Roadmaster Industries of India P. Ltd. vs Commissioner of Income Tax and Another

M.M. Kumar, J.—The Assessee - Petitioner has filed four writ petitions, namely, C.W.P. Nos. 10223, 10224, 10225 and 10235 of 2007, challenging the common order dated April 30, 2007 passed by the Commissioner of Income Tax, Patiala, u/s 264 of the Income Tax Act, 1961 (for brevity, "the Act"), in respect of the assessment years 1978-79, 1979-80 and 1980-81. A further prayer has been made for directing the Respondent s to pay interest to the Assessee - Petitioner on the amount of refund as per the provisions of Section 244(1A) and/or Section 214 of the Act, keeping in view the dicta of the hon''ble Supreme Court in the case of Sandvik Asia Ltd. Vs. Commissioner of Income Tax-I, Pune and Others, . Therefore, the following substantial question of law which arises for consideration of this Court is:

Whether in the facts and circumstances of the case, the Assessee - Petitioner is entitled to payment of interest on the amount of refund in accordance with the provisions of Section 244(1A) and Section 214 of the Act as interpreted in Sandvik Asia Ltd. Vs. Commissioner of Income Tax-I, Pune and Others,

C.W.P. No. 10223 of 2007-Assessment year 1978-79

On December 13, 1977, the Assessee - Petitioner had paid advance tax amounting to Rs. 1,47,000. Thereafter, return was filed declaring loss of Rs. 3,77,096. The assessment was completed u/s 143(3) of the Act on March 26, 1981 at an income of Rs. 2,17,720. The tax liability was assessed at Rs. 1,37,164 on account of Income Tax and surcharge. After adjusting the tax liability from the advance tax of Rs. 1,47,000 deposited by the Assessee - Petitioner balance of Rs. 9,836 was ordered to be refunded. The interest amount of Rs. 3,430 was also determined to be paid u/s 214 of the Act.

It is also pertinent to mention that in respect of the previous years 1976-77 and 1977-78 a rectification order was passed u/s 154 of the Act on January 28, 1984, and the Assessee - Petitioner was given the benefit of unabsorbed depreciation in respect of those years. Consequently, refund order amounting to Rs. 1,61,456 was issued to the Assessee - Petitioner. However, on December 2, 1986 the Assessee - Petitioner filed an application No. RMI: DIR: 859 and demanded interest amounting to Rs. 1,14,837. The demand of interest has been made from the date of payment of advance tax, i.e., from December 13, 1977 to January 28, 1984. As per the provisions of Section 214(1) of the Act, simple interest on advance tax refund is payable from the 1st day of April next following the financial year to the date of regular assessment. Accordingly, the period works out to be April 1, 1978 to March 26, 1981. However, the Assessee Petitioner has demanded interest up to the date of payment of refund, i.e., January 28, 1984. The Assessing Officer, vide his order dated January 14, 1987, issued refund of Rs. 61,658. A copy of the order is taken on record as mark "A".

The Assessee - Petitioner in his application u/s 264 of the Act (P.9) before the Commissioner of Income Tax, Patiala (for brevity "the CIT") has raised demand of further interest of Rs. 51,046 and claimed that it was only the demand on simple interest for the period which was not allowed by the Assessing Officer. His claim is based on the date of payment of advance tax, i.e., December 13, 1977 to March 31, 1978 and from March 26, 1981 which is the date of regular assessment to January 28, 1984 when the refund order was issued. The Assessee - Petitioner did not demand interest on interest as per the calculation made by the Assessee himself. The calculation of Rs. 51,046 was only in respect of the period which was not allowed by the Assessing Officer. He has allowed interest u/s 214 of the Act from April 1, 1978 to March 26, 1981. The claim made by the Assessee - Petitioner is that u/s 244(1A) of the Act, interest has to be allowed from the date on which such amount was paid to the date of grant of refund. Therefore, the basic difference between the Assessee - Petitioner and the Assessing Officer is regarding the period for which the interest is payable.

C.W.P. No. 10224 of 2007-Assessment year 1979-80

On June 14, 1978, September 15, 1978 and December 14, 1978, the Assessee - Petitioner had paid advance tax amounting to Rs. 8,22,097. The Assessee - Petitioner filed return declaring loss of Rs. 6,53,170 on July 31, 1979. On March 31, 1982, the assessment was completed u/s 143(3) of the Act at an income of Rs. 11,71,840. The Assessee was found liable to pay Rs. 7,93,781 on account of Income Tax and surcharge which was adjusted out of the advance tax of Rs. 8,22,097. The balance refund of Rs. 22,361 was determined. The Assessing Officer also fixed interest u/s 214 of the Act amounting to Rs. 7,805. Subsequently, some orders under Sections 154, 263 and 143(3) of the Act were passed resulting in nominal change in the demand or refund. As per the order dated August 22, 1985 passed u/s 154 of the Act, the income of the Assessee - Petitioner for the period under consideration became nil after granting benefit of the unabsorbed brought forward depreciation/losses for the earlier years, viz., 1976-77 to 1978-79. Accordingly, refund of Rs. 7,46,657 was issued to the Petitioner. The Assessee - Petitioner filed an application: No. RMI DIR: 858 dated December 2, 1986, vide which he requested for interest amounting to Rs. 6,48,837. As per the calculations by the Assessee - Petitioner the interest has been demanded from the dates of payment of advance tax, i.e., June 14, 1978, September 15, 1978 and December 14, 1978 whereas as per the provisions of Section 214(1) of the Act, simple interest on advance tax refund is payable from the 1st day of April next following the financial year to the date of regular assessment which in the present case would be April 1, 1979 to March 31, 1982. The Assessee - Petitioner has claimed interest up to the date of refund, i.e., up to August 22, 1985 in respect of advance tax refund whereas u/s 214(1) of the Act interest is payable up to the date of regular assessment which is March 31, 1982.

The Assessing Officer, vide order dated January 14, 1987, issued refund of Rs. 2,70,172. A true copy of the application claiming interest u/s 244(1A) of the Act read with Section 214(1) of the Act is taken on record and is marked "B". The refund order of Rs. 2,70,172 was issued on January 14, 1987 which is marked as "B1". According to the application filed u/s 264 of the Act before the Commissioner of Income Tax, Patiala, the Assessee - Petitioner has claimed payment of interest amounting to Rs. 3,60,093. The basis of calculation is computation of simple interest is in respect of the period interest has not been allowed by the Assessing Officer such as from the dates of payment of advance tax, i.e., June 14, 1978, September 15, 1978 and December 14, 1978 to March 31, 1979 and from March 31, 1982 (the date of regular assessment) to August 22, 1985 (the date of issuance of refund). The Assessee - Petitioner had not demanded interest on interest. The Assessing Officer has allowed interest u/s 214 of the Act from April 1, 1978 to March 26, 1981, which is the date of regular assessment whereas interest u/s 244(1A) of the Act is admissible from the date of payment to the date of issuance of refund. The application dated October 8, 1987, filed by the Petitioner u/s 264 of the Act is on record as annexure P5. Accordingly, the basic difference between the calculations made by the Assessee - Petitioner and the Assessing Officer has been regarding the period for which interest is payable.

C.W.P. No. 10225 of 2007-Assessment year 1980-81

On June 15, 1979, September 15, 1979 and December 15, 1979, the Assessee - Petitioner had paid advance tax amounting to Rs. 12,90,000. The Assessee - Petitioner filed return declaring an income of Rs. 16,68,255 (income Rs. 30,75,316 as reduced by brought forward losses/deprecation of Rs. 14,07,065) on August 29, 1980. On February 28, 2003 the assessment was completed u/s 143(3) of the Act at an income of Rs. 45,77,520. The Assessee was found liable to pay Rs. 29,52,500 on account of Income Tax and surcharge and interest, etc. After adjustment of the advance tax of Rs. 12,90,000, balance demand of Rs. 16,62,500 was created against the Assessee - Petitioner. After completion of assessment proceedings u/s 143(3) of the Act, the Assessee - Petitioner paid Rs. 10,00,000 against the outstanding demand of Rs. 16,62,500. Some amounts were recovered from the Assessee - Petitioner out of the refunds payable to the Assessee for different years. Subsequently, some orders u/s 154 of the Act were passed resulting in nominal change in demand. The Assessee - Petitioner was also allowed waiver of interest charged under Sections 215 and 139(8) of the Act by the Commissioner of Income Tax. As per the order dated November 8, 1985, passed by the Assessing Officer to give to appeal effect to the order of the Commissioner of Income Tax, the Assessee - Petitioner''s income for the year under consideration was reduced to Rs. 3,73,370 and giving benefit of unabsorbed brought forward deprecation/losses for the earlier years, viz., 1976-77 to 1979-80, a refund of Rs. 25,16,609 was issued to the Assessee - Petitioner. The Assessee - Petitioner filed an application No. RMI: DIR: 857 dated December 2, 1986, vide which he demanded interest amounting to Rs. 14,69,072. As per the calculation submitted by the Assessee - Petitioner interest has been demanded from the dates of payment of advance tax which is with effect from April 1, 1978, September 15, 1978 and December 15, 1978 whereas correct dates of payment of advance tax is June 15, 1979, September 13, 1979 and December 15, 1979. As per the calculation submitted by the Assessee, the interest has been demanded up to the date of refund, i.e., November 8, 1985 in respect of advance tax refunds as well as the payments made by the Assessee - Petitioner after completion of the assessment u/s 143(3) of the Act whereas the same is payable up to the date of regular assessment u/s 214(1) of the Act which is February 28, 1983 in respect of advance tax and regarding the regular payments made by the Assessee, interest u/s 244(1A) of the Act is payable from the date of payment to the date of refund.

The Assessing Officer, vide order dated January 9, 1987, determined interest payable to the Assessee - Petitioner at Rs. 5,57,628. According to the application filed u/s 264 of the Act before the Commissioner of Income Tax by the Assessee - Petitioner, further interest of Rs. 7,62,394 was demanded. As per the calculation of interest of Rs. 7,62,394, it was only the demand of simple interest for the period from the dates of payment of advance tax, i.e., June 15, 1979, September 15, 1979 and December 15, 1979 to November 8, 1985 (date of issuance of refund). The Assessee - Petitioner has not demanded interest on interest. The Assessing Officer has allowed interest u/s 244(1A) of the Act from the date of payment to September 1, 1985. As per Section 244(1A) of the Act, no interest is payable for the period of one month from the date of passing of the order in appeal or other proceedings. A copy of the application filed u/s 264 of the Act by the Assessee - Petitioner is on record as annexure P6.

C.W.P. No. 10235 of 2007-Assessment year 1980-81

The issue raised in the instant petition is regarding non-payment of interest on the refund amount of Rs. 1,88,250 which was determined as payable to the Assessee - Petitioner after giving appeal effect to the Commissioner of Income Tax (Appeals) order dated May 15, 1991. As per the order passed in appeal the income of the Assessee - Petitioner was reduced from Rs. 3,00,859 to nil and refund of Rs. 1,88,250 was determined. The Assessee - Petitioner filed an application on October 8, 1991, with a request for payment of interest amounting to Rs. 3,04,259 after calculating the same on the refund amount of Rs. 1,88,250 in respect of the period from June 14, 1979 to April 15, 1991. The request made by the Assessee - Petitioner was rejected by the Assessing Officer, vide order dated March 6, 1992 (P.7). It is further pertinent to mention that the application filed by the Assessee - Petitioner u/s 264 of the Act was rejected by the Commissioner of Income Tax, vide order dated September 8, 1992 by observing that the Assessee - Petitioner was not entitled to interest u/s 244(1A) of the Act in respect of the amount paid as advance tax and reliance was placed on a Full Bench judgment of the Gujarat High Court in the case Bardolia Textile Mills Vs. Income Tax Officer, Circle II, Ward-e, Surat, . The Full Bench relied upon a circular issued by the Central Board of Direct Taxes being Circular No. 179, dated September 30, 1975 [1976] 102 ITR 9, which provided that no interest u/s 244(1A) of the Act was payable in such circumstances. However, after issuance of directions of this Court in C.W.P. No. 69 of 1990 decided on May 29, 20061, the Commissioner of Income Tax, vide its order dated April 30, 2007 (P. 11) has rejected the petition of the Assessee - Petitioner by a common order.

Mr. Sanjay Bansal, learned senior counsel on behalf of the Assessee - Petitioner, has argued that the matter is squarely covered in favour of the Assessee - Petitioner on the plain reading of Section 244(1A) of the Act which has now been interpreted in Sandvik Asia Ltd. Vs. Commissioner of Income Tax-I, Pune and Others, . The Commissioner of Income Tax in his order dated April 30, 2007 (P.12) has rejected the claim of the Assessee - Petitioner in respect of all the three assessment years. The Commissioner of Income Tax adopted the approach that Section 214(1A) of the Act, as amended, with effect from April 1, 1985, was not applicable to the facts of the present case which were to take effect from the assessment year 1985-86 only. According to the Commissioner of Income Tax, the Assessee - Petitioner was eligible for payment of simple interest on the amount for which aggregate sum in instalments of advance tax paid during any financial year in which they were payable exceeded the amount of tax determined on regular assessment from the 1st day of April commencing following financial year to the date of regular assessment. The view of the Commissioner of Income Tax is discernible from paragraph 7 of the judgment which reads thus:

According to Section 214(1), the Assessee had been eligible for simple interest on the amount by which the aggregate sum of any instalment of advance tax paid during any financial year in which they were payable exceeded the amount of the tax determined on regular assessment from the first of April next following the said financial year to the date of the regular assessment for the assessment year immediately following the said financial year. The expression ''regular assessment'' has been defined u/s 2(40) of the Income Tax Act, 1961 which means the assessment made u/s 143 or Section 144. The orders of the rectification and orders giving appeal effect are passed under different sections and hence cannot be termed as orders of regular assessment. Therefore, ''regular assessment'' as mentioned in Section 214(1) means only the assessment made u/s 143 or 144. Thus, a combined reading of Section 214(1) and Section 2(40) makes it unambiguously clear that interest u/s 214(1) was to be payable up to the date of regular assessment only. The operation of Section 244(1A) was to come into force only when the excess payment had been made in pursuance of the order passed after March 31, 1975, and interest was to be paid from the date of payment to the date of refund. It was not for nothing that the two separate sections, i.e., 214(1) and 244(1A) were on the statute book, each operated in different spheres.

After placing reliance on some judgments of the Tribunal, Bombay High Court and Kerala High Court, the Commissioner concluded that the Assessee - Petitioner had been correctly paid interest u/s 214(1) of the Act on the excess amount of advance tax and interest u/s 244(1A) of the Act. The Commissioner also dealt with the judgment of the hon''ble Supreme Court in Sandvik Asia Ltd. Vs. Commissioner of Income Tax-I, Pune and Others, by stating that the Supreme Court has granted relief only in a particular case and no principle of universal application was laid down. The Commissioner of Income Tax further pointed out that the Assessee did not seek the relief of interest on interest in its original petition u/s 264 of the Act and only simple interest was to be given.

Ms. Urvashi Dhugga, learned Counsel for the Revenue, has defended the order of the Commissioner of Income Tax and argued that simple interest which has been claimed stands paid to the Assessee - Petitioner and there is no other interest payable to it either u/s 214(1) or u/s 244(1A) of the Act. She has submitted that the judgment in Sandvik Asia Ltd. Vs. Commissioner of Income Tax-I, Pune and Others, has no application to the facts of the present case.

Having heard the learned Counsel we are of the view that on the plain language of Section 244(1A) of the Act the writ petition deserves to succeed. It would be necessary to read Sections 244(1) and (1A) of the Act which reads thus:

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 twelve 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.

(1A) 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 the 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 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:

Provided that where the amount so found to be in excess was paid in instalments, such interest shall be payable on the amount of each such instalment or any part of such instalment, which was in excess, from the date on which such instalment was paid to the date on which the refund is granted:

Provided further that no interest under this Sub-section shall be payable for a period of one month from the date of passing of the order in appeal or other proceedings:

Provided also that where any interest is payable to an Assessee under this Sub-section, no interest under Sub-section (1) shall be payable to him in respect of the amount so found to be in excess.

A perusal of the aforesaid provisions show that any amount paid by the Assessee after March 31, 1975 and if any refund or part of refund in respect of the aforesaid amount is due to the Assessee on account of any order of assessment or penalty having been found in appeal or other proceedings under the Act to be in excess of the amount which such Assessee is liable to pay as tax or penalty, then such an Assessee is entitled to simple interest at 12 per cent, per annum as per the provisions of Section 244(1A) of the Act. The interest has to be calculated on the amount so found to be in excess from the date on which such amount was paid till the date on which the refund is granted. The grievance made by the Assessee - Petitioner is that the interest has been paid by the Assessing Officer from the date of deposit of advance tax only to the date or assessment order which is violative of the provisions of Section 244(1A) read with Section 244(1) of the Act. It has been claimed that interest on refund is required to be paid to the Assessee - Petitioner from the date of deposit of advance tax following the 1st day of April of the next financial year till the refund is granted at 12 per cent.

The aforesaid provision came up for consideration before the hon''ble Supreme Court in Sandvik Asia Ltd. Vs. Commissioner of Income Tax-I, Pune and Others, . The hon''ble Supreme Court posed the question as to whether the Income Tax Act provides for payment of compensation for delayed payment of amounts due to an Assessee where the amount includes interest. Referring to a number of judgments it has been held that the phrase "any amount" used in Section 244(1A) would not be confined only to "tax" but would also include "interest". The aforesaid view is discernible by reading of paragraphs 63, 66 and 67 of the report which is as under (pages 671, 672):

In our view, the Act recognizes the principle that a person should only be taxed in accordance with law and hence where excess amounts of tax are collected from an Assessee or any amounts are wrongfully withheld from an Assessee without authority of law the Revenue must compensate the Assessee . . .

As already noticed in paragraph supra, the Madras High Court in Commissioner of Income Tax Vs. Needle Industries Pvt. Ltd., , has also interpreted the phrase ''any amount'' in the same manner when considering the provisions of Section 244(1A) of the Act, which also uses the same phrase in the context of interest payable by the Revenue. In express terms the court held that the expression referred not only to the tax but also to interest. The court agreed with a similar view taken by the Kerala High Court in the case of Commissioner of Income Tax Vs. Ambat Echukutty Menon, . Both these were cases where the court was called upon to decide, whether further interest was payable by the Revenue on interest which had to be repaid to the Assessee.

In our opinion, the Appellant is entitled to interest u/s 244 and/or Section 244A of the Act in accordance with the terms and provisions of the said sections. The interest previously granted to it has been computed up to March 27, 1981 and March 31, 1986 (under different sections of the Act) and its present claim, is for compensation for periods of delay after these dates.

The hon''ble Supreme Court also considered the question whether on general principle the Assessee ought to have been compensated for inordinate delay in receiving the money due to it. The hon''ble the Supreme Court placed reliance on the circular issued by the Central Excise Department on the subject of refund of deposits and concluded in paragraph 78 of the report as under (page 675):

A close scrutiny of the contents of the circular dated January 2, 2002, would disclose as to the modalities for return of pre-deposits. It again reiterated that in terms of the Supreme Court order such pre-deposit must be returned within 3 months from the date of the order passed by the Tribunal, court or other fiscal authority unless there is a stay of the order of the fiscal authority, Tribunal, court by a superior court. The Department has very clearly stated in the above circular that the delay beyond the period of 3 months in such cases will be viewed adversely and appropriate disciplinary action will be initiated against the concerned defaulting officers. A direction was also issued to all concerned to note that defaulter will entail a interest liability if such liability accrued by reason of any orders of the tribunal/court such orders will have to be complied with and it may be recoverable from the concerned officers. All the Commissioners were advised implementation of these instructions and ensure their implementation through a suitable monitoring mechanism. It is also specifically mentioned that the Commissioners under respective jurisdiction should be advised that similar matters pending in the High Courts must be withdrawn and compliance reported and that the Board has also decided to implement the orders passed by the Tribunal already passed for payment of interest and the interest payable shall be paid forthwith.

The facts and the law referred to in paragraph (supra) would clearly go to show that the Appellant was undisputably entitled to interest under Sections 214 and 244 of the Act as held by the various High Courts and also this Court. In the instant case, the Appellant''s money had been unjustifiably withheld by the Department for 17 years without any rhyme or reason. The interest was paid only at the instance and the intervention of this Court in Civil Appeal No. 1887 of 1992 dated April 30, 1997. Interest on delayed payment of refund was not paid to the Appellant on March 27, 1981, and April 30, 1986, due to the erroneous view that had been taken by the officials of the Respondent s. Interest on refund was granted to the Appellant after a substantial lapse of time and hence it should be entitled to compensation for this period of delay. . . .

It is further pertinent to mention that their Lordships of the hon''ble Supreme Court were dealing with the assessment years 1977-78, 1978-79 and so on and so forth. In the present case also the same assessment years are in question. The aforesaid principles have been followed and applied by the Division Bench of this Court in the case of Garga Steel Industries v. Commissioner of Customs, Mumbai [2009] 239 ELT 241 (P&H) Customs Appeal No. 21 of 2006, decided on January 9, 2009). When we apply the principles laid down by their Lordships'' of the hon''ble Supreme Court in Sandvik Asia Ltd. Vs. Commissioner of Income Tax-I, Pune and Others, to the facts of the present case, it emerges that the refund claim of the Assessee - Petitioner has been withheld for unreasonably long period and it cannot be deprived of the payment of interest as compensation because the amount has been used by the Respondent -Department during all that period. Accordingly, the Assessee - Petitioner is entitled to statutory rate of interest at 12 per cent, per annum as per the provisions of Section 244(1) of the Act, from the date the amount was deposited by the Assessee - Petitioner till the date on which refund was granted. The Assessee - Petitioner shall also be entitled to recover the interest on interest as per the ratio of the judgment in Sandvik Asia Ltd. Vs. Commissioner of Income Tax-I, Pune and Others, .

As a sequel to the aforesaid discussion, these writ petitions are allowed and the order dated April 30, 2007 (P-12) passed by the Commissioner of Income Tax is hereby quashed. Consequently, the Respondent s are directed to calculate the amount of interest payable to the Assessee - Petitioner from the date the amount was deposited by it till the date the refund is granted. The Assessee - Petitioner shall also be entitled to the amount of interest on interest. The aforesaid directions shall be subject to adjustment of the amount which might have already been paid to the Assessee - Petitioner. The needful shall be done within a period of three months from the date of receipt of a certified copy of this order.

The writ petitions and pending civil miscellaneous applications are disposed of.