Commissioner Of Income Tax v. Sardar Balwant Singh Gujral

G.G Sohani, A.C.J:— By this reference under s. 256(1) of the IT Act, 1961, (hereinafter referred to as the Act), the Income-tax Appellate Tribunal, Jabalpur, has referred the following question of law to this Court for its opinion:

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in directing the ITO to allow interest under s. 244(1A) on the entire refund of Rs. 40,033 when such interest is payable “only on tax or penalty?”

2. The material facts giving rise to this reference, briefly, are as follows: For the asst. yr. 1967–68, the assessee was assessed and demand of Rs. 52,481 was raised against the assessee.

3. This demand included interest under s. 139(8) of the Act and s. 215 of the Act. The amount so demanded was paid by the assessee, but as a result of the order passed by the AAC, the assessee became entitled to refund of Rs. 22,525. The demand raised against the assessee was further reduced by the Tribunal and a further refund of Rs. 17,508 was grant-ed. The assessee claimed interest on the refund of Rs. 22,525 and Rs. 17,508. The ITO however, allowed interest on the excess amount of tax only and this order was affirmed on appeal by the AAC. On further appeal, the Tribunal held that interest on the entire amount of refund had to be paid to the assessee under s. 244(1A) of the Act. The Tribunal, therefore, allowed the appeal and directed the ITO to allow interest on the entire amount aggregating Rs. 40,033. Aggrieved by the order passed by the Tribunal, the Revenue sought reference and it is at the instance of the Revenue that the aforesaid question of law has been referred to this Court for its opinion.

4. Having heard learned counsel for the parties, we have come to the conclusion that this reference must be answered in the affirmative and against the Revenue.

5. Sec. 240 of the Act provided that where as a result of any order passed in appeal or other proceeding under this Act refund of any amount becomes due to the assessee, the ITO shall, except as otherwise provided in this Act, refund the amount to the assessee without his having to make any claim in that behalf. Sub-s. (1): of s. 244 of the Act further provides that where a refund is due to the assessee in pursuance of an order referred to in s. 240 and the ITO does not grant the refund within a period of three months from the end of the month in which such order is passed, the Central Government shall pay to the assessee simple interest on the amount of refund due at the specified rate. The liability to pay interest is, therefore, on the amount of refund due. In the instant case, the Tribunal has found that the amount of refund due was Rs. 40,033. Under the circumstances, the Tribunal was justified in directing the ITO to allow interest on the entire amount of Rs. 40,033.

6. Our answer to the question referred to this Court is, therefore, in the affirmative and against the Revenue. In the circumstances of the case, parties shall bear their own costs of this reference