SECOND Income Tax OFFICER vs K. M. ABRAHAM.

Per Shri M. A. Ajinkya, Accountant Member - These are two appeals by the department against the consolidated order of the CIT (Appeals)-XIII, Bombay, dated 12-2-1986. The substantial ground in these appeals is that the CIT (A) erred in entertaining the assessees appeals regarding the claim for interest u/s. 244(1A) even though section 246 does not contain any provision to file appeals with reference to interest u/s. 244(1A). The other grounds taken by the department are refinements of this main ground. It is, for example, contended that the CIT (A) erred in holding that interest u/s. 244(1A) is admissible in respect of the tax paid on self assessment even though section 244(1A) lays down that interest is payable in respect of an amount paid in pursuance of an order of assessment or penalty. Further, it is contended that the CIT (A) erred in holding that interest u/s. 244(1A) is admissible from the date of regular assessment, even though section 244(1A) lays down that interest is payable from the date on which any amount is paid in pursuance of an order of assessment or penalty. Objection is taken to the CIT (A)s order granting interest u/s. 244(1A) in respect of a sum of Rs. 22,780 from 1-7-1982 and finally it is argued that the CIT (A) erred in directing ITO to allow interest u/s. 244(1A) for the entire period without considering the provisions of the second proviso the section 244(1A) of the Act. Certain basic facts may be stated.

We are concerned with the assessment years 1979-80 and 1981-82. For the assessment year 1979-80, the ITO gave effect to the appellate order on 22-12-1984 and worked out the refund at Rs. 92,675. Such refund included interest under sec. 214 amounting to Rs. 18,135. Such interest was calculated up to the date of regular assessment, i. e., 30-6-1982, whereas the assessee claimed that interest should have been calculated up to 22-12-1984 which was the date on which the ITO gave effect to the appellate order. By a letter dated 23-8-1985, the assessee requested for rectification of the order calculating interest which, according to the assessee, should have been calculated up to 22-12-1984. The ITO replied that the interest was correctly calculated. He declined to rectify his order dated 22-12-1984.

Similarly, for the assessment year 1981-82, the ITO gave effect to the appellate order on 13-2-1985 and worked out the total refund at Rs. 60,178 which included interest u/s. 214 calculated at 12% on excess of advance tax of Rs. 10,433 for 39 months and 12% which worked out at Rs. 3,641. Here, again, the assessee sought rectification on the ground that the interest should have been calculated up to 13-2-1985. The ITO declined to rectify his order dated 13-2-1985 and communicated his decision on 12-9-1985. These two letters of the ITO dated 12-9-1985 declining to grant additional refund of Rs. 28,466 for the assessment year 1979-80 and of Rs. 59,473 for the assessment year 1981-82 respectively were treated by the assessee as orders u/s. 154 and appealed against.

The CIT (Appeals) first considered the admissibility of an appeal of this type. He referred to the decision of the Bombay High Court in Commissioner of Income Tax Vs. S.C. Shah, and the decision of the Delhi bench of the Tribunal in the case of Oriental Fire & General Insurance Co. Ltd. v. IAC [1985] 13 ITD 15. While admitting the appeals, the CIT (Appeals) observed as under in para 10 of his order :

"10. At the outset, it becomes necessary to determine as to whether an appeal would lie against the order of the ITO which she has designated as an order u/s. 244(1A) of the I. T. Act, 1961. In the circumstances as obtaining in the appellants case, it is held that an appeal would be competent. This is so since the ITO had passed orders giving effect to appellate orders and had omitted to grant, what the appellant felt, was proper interest u/s. 214/244(1A) of the I. T. Act, 1961. Accordingly, the appellant sought rectification of these orders by letters dated 23-8-1985. The ITO refused to rectify such orders and communicated such refused by letters dated 12-9-1985. Therefore such refusal to rectify will be construed as an order which can be made the subject matter of appeal within the meaning of section 246(1) (f) of the I. T. Act, 1961. The appeals are therefore admitted."

It is obvious from the facts narrated above that the letters dated 12-9-1985 written by the ITO to the assessee declining to rectify the orders have to be treated as orders u/s. 154. This is so because the assessee had in two letters dated 4-1-1985 and 23-8-1985 had specifically requested for rectification of mistake apparent from record in the computation of interest under sections 214/244(1A) and it was in response to this request of the assessee that the ITO had written the abovementioned letters which, therefore, in the context of the facts narrated, have to be treated as orders u/s. 154 and such orders are appealable orders and the CIT (Appeals), in our opinion, was fully justified in admitting the appeals against these orders. We find support for this view in the decision of the Bombay High Court in S. C. Shahs case (supra).

The next issue for consideration is as to the quantum of interest that should be due to the assessee. The assessee claimed that for considering the calculation of interest under sections 214 and 244(1A), the advance-tax paid, self-assessment tax paid and tax paid on regular assessment should all be adjusted against the tax found to be payable in accordance with the appellate order and interest on such refund u/s 214 as well as under sec. 244(1A) should be calculated from the dates on which such taxes were paid to the date on which the orders giving effect to the appellate order were passed. In this view of the matter, the assessee claimed before the CIT (A) interest of Rs. 46,101 for the assessment year 1979-80 and interest of Rs. 23,832 for the assessment year 1981-82. On these facts, the CIT (A) in para 12 of his order framed the following two questions for decision before him :

"(i) Interest u/s. 214/244(1A) should have been granted on April of the relevant year of assessment until date of actual refund as arising in consequence to order giving effect to appellate order.

(ii) Interest u/s. 244(1) /244(1A) should have been granted on excess tax paid on self-assessment and adjustments made against regular tax from the date of payment until issue of refund."

On the first issue, the CIT (A) held against the assessee by observing as under :

"Since the orders of the ITO presently under appeal are dated 22-12-1984 and 13-2-1985, it is held that such orders will not be affected by the substituted section 214(1A) of the I. T. Act, 1961. It is therefore held that the ITO was correct in calculating interest u/s. 214 for each of the two years under appeal only up to the date of regular assessment."

On the second issue, the CIT (A) firstly held that the assessee would be entitled to interest on the amount of advance-tax as well as tax either adjusted or paid in self-assessment up to the date of actual refund. He also held that the period for which the interest was to granted under sec. 244(1A) was from the date of excess payment to the date of actual refund. He relied on a decision of the Delhi High Court in the case of National Agricultural Co-operative Marketing Federation of India Ltd. Vs. Union of India and others, . The CIT (A) observed that the refund arose to the assessee only when it is determined. The determination of the refund takes place on conclusion of the assessment. Advance-tax and tax deducted at source can them be said to be converted into taxes paid on regular assessment. It is as a consequence of such conversion that the excess tax is determined as payable by way of refund or regular assessment and it is only then that the interest u/s. 244(1A) becomes payable on the refund so determined/ The CIT (A) rightly observed that the crucial date is the date of regular assessment. Finally, in para 16, the CIT (A) determined the quantum of the refund due as under :

"16. According to the appellant, interest u/s. 244(1A) should have been granted up to the date of refund not only on advance tax found to have been paid in excess but also regular tax paid in pursuance of first assessment. Similarly, for A Y 1981-82, it is the appellants plea that such interest should have been granted with reference to tax paid on self-assessment and that adjusted against refund for A Y 1980-81. In my opinion, such plea of the appellant is correct and will need to be accepted. What is relevant is that there should have been occurred an event which brings about the circumstance of determining the tax paid in excess That event, for the purposes of section 244(1A) of the I. T. Act, 1961 is concerned with any amount taken to have been paid after 31-3-1975. If such amount as paid after that date is found to be in excess, as a result of appellate order, interest under this section will become due on the refund arising when giving effect to such appellate order. Therefore, advance tax, tax deducted at source as well as tax adjusted against refund of earlier year will all have the characteristic of representing the paid. Once this is conceded and if such tax is found to have been paid in excess when giving effect to appellate order, then interest should be granted with reference to such excess payment. Advance tax, tax deducted at source, tax paid in self-assessment as well as tax adjusted refund an earlier year will all be converted into tax paid on regular assessment when such assessment is concluded. Thereafter, if such payment is found to be more, consequence of an appellate order, refund arising on such excess payment will qualify for interest u/s. 244(1A) of the I. T. Act, 1961. Therefore it is held that the ITO erred in denying the appellant interest under this section with reference to the sum of Rs. 22,780 and Rs. 52,220 for A Y 1979-80 and Rs. 12,506 and Rs. 33,598 for A Y 1981-82. The ITO is now directed to allow interest u/s. 244(1A) of the I. T. Act, 1961 with reference to these sums such is to be given from 1-7-1982 to 22-12-1984 for A Y 1979-80 and from 27-3-1984 to 13-2-1985 for A Y 1981-82."

In our opinion, the above decision of the CIT (Appeals) is correct and does not call for any interference. Effort was made by the Department Representative to rely on a decision of the Bombay High Court in Commissioner of Income Tax, Bombay City - IV Vs. Carona Sahu Co. Ltd., to argue that interest u/s. 214 is available up to the date of regular assessment and regular assessment is the first order of assessment passed by the ITO and not the last operative order of regular assessment. This decision of the Bombay High Court is, no doubt, true in the context of interest u/s. 214. However, the CIT (A) has calculated the interest as above u/s. 244(1A). The relevant portion of secs. 244(1) and 244(1A) along with the proviso reads as under :

"244(1) Where a refund is due to the assessee in pursuance of an order referred to in section 240 and the Assessing 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.

(1A) Where the whole or any part of the referred to in sub-section (1) is due to the assessee, as a 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 therefore 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 proceeding :

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."

On a plain reading of section 244(1A) and the first proviso thereto, it is clear that the refund that has become due to the assessee is a refund consequent to the passing of the order giving effect to the order of the first appellate authority and such refund would earn interest u/s. 244(1A) and such interest as provided in that section has to be granted from the date or dates on which the amount was paid to the date on which the refund is granted. These are dates which are taken into account by the CIT (Appeals) in quantifying the interest u/s. 244(1A) and such quantification, in our opinion, is correct. If may be clarified here that the amounts paid by way of advance-tax and self-assessment tax are actually moneys paid by the assessee and are lying with the department and have to be taken into account for calculating the excess between the tax found to be payable by the assessee consequent to the order of the appellate authority and the tax paid in pursuance of the order of assessment. This view finds support from the language of the first proviso to sec. 244 which is reproduced above. The first proviso speaks about the amount found to be in excess paid in instalments and specifically provides that interest shall be payable on the amount of each such instalment which was in excess from the date on which such instalment was paid to the date on which the refund is granted. On a plain reading of the first proviso, it appears to us that the advance-tax paid in instalments as well as the self-assessment tax will have to be taken into account for calculating the excess and the interest will have to be calculated from the date of payment of such instalment till the date of refund. We, therefore, find that the CIT (A)s calculation is correct and does not call for any interference. We, therefore, confirm the order of the CIT (A) for both the years and dismiss the departmental appeals.