Director of Income Tax (International Taxation) vs Delta Air Lines Inc.

J.P. Devadhar, J.—All these appeals relating to asst. yrs. 1992-93 to 1998-99 are admitted on the following question of law :

Whether on the facts and circumstances of the case and in law, the Tribunal was justified in holding that interest under s. 234D of the IT Act has no retrospective application without appreciating that the provisions of s. 234D are procedural and compensatory in nature and as such can be applied to proceedings of earlier assessment years pending as on 1st June, 2003 ?

By consent, all the appeals are taken up for final hearing.

In all these cases, in the assessment orders passed under s. 143(3) r/w s. 147 of the IT Act, 1961 (''the Act'' for short), the AO disallowed the benefit of art. 8 of the DTAA between India and USA to the assessee. The appeals filed by the assessee were allowed by the CIT(A) by holding that the assessee is entitled to the benefit of art. 8 of DTAA. Challenging the aforesaid order, the Revenue filed appeals before the Tribunal and the Tribunal set aside the order of CIT(A) and restored the orders passed by the AO.

While giving effect to the order of the Tribunal, the AO apart from levying interest under s. 234A and under s. 234B of the Act, has also levied interest under s. 234D of the Act.

Challenging the levy of interest under s. 234D of the Act, the assessee filed appeals before the CIT(A). By his order dt. 22nd Sept., 2009, the CIT(A) held that the interest under s. 234D is chargeable where the refund has been granted to the assessee on processing the return of income under s. 143(1) of the Act and thereafter such refund is found to be excessive under the regular assessment. In the present case, since no refund was granted under s. 143(1), the CIT(A) was of the opinion that in the facts of the present case s. 234D was not attracted. Alternatively, the CIT(A), following the Special Bench decision of the Tribunal in the case of Agricultural Produce Market Committee, Narela, Delhi Vs. Commissioner of Income Tax and Another, , held that since s. 234D was introduced w.e.f. 1st June, 2003 the said provision would not apply to the facts of the present case where the assessments arc for the period prior to 1st June, 2003. Challenging the aforesaid order, the Revenue filed appeals before the Tribunal and by the impugned order dt. 28th July, 2010, the Tribunal has dismissed the appeals filed by the Revenue by following the Special Bench decision in the case of Ekta Promoters (P) Ltd. (supra). Challenging the aforesaid order, the Revenue has filed the present appeals.

Mr. Suresh Kumar, learned counsel appearing on behalf of the Revenue submits that as per the Explanation to s. 234D, the assessment made for the first time under s. 147 shall be regarded as a regular assessment. In the present case, the assessments are made under s. 147 r/w s. 143(3) of the Act and, therefore, s. 234D would be applicable to the facts of the present case.

Sec. 234D of the Act (to the extent relevant), reads thus :

234D. Interest on excess refund.--(1) Subject to the other provisions of this Act, where any refund is granted to the assessee under subs. (1) of s. 143, and--

(a) no refund is due on regular assessment; or

(b) the amount refunded under subs. (1) of s. 143 exceeds the amount refundable on regular assessment, the assessee shall be liable to pay simple interest at the rate of one-half per cent on the whole or the excess amount so refunded, for every month or part of a month comprised in the period from the date of grant of refund to the date of such regular assessment.

(2)............

Explanation.--Where, in relation to an assessment year, an assessment is made for the first time under s. 147 or s. 153A, the assessment so made shall be regarded as a regular assessment for the purposes of this section.

Thus, s. 234D is attracted only when the refund granted to the assessee under s. 143(1) of the Act becomes refundable to the Revenue on regular assessment.

In the present case, admittedly refund was not granted to the assessee under s. 143(1) of the Act. In fact, the refund was not granted even under the assessment order passed under s. 143(3) r/w s. 147 of the Act, but the same was granted pursuant to the orders passed by the CIT(A). Therefore, the decision of the Tribunal in holding that in the facts of the present case, s. 234D is not applicable cannot be faulted.

The argument of the Revenue that as per the Explanation to s. 234D, assessments made under s. 147 shall be regarded as regular assessment does not carry the matter any further, because, the provisions of s. 234D would apply only in those cases where refunds were granted under s. 143(1) of the Act and on regular assessment whether made under s. 143(3) or under s. 143(3) r/w s. 147, no refund becomes due or the amount refunded under s. 143(1) exceeds the amount refundable on regular assessment. In the present case, since refunds were not granted under s. 143(1) of the Act, the Tribunal was justified in holding that s. 234D is not attracted in the facts of the present case.

We make it clear that we have upheld the order of the Tribunal not on the ground that s. 234D has no retrospective operation, but on the ground that s. 234D has no application to the facts of the present case, because, in none of these cases, refunds were granted under s. 143(1) of the Act. The question as to whether s. 234D applies retrospectively is kept open. All the appeals are disposed of accordingly with no order as to costs.