Case Note & Summary
The appellant, Ceat Limited, filed an appeal under Section 260A of the Income Tax Act, 1961 against an order of the Income Tax Appellate Tribunal (ITAT) dated 5th December 2002. The ITAT had dismissed the appellant's appeal and refused to grant interest under Section 244A(1)(a) on a refund of Rs.5,24,29,950/-. The dispute pertained to the Assessment Year 1989-1990. The appellant had originally returned an income of Rs.43,64,37,800/- and paid tax of Rs.22,68,62,710/- (including advance tax, TDS, and self-assessment tax). The Assessing Officer processed the return under Section 143(1) and raised a demand of Rs.1,61,73,216/-, which the appellant paid on 25th June 1991. Subsequently, a regular assessment under Section 143(3) was completed on 21st March 1992, determining income at Rs.45,91,84,440/- and tax of Rs.24,35,95,193/-, resulting in a further demand of Rs.3,32,42,443/-, of which Rs.3,19,86,809/- was paid on 22nd April 1992. The appellant challenged the assessment order before the Commissioner of Income Tax (Appeals) [CIT(A)], who allowed the appeal on 29th January 1993. The Assessing Officer passed an order giving effect (OGE) on 31st May 1993, computing income at Rs.35,93,17,870/- (below the returned income) and tax at Rs.18,99,09,619/-, resulting in a refund of Rs.5,24,29,950/-. The appellant claimed interest on this refund under Section 244A(1)(a). The ITAT refused interest on the ground that the refund was less than 10% of the tax determined on regular assessment, relying on Section 244A(1)(b). The High Court held that the ITAT erred in applying the 10% threshold. The court clarified that Section 244A(1)(a) applies to refunds arising from appellate orders reducing income below returned income, and interest is payable from the date of payment of excess tax. The 10% threshold under Section 244A(1)(b) applies only to refunds arising from regular assessment under Section 143(1) or 143(3). Since the refund in this case arose from the OGE to the CIT(A)'s order, the appellant was entitled to interest under Section 244A(1)(a). The court allowed the appeal, set aside the ITAT order, and directed the Assessing Officer to compute and pay interest within 12 weeks.
Headnote
A) Income Tax - Interest on Refund - Section 244A(1)(a) vs Section 244A(1)(b) - The court held that Section 244A(1)(a) applies to refunds arising from appellate orders reducing income below returned income, and interest is payable from the date of payment of excess tax; the 10% threshold under Section 244A(1)(b) applies only to refunds arising from regular assessment under Section 143(1) or 143(3). The ITAT erred in applying the 10% threshold to a refund resulting from an appellate order. (Paras 1-10) B) Income Tax - Refund - Order Giving Effect to Appellate Order - The court held that the refund of Rs.5,24,29,950/- arose from the order giving effect to the CIT(A)'s order dated 31st May 1993, which reduced the income below the returned income, and not from the regular assessment. Therefore, the appellant is entitled to interest under Section 244A(1)(a) from the date of payment of excess tax. (Paras 4-10) C) Income Tax - Interest on Refund - Computation - The court directed the Assessing Officer to compute interest under Section 244A(1)(a) from the date of payment of excess tax, i.e., from 25th June 1991 and 22nd April 1992, till the date of refund, and to pay the same within 12 weeks. (Para 10)
Issue of Consideration
Whether the appellant is entitled to interest under Section 244A(1)(a) of the Income Tax Act, 1961 on the refund of Rs.5,24,29,950/- arising from the order giving effect to the CIT(A)'s order, and whether the ITAT erred in refusing interest on the ground that the refund was less than 10% of the tax determined on regular assessment
Final Decision
Appeal allowed. ITAT order dated 5th December 2002 set aside. Assessing Officer directed to compute interest under Section 244A(1)(a) from the date of payment of excess tax (25th June 1991 and 22nd April 1992) till the date of refund and pay the same within 12 weeks.
Law Points
- Interest on refund under Section 244A(1)(a) is payable from the date of payment of excess tax
- not from the date of assessment order
- the 10% threshold under Section 244A(1)(b) applies only to refunds arising from regular assessment
- not to refunds resulting from appellate orders reducing income below returned income
