Facts of the Case

  1. The assessee, Sutlej Industries Ltd., for Assessment Year 1998-99, had paid:
    • Tax Deducted at Source (TDS),
    • Advance Tax, and
    • Self-Assessment Tax under Section 140A of the Income Tax Act, 1961.
  2. An order under Sections 250/143(3) of the Act was passed on 24 April 2002.
  3. Pursuant to the appellate order, a refund of Rs. 66,90,474/- representing self-assessment tax paid by the assessee became due.
  4. The assessee claimed interest on the refunded amount.
  5. The Assessing Officer denied interest on the portion of refund attributable to self-assessment tax.
  6. The Commissioner of Income Tax (Appeals) upheld the Assessing Officer's view.
  7. The Income Tax Appellate Tribunal allowed the assessee's appeal and held that interest was payable on the refunded self-assessment tax.
  8. Aggrieved by the Tribunal's decision, the Revenue filed an appeal before the Delhi High Court.

Issues Involved

  1. Whether Section 244A(1)(b) read with its Explanation excludes payment of interest on refund of self-assessment tax paid under Section 140A.
  2. Whether the expression "refund of any amount" under Section 244A includes self-assessment tax.
  3. Whether an assessee is entitled to interest on refund of self-assessment tax from the date of payment till the date of actual refund.

Petitioner’s Arguments (Revenue)

  1. The Revenue contended that Section 244A did not specifically provide for payment of interest on refund of self-assessment tax.
  2. It was argued that interest provisions under Section 244A should be confined to categories expressly covered by the statute.
  3. The Revenue challenged the Tribunal's reliance on judicial precedents granting interest on refunded self-assessment tax.
  4. According to the Revenue, the Explanation to Section 244A(1)(b) excluded such claims.

Respondent’s Arguments (Assessee)

  1. The assessee argued that Section 244A grants interest wherever a refund of any amount becomes due.
  2. It was contended that self-assessment tax paid under Section 140A forms part of taxes paid under the Act and therefore falls within the scope of Section 244A(1)(b).
  3. The assessee relied upon:
    • Commissioner of Income Tax v. Modi Industries Ltd. (216 ITR 759) (SC),
    • Commissioner of Income Tax v. Cholamandalam Investment & Finance Co. Ltd. (294 ITR 438) (Madras HC), and
    • Sandvik Asia Ltd. v. Commissioner of Income Tax (280 ITR 643) (SC).
  4. The assessee submitted that money lawfully belonging to the taxpayer and wrongfully retained by the Revenue must carry compensatory interest.

Court Findings / Order

Interpretation of Section 244A

The Court examined the legislative scheme governing refunds and observed that Section 244A was introduced to consolidate and simplify the provisions relating to payment of interest on refunds.

The Court noted that the provision uses the expression:

"refund of any amount becomes due to the assessee"

which is broad and comprehensive in nature.

Reliance on Judicial Precedents

The Court referred to:

1. CIT v. Modi Industries Ltd. (216 ITR 759) (SC)

The Supreme Court held that interest is payable on refund of self-assessment tax from the date of payment until the date of refund.

2. CIT v. Cholamandalam Investment & Finance Co. Ltd. (294 ITR 438) (Madras HC)

The Madras High Court held that self-assessment tax is covered under Section 244A and that interest is payable on refund thereof.

The Court also noted that the Special Leave Petition filed by the Revenue against the said decision had been dismissed by the Supreme Court.

3. Sandvik Asia Ltd. v. CIT (280 ITR 643) (SC)

The Supreme Court emphasized that an assessee is entitled to compensation by way of interest where amounts lawfully due are wrongly retained by the Revenue.

Principle Applied by the Court

The Delhi High Court observed that:

  • Self-assessment tax is a tax paid under the Income Tax Act.
  • Where such tax is ultimately found refundable, the amount legitimately belongs to the assessee.
  • The Government cannot retain the benefit of such money without compensating the taxpayer.
  • Section 244A was enacted to eliminate gaps in compensation for delayed refunds.

Final Decision

The Court held that:

  • Self-assessment tax paid under Section 140A falls within the expression "refund of any amount" under Section 244A.
  • Interest on refund of self-assessment tax is payable under Section 244A(1)(b).
  • Such interest is to be calculated from the date of payment of self-assessment tax until the date on which the refund is actually granted.

The substantial question of law was answered in favour of the assessee and against the Revenue.

The Revenue's appeal was dismissed.

Important Clarification

  1. Refund of self-assessment tax is not excluded from the ambit of Section 244A.
  2. The phrase "refund of any amount" is wide enough to include self-assessment tax paid under Section 140A.
  3. Interest on refunded self-assessment tax is compensatory in nature.
  4. Taxpayers are entitled to interest where the Revenue retains money that is ultimately found refundable.
  5. Interest under Section 244A(1)(b) is payable from the date of payment of self-assessment tax up to the date of actual refund.
  6. The objective of Section 244A is to ensure complete compensation for wrongful retention of taxpayer funds by the Revenue.

Sections Involved

  • Section 140A – Self-Assessment Tax
  • Section 143(3) – Assessment
  • Section 244A – Interest on Refunds
  • Section 244A(1)(b) – Interest on Refund of Amounts Other Than Advance Tax/TDS
  • Section 250 – Orders of Commissioner (Appeals)
  • Section 156 – Notice of Demand
  • Section 234B – Interest for Default in Payment of Advance Tax

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2010:DHC:1500-DB/SID15032010ITA12042005.pdf

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