Case Note & Summary
The appeal before the Bombay High Court arose from a dispute regarding the date from which interest under section 244A of the Income Tax Act, 1961 is payable on a tax refund. The assessee, a company, had paid a block assessment tax demand by depositing a cheque on 29th December 2003 in a bank authorized by the Central Government. The bank debited the assessee's account on 30th December 2003, but the amount was credited to the Central Government account only on 1st January 2004. Subsequently, the block assessment was set aside by the Commissioner of Income Tax (Appeals), entitling the assessee to a refund of the tax paid. The Assessing Officer granted the refund with interest under section 244A from January 2004, declining interest for December 2003 on the ground that the tax was credited to the government account in January 2004. The CIT(A) held that the assessee was entitled to interest from December 2003 because the debit occurred on 30th December 2003. The Income Tax Appellate Tribunal upheld that decision, leading the Revenue to file the present appeal. The core legal issue was whether 'payment of tax' under section 244A(1)(b) occurs when the assessee's bank account is debited by the authorized agent or only when the funds are credited to the Central Government's account. The Revenue contended that the credit date should govern and relied on decisions of the Rajasthan High Court and Delhi High Court. The assessee argued that payment was complete upon the debit. The High Court analyzed section 244A(1)(b) and noted that payment by cheque is a permissible mode, and the assessee had deposited the cheque with an authorized bank which then debited the account. The Court held that once the authorized agent collects the tax by debiting the account, payment is complete; any delay by the agent in remitting to the Central Government cannot be held against the assessee. The relevant date for interest calculation is the date of payment (debit), not the credit date. Rule 119A(b) of the Income Tax Rules further required interest for the entire month in which the tax was paid. The Court distinguished the judgments cited by the Revenue, noting they did not interpret the expression 'payment of tax' under section 244A. A Board circular (No. 261 of 1979) stating that the date of presenting the cheque should be the date of payment supported the assessee's case. Consequently, the question was answered in favour of the assessee and the appeal was dismissed.
Headnote
A) Tax Law - Interest on Refund - Date of Payment - Income Tax Act, 1961, Section 244A(1)(b) - Assessee deposited cheque with authorized bank on 29th December 2003, and bank debited account on 30th December 2003; block assessment set aside, refund became due. Revenue argued interest should start from 1st January 2004 when amount credited to Central Government account. Held that payment by cheque to authorized agent is complete upon debit to assessee's account, not upon credit to Central Government; therefore, interest for entire month of December 2003 was payable under rule 119A(b) of Income Tax Rules. Circular No. 261 dated 8th August 1979 supports assessee. (Paras 8-11)
Issue of Consideration
Whether on the facts and in the circumstances of the case, ITAT was justified in holding that interest was payable to the assessee under section 244A of the Income Tax Act, 1961 for the month of December, 2003, even though the amount of tax paid by the assessee was credited to the Central Government Account on 1st January, 2004?
Final Decision
Question answered in favour of the assessee and against the revenue. Appeal disposed of accordingly.
Law Points
- interest on refund
- section 244A
- date of payment of tax
- payment by cheque
- debit to bank account
- rule 119A
