Court Upholds Refund with Interest, Rejecting Revenue's Time-Limit Argument

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Case Name :

Commissioner of Income Tax Vs Royal Rags Pvt. Ltd. (High Court of Madras)

T.C.(A). No.2404 of 2006 

Date: 9th October 2012

Key Takeaways:

1. The court clarified the difference between refund claims under Sections 239 and 240 of the Income Tax Act.

2. It emphasized that refunds resulting from income determination should be granted within three months, or interest is payable.

3. The judgment highlights the importance of interpreting tax laws in a way that's fair to taxpayers.

Issue: 

The main question here was: Is the Assessing Officer required to grant a refund (with interest) when a tax return is filed after the one-year time limit specified in Section 239(2)(c) of the Income Tax Act?

Facts:

1. Royal Rags Pvt. Ltd. filed their tax return for the 1993-94 assessment year on March 29, 1996.

2. This was admittedly after the usual time limit.

3. The Assessing Officer issued a notice under Section 143(2) on April 23, 1996.

4. The final assessment order was made on October 29, 1998.

5. The company claimed a refund of Rs. 4,03,675/-.

6. The Assessing Officer rejected the refund claim based on Section 239(2)(c), saying it was filed too late.

7. The case went through appeals, eventually reaching the High Court.

Arguments:

The Revenue's side:

- They argued that Section 239(2)(c) clearly states that refund claims must be made within one year from the last day of the relevant assessment year.

- Since the return was filed after this time limit, they said the refund claim should be rejected.

The Company's side (implied from the judgment):

- They likely argued that the refund resulted from an assessment, not a self-assessment claim, so different rules should apply.

- They probably pointed out that the Assessing Officer had processed the return despite it being late, so the refund should be granted.

Key Legal Precedents:

The court mentioned two important cases:

1. R.Seshammal Vs. Income Tax Officer and another (1999) 237 ITR 185

2. Tiam House Service Ltd Vs. Central Board of Direct Taxes and Others (2000) 242 ITR 539

The Tribunal had relied on these cases to allow the company's appeal, though the specifics weren't detailed in our judgment.

Judgement:

The High Court dismissed the Revenue's appeal. Here's the gist:

1. They rejected the Revenue's argument based on Section 239(2)(c).

2. The court explained that Section 239 applies to refund claims on self-assessment, while Section 240 covers refunds resulting from appeal orders or other proceedings.

3. They highlighted Section 243, which mandates interest payment if refunds aren't granted within three months of income determination.

4. The court concluded that since this was a refund resulting from an assessment (not self-assessment), Section 243(1)(b) applies, requiring the refund to be granted with interest.

FAQs:

1. Q: Does this mean all late tax returns can claim refunds?

  A: Not necessarily. This case specifically dealt with refunds resulting from an assessment, not self-assessment claims.

2. Q: What's the difference between Sections 239 and 240 of the Income Tax Act?

  A: Section 239 deals with refund claims on self-assessment, while Section 240 covers refunds resulting from appeal orders or other proceedings.

3. Q: How long does the tax department have to issue a refund before interest is due?

  A: Generally, they have three months from the end of the month in which the total income is determined.

4. Q: What interest rate applies to delayed refunds?

  A: According to Section 243(1)(b), it's 15% per annum.

5. Q: Does this judgment change how Section 239(2)(c) is applied?

  A: Not directly, but it clarifies that this section doesn't apply to all refund situations, especially when an assessment is involved.

1. The Revenue is on appeal as against the order of the Income Tax Appellate Tribunal, Madras 'B' Bench, dated 10.03.2006 passed in ITA.No.405/Mds/1999 relating to the assessment year 1993-94 raising the following question of law:-

"1. Whether in the facts and circumstances of the case, the Tribunal was right in directing the assessing officer to grant refund where the return was filed on 29.03.1996 after one year from the end of the assessment year in violation of the provision of the Section 239(2)(c) of the Act ?"

2. The assessee herein filed return of income for the assessment year 1993-94 on 29.03.1996. Admittedly, it was return filed beyond the limitation time. However, the Officer issued a notice under Section 143(2) of the Income Tax Act, 1961 (hereinafter called as the "Act") on 23.04.1996. Ultimately, the order of assessment was made on 29.10.1998. Both the orders state that it was under Section 143(3) of the Act and the time limit for passing the regular assessment had expired. One can only view this order as the order passed under Section 143(3) read with 147 of the Act as had been read in the order of the Commissioner of Income Tax (Appeals). The assessee claimed refund of Rs.4,03,675/-. However, the Assessing Authority rejected the claim based on Section 239(2)(c), wherein, the time limit for claim of refund is given as one year from the last day of relevant assessment year and since return was filed on 29.03.1996 i.e., after one year from the end of the assessment year, the claim was to be ignored.

3. The assessee filed appeal before the Commissioner of Income Tax (Appeals) on grounds of the quantum alone determined as income. The first Appellate Authority rejected the appeal. Aggrieved by the dismissal order, the assessee went on further appeal before the Income Tax Appellate Tribunal. In considering the claim of the assessee for refund, the Tribunal applied the decision in the case of R.Seshammal Vs. Income Tax Officer and another reported in (1999) 237 ITR 185 and in the case of Tiam House Service Ltd Vs. Central Board of Direct Taxes and Others reported in (2000) 242 ITR 539 and thereby allowed the appeal filed by the assessee. Aggrieved by this, the present appeal by the Revenue.

4. Learned Standing counsel appearing for the Revenue placed reliance on Section 239(2)(c) of the Income Tax Act, 1961 and submitted that when there was no claim made within one year from the last date of the said assessment year, rightly, the Officer rejected the claim and the Tribunal ignored the said provision, which is bad in law.

5. We reject the stand of the Revenue that the assessee was not entitled to refund. We also reject the reasoning of the Revenue based on Section 239(2)(c) of the Act. The said provision reads as under:- "Form of claim for refund and limitation:- 239(2) No such claim shall be allowed, unless it is made within the period specified hereunder, namely (a) ... (b) ... (c) :- where the claim is in respect of income which is assessable for any other assessment year, one year from the last day of such assessment year."

A bare reading of the provision under Section 239 shows the limitation prescribed on the claim for refund falling under different period. The refund claim and limitation is considered under Section 239 of the Act.

6. A reading of the Section shows that the refund claim that falls for consideration under Section 239 of the Act appears to be with reference to a self-assessment on a return, which results in a refund on the tax paid. The emphasis in the Section is that " the claim made is in respect of income, which is assessable for any assessment year". In contrast to this, Section 243 of the Act speaks of interest on the late refund. For the purpose of consideration, Section 243(1)(a) and (b) needs to be noted, which read as under:-

" Interest on delayed refunds. 243(1) If the Assessing Officer does not grant the refund-

(a) in any case where the total income of the assessee does not consist solely of income from interest on securities or dividends, within three month from the end of the month in which the total income is determined under this Act, and

(b) in any other case, within three months from the end of the month in which the claim for refund is made under this Chapter, the Central Government shall pay the assessee simple interest at fifteen per cent per annum on the amount directed to be refunded from the date immediately following the expiry of the period of three months aforesaid to the date of the order granting the refund."

While Clause (a) of Sub-Section (1) speaks about the grant of interest on a refund not made within a period of three months from the end of the month in which the total income is determined under the Act ; Clause (b) of Sub-Section (1) is with reference to interest payable on refund claims made under the Chapter, but not paid within three months in which claim was made. Thus, while Clause (a) was with reference to claim consequent on a determination of income under the Act, Clause (b) is in respect of claim for refund made under this Chapter.

7. The one and only provision available under this Chapter XIX of the Act relating to refunds, when the claim for refund has to be made and the situation to be satisfied is dealt with under Section 239 of the Act. Section 240 is the provision where, the refund is made consequent on the order passed in appeal or other proceedings under this Act, where the assessee need not make any such claim, but the Officer has to refund the amount even without an application from the assessee. Thus, on a reading of Sections 239, 240 and 243 of the Act, one will know that while Section 239 covers cases of the assessee on self-assessment making a claim for refund within the time limit specified therein, Section 240 provides for refund which is contemplated under the Act without even an application from the assessee, but must emanate from the Officer itself consequent on the order passed on appeal or other proceedings under the Act.

8. Barring these two provisions, there is no other provision, which speaks on refund to the assessee consequent on the assessment. Even in the absence of any such specific provision placing responsibility on the assessee / an Officer to seek or grant refund, Section 243 of the Act contemplates grant of interest in cases, where the assessee is entitled to refund even without making an application in contract to cases where on application, refund to be granted would carry no interest.

9. Thus, on a return filed, where there is determination of income under the Act and the assessment order relates to refund to be granted to the assessee as per Section 243(1)(a) of the Act, refund has to be granted within a period of three months. If the Assessing Officer does not grant the refund, the refund would carry interest as contemplated under Section 243(1)(b) of the Act.

10. Learned Standing counsel for the Revenue pointed out that even the case on hand would fall under Section 239 of the Act. We do not think such view could be sustained having regard to the fact that Section 243(1)(b) of the Act specifically speaks about interest payment at fifteen percent per annum, if the Assessing Officer does not grant the refund within three months from the end of the month in which the total income is determined under this Act. In view of the the provisions of the Act with regard to claim for refund, the limitation and interest on delayed refunds etc, a meaningful interpretation has to be given to Section 239 of the Act as well as to the phrase appearing in Section 243 of the Act.

11. In view of the above reasoning, we have no hesitation in rejecting the Revenue's appeal thereby confirming the order of the Income Tax Appellate Tribunal. Accordingly, the Tax Case Appeal stands dismissed. No costs.

(C.V.,J.) (K.R.C.B.,J.) 09.10.2012

Internet: Yes

nvsri

To

1. The Commissioner of Income Tax, Chennai

2.The Commissioner of Income Tax (Appeals) -IV, Chennai

3.The Income Tax Appellate Tribunal, Bench B, Chennai

CHITRA VENKATARAMAN, J.

and

K.RAVICHANDRABAABU, J.