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R.R Holding (P) Ltd. v. Commissioner Of Income Tax, Delhi And Another
Factual and Procedural Background
The assessee filed its return for Assessment Year 1986-87 on 20-6-1986 declaring a loss of Rs 4,151 and claiming a carried-forward loss of Rs 11,175. A revised return on 23-6-1987 maintained the same loss figures but sought a tax refund of Rs 10,100 because tax had been deducted at source on a loan advanced to M/s Blitz Publication Pvt. Ltd. An intimation under Section 143(1) dated 29-7-1987 accepted the returned loss.
While assessment proceedings were in progress, the Department learnt that a Japanese company had paid commission income of Rs 1.61 crores to the assessee in London. On 17-8-1987 the assessee wrote to the Commissioner admitting this commission and offering to pay tax; tax of over Rs 1 crore was deposited on 19-8-1987 and Rs 17,144 on 27-8-1987. Because the assessment had already been completed without this income, a notice under Section 148 was issued on 31-8-1987.
The assessee later claimed interest on refund under Section 244(1-A). The Income Tax Appellate Tribunal decided against the assessee. The Delhi High Court, in appeal under Section 260-A, dismissed the assessee’s appeal holding that the question—namely the relevant “date of assessment” for Section 244(1-A)—was factual and governed by this Court’s decision in Modi Industries Ltd. v. CIT.
The present appeal challenges the High Court’s dismissal. The Supreme Court granted leave to appeal and now reviews whether the High Court should have framed and decided a substantial question of law.
Legal Issues Presented
- Whether the decision in Modi Industries Ltd. v. CIT (1995) 6 SCC 396; 216 ITR 759 applies to the assessee’s claim for interest under Section 244(1-A) of the Income Tax Act, 1961.
- What is the correct date to be reckoned for grant of interest under Section 244(1-A) when additional income is disclosed after an intimation under Section 143(1) and taxes are subsequently paid.
Arguments of the Parties
Appellant’s Arguments
- The High Court erred in treating Modi Industries as governing; that judgment is inapplicable to the present facts.
- The High Court ignored the proper scope of Section 244(1-A) and failed to formulate a substantial question of law.
- For the immediately succeeding Assessment Year 1987-88, the Tribunal itself held that Modi Industries was inapplicable on almost identical facts; the Revenue’s appeal therefrom (ITA No. 88 of 2004) has been admitted by the High Court, showing that a question of law exists.
Respondent’s Arguments
- The issue is squarely covered by Modi Industries Ltd. v. CIT; therefore, the High Court rightly dismissed the appeal without framing any substantial question of law.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Modi Industries Ltd. v. CIT (1995) 6 SCC 396; 216 ITR 759 | Defines circumstances under which interest on refund under Section 244 is payable and clarifies the relevant “date of assessment”. | The High Court treated it as directly applicable; the Supreme Court found the applicability debatable and directed the High Court to re-examine the issue. |
Court's Reasoning and Analysis
The Supreme Court noted that Section 244(1-A) requires, inter alia, that (i) a refund is due, (ii) the payment was made after 31-3-1975 pursuant to an assessment or penalty order, and (iii) the amount is subsequently found in appeal or other proceedings to be in excess. These statutory pre-conditions must be satisfied by the assessee.
Rather than decide whether those conditions were met or whether Modi Industries governed, the Court focused on the procedural propriety of the High Court’s dismissal. It observed:
- A “question of law” plainly arises—both as to the correct date for reckoning interest under Section 244(1-A) and as to the applicability of Modi Industries.
- For the very next assessment year the Delhi High Court has already admitted an appeal on the same issue, underscoring the legal significance.
- Section 260-A obliges the High Court to formulate and answer substantial questions of law; treating the matter as purely factual was therefore erroneous.
Consequently, the Court held it unnecessary to enter into the substantive merits at this stage and found it “appropriate that the High Court should hear the matter afresh.”
Holding and Implications
Holding: The Supreme Court sets aside the impugned order of the Delhi High Court and remits the matter for fresh consideration along with ITA No. 88 of 2004. The present appeal is disposed of with no order as to costs.
Implications: The High Court must now frame the relevant question(s) of law—particularly on the applicability of Modi Industries and the computation of interest under Section 244(1-A)—and decide them on the merits. No final ruling on those substantive issues has yet been made, and the Supreme Court’s order creates no new precedent beyond emphasizing the High Court’s duty to address substantial questions of law under Section 260-A.
Arijit Pasayat, J.— Leave granted.
2. The appellant calls in question legality of the order passed by a Division Bench of the Delhi High Court dismissing the appeal filed under Section 260-A of the Income Tax Act, 1961 (in short “the Act”), holding that no reference was necessary.
3. The High Court held that the Income Tax Appellate Tribunal (in short “the Tribunal”) examined the matter in detail and came to hold as to what was the date of assessment. This was a question of fact which was not required to be examined in an appeal under Section 260-A of the Act. The High Court also noticed that the decision of this Court in Modi Industries Ltd. v. CIT (1995) 6 SCC 396, (1995) 216 ITR 759 was clearly applicable to the facts of the case.
4. According to the learned counsel for the appellant, the High Court failed to notice that the decision in Modi Industries case (1995) 6 SCC 396, (1995) 216 ITR 759 has no application to the facts of the present case. The true ambit of Section 244(1-A) of the Act has not been kept in view by the High Court. It is pointed out that in the appellant assessee's own case for immediately succeeding the assessment order i.e 1987-88 the Tribunal held that Modi Industries case (1995) 6 SCC 396, (1995) 216 ITR 759 was not applicable to almost identical factual scenario. The Department has questioned the correctness of the judgment and the High Court has admitted the appeal in ITA No. 88 of 2004.
5. In response, Mr Mohan Parasaran, learned Additional Solicitor General submitted that the issue is clearly covered by the decision of this Court in Modi Industries case (1995) 6 SCC 396, (1995) 216 ITR 759 and the High Court was, therefore, justified in its view.
6. We consider it unnecessary to examine whether in the factual background, Section 244(1-A) of the Act has any application. It may be noted that the assessee had filed its return for the assessment year in question on 20-6-1986 declaring a loss of Rs 4151. It was mentioned in the returns that there was a brought forward loss of Rs 11,175 from Assessment Year 1985-86 and a total loss of Rs 15,326 was claimed to be carried forward. Subsequently, on 23-6-1987, the assessee filed a revised return showing the same figure of loss of Rs 4151 and the carried forward loss of Rs 11,175. But it claimed tax refund of Rs 10,100, because of the tax deduction at source on a sum of Rs 10,00,000 advanced to M/s Blitz Publication Pvt. Ltd. The order in terms of Section 143(1) on the facts passed on 29-7-1987 accepted the returned loss. While the assessment proceedings were in progress it came to the notice of the Department that for the relevant assessment year a Japanese company is paying a sum of Rs 1,61,52,472 plus Rs 21,71,121 by way of commission in respect of purchases made by the Department of Electronics, Government of India, from M/s Sumitomo Corporation, the aforesaid Japanese company. The amount was paid at London in the account of M/s Allied Petro Agencies. The information was passed on by the Government of India to the Income Tax Department.
7. In the meantime i.e on 17-8-1987 a letter was written by the assessee to the Commissioner of Income Tax, Delhi III wherein it admitted the commission income of Rs 1.61 crores and odd and offered to pay tax thereon. The assessing officer, however, had already completed the assessment and since commission income had not been included in the returned income, notice under Section 148 of the Act was issued on 31-8-1987. On that very day the assessee filed an application with reference to the order made in terms of Section 143(1), submitting that total income assessed on the basis of profit and loss account, balance sheet and return filed was not correct as it did not take note of income disclosed subsequently to the Commissioner wherein it offered an amount of Rs 1.61 crores for taxation. It was also submitted in the said communication that taxes on the amount of Rs 1 crore and odd have been deposited on 19-8-1987 and a further sum of Rs 17,144 on 27-8-1987.
8. The question that arises for consideration is what is the date which is to be reckoned for the purpose of grant of interest in terms of Section 244(1-A) of the Act. We need not examine this question because undisputedly for the subsequent assessment order the Tribunal took a different view and an appeal filed by the Revenue against the Tribunal's order is under consideration of the High Court.
9. The basic issue is whether Modi Industries case (1995) 6 SCC 396, (1995) 216 ITR 759 has any application to the facts of the case.
10. Section 244(1-A) of the Act reads as follows:
“244. Interest on refund where no claim is needed.—(1) ***
(1-A) Where the whole or any part of the refund referred to in sub-section (1) is due to the assessee, as a result of any amount having been paid by him after the 31st day of March, 1975, in pursuance of any order of assessment or penalty and such amount or any part thereof having been found in appeal or other proceeding under this Act to be in excess of the amount which such assessee is liable to pay as tax or penalty, as the case may be, under this Act, the Central Government shall pay to such assessee simple interest at the rate specified in sub-section (1) on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund is granted:
Provided that where the amount so found to be in excess was paid in instalments, such interest shall be payable on the amount of each such instalment or any part of such instalment, which was in excess, from the date on which such instalment was paid to the date on which the refund is granted:
Provided further that no interest under this sub-section shall be payable for a period of one month from the date of the passing of the order in appeal or other proceeding:
Provided also that where any interest is payable to an assessee under this sub-section, no interest under sub-section (1) shall be payable to him in respect of the amount so found to be in excess.”
11. The basic requirements are that: (a) there is a refund due; (b) the whole or part of the refund referred to in Section 244(1) is due as a result of any amount having been paid after 31-3-1975; (c) the payment must be made pursuant to any order of assessment or penalty; (d) such amount or any part thereof as paid is found in appeal or other proceedings under the Act to be in excess of the amount which such assessee is liable to pay as tax or penalty.
12. The assessee has to establish that he fulfils all the above conditions.
13. In view of the aforesaid position it is but appropriate that the High Court should hear the matter afresh. Undisputedly a question of law is involved which is required to be adjudicated more particularly when for the subsequent year an appeal has been admitted and the basic question to be considered has been formulated. In the instant case, appropriate question relevant to the assessment year in question shall be formulated.
14. Above being the position the impugned order of the High Court is set aside and the matter is remitted to it for a fresh consideration along with ITA No. 88 of 2004.
15. The appeal is disposed of. No costs.
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