Income Tax

Refund Is Allowed On Extra Credited Interest Payable on Income

Refund Is Allowed On Extra Credited Interest Payable on Income

The Delhi High Court in the case of Principal Commissioner of Income-tax v. Punjab & Sind Bank 2022, has dismissed the appeal of the principal commissioner of Income tax and upheld the rationale put up by the Income Tax Tribunal for a refund of extra credited interest payable on Income by the assessee (respondent in this case) over the Income which was mistakenly computed in the assessment year by the revenue department. It was also held that the revenue department is also eligible to refund the money to the assessee and the interest accrued thereon as per Section-244A (1) (b) of the IT Act, 1961. Further, the Court while forming its opinion, relied on the judgment of the Preeti N Aggarwala v. Chief Commissioner of Income Tax & Anr. 2017.

Facts of the Case

The facts of the case are:

1. The payment of interest under Section 234D (2) & 220 (2) was demanded by the revenues department upon the respondent’s Income assessed at Rs 73, 17, 35,961.

2. Upon re-computation, it was found that the Income of the assessee was assessed at Rs 40, 88, 00,550 after set off forward losses for Annual Year 1996-1997.

3. Consequently, upon reduction of the taxable income, the respondent becomes entitled to the refund of extra credited interest payable on Income to the revenue department under Section 234D & 220(2) of the Income Tax Act 1961[1].

4. The assessee was entitled to receive an amount of Rs 1,66,46,933 under Section 234D and Rs 1,99,131 under Section 220 (2) of the Income Tax Act 1961.

5. Being aggrieved by the non-grant of interest on the order of refund, the respondent filed an appeal before the CIT (Appeal) on the ground that the assessing officer has mistaken in not grating interest under Section 244A on the refund.

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6. The CIT (A) dismissed the appeals of the assessee, stating that the claim of interest on the refunded amount will lead to “interest on interest” and is beyond the ambit of Section 244A of the act.

7. Being aggrieved by the order of the CIT (A), the respondent filed an appeal before the ITAT, which upheld the contentions of the respondent and allowed the refund of extra credited interest payable on Income along with the interest on that refund.

8. Being aggrieved by the order of the ITAT, the appellant filed the present appeal before the Delhi High Court for further adjudication.

Issue of the Case

Whether the respondent is liable for a refund on extra credited interest payable on Income along with the interest on that refund under Section 244A of the Act?

Submissions of the Appellant

The submissions of the appellant are:

1. The Income tax appellate tribunal has taken the wrong decision in awarding the refund of extra credited interest payable on Income because such an amount would constitute “Interest on Interest”, which becomes beyond the scope of Section 244A of the act.

2. The ITAT has wrongly relied on the Preeti N Aggarwal case. The appellant took note of the case of Sutlej Industries Limited vs CIT 2016, which was passed by the predecessor division bench of the present Court and consisted of the same issue as are present in this case. Therefore, it is contended that since the case is pending before the larger bench, the ITAT shall have waited before awarding the judgement.

3. The Supreme Court, in the case of Gujarat Fluro Chemicals Ltd, made it clear that only the refund of extra credited interest is available, not the interest on that refund. It is therefore contended that since the refund is of statutory interest, which is to be refunded by the assessing officer.

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Submissions of the Respondent

The submissions of the respondent are:

1. As per the order of the Supreme Court in the case of M/s Universal Cables Ltd. v. Commissioner of Income Tax, Jabalpur 2012, it was held that the Department of Revenue is liable for payment of interest on the amount recovered or collected. Hence, the respondent shall be liable for the refund of the extra credited interest payable on Income by the assessee and interest on that refund thereon.

2. As per the judgement of the Bombay High Court in the case of Holding Corporation of India Ltd. v. N.C. Tewari, Commissioner of Income-tax, Mumbai City-III [2015], it was held that the revenue department is liable under Section 244A(1)(b) of the IT Act for the payment of interest upon the refund payable to the assessee on self-assessment.

Observations of the High Court

The High Court observed that the contention of the appellant that the issue which arose in the present case must await the judgement in the case of Sutlej Industries Limited V. CIT has no merit. It is observed that the subject matter of the present case is the respondent’s entitlement to the refund of extra credited interest payable by the assessee and the interest on that refund as per sections 234D and 220 (2) of the act.

The High Court observes that the respondent has paid the amount on time upon the demand raised by the revenue department. However, upon re-computation, it was found that the amount was incorrect and thereafter, the AO has ordered a refund. Therefore, it can be said that the subject matter of the proceedings will be the grant of interest on the extra credited interest payable by the assessee to the revenue department on their demand.

On the point of “Interest on Interest,” it is observed by the High Court that the contention put forwarded by the appellant that any refund of the amount on the interest will become the interest on interests is factually incorrect. The Court states that the amount directed by the assessing officer to be refunded under Section 234D and 220(2) of the act is not interested in the hands of the assessee or in the hands of the revenue department.

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The High Court further observes that the amount thjat is to be refunded to the assessee is a debt owed by the Revenue department and hence to term the “payment of this Debt” as ‘Interest” is false. Therefore, it is the payment of this debt that the assessee has made a demand to the revenue department to pay interest for the period that the Revenue has retained the said amount. Henceforth, it is the interest on the debt owed by the revenue department to the respondent that the assessee is seeking, not the “interest on interest”.

Decision of the High Court  

The High Court holds that the respondent or assessee is entitled to the refund of extra credited interest payable on Income by the assessee to the revenue department and interest on refund thereon under Section 244A(1)(b) of the act. Therefore, the Court does not find any mistake in the order of the ITAT and therefore, the appeal is dismissed.

Conclusion

The Court has, through the present case, upheld the entitlement of the assessee to the refund of the extra credited interest payable on Income by the assessee on demand raised by the revenue department. The respondent is further held entitled to the interest accrued on the said amount till the period the extra credited interest is retained by the revenue department under section 244A of the act. It has also been made clear that any extra credited amount is the debt owed by the revenue department, and the payment of it won’t constitute “interests on interests”.

Principal-Commissioner-of-Income-tax-vs-Punjab-Sind-Bank

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