Supreme Court rules that interest is payable under Section 244(1A) when the tax department utilizes refundable amount instead of refunding it to the assessee.

Case Name:

Commissioner of Income Tax vs. Jyotsna Holdings (P) Ltd.

Civil Appeal No(s). 1774/2006

Key Takeaways:

- If the tax department utilizes an amount that is refundable to the assessee instead of refunding it, the department is liable to pay interest under Section 244(1A) of the Income Tax Act.

- The court upheld the orders of the lower authorities, which had allowed the assessee's claim for interest on the refundable amount that was adjusted against the demand for another assessment year.

- The court found no merit in the department's appeal and dismissed it.

Issue:

Whether the assessee is entitled to interest under Section 244(1A) of the Income Tax Act on the amount that was found refundable but was instead adjusted against the demand for another assessment year by the tax department.

Facts:

- For the assessment year 1987-88, Jyotsna Holdings (P) Ltd. (the assessee) filed its return and paid self-assessed tax of Rs. 3,23,68,834/- on 12.09.1987.

- The Assessing Authority made an assessment under Section 143(3) and found an amount of Rs. 2,03,29,841/- refundable to the assessee.

- Instead of immediately refunding this amount, the Assessing Authority ordered that it would be adjusted against the demand for the assessment year 1986-87.

- The adjustment was ultimately made on 25.07.1991.

- The assessee claimed interest on the refundable amount for the period from 28.03.1988 to 25.07.1991, which was initially rejected by the Assessing Officer.

Arguments:

- The assessee argued that it was entitled to interest under Section 244(1A) of the Income Tax Act on the refundable amount that was kept by the Revenue for the period from 28.03.1988 to 25.07.1991.

- The Income Tax Department argued against the assessee's claim for interest.

Key Legal Precedents:

The court did not cite any specific legal precedents in this case.

Judgement:

The Supreme Court dismissed the appeal filed by the Income Tax Department. The court upheld the orders of the Commissioner of Income Tax (Appeals), the Income Tax Appellate Tribunal, and the High Court, which had allowed the assessee's claim for interest under Section 244(1A) of the Income Tax Act. The court found no merit in the department's appeal and held that since the refundable amount was utilized by the department, interest was payable under Section 244(1A).

FAQs:

Q1: What is the significance of this case?

A1: This case establishes that if the tax department utilizes an amount that is refundable to the assessee instead of refunding it, the department is liable to pay interest under Section 244(1A) of the Income Tax Act.

Q2: What was the legal reasoning behind the court's decision?

A2: The court reasoned that since the refundable amount was utilized by the department and not refunded to the assessee, interest was payable under Section 244(1A) of the Income Tax Act.

Q3: What are the implications of this case for assessees?

A3: This case reinforces the right of assessees to claim interest under Section 244(1A) if the tax department utilizes a refundable amount instead of refunding it.

Q4: What are the implications of this case for the tax department?

A4: The tax department must be cautious in handling refundable amounts and ensure that they are refunded promptly to avoid liability for interest under Section 244(1A).

For the sake of convenience, we take note of the facts in respect of Assessment Year 1987-88 as similar factual situation appears in respect of all three Assessment Years viz. 1985-86, 1986-87 and 1987-88. For the Assessment Year 1987-88, the respondent herein filed its return on the basis of self tax assessment made by the it and paid a sum of Rs.3,23,68,834/- on 12.09.1987. The assessment was made under Section 143(3)by the Assessing Authority as per which an amount of Rs. 2,03,29,841/- was found refundable to the respondent/assessee. Instead of immediate refund of this amount, the Assessing Authority ordered that the same would be adjusted against the demand for the year 1986-87. It was ultimately adjusted on 25.07.1991. The question that arose, in these circumstances, was as to whether the assessee would be entitled to interest on the aforesaid amount which was kept by the Revenue for the period from 28.03.1988 to 25.07.1991. The assessee claimed the interest, which request was rejected by the Assessing Officer. However, the Commissioner of Income Tax (Appeals) allowed the appeal of the assessee against the order of the Assessing Officer by invoking the provisions of Section 244(1A) of the Income Tax Act and held that the interest is payable on the aforesaid amount. This order is upheld by the Income Tax Appellate Tribunal as well as by the High Court.

We have gone through the impugned order and we do not find anything wrong with the impugned order. The amount in question, though found refundable to the assessee, was utilized by the Department and, therefore, interest was payable under Section 244(1A) of the Income Tax Act.

This appeal is, thus, without any merit and is, accordingly, dismissed.

[A.K. SIKRI]

[ROHINTON FALI NARIMAN]

NEW DELHI;

MARCH 08, 2016