, in our view the officer has no escape from granting interest to the assessee in terms of s. 244A(1)(a) of the Act.

The next question to be examined is whether there is any substance in the contention of the standing counsel for the Revenue that belated claim of deduction of provision for bad debt under s. 36(1)(vii)(a) will disentitle the assessee from getting interest on refund upto the date of making claim. Admittedly, the assessee did not make any claim for deduction of provision for bad debt in the original return filed. However, before completion of the assessment the assessee made a claim of deduction of provision for bad debt on 10th Jan., 2001, which was rejected by the AO for failure to establish the claim by the assessee. The CIT(A) in the appeal filed against the assessment, allowed the claim and remanded the matter to the AO. Refund is granted to the assessee while issuing the revised order based on order in appeal filed by the assessee. The question to be considered is whether belated claim for deduction which when allowed entitled the assessee for refund is a situation covered by sub-s. (2) of s. 244A of the Act. The situation covered by sub-s. (2) is only delay in completion of proceedings granting refund that is attributable to the assessee. Obviously, refund is issued as a result of assessment whether original or revised. If assessee causes any delay in completion of such proceedings under which the refund is granted, then certainly the period of delay attributable to the assessee only is the period for which assessee is not entitled to interest. In this case, the AO has not established that the assessee has caused any delay in issuing the refund order. Of course, if the assessment is delayed by the assessee by taking time for production of document without which refund cannot be granted, then certainly, the delay in assessment is attributable to the assessee disentitling assessee for interest for such period under sub-s. (2) of the above Act. In this case assessment was taken up in the usual course and before completion of assessment, assessee made the claim which was considered and rejected by the AO. However, in appeal the claim was allowed and based on CIT(A)''s order the AO granted refund. We do not find any material to hold that the delay in establishing the claim with documents that led to refund is attributable to the assessee and so much so this is not a case covered by sub-s. (2) of the Act. We, therefore, hold that belated claim of deduction made on 10th Jan., 2001 by the assessee will not justify denial of interest otherwise eligible under s. 244A(1)(a) from 1st April, 1999 to 10th Jan., 2001. We, therefore, uphold the order of the Tribunal declaring assessee''s eligibility to get interest from 1st April, 1999 till date of refund.

We notice a lacuna in the statute in the above provision because the situation that arose in this case is not contemplated therein. The Department could contend that if all claims of deduction were made in the original return and higher amount of refund was claimed in such return, the officer could have granted refund under s. 143(1) of the Act itself thereby avoiding interest on refund in regular assessment for longer period. Return was in fact processed under s. 143(1) and based on claims in the original return, refund was granted in terms of the claim made by the assessee. However, higher amount of refund and interest thereon are liable to be paid by the Department from the beginning of the assessment year only because assessee made belated claim for deduction leading to entitlement of higher amount of refund of tax paid which was allowed only by the appellate authority. Therefore, it could be provided in s. 244A(1)(a) that interest on refund is payable on the amount of refund claimed in the original return filed and not on excess refund later claimed or happened to be claimed based on belated claims of deduction, exemption etc. However, in the absence of any such provision under s. 244A limiting interest payment on the refund claim in the original return, the assessee is entitled to interest on excess tax refunded in terms of cls. (a) and (b) of s. 244A(1) of the Act subject to the limitation contained in sub-s. (2) discussed above.

The income tax appeal is therefore partly allowed and partly dismissed as stated above.