The Judgment of the Court was delivered by

N. Kumar, J.:— The appeal is admitted to consider the following substantial question of law:

“When the assessee pays tax subsequent to the 1st day of April of an assessment year but before or along with the date of return, if that tax is ordered to be refunded, what is the date from which interest is payable on such refund under section 244A?”

2. The Revenue has preferred this appeal challenging the order passed by the Tribunal which has granted interest on the amount of tax refunded from the date of payment of the tax, on the ground that the said tax was paid on self-assessment. The assessee is a nationalised bank. It filed its return of income on 3 October 24, 2002, declaring book profits under section 115JB amounting to Rs. 105,47,01,155.

3. The Assessing Officer completed the assessment under section 143(3) of the Income-tax Act (hereinafter referred to as “the Act”), on March 25, 2003. The assessee preferred an appeal against the said order before the Appellate Commissioner, who partly allowed the appeal by his order dated March 19, 2004. The said order attained finality. The Assessing Officer, while giving effect to the order of the Appellate Commissioner, did not grant interest under section 244A on the self-assessment tax paid by the assessee amounting to Rs. 15,50,00,000. The representations on behalf of the bank were rejected by an order dated November 23, 2006, on the ground that there is no provision in the Act for allowing interest under section 244A on self-assessment tax. The assessee preferred an appeal to the Appellate Commissioner. The appeal was allowed, directing the Assessing Officer to grant interest under section 244A on the refund arising as a result of the Appellate Commissioner's order on the payment of self-assessment tax paid under section 140A. In terms of the aforesaid order, the Assessing Officer granted interest on self-assessment tax paid from the date of regular assessment, as against the claim of the assessee from the date on which the self-assessment tax was paid. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal to the Appellate Commissioner. The appeal was allowed and the Appellate Commissioner directed payment of interest under section 244A from the date on which the self-assessment tax was paid by the assessee. Aggrieved by the said order, the Revenue preferred an appeal to the Tribunal. The Tribunal, relying on Circular No. 549, dated October 31, 1989, ([1990] 182 ITR (St.) 1) issued by the Board of Revenue and also relying on the judgments of the High Courts of Delhi and Madras and also the judgment of the Supreme Court, declined to entertain the appeal. The appeal came to be dismissed confirming the order passed by the Appellate Commissioner. Aggrieved by the said order, the Revenue is in appeal.

4. The learned counsel for the Revenue, assailing the impugned order, contends that admittedly the case did not fall under section 244A(1)(a). It falls under clause (b). The Explanation to the section makes it very clear that the date of payment of tax referred to in the aforesaid clause means, the date on and from which the amount of tax is paid in excess of the notice of demand under section 156 of the Act. In cases where the tax paid previous to the demand, interest is payable from the date of the assessment order when the determination of tax liability and the adjustment of tax paid actually takes place. It cannot date back to the actual date of payment of tax. Therefore, he submits that the orders passed by the Tribunal as well as the Appellate Commissioner are illegal and require to be set aside.

5. Per contra, the learned counsel for the assessee supported the impugned order.

6. Section 244A provides for interest on refunds which reads as under:

“244A. Interest on refunds.— (1) Where refund of any amount becomes due to the assessee under this Act, he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely: —

(a) where the refund is out of any tax paid under section 115WJ or collected at source under section 206C or paid by way of advance tax or treated as paid under section 199, during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of one-half per cent, for every month or part of a month comprised in the period from the 1st day of April of the assessment year to the date on which the refund is granted:

Provided that no interest shall be payable if the amount of refund is less than ten per cent, of the tax as determined under sub-section (1) of section 115WE or sub-section (1) of section 143 or on regular assessment;

(b) in any other case, such interest shall be calculated at the rate of one-half per cent, for every month or part of a month comprised in the period or periods from the date or, as the case may be, dates of payment of the tax or penalty to the date on which the refund is granted.

Explanation.— For the purposes of this clause date of payment of tax or penalty means the date on and from which the amount of tax or penalty specified in the notice of demand issued under section 156 is paid in excess of such demand.”

7. The aforesaid provision makes it clear, where any amount becomes due to the assessee under the Act by way of refund, the assessee is entitled to receive the said amount of refund with simple interest thereon. How the interest is to be calculated and the rate of interest is provided in the clauses (a) and (b). In calculating the interest payable, the section provides for different dates from which the interest is to be calculated.

8. Clause (a) deals with refund in respect of the following categories of the taxes:

(i) the tax paid under section 115W which deals with advance tax in respect of fringe benefits;

(ii) the tax collected at source under section 206C which is called as tax deducted at source under section 206C;

(iii) tax paid by way of advance tax;

(iv) tax treated as paid under section 199 which is known as tax deducted at source by the creditor of the assessee.

9. In all these cases, if the amount of tax paid is in excess of the tax liability of the assessee and, consequently, the assessee is entitled to refund of excess tax paid, the same is refundable with interest at one-half per cent, for every month. The interest payable on the tax to be refunded is to be calculated from the first day of April of the assessment year to the date on which the refund is paid. In other words, irrespective of the date of payment of these taxes, in so far as the payment of interest is concerned, it is to be calculated from a future date, namely, the first day of April of the assessment year. The proviso to this provision exempts payment of interest if the amount of refund is less than 10 per cent, of the tax determined under sub-section (1) of section 115WE or sub-section (1) of section 143 or on regular assessment.

10. In so far as clause (b) is concerned, it applies to a case which is not 11 covered under clause (a). The interest is payable from the date of payment of tax. An Explanation added to this clause defines the meaning of the words “date of payment of tax or penalty” in the aforesaid clause to mean, the date on and from which the amount of tax specified in the notice of demand issued under section 156 is paid in excess of such demand. Therefore, if tax is paid in pursuance of a notice of demand issued under section 156 of the Act and if that tax or any portion of that tax is ordered to be refunded, the said amount is refundable with interest from the date of such payment. In other words, the interest payable on such amount is not to be calculated from the first of April of the assessment year as provided in clause (a). It is in this background, we have to see if any tax is paid which does not fall under these categories, from what date the interest is payable on such excess payment of tax.

11. The learned counsel for the Revenue submitted that if the case does not fall under any of these clauses, then there is no liability to pay interest at all. If at all tax is to be paid, it is from the date of the determination of the tax liability, i.e, the passing of the assessment order, on which date, the tax paid is adjusted towards the tax liability. This problem did confront the Department. Therefore, they have issued a Circular No. 549, dated October 31, 1989. After referring to the salient features of the said section in detail at paragraph 11. 3, it is stated as under (See [1990] 182 ITR (St.) 1, 48):

“These provisions, apart from being complicated, left certain gaps for which interest was not paid by the Department to the assessee for money remaining with the Government. To remove this inequity, as also to simplify the provisions in this regard, the Amending Act, 1987, has inserted a new section 244A in the Income-tax Act, applicable from the assessment year 1989-90 and onwards which contains all the provisions for payment of interest by the Department for delay in the grant of refunds. The rate of interest has been increased from the earlier 15 per cent, per annum to 1. 5 per cent, per month or part of a month comprised in the period of delay in the grant of refund. The Amending Act, 1987, has also amended sections 214, 243 and 244 to provide that the provisions of these sections shall not apply to the assessment year 1989-90 or any subsequent assessment years.”

12. Therefore, the object behind the insertion of section 244A, as understood by the Department, is that an assessee is entitled to payment of interest for money remaining with the Government which would be ordered to be refunded. Therefore, if that is the object behind the insertion of section 244A, the contention of the Revenue that if the case does not fall under either of the clauses in section 244A, no interest is payable, is without any substance. Clauses (a) and (b) specifically refer to the instances where interest is paid under the Act. It is not exhaustive. It is possible, in a given case, that after the expiry of the financial year, the assessee may pay tax either along with the self-assessment return or even before the return is filed. If ultimately the said payment is found to be in excess and the Department chooses to refund the said amount, then the question would be, from what date interest is payable since interest is payable on such refunds under section 244A. In the absence of an express proviso as contained in clause (a), it cannot be said that the interest is payable from the 1st day of April of the assessment year. At the same time, as the said payment of tax was not made in pursuance of a notice of demand issued under section 156, Explanation to clause (b) of section 244A has no application. In such cases, as the opening words of clause (b) specifically referred to “as in any other case”, the interest is payable from the dates of payment of the tax. As clause (b) expressly provides in any other case the payment of tax subsequent to the first day of April of the assessment year, either before or along with filing of the return would squarely fall under clause (b) and, therefore, when the said amount is ordered to be refunded the interest is to be calculated from the date of such payment of tax. Having regard to the scheme of section 244A and the circular issued by the Board which shows how the Department has understood the section coupled with the fact that the principle underlying the said section is that, any excess payment of tax paid by the assessee is not only to be refunded but it has to be refunded with interest, if the case of the assessee does not fall under clause (a) or the Explanation to clause (b), the excess tax paid shall be refunded with interest from the date of payment of such tax.

13. In the instant case, it is not in dispute that the assessee has paid a sum of Rs. 15.5 crores on June 29, 2002, even before the date of filing of the return. It is that amount which is ordered to be refunded as excess payment. Though the occasion to order for refund arose after the assessment order in which the payment of tax was adjusted towards the tax liability, the case does not fall under clause (a) or the Explanation to clause (b). The said excess payment is to be refunded with interest from the date of payment of such tax, that is from June 29, 2002, till the date of refund. This is precisely what the Appellate Commissioner as well as the Tribunal has said. It is in accordance with law. No illegality nor any case for interference is made out. The substantial question of law is answered in favour of the assessee and against the Revenue. The appeal stands dismissed. No costs.