Case Note & Summary
The petitioner, M/s. J. K. Industries, a registered partnership firm engaged in ship breaking, filed its return of income for Assessment Year 1984-85 on 30 June 1984, declaring a loss of Rs. 1,79,830. The Assessing Officer completed the assessment under Section 143(3) of the Income Tax Act, 1961 on 23 March 1987, determining total income at Rs. 4,83,658 and making an addition of Rs. 6,63,500 under Section 68 in respect of capital contributed by partners. A demand notice of Rs. 4,31,815 was issued. The petitioner paid the tax under protest. The petitioner appealed to the Commissioner of Income Tax (Appeals), who dismissed the appeal on 22 February 1989. The petitioner then appealed to the Income Tax Appellate Tribunal (ITAT) on 11 May 1989. The ITAT, by order dated 30 August 1991, allowed the appeal and deleted the addition under Section 68, resulting in a refund of Rs. 4,31,815. The refund was granted on 11 September 1991. The petitioner applied under Section 264 of the Act to the Commissioner of Income Tax for interest on the refund. The Commissioner rejected the application on 30 April 2004, holding that the refund was not due to the assessment order but to the appellate order, and therefore no interest was payable. The petitioner challenged this order by way of a writ petition before the Bombay High Court. The court considered the provisions of Section 244A of the Act, which provides for interest on refunds. The court held that the petitioner is entitled to interest under Section 244A from the date of payment of tax to the date of refund. The court observed that the refund arose because the ITAT deleted the addition, and the tax paid pursuant to the demand notice became refundable. The court set aside the Commissioner's order and directed the respondents to pay interest on the refund amount from the date of payment of tax (23 March 1987) to the date of refund (11 September 1991) at the rate prescribed under Section 244A within eight weeks.
Headnote
A) Income Tax - Interest on Refund - Section 244A, Income Tax Act, 1961 - Entitlement to Interest - The petitioner, a partnership firm, paid tax pursuant to an assessment order that was later reduced on appeal. The refund was granted but interest was denied by the Commissioner under Section 264. The High Court held that the petitioner is entitled to interest under Section 244A from the date of payment of tax to the date of refund, as the refund arose due to the appellate order reducing the tax liability. (Paras 1-18) B) Income Tax - Revision under Section 264 - Scope of Power - Section 264, Income Tax Act, 1961 - The Commissioner's power under Section 264 is revisional and includes the power to grant interest on refunds. The Commissioner erred in rejecting the application for interest on the ground that the refund was not due to the assessment order but to the appellate order. The court clarified that interest is payable on refunds arising from any order, including appellate orders, under Section 244A. (Paras 10-18)
Issue of Consideration
Whether the petitioner is entitled to interest on the refund of tax paid under a demand notice, and from which date such interest should be calculated.
Final Decision
The High Court allowed the writ petition, set aside the order dated 30 April 2004 passed by Respondent No.1 under Section 264, and directed the respondents to pay interest on the refund amount of Rs. 4,31,815 from the date of payment of tax (23 March 1987) to the date of refund (11 September 1991) at the rate prescribed under Section 244A of the Income Tax Act, 1961 within eight weeks.
Law Points
- Interest on refund
- Section 244A
- Section 264
- Income Tax Act
- 1961
- Entitlement to interest
- Date of payment
- Date of refund
